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Rather than continue to drag the thread in News and discussion further afield, I thought I'd start a thread in which we can discuss the long term viability of businesses that offer deep discounts (defined as more than 20% off.) I bring it up, because many had tried, and none have lasted, either collapsing due to personal issues, or were actually part of a poorly understood con, or simply couldn't make money at it.

Now, sometimes it just takes the right people and the right ideas to make something work. Other times, people keep failing to execute a plan because it simply can't work.

I understand that GT has made everybody more or less happy, which means it's a happy ending for at least his customers. I think that in general, if and when any new deep discounter shows up, I feel that somebody should point out that they tend to not to last for too long, and that while most people get their stuff without a hitch, it is simply a bit more risky than one of the more established firms.

Any thoughts? Other than this is the first thread I've started in over four months, that is.

(Moved from the previous thread...)

Polonius wrote:can a business sell for more than 20% of MSRP and remain viable?

Good question.

GW discount is 45% off MSRP, so I think the basic model looks something like this:

55% = cost of product
11% = cost of logistics (20% of cost)
+6% = cost of overhead (10% of cost)
72% = total costs

+3% = profit (5% margin)
75% = total with profit

So I think you can pretty easily sell at 25% off MSRP and still make money, even though you're giving up more than half of your 45% base margin.

If you deal in bulk, you can drive more efficiency in your logistics and overhead. To do that, you use a flat shipping charge, that you waive at some price point, and/or you give a tiered discount. The more you order at once, the smaller the shipping is proportionally. But this is more than outweighed by the efficiency of the larger orders that you get.

If you can drive volume to the point that all orders are $100+, and most orders are $250+, at that point, your efficiency probably supports 30% off MSRP, depending on payment method and processing costs.

More than 30% off is probably a challenge from a sustainability standpoint. But really, the challenge isn't to compete on price but service. In the case of Neal, his service is good and he's reliable, so that's why he can generally hold at the standard 20%, whereas others need to discount to 25% or 30%.

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Polonius wrote:how much a discount over The War Store is the potential for collapse worth?

This year I will spend $250+ on GW minis. That's like $300+ retail, before the 20% discount.

An extra 5% discount is like an extra $15 in my pocket, while an extra 10% off is an extra $30 in my pocket.

However, me burning hours of my personal time over $15 to $30 bucks just isn't worth it to me.
____

I think that, like any other business, deep discounting can work if one is diligent about it.

On the Internet, reputation is everything.

In the world of Online GW Sellers, the Warstore has an excellent reputation. In the 7 or so years I've been posting online(Portent, Warseer, here, and my secret Internet Treehouse Forum) I am genuinely yet to hear a bad word against the company, or it's owner.

That sort of advertising is pretty much priceless. Ergo, it can be hard for someone starting out their own. They see the strong companies, and underestimate the commitment and slog it took to get them where they are today.

I think that John has a point, in that it's volume that allows all deep discounters to survive (outside of GW gaming). If you buy in enough bulk, sell in enough bulk, and keep your expenses low enough you can still make a buck or two with low ass margins.

the problem there is that you need to achieve that volume, and have enough start up capital to build up the necessary flow. Since most start ups seem to keep expenses low by not having any full time staff and operating out of another business, pretty much any disruption to the routine shakes up business. Since there's going to be a disruption at some point, all one man operations seem doomed to having problems.

I submit the theory that unless a start up is both well capitalized and the main business enterprise for at least two staff members, it's unlikely that it will thrive in the long term.

I submit the theory that unless a start up is both well capitalized and the main business enterprise for at least two staff members, it's unlikely that it will thrive in the long term.
Probably a pretty close guess. One person has a hard time keeping a business going, you need at least two so that one can watch the others back. Otherwise simple, day to day things will cause problems.

Sick for two days? You're two days behind. Car breaks down? Oops, can't go to the post office. Doctors bill for being sick was 1900.00, and you don't have the money to pay it because your 'self employed' with no insurance? Oops, now you can't pay the GW bill. NP, have a big sale, and sell off what inventory you do have to pay bills.

With two people, business can continue with one person busting his hump to do the work of two, while the other guy handles the problem, and gets back on track.

mikhaila wrote:I submit the theory that unless a start up is both well capitalized and the main business enterprise for at least two staff members, it's unlikely that it will thrive in the long term.
Probably a pretty close guess. One person has a hard time keeping a business going, you need at least two so that one can watch the others back. Otherwise simple, day to day things will cause problems.

Sick for two days? You're two days behind. Car breaks down? Oops, can't go to the post office. Doctors bill for being sick was 1900.00, and you don't have the money to pay it because your 'self employed' with no insurance? Oops, now you can't pay the GW bill. NP, have a big sale, and sell off what inventory you do have to pay bills.

With two people, business can continue with one person busting his hump to do the work of two, while the other guy handles the problem, and gets back on track.

Absolutely! And this is certainly what appears to have derailed GTGU, bigtime.

So, it seems that the greater than 20% discount is probably NOT a reality, for the most part.

If it shows up again somewhere, sometime, it would probably be best to proceed with caution.

Or, throw caution to the wind, roll the dice, and try to be one of the first people in because you might get your stuff before the proverbial crap hits the fan.

mikhaila wrote: Sick for two days? You're two days behind. Car breaks down? Oops, can't go to the post office. Doctors bill for being sick was 1900.00, and you don't have the money to pay it because your 'self employed' with no insurance? Oops, now you can't pay the GW bill. NP, have a big sale, and sell off what inventory you do have to pay bills.

Of course, that is a *huge* line to cross in terms of professional business ethics.

It's no different from helping yourself to petty cash because you're feeling hungry, or using the corporate card when you're on vacation.

In the real world, people get fired for these kinds of things.

The Warstore has what is referred to in Accounting as a high Goodwill. Meaning that there a plenty of people out there who have done business with him, had a great experience and will tell people. I would also make the claim that he is the best in the business, due to his customer service. He may not give the best discounts, but he is the most reliable and in the end people will be willing to pay for that reliability.

I am in not way associated with the Warstore, but am looking forward to placing an order with him in May.

The fact that the Warstore has been so successful as a discount seller in a niche market shows they are well run. GW miniatures have a terrible profit margin to start (45% at MSRP) and are not a high volume item in a conventional sense- they are wholly niche. I wouldn't want to base a business off a niche product that I then have to discount to move! At 20% off MSRP, that means you are only realizing 25 cents of gross profit from every dollar you take in. Ewww.... I can't imagine having to run a storefront on top of that with things like rental, power, employee, etc. expenses. Assuming $5k/mo fixed expenses, that means you would have to move $20K in product every month to break even! And then there are the startup costs like putting all that inventory on the wall.

If you're doing MO of any size, it's cashflow out of a distribution warehouse, like any other MO seller. Retail license is met by pickup sales. If you're wasting money on B&M storefront and retail footage instead of WWW visibility, you're in big trouble.

True, MO should have lower expenses. But they also don't drive the hobby and so, I would anticipate, will have longer term sustainability problems. They don't grow the industry- just take bigger pieces of the pie, which may be shrinking.

JohnHwangDD wrote:

mikhaila wrote: Sick for two days? You're two days behind. Car breaks down? Oops, can't go to the post office. Doctors bill for being sick was 1900.00, and you don't have the money to pay it because your 'self employed' with no insurance? Oops, now you can't pay the GW bill. NP, have a big sale, and sell off what inventory you do have to pay bills.

Of course, that is a *huge* line to cross in terms of professional business ethics.

It's no different from helping yourself to petty cash because you're feeling hungry, or using the corporate card when you're on vacation.

In the real world, people get fired for these kinds of things.

If it's your own business, the petty cash is yours, and if you use it buy more stock, pay the mortgage or doctor bill, what are you going to do? Fire yourself because you used your profit to pay something? I see your point, but in a one man operation your analogy doesn't work and there is no ethical line, unless you are taking the money, paying the bills and not offering the service you were paid for and then it's back to fraud. Nothing more, nothing less.