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Tuesday, August 23, 2016

I am Michael Bahr and This is My Pawn Shop

The economics of DSG took a hard right turn around late last October toward the "pawnshop effect" aspect of the business, and this summer as we approach this week the fourth Magic booster release out of five total in a six-month span, I have seen the secondhand business activity accelerate to the point where I am having a genuinely difficult time processing and clearing merchandise to keep up with the volume of buys walking in.

I am not a real pawnshop, of course.  Honestly, once we've moved to our new location, I am going to explore getting a pawn license.  Not that I want to be in the traditional pawn trade, but because it unlocks some business options that are currently off-limits to those who lack that credential, in particular taking in extremely high-value buys and loaning money against them at margin.  I don't want to get too far off focus as a comic and hobby game business, but there's a reason stores like mine buy almost everything that a customer brings in, if we even remotely deal in it.  And that reason is that we control our cost of goods on those purchases.  Pawnbrokering takes that up a notch or five.
Unlike Rick Harrison, I do have a pretty good idea what is going to come through that door.  Mostly Magic cards and video games, and a smaller but not trivial helping of Pokemon cards and comic books.  One or two percent of buy requests I get are for other game systems or products, such as Dice Masters collections, Fantasy Flight stuff (which we cannot resell used, and thus we do not buy), and miniatures armies/sets.  That's about it.  There's always "miscellaneous."

The sheer volume of buys continues unabated despite competition offering buy ratios in the same range as mine.  At some point I seriously expected the crowded store market locally to overwhelm the pawnshop effect enough for it to peter out so I could get a breather and catch up.  My staff runs ragged just to move cards and video games to where they need to be.

Isn't it bad EV (expected value) for players to sell their cards to stores?  It's bad EV for players to sell their cards at all.  But they do it anyway.  I see a concerning number of players living hand-to-mouth who have no real financial stability or resource base, who spend recklessly on the latest cards and decks (or comics, or video games, etc) and then end up having to dump it all weeks later to pay rent.  Or child support.  Or their cell phone bill.  Or the repair bill for their car, which has been sitting in my parking lot clearly needing attention while its owner ground his way through a weekly Win-a-Box.  And these players do it over and over.

They then make their weekly cash call post on AZMagicPlayers Trading on Facebook.  But there are like thirty people there needing cash at any given time, far more sellers than buyers.  So whatever they aren't able to sell within the community, they turn around and bring to the local stores, including mine.  It causes many collectors to become garage dealers to some degree, which is concerning, because that is the factor that burned out the comic and sports card hobbies years ago and left them a hollow shell of their former glory.  Instead of a consumptive market with people buying what they want to enjoy and then taking it home and enjoying it, you have networks of sharps pushing the same tree corpses back and forth amongst one another ad nauseam.  Only BCW and Ultra-Pro make a healthy profit out of that, like the suppliers who sold pitchforks and shovels to the 1849 gold prospectors.

I could just sit and watch Teddy KGB eat those Oreos all night, and never say a word to the guy selling me cards to suggest that he should maybe slow it down a little.  And indeed that is usually how it goes down because my advice is usually neither solicited nor wanted, and I gain nothing by judging my customers, so I am very libertarian about it.  If I am ever asked, I readily teach that the highest EV they can get is to buy the cards or games or comics they want, and keep them. I strive to find friendly and non-judgmental ways to at least obliquely suggest healthy financial behavior in my customers, to look out for their well-being in the way I have been taught that I am ethically bound to treat clients.  Unfortunately, that aspect of my role very likely can only be a quest for another time and another career. I certainly don't want to hear my waiter's opinion on healthy eating when I'm out for an anniversary dinner at Durant's Steakhouse.  The guy handing me four Archangel Avacyns who needs cash isn't interested in hearing me blather about budgeting.  His finances are none of my business, even if the consequences of his finances are my business, at least for the moment.

There is a negative side to the used merchandise trade, and that comes from many sellers not being rational about what they are doing.  This is understandable if they are in financial distress.  I don't give them a hard time about it because they're already in their situation and they've come to me to help them get out of it, and it's literally my job to do that.  So I use a light touch, and I've been trying to teach the staff the signals that indicate this may be the case.  That's when they are going to be careful what they say and how they frame it, because the seller's state of mind may be a bit wounded and offering a little bit of dignity will go a long way toward making that customer happy with the buy.   We won't go into the full spiel about why we value the merch how we do.  We just give the buy professional attention and treat it like it's no big deal, just a routine sale, here is your total, will that work for you?  And that upset seller usually appreciates that treatment.

On the full converse and flip side of that we have the poseur who flips storage lockers (or who read a bunch of Gawker articles about the tricks of that trade) and thinks he is going to trick us into paying top ratio with an "Is that the best you can do?" on product he knows less about than my greenest rookie staffer.  My guys know how to identify these types and how to take them down.

A lot of sellers are in between, they ran into a financial pinch and need some quick cash, but don't really want to sell the goods.  As such, they find it hard to reconcile the buy value with what they paid for the merch new or what they think it should be worth.  This is when our technique is best when we just lay out the spread right in front of the customer for them to buy.  Yes, sir, I appreciate that you paid $300 for that 240GB Xbox 360-S brand new.  However, the newer 500GB 360-E console sells for under $200 new now, and the market rate on used is around $140.  Our cash offer really can't be any more than $70.  You may be able to pick up a few bucks more if you sell it yourself on eBay or Craigslist.  I don't think you're going to get the $225 you're looking for, realistically.  But if you want to check around and you don't find an offer you're happy with, you're welcome to bring it back to us."  (We examine it again, of course, and recheck market pricing.)

Fortunately, many sellers are highly rational.  They put the merch on the counter, they wait for the total, and they either take it or not.  Likely they've done it before.  A lot of those same Magic players who keep selling and reselling at least get pretty acclimated to the process; they know how we're pricing the stuff, they know the market values from TCGPlayer, and they understand how the ratios work.  There's not a lot of emotional baggage there.  For all that I worry about the sustainability of the constant churn of buys, sells, re-buys, and re-sells from these players, I can at least appreciate that they're matter-of-fact about it.

The foregoing is a very condensed look at the skill processes of secondhand buying, but it should be evident that this business component has a lot more going on under the hood than it may appear to a casual observer, and it absolutely does pay off and makes it possible for the store to do more and offer more for customers, even for those customers who never resell anything.  They still benefit from every upgrade, every amenity, all those resources that the buy-and-sell cycle enables.  If I were still stuck in the situation Arizona Gamer had in late 1998, with only one product category, Games Workshop miniatures, and only one locked gross margin, I think it would be a tremendous struggle for the business to advance and improve.

The main people I can look out for proactively and openly are the ones who work for me, and that means getting after the store's bottom line so that the business grows and they have plenty of opportunities to get hours.  Ever since the Pinch of November 2015, when our cash reserves were hard-pressed to keep up with the desperate dumping of players needing to pay that Visa bill for their Zendikar Expedition quests, I have put tremendous resources and attention into maintaining as large a cash war chest as possible for buys.  It's still not big enough; I had to turn down a five-figure buy last week and refer it to another vendor.  I would loved to have gotten those cards because they were really strong stock.  I never want to turn down a buy out of lack of funds, and most of the time I don't.  If I am paying the right amount for merchandise coming in secondhand, it will only ever produce healthy sales for the company, even if I have to push it out the door on eBay or something due to the exigencies of time and expenses.

Will this rampant pawnshoppery within the comic and hobby game trade continue to accelerate?  I think the machine has been redlining its transmission industry-wide for a while now, but if I am wrong, this is the new normal.  In either case, I will make hay while the sun shines.  And maybe I can talk Greg into letting me call him "Big Hoss" and have him work the counter when he gets a little older.

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