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Insider: MTG Business Models (Part 2)

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This is part two of a series. The first article in this series can be found here.


Diversification

Most financial managers and stockbrokers will suggest diversifying your investment portfolio. The reason you do this is to spread out risk. If you have 100% of your money invested in one companies stock, you carry a significant amount of risk. Should that stock perform poorly, you lose a lot of money. The same concept should apply to what inventory a store carries. While this site is dedicated solely to Magic: The Gathering, there are a lot of other similar products available in the marketplace.

As we previously discussed, WoTC has a monopoly on MTG cards, which means that if they create a format that a lot of people dislike (typically accompanied by a lot of bannings to help alleviate this dislike) then singles sales will likely decline. If your main source of income as a store is MTG singles sales, a bad format can greatly reduce your income. We have seen other major stores like SCG, ChannelFireball, Troll and Toad, and Card Kingdom branch out into selling more than MTG cards and singles. Looking over their websites you can purchase:

  • MTG artwork/lithographs
  • Special playmats
  • Sleeves
  • Deckboxes
  • Pins
  • Dice
  • Apparel
  • Pokémon cards
  • Transformers cards
  • Binders
  • Coffee mugs
  • Yugioh cards
  • Heroclix
  • Miniatures for various games

These major retailers have all diversified what they sell, with many having branded options on this list.


Inventory Dictates Profit and Effort

The inventory you offer will completely dictate your profits and the amount of effort required to run your business. Obviously, the fewer cards you have available for sale, the fewer sales you'll make as a whole, and the less effort will be required to run the business. Thus, effort and profit are on opposite sides of the same coin. This leads to several different business strategies one could take depending on their actual goal:

  • Keep your inventory focused on specific formats.
    • Pros- You reduce the amount of inventory you need to maintain.
    • Pros- You reduce the amount of money you have to plow back into inventory acquisition.
    • Pros- Your business requires less effort to maintain.
    • Cons- You miss sales of cards in formats that aren't supported.
    • Cons- You reduce your business's ability to grow.
    • Cons- Your inventory tends to get hit harder with reprints because it's less diverse.
  • Maximize your inventory.
    • Pros- You maximize the number of sales you will have.
    • Pros- You maximize your business's ability to grow.
    • Pros- Your inventory takes less of a hit with reprints because it's very diverse.
    • Pros- You are in the best position to purchase larger collections because the seller knows you will offer for everything.
    • Cons- You maximize the effort necessary to run the business.
    • Cons- You maximize the amount of money you have to plow back into inventory acquisition.
  • Focus solely on high-velocity cards.
    • Pros- You maximize the number of transactions you have with the least inventory.
    • Pros- You reduce your inventory acquisition requirements.
    • Cons- You miss out on sales of lower velocity cards.
    • Cons- The cards you're likely trying to pickup are the same as most competitors so you will likely have to offer higher buy prices to maintain inventory, thus you'll tend to have lower profit margins per transaction.
    • Cons- Your inventory tends to get hit harder with reprints because it's less diverse.
    • Cons- The high-velocity cards are often metagame dependent, so a change in metagame can hurt your inventory value more.
  • Focus solely on high end reserved list cards.
    • Pros- Your inventory is very safe from reprint risks, though a better similar version could still affect inventory value.
    • Pros- Due to the higher value nature of these cards you are likely to have fewer transactions for any given inventory value. So less effort is required to run this type of business.
    • Cons- You will miss out on a lot of potential sales.
    • Cons- Restocking inventory will often require large investments, which may cause cash flow issues.
    • Cons- Due to the fact that these cards are relative "safe" investments, most people selling them demand a premium, so your profit margins will likely be lower unless the price spikes.
  • Focus on buying and picking bulk.
    • Pros- High-profit margins.
    • Pros- Limited cost of inventory acquisition.
    • Cons- Significant time commitment with no guaranteed return.
    • Cons- Typically limited to lower-dollar sales which means shipping cuts into your profits more.
    • Cons- Bulk can take up a lot of space. Before going too deep on bulk it would be wise to contact other big bulk buyers to try and figure out a way to move the remaining bulk once you have picked through it.

 

The important thing to remember about any of these strategies is that you will have to determine the weight you'd assign to each pro and con.

I have focused on limiting my inventory to specific formats, typically Commander, Modern, and Pioneer. I also buy bulk from local players when I can. I have slowly started reducing Modern inventory to focus on the other two. The reason I have gone this route is that my MTG sales are side-income, and I don't want to spend too much time on it every day.


Speculation

I realize it might seem like blasphemy, but as I have been growing my business I have pulled back from speculating like I used to. I now limit my specs almost exclusively to cards that combo with a new commander. This prevents me from sinking too much money into an unknown time commitment. I typically buy these specs with the intent of flipping them within one to three months, which usually coincides with new commander releases.

I used to love speculating on any format, but now that WoTC has started aggressively reprinting cards via supplemental products, I dislike the increased risk. I have found that buying collections near buylist is less risky; you can turn a quick profit, though it does require more effort in acquiring inventory. I also enjoy picking through bulk, so I love buying bulk, though the amount of space it takes up in my house is becoming an issue.

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