Over the last month or so, the internet has been awash with anger about the prices many stores are charging for Modern Horizons 2 booster boxes–prices that look a whole lot like ours–and I wanted to delve a little into the economics of the situation to explain where we’re coming from. Allow me to start by sharing some costs and prices.

	Standard Set Wholesale	Standard Set Price	Modern Horizons 2 Wholesale	Modern Horizons 2 Price
Draft Booster Box	$80	$115 (a 31% margin)	$175	$300 / $275 on preorders (a 42% margin / 36% on preorders)
Set Booster Box	$90	$130 (a 31% margin)	$180	$325 / $300 on preorders (a 45% margin / 40% on preorders)
Collector Booster Box	$175	$240 (a 28% margin)	$260	$450 (a 42% margin)

There it is. Our cards are literally on the table. Next, I want to share a little foundational information regarding game shop economics. The industry standard margin for virtually everything we carry is 40 to 50%. So, in general, if a customer spends $100 at Redcap’s, we spent $50 to 60 on the product they’re buying, and our biggest three expenses (in ascending order of cost) are our rent, our staff’s wages, and our inventory. The math is complicated, tedious, and not really relevant, but a sustainable brick-and-mortar game shop spends about 45% of all incoming dollars on replenishing inventory, which makes that industry-standard margin of 40 to 50% both incredibly important and also not really sufficient. If making $100 costs us $55 on average, but only yields us $45 with which to buy replacement product, either our inventory is going to slowly shrink or we’re going to have to cut corners elsewhere to sustain inventory levels. As I previously mentioned, however, our other two major expenses are our rent and our staff’s wages, so making cuts elsewhere is difficult and likely to have cascading effects of its own. Needless to say, maintaining a sustainable cash flow isn’t easy, requires very careful planning, and relies on higher-margin second-hand product to get us to that magic 45% replenishment ratio.

Given all that, I imagine most people have questions like the following:

• • If that’s all true, why does Redcap’s accept a margin as low as 28% on some booster boxes?
  • Isn’t Redcap’s business model outdated if it can’t keep up with the business models of online vendors who can survive on much, much smaller margins?
  • If these margins are so important for staying sustainable, why are some other stores charging less for Modern Horizons 2 booster boxes?

The answers aren’t necessarily easy to explain, but I’m going to do my best to answer them as succinctly as I can.

You see it less and less these days, but when we first opened our doors back in 2009 the margins for booster boxes online were often virtually non-existent. Vendors who were buying boxes for around $73 often sold them for as low as $80. Because deals like these were easy to find online, there was a lot of pressure on stores to do their best to compete. A 9% margin would never have been possible for us (on anything we weren’t actively clearing out), and I’m frankly not sure how any brick-and-mortar game shop could manage it, but the expectation from customers was that they would get a significant discount when they purchased a booster box. Remember that, at the time, a typical Magic booster held a manufacturer’s suggested retail price of $3.99, meaning the suggested price for a box of 36 boosters was actually $143.64, but nobody was willing to pay anywhere near that. Prices have come up a bit, mostly because Wizards slowly eroded retailer margins on Magic products, stopped selling directly to stores, and eventually removed their MSRPs altogether, but the expectation of a steep discount on booster boxes remains, meaning shops either conform to that standard or don’t sell boxes at all. And not selling boxes is definitely an option, but it’s not a great one from a customer service perspective. If our customers expect us to sell a certain product and we don’t, we’re damaging our reputation, and they’re likely to look elsewhere for their games.

Let’s say I have $175 to spend on inventory for the shop, and my choices are a collector booster box of Magic or seven different board games that each hold a $50 MSRP. The collector boosters each individually have only a 46% margin at our price of $27 each, and if someone buys the box from me outright, we only make 28% on that sale. The board games, on the other hand, would double our money with their full 50% margin. That seems like an easy choice, right? Would I rather turn $175 into $240, $324, or $350? That’s a big part of my decision-making process when purchasing inventory, but–on the other hand–Magic is very popular, and Magic players need to buy a lot more to stay current with their hobby than board gamers typically do. If it takes me six months to sell those seven board games when I could have sold the collector box in a few days, I’ve left money on the table in a totally different way, so it’s important to carry Magic, even though almost everything else in the shop has a better margin. It’s all a delicate balancing act, made possible largely because typical Magic sets are relatively abundant and easy for us to procure, and demand for them as boxes tends to dry up in favour of individual boosters after a few weeks, so it’s worth it for us to take the up-front hit on selling them as boxes, and let that margin smooth out over time.

And that’s where products like Modern Horizons 2 are different. They’re not abundant. They’re not easy to get. For instance, we received less than 30% of the draft booster boxes we preordered from distributors for Modern Horizons 2, despite having more than a decade-long working relationship with most of our distributors, and despite preordering both promptly and in great quantity. We can take the hit on Strixhaven, because we’ll get as much of it as we need over time, and the people who want boxes will get them relatively early, leaving the rest of our stock for individual booster sales, but if we lowered our box prices on Modern Horizons, we’d sell out of 100% of our product through box preorders (as many of our competitors did), likely never be able to get more of it, never be able to sell individual boosters, and significantly damage our cash flow for months, if not years. We spent over $30,000 up-front on Modern Horizons 2, which is more than we spend on our entire inventory most months. Getting a 30% margin on that much inventory would be ruinous for us as a business.

I hope it’s clear to our customers that we try really hard not to price-gouge. We routinely avoid marking up limited product–despite eBay values–in favour, instead, of imposing limits on purchasing, to give everyone a fair shot at getting things for a reasonable price. Ask our Pokémon customers, who have been paying a few bucks over MSRP from us all year, rather than double or triple MSRP from online vendors. And the fact that this blog post exists at all should say something about our commitment to transparency. But discounting less than usual isn’t the same as inflating prices. We’re still offering Modern Horizons 2 boxes at a discount, just not an unsustainable one.

I certainly understand why this might seem like an outdated model to many people. If it costs so much to run a brick-and-mortar store that we can’t keep our prices competitive with Amazon, why are we even necessary? And the truth is that we’re not necessary for customers who just want the best price they can get. There are lots of better options out there for them, and–while we value them as customers when they do buy from us–they’re not really our target audience. The reason we exist is to provide a hub for actual game-play. I didn’t open the store because I thought it was hard to get board games or Magic singles in Philly; I opened it because there was nowhere to play Friday Night Magic within city limits. Selling is how we make our money, but events are how we give our customers value. I realize this is a tough claim to make after not running events for the last year and some change, but it’s true, and I hope our absence as a gaming hub since March of last year proves the value of what we do in some sense. Our prices are never going to be the best around for most things, but Amazon doesn’t provide space and resources to play games with hundreds of other passionate gamers, and that’s why we have some modicum of staying power.

As for why other stores are charging less for Modern Horizons 2, that’s especially tricky for me to answer. I’ve already explained why we choose to make some concessions on our margins in order to keep the business healthy, and it’s likely other store owners have made different calculations from us and arrived at the conclusion that making concessions on their Modern Horizons 2 margins is the best decision for the health and survival of their businesses. Honestly, after sales evaporated for most of 2020, maybe they just need a quick influx of cash. The circumstances behind each game shop differ. For us, the math didn’t add up when it came to offering huge discounts on Modern Horizons 2 product, the same way it didn’t on Time Spiral Remastered or Double Masters–even though we were able to offer very low prices on Mystery Boosters and Jumpstart.

I also get it. I’m a Magic customer myself, and I wish these were cheaper too. If they cost us less to buy, they would be. I know it feels awful to get used to purchasing booster boxes only to find the prices too high on a new set to keep up. If it were realistic for us to lower prices, we would. And if we dramatically over-estimated demand, and end up stuck with a ton of product, I’m sure we’ll discount them a bit more than they presently are, but we have to price responsibly even if we don’t like the way it turns out. I don’t begrudge anyone their unwillingness to pay our prices on these boxes, but I hope that this explanation has helped everyone to understand why we chose them.

Thanks, as always, for supporting Redcap’s, and helping to keep inclusive gaming alive in Philly!