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The Distribution Chain

June 24th, 2014 Posted in business
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Interestingly enough, as much as I complain about the distribution chain in the game trade, developing Fortress Geek as also shown what an industry without a few major distributors is like – and let me tell you, it’s not pretty.

The Distribution Chain in Gaming

Let’s talk about what distributors do.  They are clearing houses for our favorite games, the places where publishers sell boxes / cartons / etc of games and who then consolidate and sell these games to us.  The major advantages for a retailer of a game distributor is the ability to consolidate their orders and for the distributors to ‘break’ cases, allowing gamers to buy smaller quantities of each game.  As I’ve written before, there are numerous other reasons but this consolidation and breaking of games makes a huge difference in how easy it is to run such a store.

Right now, in the US there are about 2 major distributors and another 3 to 4 medium sized distributors.  In Canada, there is 1 major distributor and another 3 or so smaller distributors.  To give a context of size, the major distributor in Canada is still smaller than most of the medium distributors in the US.

This is not a huge number of distributors, but it is enough to ensure that there is a decent amount of competition in the industry.

Now let’s take a look at another example in the general ‘Geek’ product world.

The Distribution Chain in the ‘Geek’ World

Let’s be clear here, when we say ‘geek’; it encompasses a lot – from figurines to collectibles to toys to t-shirts and apparel.  As such, in many ways; the entire concept of a single distributor who could cover all this is unlikely.  However, there are 2 major players in the market (Diamond who supply all the Comics being one of them).  These distributors however are pretty much oligopolies (and in Diamond’s case for comics a monopoly) and as such are able to dictate pricing, markup and quantities to a significant degree.  As such, they often do not break-up cases and if they do, margins are painfully low.

That is, if you can get the items you want.  A significant number of products can only be purchased direct from the suppliers themselves.  This of course creates a whole host of problems:

  • Minimum orders at each supplier
  • Lack of transparency of stock levels (many don’t have a method to view current stock levels)
  • Significantly increased number of supplier contacts and ensuing paperwork
  • Licensing & verification issues
  • Increased length of restocks

It’s no wonder that, if you look at the number of generic ‘geek’ stores in Canada; there just aren’t that many.  It’s extremely difficult to run such a store as we are finding out – its extremely difficult to go broad and deep as it requires a significant capital outlay.  In many cases, we have to stock multiple copies of an item even before we know if it’ll sell.

So while publishers and retailers might complain about the distribution chain (and yeah, there are issues); it’s at least better than the current system evidenced in the ‘geek’ world.

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