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Thursday, January 1, 2009

Card Shops, Box Prices, and Ebay

The conversation I had at the card shop yesterday was enlightening. I have/had been deriding card shops for their outrageous prices on boxes compared to eBay, buy I now have somewhat of an understanding as to why they are so high. In addition, the effect that distribution has on shops.

In 1985, life was great. Topps, Fleer, and Donruss were the three games in town. Fleer and Donruss weren’t too easy to come by, but there were still available here and there. Topps was .35 a pack. There was a single series, no premium cards. You bought your packs, built your set, and called it a year. Toward the end of the calendar year, Topps Football would make its appearance. Mind you most convenience stores, Kmarts, grocery stores, and others had packs. When they got down to their last few packs they would place an order with their candy distributor and a new box would arrive within the week.

There were oddball sets. Big League Chew, Cereal, Quaker granola bars, Jiffy Pop, etc. Some were easy to complete because you could send away with 3-5 UPC’s and a few dollars and in 6-8 weeks your set would show up in the mail. Others you had to build by hand, eating tons of whatever food they came in.

As far as value in a pack, that was easy to see. Commons were .05 and that’s what you paid. Rarely less. So 15 cards at .05 a piece is .75. You could easily recover your money you had in a pack by selling or trading to complete your set. If you happened to get a Gooden rookie, you could sell or trade it for $8 or to a dealer for $3-5. Life was good.

In 1987 Donruss was available in Blister packs at Kmart, but Fleer was oddly and often MIA. The corner store had boxes every once in a while. It’s possible that they were just bought as soon as they came in. Topps was everywhere. When you went into a shop, Clemens was a dollar or two, Boggs was as well. Factory Sets could be had at the local shop too.

In 1988, Score showed up, and everything was still right with the world. It was an average product that was different from the rest but still easy to come by. Donruss, Fleer, and Topps (TFD) were given away with each breath you took. If you left your trunk open unattended, you might just find a case in there when you got back.

Then, in 1989 Upper Deck burst on the scene. The ugliness began. The candy wholesalers could get them but they used their power for evil instead of good. Tired of having cases upon cases of TFD left over at the end of the year; You know those boxes of Topps with big black paint across the top; Those are distributor returns; the distributors started forcing card shops to buy 2 cases of Topps to get one case of Upper Deck. When Stadium Club, leaf, and the like came around in 1991-92 the problem expanded. There were so many premium products that were in high demand that wholesalers had all the power. That’s why you would go into shops and Topps would be .75 a pack when retail was .50 was so the shops could make up their huge investment as quickly as possible or the shops would dump the packs for less than retail to get rid of them. When the 93’s came out and you still had 92’s laying around, that wax would lose value with every passing day.

The shops would then make their profit off the high end wax. There was more margin in the high end wax anyway. Upper deck profit per pack .25, Topps base .05-.10 a pack. Stadium Club was the same way. You could make a buck a pack off stadium club, but you had to buy 3 cases or more of base Topps to get it. These numbers aren’t exact but you get the idea.

Those games haven’t changed today. Now we have the extra competition of eBay. Before you were competing with other shops and a few mail order places, now thousands of sellers on eBay are your competition.

Upper Deck and the Big Distributors still, from what I can tell there are 6 major Distributors; force you to buy a ton of low end stuff to get a case of Exquisite, SPX, or The Cup or whatever. Trust me, you might make $25-50 on a box of The Cup or Black, but you make nothing on the base. At MSRP, Upper Deck builds in 28% margin into the low end when you buy direct. That is why shops charge so much for boxes. If cost is $50 on a box, then MSRP is $64. BIN’s on EBay will be $45-58. The poor card shop guy can’t sell boxes that cheap. They have to eat and they don’t have the volume to support that kind of business. Here is why Card Wholesaler X can afford to do that. Say X buys 100 cases of Upper Deck Base for 50 a box, 10 boxes a case. So, 1000 boxes at $50 is $50,000. X sells them for $48 a box losing $2 a box or $2000 total. But, they also get 500 boxes of Black for 100 a box for a total of $50,000. 28% MSRP puts retail at $128. They sell those at $115 a box for a total of $57500 or $7500 profit less the $2000 they lost on the base for a total gross profit of $5500.

X has to run their business this way to move their product quick enough to keep their inventory flowing and make money. In contrast the shops have to sell the boxes at close to retail to make any money. Some shops may get a couple cases of base or mid level and can’t move them at retail. They throw them on EBay just to raise cash. Sometimes money is money. If you sold 10 boxes at $10 profit and 10 boxes at break even, you still averaged $5 profit across the two cases. The only real profit the shop makes is on their allotment of high end, high margin stuff.
What is a shop to do? In my opinion the shop should just buy their stuff from a place like Blowout, DA, Big T, or Atlanta. Here is why. If cost is $50 on base and you pay $52 but you only have to buy what you want or can sell at a reasonable margin, then you won’t have to dump as much product and take the big loss. In addition, if cost on Black is $100 and you pay the $115, your margin won’t be as high as if you bought direct but you don’t have to buy more than you can sell at the price that will net you a few bucks.

I think this works for consumers as well. If a consumer can get Black for $115 from eBay, but they have to wait a week and/or pay shipping, or they can get it from a shop for $125 and not have to pay shipping or wait a week. I think that many consumers will pay the $125. Of course you will have to pay the credit card fees but you still make a profit. Because you don’t have mountains of unsellable product on hand, you don’t have money tied up in worthless product.

6 comments:

FanOfReds said...

Interesting entry. I often offer to buy unopened boxes of cards from my local hobby shop for about 10 bucks more than the "average" eBay price for the same product but the owner always tells me that's impossible for him.

I'll have to check out a few of those sites you mentioned as well, I've only bought unopened boxes from eBay.

stusigpi said...

If you get on their mailing lists they will often have good prices available and you wont have to look through their site to find them.

The card shop guy was telling me a story about Finest football where a guy lost out on a case at $72 a box, he bid $70. He came into the shop and asked the card shop guy about a case of the same finest. He offered $72 a box for them. The card shop guy refused. He had $115 or so per box into them.

Anyway, buying on ebay is great but by the time you pay shipping you can get it at one of those high volume places for the same price, especially if you buy 3 or so at a time.

Covered in Wrappers said...

Interesting post, and definitely true. We have looked into purchasing direct and from distributors and have seen how they structure it. There is definitely a disadvantage to eBay boxes because you probably don't have a chance at a case hit, and pay shipping. But if you catch eBay at the right time and are just looking for players or set building, you can catch a steal on occasion.

This blog is also a reminder of why there are not many Mom and Pop type of card shops around anymore. It's easier for businesses to operate online with less overhead since the profit margin is often slim.

stusigpi said...

Thanks for the comments.

I have often wondered about the case hit issue.

Here are my thoughts. I wondered if shops will bust a case, when they get the case hit, they sell the rest of the boxes on Ebay "knowing" they are missing out on a few autos or Gu here and there, but nothing major.

In a 10 box case, however, you have a 1 in 10 chance of getting "a" or "the" case hit. For example, I got the Teixeira patch in my masterpieces box. I may be wrong, but I think that is a case hit.

On to the Direct route. Donruss requires all sorts of documentation that you are an actual shop with other direct purchases and a store front to buy direct.

I'm sure that there are many people that have cases in their garage and use that as their warehouse. In my area, you can get decent cheap retail space for a few hundered dollars a month 4-$500 max, maybe even $200-300. You could use it as a dummy front for direct purchasing purposes.

Steals on Ebay: I have gotten a few. That heroes football box for $43 shipped. It takes a bit of work and diligence but its not like I am hanging around the card isle at Target searching packs for $2 hits. Other than that I am ok with paying a few dollars more on occasion at DA get free shipping and buying 3 at a time. In fact DA sometimes has better prices than the Bay.

freeandylaroche said...

It is interesting to see how quickly even high-end product gets marked down. It's great for me as a consumer. And I do think if my local card source wasn't a part of a bigger retail operation, how well would their business be? I get the feeling that the store can accept whatever minimal margins there are on cards, and mark down so deeply because it's essentially a loss leader for them.

So it's great for me as a consumer, but it's not the smartest way to run a stand-alone business. And it goes to show that the proliferation of these high-end products appears to be draining card retailers.

The sewingmachineguy said...

A West bound train leaves Pittsburgh headed for St. Louis...just kidding. Great blog man! Some very interesting points indeed.