Sunday, September 8, 2019

Two Types of Game Stores

Hobby game stores are the tip of the iceberg. They were once the whole iceberg, introducing new customers, catering to veteran customers, and acting as taste makers. They did it all. The store owner decided which game you would play, and publishers would do their best to place ads in magazines or show things at conventions to convince customers otherwise. The stores were never powerful, but they were strong influencers and with little competition, they grew lazy. Epically so.

Right now, hobby game stores are as numerous and prosperous as they've ever been. However, the hobby has grown so huge in the last decade, and the Internet such a powerful force, they struggle to remain relevant. I struggle to just keep up with customer demands, and only occasionally flex my muscles as taste maker.

This is not to say brick and mortar stores are dying or having problems, which is their natural state, it just means they're trying to find their position in the changing marketplace, where Amazon has steadily gobbled up game trade market share and now owns, what 80%? Who really knows. Many game stores are selling on Amazon with a, "if you can't beat them, join them" strategy. So stores struggle with how to approach this perilous new world, where the Internet dominates as a sales channel, with Amazon and direct to consumer sales being the primary means of commerce. It's such a powerful force, it not only drives customers to us, but they arrive with a different idea of how the games are played.

There are two primary strategies to stay relevant as a hobby game store, serve the lowest common denominator or serve the highest common denominator. When I say highest, I refer to the intense amount of retail work required to bring in new customers, expose them to a broad variety of games, and later watch them wander off to Internet sales once educated. It's game store ownership as parenting. It's time consuming, expensive, and only works because nobody big is dumb enough to try. It's the full spectrum, high capitalization approach.

Deciding on being the highest common denominator requires a serious capital budget, strong sales training, and a local market where this is possible. Most scorched earth regions, characterized by close to free real estate and a customer based trained to pick apart newcomers, need not apply. There is a strength to this model, but there's also the eternal question of, if you have enough money to do this right, why would you do it at all? When I mention the scorched earth issue with scorched earth store owners, they have no idea what I'm talking about. Scorched earth is the game trade in many regions. It would be like asking a convention of ice cream store owners to consider a world without refrigeration. Sucky stores exist to serve a sucky market.

The lowest common denominator is serving the most profitable customers right now. It's a supremely logical business model, unlike the high store. You identify the lowest hanging fruit, the maximum value for the least effort, and you serve that. You serve it all the time in every way possible. You don't invest in fancy fixtures or worry too much about Kickstarter or Dungeons & Dragons table acreage. Every D&D table of players is worth one Magic player, and you make no bones about it. You serve the beast that feeds you. I should mention a good LCD store is just as well capitalized and the owners just as smart and clever as the HCD store. They just satisfy different needs in the marketplace.

The lowest common denominator store serves Magic to Magic players in every Magic configuration imaginable. You have events for every format, you sell tons of singles and have a war chest of cash reserves for buying cards from customers that would make a marijuana dispensary nervous. Where the high road store spent a small fortune on fixtures, trained staff and diverse inventory, the low road store has a shockingly large collection of used cardboard. That other expensive stuff? It's just not necessary. That means lots of singles sold in store and online and deep discount pricing on sealed product because you're essentially selling a commodity item, like soy beans. If you could buy stock in Lifetime Products, Inc., you would. You are not concerned with margin, only the market price.

Both models work. However, imagine if you were trying to grow your market as a publisher. Do you want the image of where your game is played to be that of a dirty den of dudes or a professional enterprise that welcomes all new people? Do you want to be associated with a pawn shop or Neiman Marcus? You created the marketplace where the dirty dude model worked best, but you no longer need them to sell things, just act as an onramp to your hobby game. Your own child is a delinquent and now that they've grown up, you're tired of them hanging out at your house, eating your food.

The game trade is headed in a direction that rewards the highest common denominator store because publishers are primarily interested in image, not sales volume from this increasingly insignificant sales channel. The ability of a store to sell lots of a product is literally none of a publishers business, other than knowing people come to buy it there. Supporting stores is just a marketing expense now, not a requirement for economic survival, and nobody wants to spend money on representing a poor image. It does not mean the high stores will get any sort of real sales benefit, any guarantee of meat on the bone, but when there are bones thrown, they'll get them first.

We are at the point where there is a push to transform the lowest common denominator stores into something more presentable, while rewarding highest common denominator stores with perks to help showcase publisher brands in these locations. Again, sales are irrelevant other than a marketing indicator. Is it financially feasible to transform your store? Even a very good store might spend thousands of dollars to attain what's considered great, but will it result in stronger sales? Not necessarily, and although that might be the store owners goal, it's not the goal of the publisher.

Will customers appreciate the change. It turns out the answer is sometimes. The stores that catered to the hardcore Magic crowd most effectively are not usually the stores being rewarded in this new paradigm. Some hardcore customers, catered to by the lowest common denominator stores, are angry and resentful that these "Magic light" stores are getting bones. Sure, the casual players at the high road stores enjoy tablecloths and shiny trash cans, but they're not buying more because of it.

There's two points I want to make about this mismatch between hardcore players and high road stores. First, when someone is truly angry about a business, it means they need them. They want it one way, but it's the other. When a grognardy Magic player is resentful a product or event is being held by the high road store, that's a sign that stores strategy is working. They are needed and it rankles the mercenary customer. This was once reserved for pre releases, where I would see the once a quarter customer scowl at me for existing. How dare you offer something exclusive I need, you sell out.

Second, if you're playing a game from a publisher who doesn't seem to align with your interests, maybe it's because you no longer align with theirs. Maybe your mercenary nature means you'll find your way in the marketplace regardless and you no longer need to be served to such a high degree. Perhaps you've graduated. Perhaps the penalizing of the low road store and reward of the high road is a signal to the customer base that it's time to grow up.


Wednesday, August 21, 2019

Book Errata

I may have mentioned this before, but there's an error in the Open to Buy table on page 143 of Friendly Local Game Store. The calculations are wonky starting on the second line. Here's what it should look like, based on the data in that table:


The important calculation on each day is the Balance column.

2-27, is $1,000 (starting balance), plus COGS on 2/27, minus Purchases on 2/27.
2-28 is the Balance from 2/27, plus COGS on 2/28, minus Purchases on 2/28.
2-29 and on, just copy the formula from the Balance on 2/28.


Zen and Small Retail Management

I don't throw the term "Zen" around too often, as I've been a Zen Buddhist practitioner for a long while. However, there are some parallels with specialty retail management and I wanted to share them. When you're running a specialty retail business, there is a lot of confusion. I get questions all the time from new store owners about the minutiae of running a store, which is endless, idiosyncratic and practically unknowable. There are stores that have predictable sales patterns, but for the most part every month has been an adventure for me, without a lot of obvious patterns to help plan through the chaos. 

The same is true with Zen meditation, with a lot of working through chaos with no idea if there will be positive results. The faith in Buddhism is the faith there will be results to the work. The tree will bear fruit, one of an infinite number of agrarian metaphors. Sometimes you have a breakthrough and learn it was indicative but not important. One of my teachers referred to that as "walking by the garden." You're not in the garden, but you're garden adjacent. Good effort. Business can be the same way. You think you have success, but then the next month the whole thing falls apart. In Zen that's pretty typical, in business it makes you want to cry, especially when you see friends and families, employees, have a simple, predictable lifestyle. Life will never be simple or predictable again.

Eventually you have a legitimate breakthrough in business as in meditation, and how are you rewarded? That's right, with more work. You struggle again, thinking you'll never make it, you've hit your peak. You know what? You might be right. There's no guarantee you'll get anywhere, and it's a combination of effort and wisdom that gets you to the next level. If you have effort and no wisdom? You'll be there a long time, languishing. The good news is pain can provide wisdom, so there's always hope. I remember several years where I wished my business would just fail already, since it couldn't seem to plateau to the next level. But eventually it did, through persistent effort and continuing to try different things until I found success (wisdom).

If you are struggling now, more than likely you're working your way to that next plateau. If you think the work will be over soon, you're mistaken. You can certainly decide not to continue the climb, but everyone, at every level, is working to get a little further up that mountain. Even multi million dollar businesses are faced with plateaus and what to do next. The higher up you climb, the more costly the mistakes too.

The "beach house in Maui" is the example a Harvard Business School report described that final ascent. You have three options as you approach the summit: you can plug away, content in your success, you can risk it all on that final ascent, or you can distract yourself because you're clearly not one to be content. You plan to build a beach house in Maui. Or build a Jeep to travel the world. Or whatever else smart people with money do to distract themselves. The beach house in Maui is true at every level, although you might decide to stop because you finally bought a house or finally have a steady income for retirement savings.  It's up to you to decide when you've had enough. You could work until the day you die, and increasingly I know those folks. Much of what's written about meditation practice is getting you to break through that complacent plateau. In business, you can always decide you're at a comfortable altitude.

Age is a big factor, as you spend ten, twenty, thirty years climbing that business peak, do you really have time to fix a mistake if it all crumbles? You're probably unemployable, either because you have no marketable skills or you're incapable of working for someone else. You have a mortgage and kids and college funds and retirement plans. You can do this until you've had enough. When is enough? Age and income is the answer. Do you have time to start another climb? Does it sound appealing? Without money, you gotta do something. Maybe just visit Maui and see if there are any lots for sale. I'm sure it won't lead to anything.

Finally, the "how do I know?" question, of whether you're in the garden or garden adjacent. A teacher as guide is helpful with a meditation practice. In business it's much easier to see the results. It's not hard. It's money in the bank. If you're sitting on a pile of money and wondering where you're at, you've probably plateaued. If you don't have a big pile of money, you're probably walking by the garden.

Monday, August 5, 2019

Cleaning Up the Books (Tradecraft)

I am not an accountant. I can barely keep up during my annual conversation with my accountant. I had a year of accounting in high school, probably to avoid some nastier math requirement. I know just enough to understand double entry and the difference between receivables and payables. From talking with my accountant and a business broker, there are a few areas I'm now a bit more cognizant about, things that show value or indicate problems that are often about something simple, like categorization of expenses in your accounting software. That's the exciting topic for today. Let's clean up your books.

Cost of Goods used to be my dump stat. If you have a high cost of goods, it shows your business is not very efficient. It indicates maybe you don't have a handle on shrink, or you haven't negotiated good terms with your suppliers. It might mean you're a bad buyer. A high cost of goods may indicate an industry problem, which is bad if you're trying to sell your hobby game store to someone uninitiated as a kind of toy store thingy with tables.

I actually track my cost of goods daily, so when I saw the difference between my real, spreadsheet cost of goods, and my fake, Quickbooks cost of goods, I had to figure this out (also Quickbooks is always realler). When I presented my income statement, my business broker gave me a disapproving look with my high COGS. What happened? What happened was I was dumping miscellaneous charges into cost of goods, which is a major no no. Be extra careful about what goes in this category, since it indicates so many possible problems with your business. If you have to dump something into a category, do it into a discretionary one like office supplies.

Office Supplies are pretty discretionary. Everyone thinks they could come in as a new owner and reduce waste of office supplies. My accountant encourages me to put anything consumable, anything not clearly durable, into office supplies. Office supplies also gets depreciated immediately, unlike durable goods, which are depreciated over years. so if it's in a gray area, it's office supplies. Not sure what it is? Office supply. Never use miscellaneous. Miscellaneous is a question mark. You don't want questions in your books. Answer the question!



Payroll should be broken into multiple categories. Payroll expense, taxes, payroll processing and insurance. Each of these have different tax consequences. Each expense can be attacked to drive them down in a different way. Speaking of payroll, have you given yourself a raise recently? Your pay is a discretionary expense so brokers don't care. It reduces your end of year tax burden and saves for your retirement with social security payments. It forces your business to compensate you first, unlike profit distributions which happen last, when it's convenient. You deserve a raise. You're welcome.

Rent is one category that should only ever include rent expenses. Your business value is backstopped or dragged down by your lease. No successful business can predict continued success if it has to make a costly and unpredictable move, and if your rent expense is dragging you down, there's likely nothing to be done about it. Personally, I can't imagine any business would sell with a month to month lease. I would insist on a lease as long as your earnings multiple from the valuation. If your business is valued at 3x your earnings, I would want to see at least three years left on the years. I wouldn't invest in a business until I saw a copy of the lease. Someone believed in you to be around for years. I want to see that. Heck, I want to at least see your name on that contract, especially if I have to approach the landlord to assume it.

The main take aways here are be meticulous with your books. Make sure fixed expenses and discretionary expenses are not mixed. It's easy to get sloppy. My credit card bill averages around $15,000 a month and it's painstaking to make sure every line item is categorized properly. I download reports, try to figure out each charge, and I'm especially careful with those cost of goods, since they can look like other things. It doesn't really matter if it's just you in the business, if you ever want to sell or bring on partners, you'll want to be meticulous and you'll wish you had done it years before.



Saturday, August 3, 2019

Tumultuous with a T


My store has had a tumultuous year so far. Our sales are up 23%, with net income up 230%, which is easy to do when we were at a negative net income a year ago at this time. The San Francisco Bay Area is on fire, thankfully only figuratively. The Bay Area would be the world’s 19th largest economy, if it were tracked that way. I just want to crow about how well we’re doing, how well everyone here is doing, so this post doesn’t sound like a pity party.

We have transitioned nearly our entire staff this year, a staff that averages a turnover every three years. It has been a huge hit to our institutional knowledge, which means training has been a huge expense. Training means overlapping, unproductive shifts, and it’s is our single largest expense this year, when you also include the tremendous wage inflation we've got here in California (at the bottom tier of employment). Starting wages for part timers are going up a dollar a year, but it’s not fast enough for many, who criticize us for not having every job starting at a living wage (likely in the $20+ range). We’ll get there Felicia, just give it a minute. Enthusiastic new staff are a strong reason for that 23% growth, most of it really, so you get what you pay for.

I will refer to 2019 as my Year of Entropy, assuming my store makes it out alive. Besides expensive staff transitions, our drink cooler died ($2,000). One of our two, multi ton air conditioning units gave up the ghost a couple weeks ago, requiring a new compressor ($3,000). By the end of the year, we’ll need two new computers, including a replacement of our six year old POS system which will need the POS software and hardware reinstalled ($5,000). Overall, add these expenses to the usual entropy of plumbing problems and CAM increase and it’s about $20,000 out of pocket.

We’re still a profitable business. About half that profit goes towards construction loans, so I feel we’re investing in the business each month when those checks get processed, even if nothing new arrives. I’m thankful to have windfall profits in a year with crazy high expenses. Imagine having flat sales and all these expenses start beating you down. It’s why the threat of failure never goes away for small businesses, never reduces the chance of closing no matter how many years you’ve been in business. 

Are new expenses hitting us while we’re on an upward trajectory or downward? It becomes a simple calculation. Should we cut bait or cast out again? Some of our competitors disappeared this year after doing that calculation. This has added a lot of unexpected energy to our store as the displaced seek new homes. Thankfully there’s light at the end of the tunnel. We haven’t really been walking in darkness, since it's a profitable business. Having debt while encountering the usual entropy is like walking through a dim tunnel while bats fly overhead and muss your hair. You’ll make it, it’s just disconcerting.

Meanwhile we’ll enjoy a little money thrown at re-branding and selling our updated image. We’ve had enthusiasm for our new logo, sold some stickers, and talked with people who were unaware of our previous brand identity, which is currently limited to our website and business cards.


Saturday, July 27, 2019

Logo

When a company changes their logo, it's generally a group exercise in self pleasuring. It's rarely necessary. If you look at the Starbucks logo, the 1987 or 1992 logo is in color, a big transformation, but I personally wouldn't change my coffee drinking decisions based on any of their logos. As for 1971, I'm not sure what's more offensive nowadays, bare mermaid breasts or a black and white logo. And what in the hell is she holding? Are those her mermaid legs? What exactly does this imply?  Is this a coffee shop or a brothel? Sick bastards. Logos are ridiculous and nobody cares.


When I was told we needed to change our logo, my first concern was the circle jerk of pointless design and then cost. Clearly there's no financial benefit to the exercise. We've had the same logo for 15 years. Is it a good logo? It looks good. I like the colors. I like the knight. As for the design itself, I have to admit, it's a giant pain in the ass. Our original logo is terrible, practically speaking. It's an impediment to its very purpose.

The use of black means it looks great on screen with a white background, but it's problematic with other forms of media, which require a very light background. It's so difficult to use, we tend either not to use it at all, making the brand identity somewhat weak, or we reverse the colors to put it on a black background with the logo in white. We mutilate the logo to make it work. It's a problem. But is it worth fixing? Enter the business case.

When it came to staff shirts, we resorted to white embroidery on black shirts. originally I had white shirts with a full color logo, but those were loathed by everyone, and they were hard to keep clean. You may not know this but everything we sell sits in a dirty warehouse before getting to us and gets even dirtier as it sits on our shelves. Keeping a retail store clean is a major feat, as it starts dirty and only gets worse. White shirts were always getting stained and looking bad.

The black, embroidered shirts we currently use, with a boring plain white stitched logo, turned out to be incredibly expensive. Each shirt costs $70 with embroidery. They also need to be made in batches in various sizes, so we're almost always buying more than we need, in sizes we hope will be useful. Invariably, those sizes don't match our diverse staff. So over time, we've been stuck with a box of very expensive shirts in the wrong sizes. The cost of bad design turns out to be very high.




Our new shirt design features a full color patch that can be sewn onto a variety of shirts. We choose the shirt from the Work Wear store next door, grab a patch, and sew it on. No big batches of variable sized, expensive, embroidered, logo perverting shirts. Also, if I want one of my robust, tactical shirts from 5.11, I buy it in the right color and sew on the patch, something not available before. Total cost per shirt for employees will be $25 or so, with no waste.

Then there's the increased merchandising we tend to avoid with the old logo. We've already ordered new patches, pins, stickers, and more. We'll have hats and t-shirts eventually. These were difficult to design with the old logo requirements and they sold poorly.

Now let's get onto the minor controversy of our design choices. We spent about a month defining the needs of the new logo with half a dozen designers. We identified core requirements. It should maintain the design elements of the old logo: the knight, the horse, the lance, the direction it's all headed (very symbolic) and of course, a diamond. The logo needed to remain fairly simple. The name needed an updated font that was compact with the design. The previous font used long, horizontal text and has been nothing but trouble for 15 years. The color black is problematic. It goes with nothing but white. Those who use black in their logos hamstring themselves design wise, so we omitted that. In fact, I would probably pick a different store name without a color in the title if I were to do it over. I have few regrets, but "black" is one. Let's take a look at the new design:




I think it pops. Rather than black, we have a dark blue, which works much better and represents one of our colors. It's a darker blue than our original logo (which some say was purple, a color I love). The diamond color, away from black, represents a shift in store colors that came about with our big construction project, three years ago.



This orangish yellow is called Curry in Sherwin Williams colors, which is the color we painted our staircase. It's a color that matches our birch fixtures. It provides a pleasing blue and gold ambience, the colors of the local university, UC Berkeley. 



This shift in store colors came in a moment of crisis. The Curry color came from a decision I made with the architects when it was clear our paint color choices weren't working in practice. I was distracting myself at the time with another project, a used Jeep I was about to buy in Utah, because Utah was the closest location of a Jeep in this exact color I was smitten with. I had to have not only the features I was looking for, but it had to be in that color. It was clearly on my mind. Originally the Curry color was white, but when we painted it on on the staircase, it looked terrible.



So the color of the staircase and thus the logo got their color from a Jeep. The Jeep is in a Chrysler color called Amp'd. And thus our staircase became Amp'd, and our logo became Amp'd. And for the foreseeable future, we shall be Amp'd. Most people like the new logo, once they've accepted (or more often overlooked) the diamond isn't black. It's a tough ask, but if people can accept the Starbucks mermaid isn't holding up her legs suggestively any longer, I think this can be overlooked. Personally I love the direction of the logo. I especially love I won't be paying $70 each for a box of useless shirts. 




Wednesday, July 17, 2019

Model for the Good Store

"And here is where we thought about putting in a cafe."

This business is one of constant brainstorming for the successful. For most stores, which I will maintain are not very good (fight me), the answer to all questions is often doing the thing you're doing now, but better. More inventory, better trained staff, better events, an improvement process and an upgraded look. Most stores don't need a cafe to be relevant.

They should know by looking around where they could spend the time or money. You could expand and upgrade for quite some time, really, but most stores struggle on a daily basis and never get the chance. It's the curse of under capitalization in a low barrier to entry market. Often it's not even about money.

Visit enough stores and there are simple improvements that just take elbow grease. For many it's as simple as picking up the trash you can see when you look in the window, or re-arranging the product on the damn shelves. Basic retail. Problems I saw throughout Pennsylvania and New York this month. One or two of those stores ran a super tight operation on what you could tell was a low budget operation. One was scrappy and organized and had family and part time staff stocking shelves on a Sunday. That made me happy.

The idea we need to diversify into some new business model is compelling, mostly because successful business owners look for trouble. We want new problems to solve, not the same old problems. I preach how a Unique Value Proposition, over time, eventually becomes only a Useful Value Proposition and then No Value Proposition.

The next thing is a real struggle. But I'm also thinking now that running a really, really good retail model that focuses on serving the community can be Unique. I'm loathe to say this, really, because most of my peers think very highly of themselves. Most store owners think their stores are much better than they actually are. This is often because we don't know how to measure. We don't know how to look at our stores with clear eyes. Most store owners often don't get outside of their local bubble (why I like to visit stores). We also can't even decide what good is.

Get a dozen game store owners together (if you can decide what that means) and they'll argue, Clintonesque style, about the meaning of the word good. Good for one is the most profitable, while other owners will argue that stores aesthetic hold it back from that desired profitability. Some will claim they only meant to serve a small market when they made their polarizing choices. Good to you may just mean a steady paycheck.

The debate about Wizards of the Coast Premium stores elucidated much of this. Other people, not even store owners, are telling you what they believe is good, with rewards attached. Store owners hate this. Try to help one of these store owners with their problems and they will quickly produce reasons for why they do a thing badly. Alright, alright. Maybe you need a cafe after all. I should mention Premium rewards a type of existing store and there are plenty of good stores that don't meet that criteria. It doesn't make them less good.  All Premium stores should be good (a debate in itself), but not all good stores are Premium.

This leads up to my visit with Millennium Games in Rochester New York this week. It's an example of doing the standard model, for a long time, really, really, well. It's notable to me because it's a large store that clearly engages in best practices and a constant improvement process, rather than some unique, large store model. Also, when I say standard model, I'm talking about a basket of game retail best practices, since baseline game stores, as I've postulated, kind of suck.

Millennium is unique as a large store because most large stores appear to have teleported from the past, their inventory, and unique practices, not particularly replicable intact. Other stores appear to have been built from whole cloth with buckets full of money. Millennium is a best practices store, only much, much bigger. As I can't time travel and I don't have buckets of money, this is compelling as a model.

As you walk in, it looks brand new, because they have a process and budget for constant improvement. The retail space is vast and the game space comfortable. There are about 100 photos on my Facebook author page (please subscribe). If I sound like I'm heaping on praise, it's because it's a model for the future, unlike other big stores which are great, but mostly as interesting anomalies. Millennium got there by doing the thing, year after year, only better each time. It's the same thing I do at a smaller scale, and you might be doing. That gives me hope both for myself and for retailers in this trade.

Suck Less