Thursday, May 21, 2015

Can You Take It? (Tradecraft)

Yesterday was the most expensive purchasing day since I opened my store. Modern Masters II shipped, with $15,000 of invoices. Many stores are scrambling to pay for this order. Some have been pre-selling it like mad, at prices lower than necessary, because they don't have the money. Many stores don't buy on credit, so this $15,000 or larger hit (some stores claim orders easily twice as big), needs to be paid up front.

In the long run, this is losing them money. This is a product that has a current street value 30% higher than the MSRP. That's based on retailers opening boxes they received early and valuing cards. Although speculators will try to lowball estimates so they can buy low from fools, retailers now know better.

Yet, many retailers still sell below MSRP.  I will admit, we sold a small amount of ours early at a small discount while we gauged demand, but now? Now this is a limited product with a known high value with a pretty final supply number. Our main concern now is selling it too quickly. If I show up Monday morning and it's all gone, I've made a different mistake.

So what do you do if you don't have enough credit? Ask for it.

Call your distributors and ask for terms. Get a credit application and take what they'll give you. I've got 30 day terms with every supplier who offers them. Some started at 7 day terms, the financial equivalent of training wheels. Some started with ridiculously low credit limits (which we mutually ignored). Over time you can boost the term period or the limit.

Once you get them, pay invoices religiously. Getting terms gives you time to sell things appropriately. You can make sales projections, instead of hoarding cash and starving your store for something that hasn't been released yet. Then, if your projections are wrong, you can liquidate unsold product at the tail of the market, rather than gumming up the works and devaluing it in the beginning. This is to everyones benefit as you act like a business person and less like a scavenger.

Rather than scrambling to pre sell enough product at a discount to come up with a COD order, you now order enough to sell through your finance period. Can I sell $15,000 worth of Modern Masters II in the next 30 days? Can I ever! The best thing is I only need to sell a little over half to pay the invoice. The rest can be sold over time, the store supported by other products that were bought on time.

If you've got a credit card, ask for a credit limit increase. They can only say no. If they say yes, your credit score is likely to go up as your utilization rate drops. You're penalized on the percentage of credit you're using, so using a lower overall percentage of that type of credit only helps you.

"Businessman, see? Roots in the community. 
You're just a scavenger."
If you don't believe credit cards are good things and you can't possibly be responsible enough, I invite you to reconsider. You are a business person now. You are a professional. Roots in the community.  If you're in year three or year five of your retail business, you have grown as a person. You have proven yourself responsible. Business is managed risk and maybe it's time you step up and manage it.

You will make more money this way. If you get 100 boxes of Modern Masters II and you have to sell half to raise cash for your COD order at an 8% discount (the current Ebay discount), you've lost nearly $1,000 by not selling in store at MSRP.  You've lost a whopping $4,500 based on projected street values.

You want to be treated like a professional and not a scavenger. Here's where you live up to your side of the bargain. Step up, get your finances straightened out, make the money. Diamonds the size of testicles.

Monday, May 11, 2015

Inventory Categories (Tradecraft)

Managing inventory is a difficult process. It's a mix of objective criteria with your subjective feel for your store. It's what happens after purchasing, and as you know, purchasing is about being able to predict the future. So it's no wonder subjectivity plays a role in inventory.

Most of my posts about inventory management are about nuts and bolts, tactical deployment for finding value and recycling capital. Turn rates, sales per square foot, and similar metrics are about squeezing out value. But what about inventory strategy? Inventory strategy tells you when to apply those tactical tools. We're attempting to win the war (making money), by picking our battles. 

That led me to inventory categories, a classification that allows me to pick and choose where to deploy metrics. Not every game or game system gets inventory tactics applied to it. Here are my inventory categories. You can see there are many exceptions to the rules. The solution is to build rules about exceptions.

Full Line Exempt: Games in this category are exempt from the rules. Inventory metrics are ignored. If it's in print, I have it. I reserve this category for the top game in a department, like Pathfinder, 40K or Chessex dice. There are large, psychological advantages, "top of mind" marketing, to exempt categories that go beyond metrics. 

In the mind of the customer, I want them to associate these top brands with my store. In the case of a game like Pathfinder, that means I'm going head to head with Paizo direct for customer sales, so I have their novels, every flip mat and map pack, and all those fiddly little card packs that nobody ever buys. I want customers to know that if it's in print, we've got it.

Full Line Managed: Similar to full line exempt, except I take a very liberal view of inventory metrics. For example, Pathfinder recently moved from full line exempt to full line managed, meaning I drop products that haven't sold in a long time, even though they are still in print. In our case, it was 18 months. Our overall Pathfinder turns are around 5 a year, so an item that sells every 18 months is at .75 turns. Garbage. Moving from full line exempt to full line managed usually represents a major shift in customer behavior.

Managed: Inventory metrics are applied, usually with a minimum of 3 turns a year. The vast majority of items are in this category. Very rarely I'll move a Full Line category into managed, often talking to staff about how it lost its "amnesty." Sometimes this is jarring to customers. D&D 4 went from full line exempt to Managed overnight with a slash and burn approach to poor sellers, some of which hadn't sold in years. Some of which still reside on our clearance shelf today

Exempt: Inventory metrics don't apply. This is reserved for games deemed "merchandising" or the rare game that I carry for personal reasons. This category has gotten smaller over time. Exempt also includes new lines that you're testing out or building up. A new miniature game, for example, requires a critical mass of inventory before it begins to turn. You give that game an exemption, at least for a while. How long is up to you and hotly debated.

As an aside, living in earthquake country, everyone is encouraged to have a 72-hour bag, in case you have to get out of Dodge in a hurry. These carefully crafted bags contain enough food, shelter and equipment to keep you alive for three days, but most experts recommend you bring one comfort item. It might be a Bible, a deck of cards, or your favorite book. That is your one exempt item. If you're going to have a personal exempt item for your store, try to limit it to one, if you can. 

Seasonal: This is a tough one to manage in our field, but we definitely have seasonal items. For example, we sell the vast majority of jigsaw puzzles between November and March. We still sell puzzles throughout the year, but we make sure we stock up strongly for the season, and let inventory draw down towards the end. Classic games, toys, and holiday themed items also fall into this category. During the Summer we try to stock up on travel games. Before big Magic releases, we stock up on card supplies. Seasonal inventory gets a pass as you build it up and generally doesn't get scrutiny until the season is over. Then it gets dumped as fast as possible. Our store on December 24th only vaguely resembles our store on December 26th.

There you have it. Thanks to Jim Crocker and Ryan Johnson for pointing out areas I overlooked.

Thursday, May 7, 2015

That Cards Against Humanity Game

My general take on this game:

It's in bad taste, it's simplistic, and kind of dull as a game, other than trying to gauge the depravity of your friends (which can be amusing). I've played it once.

Why is it popular? It's an artifact of our times. We're deeply attached to identity politics, how lacking much else, many people (especially young people, it's argued) have taken their self identities as concrete and irrefutable, looking for offense and hoping to pillory anyone who disagrees, whether it's a web article or a coffee shop that serves the wrong type of bagel.

We live in a culture of perpetual outrage, and increasing fear of giving offense. You can have your business or your job taken from you with the wrong tweet or when someone has been slighted by your employee. Lacking strong cultural ties, we make up new identity constructs, and man, do we grow attached to them. We not only spend all our time immersed in our new identities, but we take great offense when that identity is questioned. 20 years ago, Cards Against Humanity would have gone nowhere. It would have been simply, offensive. 

It's popular because Cards Against Humanity offers up an evening of offensiveness as a way to step back from self identities and closely protected beliefs that are ultimately bullshit and empty of meaning. It's more a therapy tool than an actual game. Personally, I find that kind of boring, but if your life is a rigid, oppressive self identity paradigm, or you've been forced to live within one, it might let you take a step back, possibly providing some empty space to find some much needed humor.

It's hard to explain this game without coming off as an apologist. Does this make light of real oppression? Real racism? Real homophobia? Does it scratch all the isms? Most certainly. Does it justify oppression? I suppose it depends on which of the infinite number of self identities you're bringing to the table. Oh, and I'm not saying your self identity is bullshit. I'm saying all self identities are ultimately full of crap. That glimmer of humor provided by Cards Against Humanity, that brief open space, might just give you a taste of that. 

Or maybe I'm entirely wrong and it's as bad as people say. Maybe I'm standing on a soapbox of privilege, defending an instrument of evil while the world burns. I can't decide. 

Sunday, April 19, 2015

Mature Markets and Board Games

We've got a very diverse game store. Sure, we don't sell comics or frisbees, but we try to sell a wide variety of games in the key, four hobby game areas: CCGs, RPGs, Board and Card Games, and Tactical Miniatures. We use strong inventory practices to make sure each department is healthy. Diversification has been our calling card for years. Yesterday I realized two game companies now account for 43% of our sales so far this year.

The first one is an easy guess, it's Wizards of the Coast. They produce the biggest game in the game trade, Magic the Gathering, along with the comeback kid, Dungeons & Dragons. They also dabble in board and card games. The second game company is a bit of a surprise, it's the Asmodee Group with the other 16%. Asmodee Group owns Fantasy Flight Games and Days of Wonder, which is how they've gotten that second position. You wouldn't notice this if you weren't reading game trade news.

Our top 15 games account for 62% of sales.
The top 30 usually accounts for around 80% of our sales.
We sold games from 195 different companies.
What's most interesting to me about Asmodee, is they've bought the top position in the board game market. Each of our other game categories is what marketers would traditionally call, mature. There's a market leader with well over 50% of sales. Those games have been Magic: The Gathering, Warhammer 40K, and Dungeons & Dragons (until recently and that's another story). But what about board games? Board games has lacked a market leader, from that traditional definition sense.

Has Asmodee done it? Not quite, but close. Our Asmodee Group board game market share is 36%. Our next closest company is Wiz kids, with 7.5% market share. Their our Pepsi to Asmodee's market leading Coke. After Wiz Kids, it drops off significantly, like a mature market.

Why does this even matter? First, it's interesting that the French holding company that owns Asmodee Group, that buys things like parking, lots is also keenly interested in Ticket to Ride and X-Wing as a means to make money. It shows a faith and understanding of the global hobby game market that is not expressed elsewhere, especially when it comes to actual money. You can say what you want, but backing it with millions of dollars is the best speech.

Anyone with even a modest amount of money could do this, but they haven't until now. Does this represent a cultural shift? A cultural shift is what we're all looking for in the game trade. A cultural shift means we're not in a bubble, in a cyclical phase. It means this is the tip of the iceberg, an indication we might be catching up to Europe really. A cultural shift will mean we view money and risk differently. Not only will we be more willing to take risks, but other, more mainstream entities will as well. This new opportunity brings a huge amount of instability with it, which has traditionally been dangerous for the the game trade.

Second, it marks a maturation of the market and how board game companies will position themselves moving forward. It will likely mean a change to the distribution model. Not only is it likely exclusives will be pulled, such as with Days of Wonder annoyingly being sold only by Alliance, but Asmodee is positioned to distribute themselves, much as we do with Wizards of the Coast and Games Workshop (the other market leaders). That will only strengthen Asmodee as they bring in additional publishers and titles from Europe.

There are lots of retailer grumblings about the distribution model right now, with a lot of that aimed at how distributors handle Asmodee Group products. Distributors are acting as the ultimate arms dealer in these boom times, selling to us as well as Amazon and a slew of online stores. How each does this is a major bone of contention among retailers. Do they fulfill brick and mortar first or last? Do they sell to Amazon? Do they "floor" games for Amazon, holding them back? A direct to retailer model (which exists already with FFG), would be appreciated, especially if it came with organized play support. If we can do it with Games Workshop, why not with a company with three times the sales volume?

Friday, April 17, 2015

Third Place Theory and Game Stores

I'm going on a road trip vacation this Summer and wouldn't you know it, I found a way to include some work. I'll be going through Portland and visiting Rainy Day Games and Guardian Games. In Seattle I plan to see AFK Tavern, Cafe Mox, and Mox Boarding House. In Calgary I'll visit the largest game store in North America, The Sentry Box. This trip was really brainstorming how I could possibly visit The Sentry Box. Finally, in Salt Lake City, I'll visit The Nerd Store and Fongo Bongo. I'm still looking for ideas for Vancouver. I apologize if you own one of these stores and I haven't contacted you yet.

My main interest in game stores is how they employ Third Place Theory. It's essentially creating a social environment separate from work and home, which nowadays is an unusual thing, as opposed to baseline normal decades ago. A strong part of this theory is offering concessions, food and drink that anchor people to your place. Not all of the stores on my list do this, but many do, with Seattle leading the way.

Concessions is all the rage with game stores now and they're just starting to emerge in the SF Bay Area. Gaming cafes and bars are popping up all over the country. Some of these will be successful, while many will fail. Many. It might seem logical to combine these two things, game store and concessions, but they are not at all related business models.

If you're just starting out, your chance of successfully running a game store, like any small business, is pretty small. Add a second business model into the mix and it's incredibly difficult. Some experience in one of these two areas would seem like a requirement. Why do some hybrid stores succeed then? That's the question I hope to answer. Well, no, that's too dramatic. I'm just visiting, not filming a documentary. But I hope to grok what's going on with some visits.

As for Black Diamond Games, we're ever so slowly, glacially (I'll be seeing glaciers on this trip), moving forward with expansion plans. We'll know something for sure very soon, as our property management company gave us a construction bid in our ballpark. Would I ever do concessions? I could see doing it, but I would buy that expertise in the form of an experienced food services manager or partner. Personally, I'm highly skeptical of the model, but being highly skeptical is a key part of my job description.

Saturday, April 4, 2015

Profit Margins (Tradecraft)

An article has been making the rounds online about a poll stating Americans think the average company has a 36% net profit margin, a number so grandiose that that it's five times reality. Granted, this is from the American Enterprise Institute, so it was probably written with the intent that I twirl my handlebar mustache and adjust my monocle as I declare to Buffy how the common people just don't understand us.

The net profit margin for retailers in the game trade is in the 5-8% range. Retail in general is in the 1-9% range, with gas stations at the bottom and jewelry stores at the top.

I've written about this a lot, from the $100 board game that buys me a cup of coffee to the $1 can of Coke (net profit of 7 cents).

A 36% profit margin is basically assuming we get half the price of an item, plus some hand waving to cover costs, hand waving that comes nowhere near to reality. The devil is in the hand waving. Believe me, my initial business plan looked a lot like this. I nailed my sales projections, but I had no freaking idea about various costs, the 100 different office supplies, and the price of simple things like electricity that's three times more expensive than what I pay at home (per square foot).

Why is this important? It demonstrates that business is more fragile, with a smaller margin of error than most people think. If my rent, wages or miscellaneous expenses go up 10%, that's an inconsequential amount with a 36% profit margin. I can suck it up, right? But if my net profits are in single digits, that may have just wiped out half my profits. The ignorant free market crusader might claim that's economic natural selection. But this type of data shows they fundamentally misread the ecosystem.

There's also an educational component to this. In grad school, one of my professors half joked that Buddhist-Christian dialogue existed to avoid the Christians killing the Buddhists. Hey, we're just like you! I believe there's a similar undercurrent going on in American business. As income inequality is perceived as caused by all business, big and small, some education avoids a torches and pitchforks scenario. I know from online discussions that I am perceived as the man just as much as some Chevron executive, even though I make a modest, middle class salary. When they're smashing windows and looting in Berkeley, they're not doing it based on a spreadsheet of whose been naughty and nice. We're all bourgeoisie in their Marxist fantasy.

When all business owners are in the same boat, we end up circling the wagons. When they make it clear it's them versus us, we're far less likely to want to get to the bottom of crony capitalism and corrupt tax law. We're too busy installing security shutters and investing in new camera systems. That's not a metaphor. That's actually what happens. In reality, we have none of the power they associate with business and all of the burden. The real "powers that be" designed it that way.

Sunday, March 29, 2015

Scrutiny Toolkit ® (Tradecraft)

Are you tired of your game store competitors not playing by the rules? Do you feel cheated that you follow all the regulations while they pay their employees in peanut butter sandwiches while flaunting the law? Do you wish you could open up a box of legal whoop *** on them like a can of Popeye's spinach? You are in luck!

For $499.99, we're now offering the Scrutiny Toolkit®.
This handy box contains a step by step guide to verification and reporting violations of local, state and federal law. Plus, if you act now, we'll send you "Lease Schmease," our special guide that helps discover and report obvious lease violations by your dishonest competitor.

Here are just some examples of what you'll find in the Scrutiny Toolkit:

Local Laws:
  • Zone Alone. Is their store even zoned for commercial? There are some distributors that will still sell without proof of a real, commercial location. This should get them kicked out of mom's basement for sure.
  • Unlawful Assembly. The most common pitfall of game stores, are they zoned for assembly? Learn what trigger words to use with their local fire marshall for a surprise inspection and a schedule of upcoming Magic pre releases.
  • Hooky Me Now. Is their clubhouse a daytime hangout for local kids? Learn where to find the necessary busy bodies and how to plant bees in their bonnets. 
State Laws:
  • Taxes, Shmaxes. Does your competitor not collect sales tax? How about not giving receipts for certain sales? The Taxes, Shmaxes supplement will help you determine which (or both), and how to encourage a painful sales tax audit from your board of equalization. 
  • Slip and Fail. Use this tool to check if they carry business insurance as well as workers compensation insurance. Most "real" leases require business insurance, but they probably don't have one of those. 
  • Stapler Inspection. Did you know some states like California allow counties to tax common point of sale equipment, like the simple barcode scanner? Don't let a store fall through the cracks!
Federal Law:
  • Peanut Butter Jelly Time. Are your competitors paying their employees in peanut butter and jelly sandwiches? It's time that ends with this special supplement that ties back to Taxes, Shmaxes. The IRS and the Franchise Tax Board make a good couple. As an added bonus, we'll show you how to find the value of the that unreported peanut butter.
  • Inventory Mayhem. Does your competitor consider Magic singles "just some cardboard" with no intrinsic value? Learn about this and other tricks for not paying end of year inventory taxes in the "Mayhem" supplement.
  • Owning the Owner. The cherry on top is the fraud your competitor perpetrates by underreporting their personal income using many of the tricks above. Pete Rose, Leona Helmsley, Al Capone. All taken down by the IRS. Put your competitor in famous company!
Sure, you should probably Mind Your Own Business® (which you can order now for $299.99), but if bad behavior has you down. Order the Scrutiny Toolki® today!