Wednesday, October 26, 2016

Commoditization of Board Games (Tradecraft)

A friend in the industry recently commented that board games had become commoditized. What exactly does that mean? I will use the Investopedia definition:
Commoditize refers to a process in which goods or services become relatively indistinguishable from competing offerings over time. Generally speaking, commoditized products within specific categories are so similar to one another that the only distinguishing feature is pricing.
So board games become like the app of the month where you buy it as cheaply as possibly, burn through it as quickly as possible, and toss it aside so you don't run out of space. In the SF Bay Area, 1,500 square foot million dollar homes are not unusual, so even my better off customers complain about their board game collection sizes (we have a thing for that). There are numerous threads online about how many unplayed board games is too many or what can I do about my exploding collection.

The problem with this disposable board game market is the traditional costs of developing a board game assumes the game will be around for years to come. You're swinging for an "evergreen" item, one which will sell in perpetuity, or at least a very long time. You might go through half a dozen games before you get your evergreen. Now do that for a couple more decades and you have a thriving company. Traditionally, you're trying to create a company with a stable of games that provide enough income for future development and luxury items like maybe food for eating and shoes for wearing. 

I used the word traditional above, because there's another model that works far better in a commoditized market, and that's crowdsourcing. There are some board game publishers that are happy to develop a game for a set community of backers, who may produce a small percentage beyond this for retail, but who are completely happy to never reprint that game again and move on to the next one. I don't want to go so far as saying Kickstarter is the cause of commoditization, but it's certainly the best model if you want to go with the commoditization flow. 

If you want to frantically design games until the day you die rather than build a company that sells a variety of "evergreen" games, by all mean, one and done it on Kickstarter. I'm sure there are game designers who see this position as impure and selling out, much as there are game store owners who think profit is theft from customers.

Coming in as a brick and mortar retailer, the commoditized model is not one in which I want to engage. It's a market that I'm likely to walk away from to focus on less volatile areas. I don't have to sell board games. A commoditized market is about price and volume, two things brick and mortar can't provide well. It's also a little demoralizing when I'm picking up the tail end of some Kickstarter board game that I know we'll never see again. My desire to know anything about it, to even read the back of the box, is close to non existent. Commoditized games are indistinct from one another from a business perspective. But what if that game isn't a Kickstarter? The market is still commoditized, so how do you break through the price is king feature of commoditization as a publisher?

The first thing you must do is try to de-commoditize your game with some sort of pricing scheme to attempt to maintain some semblance of value for your partners. This method provides risk reduction for retailers. I won't go into detail here as there are many schemes, but Asmodee is the best example, restricting how retailers price their products online. If you read board game forums, which I highly don't recommend, you'll hear talk of the Asmodee "monopoly" or other End Times discussions. This is from hobbyists who are fine with commoditization and dirt cheap prices. They're happy to watch the world burn as retailers, who build board game communities (that later tend to migrate online because of commoditization), flee from this market segment.

The second thing you can do is find a way to take advantage of a market segment for maximum benefit. The best example of this is convincing brick and mortar stores that your game is unique and they need to partner with you in marketing efforts. Ignore the man behind the curtain whose selling through every conceivable sales channel, you, hobby game retailer, are the one we want to partner with (because the others don't have game space, yet). This includes organized play programs, early release programs, buy a case promos, demo copies, you name it. This assumes you've attempted price stabilization because nobody wants to demo your game if it's 40% off online.

The problem with working with retailers in a commoditized market is only those who have a strong board game operation have the desire to partner with a board game manufacturer. Commoditized products don't need hand holding. The average game store wouldn't know what to do with a demo copy.  However, a strong board game operation can take these resources and turbo charge their sales. It's been shown that a well done demo program can increase sales of a title by 400%. That's money for everyone.

What publishers need to understand is only a tiny percentage of brick and mortar game stores are capable of running such a program. It takes a focus on board games (only one store per market can be this) and enough staff to pull it off. One of my favorite stores is Rainy Day Games in Aloha, Oregon. If you walk into that excellent store, staff are actively selling or demoing. It's an active sales process that is in the minority in the hobby game trade. We all aspire to such a store, but most of us are years away, if we ever get to that stage at all. Just remember, you have to stop the bleeding with price stabilization before you start sending out demo games to distributors and retailers. Nobody demos peanut butter or toilet paper. No retailer wants to spend time with a commoditized product.

Monday, October 24, 2016

Diversification and Board Games (Tradecraft)

There can be only one.

That's my general statement regarding local markets and game stores carrying board games. It's my impression, through personal experience and watching other markets, that one store will get the majority of board game business, enough for strong performance metrics, while the other stores won't get enough. The other stores will dawdle along, wondering why everyone suggested they carry these meeple mishaps in the first place.

I dawdled for several years before my biggest competitor retired and I took up the mantle. While I waited, I learned to play a couple hundred board games and figured out how to manage a board game inventory that was pretty much ignored by my customer base. I often wondered if there was light at the end of the tunnel, what exactly it would take to hit it with board games. Sound familiar? Many stores are in this boat.

There are other factors besides Not being The One. There are an increasing number of sales channels gobbling up a hot board game market, including Kickstarter, Amazon, Target and the flailing of brick and mortar stores on life support like Barnes & Noble and GameStop. You would think that with board game sales taking off nationally, there would be room for stores to jump into the mix, right? The pie should be growing. Nope.

We're seeing a problem where there are simply too many sales channels, combined with too many stores that can't differentiate themselves with their top board game inventory strategy, and most importantly, a glut of too many games being published. This glut means distributors are short ordering, resulting in brick and mortar customers being driven online to find their elusive games and most stores unable to place a heavy pre order to avoid the outage.

When Barnes & Noble carries the top 100 board games, how many board games do you think you need to diversify yourself from them? How many to diversify yourself from your local game store competitor? 500? 1000? Can it even be done if there can be only one?

Unlike Magic, which keeps many stores afloat, you need to own your local market or cede the space. Unfortunately, with Magic in the doldrums, that can mean closing your doors when you can't make board games work for you.

But that's just an observation. I could be wrong.

Wednesday, October 19, 2016

How We Run Events (Tradecraft)

This is an article about how we run events. Our way doesn't work for everyone. We're in a suburb of the San Francisco Bay Area. We have a large population base, but not a large group of gamers, per capita, as say a more urban city like Berkeley or Oakland.

That means there are fewer game stores out here, serving fewer gamers, who have generally limited tastes, with at least half of them buying their games online. Store demography envy is a thing, and I often suffer from it, wishing we had more customers with more divergent interests. We would sell indie RPGs and artisanal miniature games all day long, if we could.

Pay to play is what we call our event structure, but in reality very few actually pay. Instead, every event, at a minimum, has a $5 cover price that goes directly to your store credit account. So you pay $5 and you get $5 of store credit. This ensures that customers are ... well ... customers. I see no value in non-customers taking up space and using my air conditioning. Warm bodies just screw up my ambient temperature, they don't help generate the extra $2000 a month I now need to cover our construction loan payments for the space they are using.

Games played must be games we sell in the store. Games we sell in the store have to meet sales performance metrics or they're dropped. When a game is dropped, such as when it becomes devalued and customers buy it primarily on line (like Warmachine), events will likely not last long. We don't run events so customers can play with the models they buy online. Our competitors do though. You might try there, while they're still in business.

Events must meet consistently to be effective. This means weekly. If you can run a D&D event every other week, we're not interested. If you want to occasionally run an event on a weekend, again, no go. Only games played weekly have a shot at surviving and only when they're run once a week.

Running board games twice a week means both events sabotage each other, especially during periods when attendance drops off, like the upcoming holidays. Even Magic, which will now be run every night of the week, will feature different formats, essentially different games.

Why do it this way? It keeps me from murdering my customers. Really, you wouldn't believe what we put up with before. There's nothing more abused, nothing that creates more resentment, that brings in more entitled people than free. Free means take a dump on my carpet. It's a sign flashing abuse me. We don't do free. This will turn away some customers, but that is alright. This is a premium position for a game store and honest to the gods, we try to run it like one. Our Return on Investment because of our build out was six years. We swing for the fences.

Open Play. We allow free open play only when the calendar is clear. So there's open play during the week days. There's open play on weekends where we have no events scheduled (since every week night has something scheduled). Open play is a failure on our part to come up with a compelling event, so it's not a thing we hope to have much of. Open play is not an option at any time an event is scheduled, regardless of space available.

In exchange for this managed model and nominal (non) fee, we have clean bathrooms, working air conditioning, strongly enforced polices that keep our space safe and secure, attentive staff and best of all, events that entertain and delight. The cost is ridiculously low for hours of entertainment. Thankfully our community supports us in this endeavor and our space was at capacity for years before our recent expansion.

Finally, thank you to the community that supported us during our expansion, especially those who contributed to our Kickstarter in 2014. I also want to thank those who continued to shop with us during expansion. You are why we're still in business. The miniature gamers were especially good to us, our Sunday Morning Skirmish crowd and our 40K crowd. Miniature games was the only category that went up during construction. Thanks so much!

Thursday, October 13, 2016

Game Center is Built

It took two and a half years to get it built, but our new Game Center is complete. If you were reading this blog back then, you would have seen some optimistic plans, such as how construction would be completed within a few months of the Kickstarter or how it was the cost of a new BMW (more like two). We still need to paint our "Wall of Heroes" in the Game Center, but we're essentially done.

When our original construction plan fell through, it turned out I had little to no control over the fate of the project, at least until the biggest financial deal of my life came around, also known as my lease re-negotiation. With a builder and a deal established, we then canvassed out Kickstarter backers and asked it anyone was willing to loan us money to complete the project, which at that point was around double our initial estimate.

We got enough money to get construction started, and funded the rest of the loan as the second payment was due. The third payment is due any day now and lower sales during construction means we've had to do financial gymnastics to come up with it. The project ended up costing way more than even this doubled initial estimate, but we negotiated the cost of the project up front, with the builders taking a huge loss.

I don't want to dampen the excitement about this project. Our hopes are that we can hold bigger events, generate more sales, if for no other reason than to cover the construction loan payments. I'm sure it will more than that though, a long term profitable project. However, right now we're all just tired. I processed our biggest payroll ever this week, as I paid staff overtime pay to get in there and do the final painting. I ruined a pair of pants in the process, which I'm kinda proud of. We are weary but hopeful.

The big issue, looking back, is opportunity cost. Opportunity cost is about what you could have done in that time you spent doing the other thing. The opportunity cost of a game store for a professional who could be doing other things is often staggering. It's about a million dollars for me. The opportunity cost for this project is all the things we could have been focused on as a game store, or spent money on over the past several years. That might be a second store, doubling our inventory or even a retirement fund. It's huge and without the realized benefits of the project, which will come later, the opportunity costs seem overly steep right now.

In other words, I need some perspective to judge what we've accomplished, perspective coming from time or from someone outside looking in. As much as I'm not an attention seeker, it would be good to have follow up trade interviews or even a real news story about this project from someone looking in. This Game Center project cements us as the counties premier game store, a hub for the gaming community. If you know any press folks, please send them in my direction. I promise to bring the enthusiasm.

Finally,  we've got a coupon we're giving out for an excuse to visit again. We're in an odd cash flow crunch, where we have free rent for the rest of the year, but we've got about $20,000 in construction related expenses that we have to pay this month. We're beating the drum and trying to get customers to come take a look, and spend a little money of course.

Perhaps what we need is a question and answers post? If you've got questions, please ask them in the comments.

The unusual end date? The day before the credit card payment is due

Friday, October 7, 2016


I received an anonymous letter today, along with $200 in twenty dollar bills. From a nondescript, hand written envelope, it looked like prison mail. We sometimes get letters from prisoners desperate for any sort of games. This letter was different though, a confession of a past transgression, theft from a product line we no longer carry, along with a pile of twenties to make up for it.

We're square, whoever you are.

I've read that making amends in recovery programs is about opening up what was previously closed off. This opening up provides the freedom to re-enter society, a sense of justice for yourself and others. While a lot of recovery is about yourself, this is also about your positive role in the lives of others. 

In retail, shoplifting is euphemistically called shrink. I think shrink refers to the shrinking smile of retailers who start off idealistic, but slowly lose faith in humanity. It's easy to become jaded over the years and it seems only other retailers can commiserate with us. The grinding shrink, the 1-3% constant drain, can leave you exhausted. One friend told me to get out before I lost my soul. This is what he was referring to.

On my refrigerator
So this making amends for shrink does widen my smile a bit. It does restore my faith in humanity a little. I do forgive the actions of this person. I hope they find the freedom and happiness they deserve, that we all deserve. 

Friday, September 30, 2016

American Religion and the Shepherd (Tradecraft)

I was searching for a dead chick in my chicken coop yesterday, not a pleasant task, and was thinking about the religion of America. It's Capitalism of course, but I was thinking about its brutality and how that brutality is whole heartedly accepted by its worshippers, the American people, both conservatives and liberals.

After being pecked to death, the chick ended up flattened under foot by the flock, intentionally buried in debris and forgotten, a victim of the literal pecking order. Survival of the Fittest is the core doctrine of American capitalism, and it's believed those trampled under foot are deserving of their failure.

Conservatives want unfettered capitalism, while liberals are happy to fetter away for the good of the people, but both groups agree that if you can't cut it under the Capitalist system, your business deserves to die. How you survive is part of the Mystery of the system, but how you die is all on you and your personal shortcomings. There is forgiveness, in the form of a liberal bankruptcy system, but they don't have compassion for failure. What can you do to become successful in such an inherently violent system?

Be the shepherd. Be the shepherd for these very people who will show no remorse if you fail to lead them. You can't win fighting fire with fire. It's difficult to be the shepherd when consumers are so mercenary, but it's essential for breaking down barriers between you and them. A shepherd doesn't scold the flock with "no" signs and needless restrictions, they instead guide the flock.

Far too many small businesses think they can bully customers into behaving in a beneficial way. There are the obvious ones who pick fights with the Internet. There are soup nazi comic book stores that restrict customer access to serious collectors. My big competitor when I was a small shop was known for telling customers their game was stupid, because it didn't align with the clerks interests. The consumer universe is vast and the choices are many. You cannot win through force.

Customers want to get past the violence inherent in the system (to paraphrase Monty Python). They seek connection. They want to believe. Knowledgeable staff should shepherd them through the valley of economic darkness. It's not as hard as it sounds. Being shepherded is the role customers want to play, but they have to be given the opportunity.

I'm not calling customers sheep, I'm addressing consumer psychology. There is a small, but sizable percentage of consumers that are highly analytical and dread human connection, mostly shopping online for optimal benefit and minimal contact. Those are not the customers I'm talking about.

The base for a game store is the casual gamer, the person just starting out who needs assistance in understanding why the hell you need both the 5-6 player expansion for the base game and the 5-6 player expansion for the base game expansion. How can this madness have continued through four editions? These are the existential questions only a shepherd can answer. You must guide them them through this darkness.

It's easy to get caught up in your business model, to work on your core competencies, especially when most of business success is about the decisions you don't make. But when it comes to customers, take a step back and listen. I know a lot of the listening involves a staggering amount of dumb. It's something inherent in the human condition nobody can possibly comprehend until they work retail. We are ground zero for the human condition, where desire meets stupidity. However, most customers have legitimate needs that we're not addressing. Flatten the pecking order. Get out from behind the counter and come down to their level. Be the shepherd.

Thursday, September 8, 2016

The Problem With The Game Trade (Tradecraft)

Retailers buy product from a handful of game distributors. Game distributors sell to retailers based on a discount model. This model starts low, as low as 45%, and moves upwards based on volume, tapping out at around 50%. There are some secret discount tiers over 50%, but nobody talks about that.

Each distributor calculates your discount separately, so you may have a 50% discount with your primary but only a 45% with your secondary. Retailers try to play a balancing game, since sometimes you need core product from your secondary and you don't want that garbage discount.

As you move more volume, your discount tier rises, reducing your cost of goods. This is great! We're in an industry with a net margin of 5-10%, so a percent off your discount could be as much as a 20% increase in your take home net. Few retailers actually understand this math, they just know it's a good thing. This also assumes you have profits, as you may seek out a better margin just to survive! The difference between negative one and zero is the biggest bridge a retailer will ever cross.

Most stores gradually grow into their discount, usually with sticking with a primary distributor long enough to hit the top tier. Some get close. It may take years. It may never happen at all. I recall being stuck at 49% for a number of years. There's an obvious way you can boost your discount and thus your net margin: buy more!

If you buy more, you'll always have stock on hand. You will always make the sale. Of course, you'll always have overstock on hand too. However, the Internet is there to help. Some retailers over buy, get the security of never losing that sale, and then conveniently dump the rest at cost online. The logic is they're peeing in someone else's pool.

This dumping activity, as we now understand, is bad. It devalues the market and makes it harder for brick and mortar retailers to sell at a sustainable price, including the retailer doing the dumping! It's thought most discount games out there now are from brick and mortar dumpers. The argument then is that not all discounting is bad, that some discounting is normal and sustainable as a model, but that the vast amount of brick and mortar dumping is causing the alkaline level in the pool to rise to dangerous levels.

As games become devalued, game stores stop selling unprotected games, those created by publishers that do nothing to protect their brand value. As publishers protect their brands, dumpers move to less protected brands, accelerating the process. Now this is all new for publishers. They haven't had to deal with this in the past. The difference here is the game trade is booming. Despite the doom and gloom from the Internet crowd, brick and mortar stores are killing it. When boom times come, an interesting thing happens. All the perversions in the system become glaringly manifest.

The response from publishers is to absolutely protect their brand value, as happens all the time in other industries. This game trade brand value protection is not new, unique or otherwise special. The publisher solution is various price protection schemes. The cost of these schemes are then passed on to the retailer, who is expected to not only silently absorb the cost, an issue that nobody even mentions in discussions, but retailers are asked to be thankful for these actions. Wow.

Of course, the real problem here are the perverse incentives. The problem is the distribution tier and their discount model, exacerbated by jointly embracing MSRP. It's hard for me to point the finger at the middle man and claim they're the root of all evil, since I am a middle man and there are people pointing their finger at me claiming I'm the root. Nobody wants to talk about this, since retailers have a tendency to grab torches and pitch forks and ruin conversations. They grab these implements of destruction out of frustration, as they have no power in this model.

This whole situation reminds me of the Ptolemaic model of the solar system in which the Sun revolves around the Earth. Through the most twisted yet accurate mathematics imaginable, theoretical spheres of epicycles and deferents allow the planets to revolve around the Earth. It's the art of coming up with elaborate schemes to support your hypothesis, when the simpler answer is unpalatable. The mass the game trade revolves around is publishers, not distributors.

I'm not suggesting a solution. I'm not grabbing a torch or pitchfork. I am saying admitting you have a problem is the first step towards recovery.