Thursday, November 8, 2018

Mistakes and Intent

For two hours this week on the day it was announced, I sold the new Ultimate Masters Magic set for a ridiculously low price of $225. There were a few reasons. This set was initially greeted that day with profound indifference. When I queried my staff, they told me it appealed to the grinder crowd, which has nothing to do with gay sex, I'm told, and everything to do with wheeling and dealing Magic cards as commodities. That is certainly not our crowd, as we cater to the more casual player. My sales rep threw up his hands with a big "who knows" when I asked if he thought it would be hot. The biggest reason I low balled it was the release date, December 7th.

Why is that important? Like 90% of game store owners (I took a poll), I use the fiscal calendar year. In the United States, if my inventory value was X on January 1st of this year, I am taxed on the amount over X on December 31st. It's taxable income hidden in inventory. Canada doesn't have this, which is why you can see glorious "museum" stores there with vast inventories. Also, in case you're wondering about changing a fiscal calendar year, small corporations like mine need permission from the federal government. Their response is "get bent, you made your choice."

A Magic release in December, although likely profitable, is not welcome. It will mean holding extra, inactive stock of this product in exchange for strong turning stock that is actively making money. Long story short, the correct amount of Ultimate Masters to buy on December 7th is 24 days worth. When I buy a Magic set, it might last a weekend or it might last three months. So Ultimate Masters was ultimately dangerous, especially at a price point of $336 per box. Blowing it out is a reasonable fiscal decision.

So that night I mangled a flyer to read $225 to attract customers I wouldn't normally have, for a product I didn't want, that I necessarily needed to blow out in 24 days. I posted it in our private Magic forum on Facebook, hoping we might get a few pre orders in the next few weeks. Then the calls began. My manager texted me, asking if I was sure that was the price I wanted. Store owners from 200 miles away called to make sure my head was on straight, because their customers were about to jump in their cars and drive to my store. Then I checked my distributor's website, because remember, Wizards of the Coast just stopped selling direct to game stores. Oh boy. I had made a big mistake.

Our distributor Magic prices are going up significantly starting January 1st, because Wizards of the Coast is reducing our margin significantly without raising the MSRP.  That January 1st price change date assumed there were no other Magic releases for the rest of the year. This surprise release caught everyone by surprise, so those January 1st margins? They went into effect starting in November with Ultimate Masters. Not January, right now. What was going to be a modest profit on this release, was now going to be $10 of gross profit, which is a bit of a disaster. So now what?

I did what any retailer would do, I made a course correction and increased our box prices to $250, which was still $50 less than any online price that evening (putting it at $250). The two people who bought boxes at $225 got to keep their orders intact, of course. I didn't suddenly demand an extra $25 from them. One person who wanted a bunch at $225 but couldn't pay that evening was angry and threatened me, but we eventually came to a resolution that made us both not homicidal. Here's where it got a little dodgy ethically though.

My crazy price had spread far and wide. There was a Reddit post. Reddit is an Internet bulletin board system I'm told. The resulting buzz for $225 per box brought in many customers, who ultimately shrugged and paid $250 a box, because it was still the best deal out there. I sold a couple dozen boxes, where most of my store owner friends sold a couple. The question you should ask: Was this Bait and Switch?

Bait and Switch is where you advertise one low price to get customers in your store, only for them to discover a higher price when they arrive. There's a good article on this here. Retailers make mistakes, and I clearly had made a big mistake with this one. The difference between bait and switch and an honest mistake is intention. Did I intend to advertise for two hours my $225 price so I could raise it when customers called in later?  If so, that's illegal bait and switch. Was it an honest mistake? The same actions, even though they resulted in the same phenomenal sales that would have occurred with illegal and unethical bait and switch, are just a mistake, if it wasn't your intention.

Eyebrows were raised, and what I want to say is good. Eyebrows should have been raised. It's a shady and illegal tactic if done intentionally, and the only way to know for sure is to get into my head. That's worth an eyebrow raise. I also want to say sorry, I made a mistake. I apologize for that. I paid the rent on Ultimate Masters, so I'm glad this happened, but I also acknowledge I burned a lot of social capital to do it. I certainly won't make that mistake twice, if I can help it.

There are some who will be angry and suspicious regardless of what I say, and to them, sorry, I can't help you. For the rest of you, I think this is an interesting parsing of a mistake and what this means ethically and legally. We make so very many mistakes in small business and most of the time they cost vast amounts of capital and time. It's not entirely terrible when one works in your favor. Now I just hope my allocation is big enough to cover my pre-orders. Whee!

Monday, October 29, 2018

5 Reason You Shouldn't Start A Game Store

Here are five reasons you shouldn't start a game store, right now, in California specifically. Some of these apply to other regions, but it's specifically my market. Later I'll write about five reasons you should start a game store in California right now. There are few times when it's clear you absolutely shouldn't start a business, and they tend to involve national catastrophes. Most of the time, there's a little of column A and a little of column B. But for today, here are five reasons you shouldn't start a store in California right now:

1.  Wages. While other regions of the country work with the very low national minimum wage of $7.25 an hour, California's minimum wage is at $10.50 an hour and rising dramatically with no end point in sight. In three years it will be double the national minimum and it will continue to rise by law. This is because we've got a mismatch of education and jobs and we're trying to turn every job into a living wage position. I don't know how traditional retail stores will survive this without double digit growth and robots. Retail stores that use an MSRP system cannot raise prices to make up for higher wages and the only hope is a "rising tide" scenario where all these workers (about 50% of the workforce and climbing) have more money to spend with us. But you know where they'll spend it? Let's look at number two.
2. Rising Inflation. The Western region consumer price index rose at 3.4% last year, over 50% faster than the rest of the country. This means not only are your expenses rising, but the expenses of your customers are on the rise. The game trade addresses inflation by shrinking your margin, which we'll get to, rather than raising prices. With all that wage growth in California, you may wonder about the net result. California income rose 4.5% this year, which only leaves a small 1.1% net if you look at that 3.4% inflation. Wages are rising, inflation is rising, nobody is getting richer, but your store is become more expensive to run.

3. Retail Apocalypse. The report of the retail apocalypse is mostly overblown, however, there is some truth to this as the United States has roughly ten times more retail square footage than other developed countries, with large retailers falling off cliffs regularly at this point. There are simply too many stores, that are too large, selling the same things and scraping by.  The likelihood of a recession nuking as many as half of retailers -- permanently -- is rather high, leaving survivors like us in strip mall ghost towns. There are only so many nail salons and massage parlors to fill in the holes. At least half of retail, right now, are dead stores walking. A recession is coming (it's always coming) and there will be a retail reckoning. Although game stores are counter-cyclical, meaning we'll survive fine, the retail infrastructure is likely not to be the same afterward.

4. Shrinking Margins. The big publishers like Wizards of the Coast and Asmodee reduced retailer margins by several percentage points each. This means you have to sell more product to make the same amount of money. My store needs to sell $7,500 more each month, just to offset Wizards of the Coast's margin shrink. That's an extra 150 D&D Player's Handbooks, or 1,500 copies if you're Amazon, who sells these books at our cost. That's pure fantasy. We're moving towards mass market margins, which means you'll need rapid growth and high sales velocity to stay in business in the future.

This makes it increasingly difficult to start a store with Magic as the cornerstone, and that's probably half or more of new stores. When Magic is no longer the cornerstone, it also means stores will be smaller, with less game space and less marketing power for the rest of the game trade. Those who don't believe game stores are a positive marketing force for their game, may be in for a surprise when they change formats.

5. Massive Instability. Traditional retailers, who rely upon a catalog of games, built over decades, are struggling to survive due to the constant pressure of one-off crowdfunded games. There are ten new board games released each day. While traditional retailers build a business with traditional relationships with publishers, crowdfunded game designers are interested primarily in getting a game directly to the consumer, rather than building a catalog and a brick and mortar company. This instability leads to disintermediation by desperate game publishers, which often harm brick and mortar retailers. Crowdfunding is something we've embraced as retailers, but for the most part it's a disintermediating force. Publishers of all stripes desire to get as many direct sales to consumers as possible. You are the middle man. The middle is friction and cost. Nobody wants to feed the middle, if they don't have to.

Doom and gloom is easy. Retail is about two steps forward and one step back. Anyone can talk about that step back. In the next post I'll talk about the two steps forward, why you should start a game store. In reality, it's a poor business model in a ramshackle industry and you should do anything else if you can. However, if this is really what you want to do, there are good reasons to get in now. Or at least that's the sunshine I'll be selling with my next post.

Friday, October 26, 2018

Your Extended Purgatory (Tradecraft)

I was lamenting about the slog of retail yesterday, because really, most of us would be promoted or fired if we did the same thing for over a decade. One of my store owner friends, who has 24 years in business, commented that maybe, with my 14 years, I'm still in store owner purgatory. Store owner purgatory is when you are not quite profitable enough to do what you want, you have limited wiggle room, and all you can really do is work your way forward out of the hole.

When your perspective is you have done this long enough to be a success, a slog in year 14 is demoralizing. It's your ego telling you you're better than this. Your ego is a dirty liar, so if you can trick it, you've accomplished something. If you take a longer view, like say, if you've been doing this for 24 years, it's a liberating concept that maybe your struggle is only coming to a middle. Your ego can go back to sleep while you vacuum another million square feet of store space.

The real problem as small business owners is we know how to fight, but we don't know how to win. We make good underdogs but terrible overlords. Americans love the underdog and as you can hardly make a mistake if you are small and scrappy. Big and arrogant? You can't walk to the restroom without offending someone. Most of us don't have the answer to "Now what" when it comes to success. This is why small business ownership is always a risk and why when we approach the top, we tend to make one of two big mistakes: disengagement or overextension

I work on my Jeep to avoid gnawing my arm off, typical disengagement.  It means I'm taking my eye off the ball and growth is taking a back seat. I engage in risky construction projects more out of boredom and the need for a new personal challenge, rather than business need, typical overextension. Business eventually becomes boring, but only when you've reached a certain height. Re-define your progress as being somewhere in the middle, and your perspective brightens and your decision making improves. So the lesson here is find your extended purgatory by redefining your struggle as somewhere in the middle.

Wednesday, October 17, 2018

Embracing Your Inner Venkman (Tradecraft)

One of my friends loved to play a fighter in our D&D game. He had a high powered job, owned his own business, had a growing family, was active in the community, but had zero time to learn new editions of D&D, so he played the fighter. Run in and smash monsters. Mostly he wanted to hang out with old friends. He and I both referred to him as the Venkman of D&D players.

The character Peter Venkman from Ghostbusters is a brilliant scientist, but he's also a charlatan. He's highly educated but refuses to play his role, which allows him to think outside the box. He kinda knows his trade, but he's highly skeptical and doesn't take it too seriously. As a metaphor, being the Venkman embraces imposter syndrome and turns it on its head. You know you're smart enough for this game and you know everyone is faking it until they're making it. Eventually you'll master what's going on and rise up to save the day. Much like Peter Venkman.

Imposter syndrome is strong in the game trade. Most of my peers are young, often having started in their 20's or early 30's. Most never owned a business before. Many will tell you their previous game trade experience was working a few years in a game store before owning one, or like me, they had never worked in a game store before. I also can't think of any with business degrees, but most have some interesting experience in their backgrounds.

If you've never owned your own business before, let me tell you the the freedom is both breathtaking and terrifying. It's like parachuting out of a plane with armfuls of silk and being expected to knit a parachute on the way down. Will you make it? Nobody cares one way or the other. Society doesn't have a support network for people dumb enough to jump out of planes. For months I felt like the job police were going to come in and tell me to get back to my real job. As you leap out of the plane, you scream, "I don't belong herrrrrrrrrrrrre!"

Those of us who have succeeded did so by quickly seeking out and mastering best practices, not because we wanted to succeed, but because we didn't know what else to do. I learned how to run a store by running a store, losing a ton of money along the way. During this time, many will tell you about their imposter syndrome. For me, I always fell back on Venkman, referring to myself as the Venkman of game store owners. I'm smart, I'm brash, I can figure this out and save the day, but mostly I'm faking it until I've made it. My investor friends, including the fighter, would use the Venkman metaphor in our annual meetings.

Being a Venkman does mean rising to the challenge, rather than just being cynical and cocky. During my first Christmas season, after a month in business, an older woman scolded me for my pitiful board game product knowledge, as I knew perhaps six board games. The next month I started a private board game night, staying late once a week with friends to learn new games. Within a couple years, I had 100 or so board games I could talk about, having played each of them, and probably four times that number I could fudge. Fudging, reading the back of the box, comparing what you don't know to what you do know, is the key to board game sales. There are ten new board games a day. Nobody knows every game. Nobody needs to.

Being the Venkman also means relying on those around you. I'm probably our third best sales person right now, in year 14, but I've got my Egon and Ray to help me out. An important Venkman trait is to surround yourself with people smarter than you. I've got a Magic judge on staff who can answer any Magic question, a board game guru who can sell $1,500 in board games on a busy December day, a manager who can handle any crisis and solve any problem, and support staff who go out of their way to satisfy customers. With such great staff, it turns out I'm still the Venkman.

Sunday, October 14, 2018

Demographics (Tradecraft)

I would rather talk about sex, religion or politics than demographics. Demographics is about class and race and some rather unsavory conclusions about how people spend money. Many new store owners ask about demographics and I'm reluctant to have that discussion casually, because it's nuanced.

Demographics for a game store are how people spend money right now.  We may want people to spend money in a different way, we may (and should) build a store inclusive to everyone as we seek out new markets, but demographics is about right now. How is money being spent on hobby games right now. Who are these people?

Some store owners and even corporate retailers erroneously believe they should place game stores where there's the most money. Games Workshop did this in my region about ten years ago, placing a store in the highest income zone in my region. I laughed, and they were gone in a couple years. I've charted out my customers by zip code and those high income areas might as well be pastures, for the revenue it brought me. 
High income is not the key to demographics. The wealthiest among us tend not to play hobby games, or at least they don't buy them in local game stores. I used to be one of these people before I started, just making six figures, driving a new BMW and wondering why stores weren't catering to me with my particular tastes. It turned out I was an outlier. I was not the target market, and it took opening my own store to realize that. My high income peers spent their hobby money on skiing, buying cars like mine, and travel. The chart above shows hobbies by income (click on it to blow it up).

On that chart, towards the bottom is playing games. It's a past time for those making around $50K a year. However, I would put hobby games a tad hire than that, being a high brow type of playing games, perhaps $60K-$80K a year. This is my tribe. Any higher or lower and I'm spinning my wheels.

I have no way to track education amongst my customers, but my general feel for hobby gamers is they are fairly well educated, but somewhat underemployed. They are smart people underutilized in the work force. What that tells me as a store owner is I seek out high education levels but only upper middle income. A low level of education and a high income is not my tribe, as games for them are Monopoly and they spend money on their Jeeps and jet skis. Low income and high education better be a college campus or I'm sunk there too. An awful lot of store owners are slogging away in communities like this due to the hollowing out of the middle class.

The graphic below is from the Phoenix area (thanks to Michael Bahr for finding it). If I were planning to put a store in this region (which dear lord doesn't need another one), I would be looking for that third tier of income, the $60K-$90K crowd. I would shun higher and lower income areas and hopefully find a central location along a corridor with third tier customers. I could be entirely wrong about the Phoenix metro area, but that's where I would start.

Of course, I would also want to look at the education level of these Phoenicians, hoping they had college educations and they weren't high paid blue collar workers. Now you can see why this is a touchy subject. 

Gender is really only an issue if you're planning to open near a military base (85% male). Our customer base tends to be 75% male, but there's not a good way to build a store around that, since the population is evenly split by gender. Note that college campuses used to attract more men than women, but now women make up 56% of college campuses, with their number expected to rise slightly over time. Gender is a growing segment of hobby gaming, however, but that's more about store design than choosing a location.

Now lets get on to the elephant in the room, race. The hobby game trade does not appeal equally across racial demographics. It just doesn't. Publishers might dabble with themes and concepts within hobby games, but you can't change cultural norms by trying to make a version of Catan that appeals to a new racial group, although games like Yuigoh have somewhat cracked that. If a group doesn't play hobby games, it's going to be tough to change behavior. We explored that a bit when we visited game stores in Mexico and Guatemala this summer, where machismo meets Not Invented Here.

The vast majority of our customers are Caucasian and Asian. I live in Richmond, California which has some pockets of the right income and high education levels, but racially it's primarily African-American and Hispanic (65%) with a lower income threshold. I enjoy living in Richmond, but I wouldn't put a hobby game store here, so I drive 30 minutes a day to where a game store makes sense. As my neighborhood gentrifies, the local people fret, but I see game store opportunities emerging. Maybe another decade. I'm so conflicted on the topic of gentrification as a capitalist liberal.

Anyway, this my impression of what I'm looking for in a game store demographic. There are entire states in this country where this demographic doesn't exist. It's not there, no matter where you look. When you don't get your demographic, you either get wealthy people who couldn't care less about your existence (cater to their children and sell them toys, there are examples of how this can work), or you get gamers obsessed with value-seeking in a salted earth retail environment. I can't tell you not to build a store on salted earth. People want to put stores in the communities where they live. However, If you have a choice, look for greener pastures (but only a few shades, not too green!).

Friday, October 12, 2018

Find Your Tribe (Tradecraft)

When I first started my store, I applied to the GAMA mentorship program. I got a call about 18 months later asking if I was interested, and considering how far I had gotten in my business, and how I had established my support network, I declined. That has been a major shortcoming of GAMA since I began, and it's not much better now.

Although I never had a mentor, I had people in the trade I networked with and followed -- sometimes too closely. Most are gone now, retired, passed away, or they simply stopped doing the thing. Some newer people looked up to me and sought my advice and now they've far surpassed me in the trade and I seek them out. Some are plugging along doing the same thing without much change or growth, and they're no longer on my radar. It's almost always about finding smart people full of good ideas and a positive perspective, and less about comparing bottom lines.

Besides the obvious need to learn how to run a better store, the biggest reason for finding your tribe is temporal displacement, something most Millennials are familiar with. If you do this long enough, you'll likely find yourself in a time bubble. The world around you will continue at a fast pace. Your friends and family with likely make great strides financially and personally. Meanwhile, you've chosen the Slow Path. Relationships and family, home ownership, plans for retirement all take a back seat to the voracious monster you feed each day.

Running a game store might bring you happiness, but the Slow Path certainly doesn't bring riches or leave a lot of time for many personal accomplishments. If you start comparing yourself to those outside the field, you may experience alienation and disorientation. Depression and suicide is not uncommon in small business. That's where a strong support network comes into play.

Finding your tribe is finding like minded individuals to share your victories and drown your sorrows. As I've said before, only other small business owners are likely to understand the lifestyle of a small business owner (those on the outside get upset when I talk like this). Find that understanding to keep you growing, maintain sanity and support your business. Eventually you're likely to get to the stage where you'll poke your head above the trees and see daylight again.

Monday, October 8, 2018

Do What You Want (Tradecraft)

There's a Mark Twain quote, "Find a job you enjoy doing, and you will never have to work a day in your life." He also said, "All you need in life is ignorance and confidence, and then success is sure." That tells me he would have intuitively understood the game trade.

I talk about numbers and metrics and policies and procedures near endlessly. The thing I don't mention, because it seems like we have an overabundance of it rather than technical rigor, is doing what you want. I didn't say do what you love, because passion is fleeting. It comes and goes. You may be doing this because you love Magic or Dungeons & Dragons, but you may have periods in your life where that passion flags and you think about ending the relationship. D&D 4 almost made me pack it in.

Doing what you want is a bit more low key. It means surrounding yourself with the type of product you want to sell. It means being around the type of customers who make you happy. It means choosing staff who enrich your life and help fulfill your vision. I had an employee I let go simply because he made me miserable. Every day my life was worse because he was in it. And you know what? I didn't want to do it any more, so I fired him and gladly paid his unemployment, simply because he was a black hole of human emotion.

Doing what you want also means taking the degree of risk that makes you happy. If you have trust issues, you may never hire more than an employee or two. That's fine. Own it. You're a one man shop. Maybe you get to go home and have dinner every evening and you don't have PPTQ bastards giving you one star reviews because your prize payout is crappy, because you don't run events.

If you really like systems and processes, you may never be happy until you have a half dozen stores. Everyone will tell you such an enterprise is a disaster, but it really means it would be disastrous for them

When it comes to debt, I'm pretty miserable as we reach the half way point paying off our construction loans. I'm miserable because I like a dynamic environment where I can dodge and weave and have various initiatives in the works, all of which cost some money. I've got a white board with $20,000 worth of capital projects and I could easily add that amount just in inventory value without blinking. No money means I have less space to dodge and weave, even though my decisions will have long term positive effects. For me, slow and steady is maddening, but it might be just the thing for you.

So when you're reading my stuff, or getting advice from other store owners, you really need to weigh what they're saying against what you personally want to do. That's because this is generally a bad investment of time and capital. Your time is more valuable elsewhere, your money worth more invested differently. You will likely defer retirement and work many more years than if you had a conventional career. That means you better damn well enjoy what you're doing now, since you'll be doing it for quite some time while others are lying on their beach (if they don't die of stress related diseases from working for others first).