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!

Saturday, March 28, 2015

The Copernican Problem (Tradecraft)

When things are going poorly in the business, I tend to blame myself. I look internally at processes. I consider working longer hours. I wonder if I missed an important sales trend. Was there rain? How about a presidential election? Do I need a vacation?

When things are going well, as they are now, I give credit to the economy. I notice that the population of my county has increased 1.4% in the last year. Perhaps the unseasonably warm weather has kept my high rollers from their ski seasons.

Both approaches are nothing but superstition. Sure, you can give away all the credit and take all the blame, just as the complex calculations to show the sun revolving around the Earth had little day to day consequences to medieval life. Stock market jockeys do this all day long, but they're describing history, the past, which has no bearing on their behavior tomorrow.

The problem with an improper analysis is you don't grow. You'll never get to the moon with those planetary calculations and you'll never figure out what does and doesn't work in your business, accentuating the positive and removing the negative. These are psychological tendencies we employ to avoid painful hubris. The thing about business though, is you did it. Take the credit quietly. And you screwed it up. Take the blame as well. But ditch the superstition. Find the truth.



Sunday, March 22, 2015

Fresh Eyes (Tradecraft)

My trip to the GAMA Trade Show this year was with a good friend of mine who owns a newer game store in Minnesota, as well as investing in Black Diamond Games. He runs a mean Pathfinder wizard as well. Helping him navigate this first show provided a fresh perspective on the game trade. The big question with any decision was: Is it worth it?

My GW sales rep, Daniel, painted this model.
We're fans as well as business people, which
helps with the frustration.
For example, Games Workshop is a constant pain in my ass. It's a company that gives with one hand and takes with the other. So did I tell him to avoid Games Workshop? Umm, no. In his circumstances, there was absolutely no logical way to avoid setting up a new account. As much as I like Privateer Press, I couldn't possibly consider them the go-to miniature company. Their line is too scattered, their intro products not quite coherent, and their tools and paints constantly unavailable. I think a new store with discipline will be more successful with GW. I think that's just a fact.

We talked about why I complain about these various companies. We complain because we care. The opposite of love is not hate, it's indifference.

Every new company we saw went through a similar analysis:

"What about that card company?"
"We do well, but their boxes are sold at wholesale prices online on release."

"What about these cool board games?"
"They sell just ok, but they use Kickstarter. Avoid most of them because of market saturation."

"What about these cool dice?"
"Yes, I love them. They're never available through distribution. You'll need to go direct."

"Should we even bother with Reaper miniatures?"
"Tough call. Here's the facts."

"These guys?"
"Poor discount."
"These guys?"
"They lie to us."
"These guys?"
"They bring in problem customers."
"Those guys?"
"Yes, but they sell mostly direct."

I had him take pictures of everything I thought he should carry; mostly board games. His $10,000 bank roll was tapped by the end of the day.

These various game trade weaknesses are actually game trade strengths. It's like the big box stores are giant health care companies who only want healthy patients, but the game trade? We do hospice work. We take all comers. We'll take your sick, your dying, your economically troubled. We'll hold their hands all the way to the end, when they leave us holding the (colostomy) bag.

Going to the show with fresh eyes also let me consider older options I had shut the door on. For example, opening a second store went from a bad idea, to a preponderance of evidence suggesting its inevitability.

It comes down to a couple factors. We're in year six of a game trade expansion. Is there a bubble? If you think there's a bubble, you behave differently. You don't expand. You don't take on excess debt. You are cautious. You can certainly have a six year bubble, as we know from housing (which had a 20+ year bubble). However, at some point, your mind switches from bubble to long term trend and you start making more aggressive decisions. That's where I'm starting to lean.

Assuming we're in an expansion trend, there is a good deal of evidence that suggests an experienced game store owner can hit the ground running. It took me years to become profitable in my first store. It was exhausting and I will not willingly do that again. How about 18 months? I've seen three experienced retailers open second stores and nail it in 18 months. It requires knowledge, discipline and a lot of experience, but not as much capital as I blew gaining those things the first time. I have no doubt I could be one of those guys. I'm not saying I'm going to open a second store, but I no longer have barriers, thanks to a fresh perspective.

Oh, and I'm more comfortable with long term leases thanks to this thinking. A decade in a "do over" situation seems like hell, but a decade doing what I do now? No problem. That's the hope with our current location, a long term lease with expansion money.

Thursday, March 19, 2015

Interview and Gama Trade Show (Tradecraft)

I did an interview on The Company Bard, "the gaming careers podcast." We talked about the game trade from a retailer perspective. It was a solid, nuts and bolts interview with a lot of crunchy numbers. You can listen to it here.

This week I'm at the Gama Trade Show in Las Vegas. The show feels packed, with retailer attendance up 20% from last year. It continues to grow rapidly. This is very good news, since game stores are also continuing to grow and proliferate. Nobody goes to Gama unless they're serious about improving their business.

There are three main components to this show: retailer seminars, publisher seminars, and the trade show floor. A fourth component is networking outside and within these events, and not surprisingly, that's where I've been getting the most insight into the trade.

From the retailer seminars, I didn't come across anything that revolutionized my business, like my last show, two years ago. I did come across many best practices I was able to load "into the hopper" for changes back at the store. That change management function was a critical skill I learned at that 2013 show from Dave Wallace.  This year it was mostly ideas about human resources and events. We're all about constant improvement.

The publisher seminars were fine, with a couple of interesting juxtapositions. On one hand, we had Reaper Miniatures stand in front of a room full of retailers, asking where the hell their product was in the distribution channels, and answering "Don't know." Everything is cool on our end. Don't know. "Don't know" comes off as ignorant or deceptive, so it wasn't surprising it kicked off a retailer discussion of whether Reaper was still right for game stores, or necessary, or even relevant with their direct to consumers Kickstarter model.

That's hardly the take away you want for your company after spending thousands of dollars going to a trade show. Poor messaging. Moreover, after telling us "don't know" why we can't get stuff through distribution, they handed out a catalog with about a dozen high value rack deals and told us not to order from them; go through distribution. Riiiiight.

I mentioned that juxtaposition. If you want to see a company handle messaging correctly, the WizKids seminar was an inspiration. WizKids has really screwed the pooch (technical term) with supply of Dice Masters. Did they show up and say "don't know?" Hell no. I'm not a big fan of this company, but the CEO, Justin Ziran, showed up, explained exactly what happened and why, what's happening now, and what they're doing in the future to avoid the problem of stock outages. He put his cell phone number on a presentation slide. It's safe to say, "he knew." I came away from Reaper wondering if I should disengage. I came away from WizKids sending emails to my staff asking how we could engage further.




The show floor. I mentioned in a previous post I came with a bankroll to spend. If all goes to plan, I will have spent $5,000. How did I spend it? My first stop was a small playmat company, one of several. I promised to buy $500 in mats, but they had no order forms or catalogs. That meant I couldn't really place an order, but they'll call me. I give it a 50% chance of happening.

Next was airbrushes with Grex. I've wanted to bring in airbrushes for years, and these were beautiful, with quiet compressors. Unfortunately, they had a six page retailer application. I was determined though and went back to my room, filled out the app and handed it in, along with one of their forms of suggested starting stock and a demo kit. They took my credit card information and I spent about $1,200.

Combo GCK03 gravity feed airbrush with compressor, Tritium TG3 gravity feed airbrush, Genesis XGi3 gravity feed airbrush, Genesis XSi3 side feed airbrush, 2 AC1810-A 1/8HP mini compressors, a variety of nozzle kits, replacement needles, airbrush holder, valves, hoses, adapters, cleaning kits and a full demo kit. 


Then I walked right over to Vallejo, saw their new Model Air airbrush paint line, and emailed my Alliance rep to get me one. $600. Some people have been waiting for this line for years, and I just happened to hit it on release.  Who knows, it may even show up today at the store. In fact, there were probably half a dozen games where it was all about a quick photo sent to my sales reps at the distributors.


Next I found the old Wench card game, which despite the controversial name, has nice pin up art that I know is appreciated by a good number of both my male and female customers. I picked up a couple displays off their table and they ran my credit card right there. $90. Stop judging me. 


I vowed to place a direct Koplow order this year, after seeing them at trade shows for 10 years and not really being able to get their stuff. I was helped by a friendly gentleman named William Niebling, who many in the game trade know well. They tell me he has been there for years at the Koplow booths, and I somehow didn't engage him before. Nevertheless, he was happy to write me up a $1200 order as I pointed to various products.
Plastic display boxes of opaque dice, double dice, Japanese/Chinese dice, 54 sets of hanging polyhedral sets, box of sand timers, box of wooden dice, L-C-R- display, 5mm mini dice display, two types of pawns, 20mm tactile dice, hit dice, compass dice, 55mm opaque dice, jumbo polyhedral dice, jumbo life counters (14 in a plastic fish tank), "life stones," two each of 7 colors.


What about Reaper? Well, I did place an order through ACD for a couple rack deals, both the Bones and the Pathfinder metal models. It came out to around $1,000 and I was told there was at least a months lead time and don't hold your breath.

If I've learned anything from the game trade, it's not to hold my breath.