Wednesday, January 15, 2020

The Storm is Everywhere

Stewards is how I describe our relationship to the gaming subculture. The days of stores as taste makers are long behind us, although you can leverage and channel interest through events and demos. I felt this strongly selling role playing game during the holidays.

We certainly sold our share of gaming books, but with the slower, wiser, release cycle of 5E, there are a tremendous number of players who just don't need any books, most of the time. The sheer number of these new customers and the slow book release schedule meant dice and miniature sales have been stratospheric in the trade. You couldn't have enough of either in 2019. Customers have money and they want to spend it and it will be with you, or increasingly, elsewhere. This season I could feel the Etsyfication of the hobby.

There have always been low volume makers of stuff for gaming, but players are now tied into an omnichannel environment, where games are bought and played and talked about virtually everywhere. We are just one channel and perhaps not their primary. I know game trade buyers at distribution and they do their best to follow trends, but there are just too many makers and Kickstarter projects to keep up with and not enough budget to follow every line. 

We have customers that have gravitated away from our sales channel nearly entirely, as well as those who live and play the games we sell without knowing or caring we exist. It's not that they have better options (selection and price), like in the past, but they have different options. Their experiences and purchased products only have vague overlap. My store is full of customers three nights a week, and if I could just read their mind, tap into their other channels. 

I had holiday customers arrive with a list of titles with little resemblance to my reality, as if they were stringing random words together. There is not a strong understanding amongst casual consumers that these channels don't merge at the end point of brick and mortar retail. When that light bulb goes off, we'll find ourselves marginalized, if we haven't been already. Who wants to shop where they sell half of what you're interested in, when there's a source with 100%? If you have the budget and the knowledge, attempting to get in on the action of another channel is a wise move, although you'll never really tap the potential of the other channels. You don't need to be all channels but you don't want to be the worst channel. You don't need to outrun the bear, just outrun your buddy.

Breaking out of our channel requires budget, insight and being on trend. As I get older, I am often not on trend, such as my mystification as to why people watch hours of gaming when they can just do it. I understand why people watch professional sports, but gaming seems more accessible, especially when there's always hours of research and prep for a D&D game. I mentioned this on my personal page and have been educated, so you don't need to explain it to me. I get that there's evolved mastery of the game on display, rather than a scripted farce, which is what I see because I'm so very far from personal mastery of the game. I'm more in the Colvillian camp of slight deviations from the baseline.

The new D&D book, Explorer’s Guide to Wildemount, is a web series tie in by Matt Mercer, of Critical Roll. Even Wizards of the Coast has no choice but to get on trend, to figure out what players want, and of course, they are omnichannel oriented, including deep discounting on Amazon. The grognards like me shake our fists, demanding a reboot of Planescape, much like how the grognard retailer in me shakes my first about those deep discount Amazon D&D sales. 

But Wizard's knows to follow the trends, to tie into the energy in the room, to play the channels. My employees weren't even alive when Planescape was published, which is true of most customers. Maybe ride the channel while the riding is good? Critical Role is right now, at the subcultural forefront, with 758K subscribers with dozens of videos with over a million views. 

These problems are opportunities, don't let me depress you. These are problems you want to have, the catching of raindrops in a thimble during a hurricane. The mass marketization of the game trade is really an omnichannel endeavor, as the mass market is mostly dead. Hobby game stores are closing in droves, as they're unable to catch enough water in their thimbles. The smart ones, the larger ones for the most part, are making larger thimbles, sometimes creating their own literal channels. We saw the clouds and knew the storm was coming, but we were wrong about its origin. The storm is everywhere. 

Wednesday, January 1, 2020

The Holidays Were Nice

December was an interesting month for my store, if you think terrifying is interesting. It was a happy, hopeful, cheerful month. There was no sign of impeachment fatigue, as my wife suggested. There wasn't a feeling people were holding back because of a feared recession or tariffs. It was simply ... nice. 

Nice is not what the last two years have been for us, especially the whirlwind holiday season of 2018. Really, I felt like we were hanging on for dear life with stratospheric, never before imagined sales. So, a whirlwind to ... nice. Light drizzle at best.

This is true for perhaps two thirds of retailers, from what I can gather. If you were kicking ass and taking names in November, growing rapidly, fueling your new initiatives, you probably had a great or at least flat December. You are winning. So what happened for the rest of us?

First, as I mentioned, it was nice. It was not a catastrophe, although I've used that word in describing it, mostly because I had mentally already spent the profits.  The season was very 2017 for us, last time I saw nice. 

I should also mention we had a very efficient holiday season, as in nothing was discounted, there was no product in need of liquidation after Black Friday, and although our gross sales were down 15% from last year, our gross profit was only down 7%. We had some unfortunate outages, but I can count them on one hand (I really missed Dixit). We were a well oiled engine, albeit a V6 instead of a V8. 

Second, reasons. There was no big Magic release, which was an oddity last year. WOTC doesn't normally do December releases, so it supercharged our engine. Events were also lackluster for Magic and other games. Events did not drive sales at all. 

So everything else was the same? Mmmm, no. Everything was down for us except accessories like dice, miniatures, and paint. Again, it was nice, but we've been riding high on mass excitement surrounding hobby games and it has died down a bit. But it's still nice!

Third, if I can throw in a third, what should we expect from the first quarter of 2020? This was the question that had me stressed this week. Will I see a 15% decline in January? Will we return to nice? Maybe. Perhaps. I am planning for nice, but hoping for the whirlwind. 

We ended our year 15 up an amazing 12%, despite a "nice" December. Please don't take planning for nice as capitulation, but I expect a flat 2020 with a focus on efficiency. It's recession thinking, but it's really just a return to nice. Again, there will be those with grand initiatives, and I think this is a good time to pursue them. 

Friday, November 8, 2019

Beach Fallacy

This month we celebrate our store's 15th anniversary. I am happy to report in year 15 I learned from failure. Failure means I'm still trying to innovate and change things up. This particular failure was one I recently realized while speaking with a friend who just sold his business. It comes down to this: The idea you can remotely manage your business with an installed manager is temporary at best. The 4-Hour Work Week may work for a turn key business, but most businesses are not even remotely turn key.

You may have a great manager, but they won't be there forever, and the process of getting a new one trained up, will be time consuming and not conducive to lying on a beach. So even if you have the skills to train them, how fast can they reasonably achieve mastery? In general, the concept of remote management for me has gone from something I might be able to do full time to something that may be possible half the time, that half determined by chaos in my business.

So I may be able to live in Mexico, for example, six months out of the year, a random six months at that, but I better have a place to stay when it all falls apart and I have to retrain staff for six months back home. The idea you can do this all remotely, living elsewhere, is a myth.

Here are the three areas that I see, that if I were a better owner or had magic powers, I would be able to solve to extend my six month theory. If you think you have skills in how to quickly train up candidates in these areas, this is where I would pay for a consultant:

  • Gross versus Net. A bad manager will spend your business into the ground with no apparent benefit. An alright manager will spend your money on long term investments that pay off later, but still leave you in the poor house right now, as they usually don't understand cash flow. A great manager will always spend cautiously and be conscious of the bottom line and the cash needs of the business.
I was not a "great manager" of cash until I had distributions from the net profit. I became incentivized to focus on net. Unless you can incentivize someone with bonuses for producing net profit, you'll always be watching your back (which you will always do regardless). Or you may train someone to be so overly cautious with your money, they take no chances at all.
  • Tight Employee Management. A good manager sets employee expectations via an accurate job description and solid training. The manager manages those expectations through the employees tenure by means of additional training and corrective action. Then they reward or penalize employee performance based on how those results are achieved. 
Most managers, most people, can't do this. They simply can't without some very good training, and even then it's not within most peoples personality range. I can tell you from the corporate world that most managers are untrained and awful. Training a manager to master this process will ensure you always have good people, but good luck finding someone skilled at this for what you can afford and good luck developing the skills in yourself when you've probably only had bad managers.
  • Inventory Accuracy. Does anyone other than you really care if your POS system is only 90% accurate? Inventory accuracy results in better buying practices, higher sales, lower taxes, and happier customers. Yet, it is very difficult to have a manager who cares about this accuracy as much as you. It is very much tied to net profit. If you find someone outraged at inaccuracy, and they have skill in the other two areas, find a way to groom that employee for manager. 

So those are the three areas that require an owner to be involved in a store on a near daily basis. This does not mean your store sucks if this is the case. In fact, there's no reason this should harm the value of your business if, say, you wanted to sell it. Someone with these three concerns will always need to have their hand on the wheel, but it's unlikely to be an employee for very long.

Tuesday, November 5, 2019

The End of Familiarity (Tradecraft)

When you walk into my store and look to the right, the designated direction Americans gaze when entering a store, you'll find a plethora of familiar game titles. Monopoly, Yahtzee, Scrabble, all the usual suspects. This is what is known as a "merchandising expense," games I stock that I would rather not, that indicate to the uninitiated that I am a safe place with things they are familiar with. This is a game store with games, you know, game games, as one customer recently described it. This practice is now coming to an end.

Here's how that works. First, hobby games have penetrated the mass market and they've been there now for a good, long time. Unless you're living under a rock, if you've been to Target and WalMart in the last decade and care even an inkling about games, enough to roll your red or blue cart past them, you've seen Settlers of Catan, Ticket to Ride, Carcassonne and other former hobby game store exclusive titles.

These titles have declined for us significantly since their introduction in mass market, with the promise they are gateways to good times for us later. Perhaps this is true, perhaps not, but board games are booming. These titles are now familiar to consumers. They've become evergreens on the shelf of mass market stores. This means hobby game stores don't need to work as hard with our garbage merchandising expenses to show familiarity. Chess sets and Hasborg products can be dropped, if you feel your community have these touchstones in their lives. And what community doesn't?

Second, even if I don't have this market penetration that breeds familiarity, there are now enough regular folks who play hobby games to where I need the space taken up by oversized merchandising inventory. I may lose the completely out of touch customer, but my overall base is so much larger than a decade ago, I can afford it. What I can't afford to do is stock quaint product for muggles when I've got educated consumers flocking to my business and demanding games now. They will just as easily, and without a moment of regret, buy it online, so it better be there now.

In general, if you don't know or are frightened by products like Dungeons & Dragons, Ticket to Ride, Pokemon and Magic: The Gathering, you are simply not worth any of my time whatsoever. Through mass market stores and the Internet, the public has been converted from suspects to prospects. In fact, it has turned many from prospects to customers, bypassing hobby game stores completely. I am at the tail end of this equation, taking in what I can of a cultural shift, in which a hurricane of customers have been created and I'm trying to fill up a thimble, arm outstretched into the clouds, while dying of thirst. As with all revolutions, you never know exactly your place in it until shots are fired.

Games in my parents guest room. One of these things is not like the other.

Sunday, September 8, 2019

Two Types of Game Stores

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

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

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

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

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

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

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

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

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

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

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

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

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

Wednesday, August 21, 2019

Book Errata

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

The important calculation on each day is the Balance column.

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

Zen and Small Retail Management

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

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

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

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

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

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

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