Sunday, September 14, 2014

Take the Money and Run (Tradecraft)

There is a glut of "Magic" stores. Las Vegas, for example, has a population of 600,000 with 16 game stores. Normally a city like Las Vegas would have about four or five, and sure enough, there are four or five "real" game stores in Las Vegas, as in full spectrum game stores that carry a variety of game products. These stores have been around a long time and will remain after the Cardpocalypse. The other ten are various comic book stores and card shops that run Magic events. Many, many Magic events. This is typical of a lot of regions around the country. Those four to five game store are exasperated as the wind in their sales are depleted by these carpet baggers.

Before, I wrote something like, if you're less than five years old and Magic is more than 35% of your sales, you're at risk. This is still true. My new position? Don't diversify, just bank the cash. You have inadvertently hit on a boom. The idea of diversification, of taking profits from your highly efficient inventory, CCG sales, probably between 10-15 turns a year, and plowing them back into 2-3 turn product, is kind of stupid. It's not just counter intuitive, it's lacking in all sense. It's madness.

It's like the debate over home ownership. If you skip home ownership and invest the money, you'll usually come out ahead in the long run. Sure, most people don't have the discipline to take the difference between their rent and mortgage and invest it, but if they did.... Profit. That's where you're at if you've got a "card shop" in this current boom. You can buy a house, diversify into the hobby game market by deep sixing all your profits, or you can invest in a different future. Rent and bank the cash. 

The game trade, other than Magic, is a shambles. Tactical miniature games? Look at Games Workshop. Oh God. Those guys are really phoning it in of late. Did you read the CEO's "you can suck it" letter to investors? How about that new Dungeons & Dragons? Many stores have already moved away from RPGs, and Wizards of the Coast sounds way more interested in the possibility of movies and video games than dead tree entertainment. I don't expect them to produce a lot of content in the future, which is how that game is profitable for me. Board games? Oh the glut, and much of the momentum is arrested by Kickstarter. I'll still be selling these things, with great effort, probably for many years to come, but it's a rough row to hoe compared to your current cash crop.

The game trade outside of Magic is a fool's errand, an attempt to beat the house at it's own game. We compete against the producers of the product who regularly devalue their own creations and sell direct to customers for a quick buck. We're in a trade that waits for the Next Thing, knowing that the days of Next Things are behind us, along with dial up modems. The hottest games of the year have no supply. We work under the threat of the coming miniatures Apocalypse of 3D printing, the threat of Chinese Magic card counterfeiters and the perfect digital tabletop app that revolutionizes role playing. Other than Magic, the game trade is a swamp. 

We're in some weird game trade times with Magic. It won't last, and your best bet is to take that money, bank it, and work on your exit strategy. Why save up for the rainy day, the subsistence farming of the game trade, when you can take the profits from your cash crop and move on? Did you learn nothing from starting a store? Sandwich shop. People gotta eat. Open a sandwich shop.

Or maybe I'm just trying to thin the herd. Who can tell. I'm not a nice guy after all.

Tuesday, September 9, 2014

Not a Nice Guy (Tradecraft)

A long time ago, a professor friend was going back home to grade some papers. I told him, "Well, be nice." He gave me a sidelong glance and replied, "No, I'll be fair." Before opening the store I think I could have been called a nice guy. Nice is easy when you have limited responsibilities and you're not facing the world, front and center.

When you open a game store, a new set of responsibilities is thrust upon you. You are responsible for your customers, both their safety and their enjoyment. You are also responsible, legally even, to your investors and family for responsibly spending the small amount of capital you've all cobbled together. You will be taking on this role with no net, no unemployment, no disability, none of the safeties of conventional society. You are on the street if you fail, unlike the average employee. You are an employment outlier in the work world wilds.

You represent your community, their standards and expectations, and if you can't live up to them, if you can't maintain order and stability, they'll make your life hard until you do, or they'll close you down. The police will only come out to arrest Yugioh kids so many times before there's a ... conversation. Nice guy will have that conversation. Fair guy will make sure that conversation never happens.

When you open your store, there is also pie. It is assumed you have a giant budgetary pie that you'll be divvying out forthwith. As you are statistically likely to fail, the vultures come for their pie fast and furious. You will be called many times a day, indefinitely, by people assuming you're a fool in need of capital separation. I kid you not. They call every day.  Ten years now. The key is to first screen by caller ID. When that fails, it's a race to see how many seconds it takes before you can hang up. "Can I speak to the person in charge of..." is probably six words too many. These people are time bandits. You don't want to be nice.

When you open your store, you'll also be public facing. If you work in an office, you might think you're public facing as well, but you aren't really public facing until you've worked on main street, where every individual in your community will eventually mosey on in. Besides the usual customers, we get criminals, spies, the insane, people high out of their minds, religious zealots and many combinations.

A nice guy is sunk in these situations. I know this, because I used to be him. I used to engage these people, play a part in their fantasies, scams and intentional attempts to undermine me. I used to want to fix them, want to get to the bottom of their psychosis, want to unwind their crazy religion or dispel their predictions of failure, as if the universe had thrust me into this position to somehow bestow compassion and wisdom. Or maybe, and this is the worst delusion, I'm being tested.

One store owner warned me about leaving before I lost my soul. If that soul was nice guy, it's certainly gone after dealing with these folks. It's the woman who charged into the store in a cloud of fumes with a gas can and slammed it on the counter. It's the meth head who snuck into the office and stole my laptop. It's the criminal duo who tested me to the point where I made it clear I was not a corporate franchise, and hinted I would hurt them if they continued their scam. These guys killed nice guy. But it was for the best.

There is a look I've developed over time, perhaps involuntarily. It is the "I am not impressed with your bullshit, and I may hurt you" look. The troublesome know this look extremely well as they see it from law enforcement all the time. My cop friends and I talk about that look. The troublesome move on to greener pastures, where they can find a nice guy. Every veteran retailer has perfected the look. The look is some fantastic shorthand.

I'm not a mean person, but nice guy is long gone (ask my wife). I haven't lost my compassion for these people, even when they threaten to cause harm to my business or threaten me, but I strive more to be fair than the good Samaritan, administering aid. I strive to be more wrathful bodhisattva than angry demon. The pitfalls of striving towards wrathful bodhisattva is arrogance and anger, with arrogance being my likely downfall. My NPC role in this situation is that of shepherd and these are wolves. Like Jules grappling with being the shepherd in Pulp Fiction, the key is not to be the tyranny of evil men.

Fair, not nice, is what my customers and their parents expect of me. It's what my shareholders expect of me. The universe has decided it best you go back to the home, the treatment center, or the hole you crawled out of and reconsider your poor choices. You are a danger to the sheep (or are you the sheep?).

I strive to offer a fair value at a fair price. I don't do favors. I try not to make exceptions that cause trouble for my employees, although I'll bend over backwards to fix a wrong. I'm fair every day, where nice is far harder when it comes to consistency. Fair also includes firing customers, in rare occasions. It includes letting employees go before they do further harm to the business. It includes burning with fire when a product or product line is no longer working. Fair means doing these harsh actions as soon as possible, and not waiting longer than necessary. Fair means we give thousands of dollars of games to charities each year, but have to say no to the many people who would like us to support their cause.

Fair will put my son through college, pay my mortgage, and keep everyone safe.

Monday, September 1, 2014

Plastic Bag Ban

California passed SB270 Saturday banning single use plastic bags and requiring the sale of paper bags (if customers want them). Unless it's vetoed, the statewide ban will go into effect July 1st of 2015. In the Bay Area, many cities have passed similar ordinances, although Concord is not one of them. The bill is aimed clearly at grocery stores and pharmacies, other stores may also voluntarily participate (Section 1, Chapter 5.3, Article 1, G:5).

By voluntarily complying, we would stop using plastic bags and charge ten cents for a paper one. I'm not sure we'll actually sign up, mostly because the bill uses such fun government words as irrevocably, imposed and comply. The bill also makes the mistake (I think) of requiring cumbersome tracking of how that ten cent per bag is used. That was dumb. So we probably won't sign up, but we will stop using plastic bags. When our current supply of bags is gone, we'll switch to paper.

What do I think of the law? I spent $1,089 on 7,500 bags (5,500 plastic, 2,000 paper) over the last year. Over 10 billion plastic bags are used in California each year, according to some numbers, and many end up in landfills or in the ocean. From a business perspective, what's not to like? I save an extra $91 a month if bags were to suddenly fall off my books while making the world a better place.

From a personal perspective, I'm not a big fan of government behavior modification programs. I'm not a big fan of the upcoming (regressive) gas tax that will disproportionately hurt the poor. Personally, I would like to see more stability from year to year, and between the federal and state government, we're not getting that. There's far too much cheese moving behavior. I do believe in man made climate change and the need to protect the environment, and perhaps we don't have the luxury for slower change. But slower change would be nice.

The plastic bag savings will theoretically offset another change we're about to implement. One of the most profitable items in our store is bottled water, with profits about equal to our plastic bag expense each month. Bottled water is incredibly wasteful and is another major trash problem. Our eventual expansion will add two drinking fountains, one on each level, which I expect, from talking with other stores with updated building standards, will greatly reduce the amount of bottled water we sell.

Meanwhile, we're experimenting with carrying totes. One of our Kickstarter rewards is a custom tote, which we'll have for backers at the end of the month. We'll evaluate the totes and likely sell something similar in-store, giving customers one more option for carrying out their shiny new games. The ideal tote will be inexpensive (sold at cost), branded with our logo, and will carry a few good sized board games. If you're a store owner with a successful tote implementation, please share your experience.

We'll still carry paper bags. We'll give them out for free for the next year or so. Then we'll revisit this law and see how we want to proceed with charging customers ten cents for them. If everyone just switches from plastic to paper, there's really not much of a savings.

Friday, August 29, 2014

What Landlords Want (Tradecraft)

I've gone through three, about to be four lease negotiations and I've helped other people with this. I've been turned down for at least as many properties, if not more. When you're starting a game store, the lease seems like one of many items in your project plan, so it's natural that it doesn't get your full attention. You're busy with a business and marketing plan, inventory and fixture selection, insurances, and many more things. Choosing a site is critical though, it's the one and only irreversible mistake you can make. All the other mistakes can be fixed with more money or even selling your business, but a bad lease is terminal. Nobody can help you.

Finding a location is hard, but even harder is getting a landlord or property management company to give it to you. This is especially true with your first location, as you don't have a track record and you're considered high risk. If you can't get a prime spot, you could end up in one of the grubby, starter business locations in the bad part of town. The guys who rent retail spaces like apartments with one year leases, first and last months rent and a guarantee that no parent will leave their children with you.

I found after just one completed lease I was a shoe in for many locations. Landlords courted me. Site selection and lease negotiation are important, but I'm going to talk about what they're looking for. What does the landlord, and the city for that matter, want from you?

Money. They want to know you'll last your lease, which could be three to five years. Money means a couple things, but primarily you can dazzle them with cash on hand.

If you've raised $50,0000 or $100,0000 for your business, even if its a loan or money from family, leave it in the bank until you have your lease negotiated. Show it up front. Flash your cash. Consider a cover letter with that number in bold.

The landlord wants to see that. I recall doing an entire presentation for my business and the landlord said, "That's well and good, but do you have any money?" He never asked for forms from my newly opened business account with a six figure bank roll. Once that was disclosed, they were happy to separate me (the fool) from it (my money).

Experience. I've said it before, you need a lot of experience or a lot of money to survive your first couple years in business. If you've got retail experience, especially management, show that off. They want to know you have a chance of making it through your lease and that you won't be a pain in their butt during that period.

New commercial lease holders are likely to ask a lot of dumb questions or make requests not covered in their lease (like asking for anything, really). Who pays for the garbage? I used my neighbors garbage for two years before they yelled at me to stop. I didn't know. Who pays if someone breaks in through your front window (probably you, hopefully you have plate glass insurance). Experience says you'll be smooth sailing through this period.

If you don't have retail experience, show some business education, SCORE classes, or management in other areas. It can't hurt, but retail is its own animal. Most MBA graduates would be hard pressed to run a game store, especially with their own money. After completing the lease on my first business, my property agent confided in me that she talked to the property owner and they both concluded I would never make it through my lease, due to lack of experience (see Money above).

Tranquility. That pretty much sums up what they're looking for. Gaming means a lot of different things to different people. It might mean a card room, for example. Card rooms, legalized gambling, are horrible for communities, attract crime and desperate people and generate trouble. Gaming means gambling to most.

Gaming can also mean an arcade, especially if you have an older landlord. Arcades were often associated with selling drugs, juvenile delinquency, and hooliganism (again, if they're older). Imagine teenagers on bicycles littering the parking lot and painting graffiti on the wall. Damn vidya games.

With gaming comes consumption of alcohol, and if you've applied for your proper permits so you're zoned for "public assembly," they might see you as a social club which would include alcohol consumption. Our current building permit approval was very clear we were not going to sell alcohol on the premises.

What I recommend is you stress the community focused, family friendly nature of your business. If you're going to sell board games, make that a focus, even if it's 10% of your sales. People don't quite understand how you'll sell enough of them, but they know what they are. If you lead with Magic: The Gathering and Dungeons & Dragons, because that's where the money is, you'll alienate people and possibly bring up their prejudices. Focus on family games and educational value in your presentation.

That also leads to age and gender issues. Show that the demographics of the game trade are primarily men in their 20's, not teenagers. Stress that half the people that buy board games are women and that women make up the majority of family purchasing decisions, and you'll be creating a store catering to them.

Just about every game in a game store has an age range on it, and they all range from 6-14 years of age. They wouldn't be wrong in concluding that your customer base will comprise of a bunch of marauding 6-14 year olds, riding their bikes, graffitiing the parking lot and leaving Yugioh wrapper everywhere (that last one is probably true). Show that you're family friendly and you cater to intelligent adults with disposable income.

Finally. Understand your tables and charts, your ROI, your break even analysis, the difference between gross and net and net gross. Know your expenses like the back of your hand. Research the heck out of your expenses. Your sales projections are already made up, fairy tale numbers. Nail your expenses and you won't look foolish. I honestly had just a sliver of understanding of many of these things when I started, but that extra research ensured later success. Anyone looking at your plan will see that.

One more thing. They're going to compare you to local game stores. If those stores are bad, you should distance yourself from them in advance. If there are good stores around, tell them how you plan to be a local version of that store. If there aren't any good stores around, include aspirational photos from stores across the country, showing the great things you hope to do in your location.

Friday, August 22, 2014

Deciding What to Buy

This post answers one of our Kickstarter backer requests. How to decide what games or game lines to bring in, what to pass on and what to discontinue. I'm going to focus on purchasing.

Deciding what to buy starts with the budget. My budget is the Open to Buy worksheet that I use daily to track how much I have available to spend. In reality, Open to Buy is an after action report, since most of my buying decisions happen long before I pull the trigger and the product arrives. Stuff that gets placed on a purchase order today was often ordered weeks or months ago.

Solicitations come in nearly daily from distributors for products that won't be available for 30-90 days. If I were to divide the total SKUs in my system by the number of days I've been in business, there would be eight SKUs added every day. And get this, purchasing is only around 10% of my job. How long do you think I spend analyzing those eight SKUs during my day? Doing some bistro math (minutes in the day, times ten percent, divided by eight SKUs), no more than eight minutes per SKU. Some dude just poured his entire creative existence into this new game. He's got eight minutes to impress me somehow. You can see how I might be a bit jaded after a while, contracting "widget fever."

How do I decide what to bring in?

Alliance lists over 430 manufacturers in their online catalog, but 75% of my sales comes from only 30 game companies. Solicitations from those companies are more along the lines of quantity, rather than deep research to determine if I want them. Magic alone accounts for about a quarter of our sales. Half of what we order tends to be of the "fire and forget" variety, items we bring in a single copy. sell, and never see again.

But how to get on my radar? There are a number of ways. A solicitation from a distributor puts it in front of me, lets me know a buyer stands behind it, and hopefully provides me enough information to make a decision. I probably pick up 20-30% of what I'm presented.

If the product is a board game, I'll be looking on boardgamegeek for reviews and checking to see if it's a Kickstarter project. If the reviews are good, and I mean really good, and the funding was high ($50,000+), I'll pre-order one. Just one. If you're one of my 30 top companies, that number can be much, much higher. I don't do deeper research than this, such as trolling forums and the like. I don't have time.

When it comes to roleplaying games, the level of hand selling in that area means I generally have a person or two in mind who will buy the book I'm bringing in. Of course, about 75% of sales in that department is D&D and Pathfinder, so that takes a lot of the work out of it. Anything FATE is also a no brainer. If I were more indie focused, I would need to do far more research (sales are pretty low for us in that category).

Kickstarter projects in the RPG department rarely meet my backer metrics, but I'll often waive that for a well known author, either by supporting their Kickstarter beforehand or stocking it after the release. Kickstarter RPG projects, in general, are not getting placement in the sales channel any longer. The board game market is far more profitable to the consolidators that once represented small RPG publishers to distributors. They're generally not accepting new RPG clients. This is a bit alarming and the flow of quality, indie RPGs in the distribution channels seems to have slowed quite a bit.

Miniature games are complete systems in need of large scale adoption and have very little chance of getting picked up without a vocal customer base. That has happened recently with Relic Knights and Wild West Exodus. If you want me to pick up a miniature line, my customers need to sell me on it. Even then, it's high risk and low reward, and as the flavor of the month recedes, we're left with a lot of unsold stock. They still play, but they have what they need. I think miniature games are inventory freeloaders that only exist in stores on the backs of more profitable departments. They rarely pull their own weight. I love them, but they're bums.

Collectible card games? Forget it. CCGs require communities and they don't develop overnight. There has been some success with anime games of late, but I'll generally get left holding the bag in the end. CCGs are the only product that will ever get tossed in the trash. Nobody wants a dead CCG. Nobody. Customers need to drive these requests, and I'm much happier taking a chance with a pre-order of a booster box or two of the game in question.

Where else do I learn about new games? Besides sales reps, I like to go to trade shows, when I get the chance. Shows are excellent sources of information, but costly to attend. The annual Gama Trade Show in Las Vegas is always worth the time and money for me, although I generally only go every other year. Various Games Day events from distributors are useful. Regional game conventions often generate buzz and I'll listen to customers as they return from these shows.

Social media is where I tend to focus, namely Facebook. I follow over 500 pages, many of them gaming and game community related. It works for me because I intensively use Facebook for marketing the store. Actually playing the game rarely happens. Noting buzz about games and a general fluctuation in the matrix, is what I'm looking for. That also means listening to other retailers through private groups and listening to customers in our local and regional gaming groups.

I listen. That's my biggest purchasing skill. Whether I like a game. Whether I play a game. Whether I've read the book, turns out to not be all that important. It helps. I can sell the heck out of the things I like, or the games I've played, but from a business perspective, it doesn't move the needle. My ability to sell things is not dependent on my ability to use the product. Eight SKUs a day, every day, for ten years.

Wednesday, August 13, 2014

Product Pyramid (Tradecraft)

One of my investor friends is a partner in another game store in the Midwest. I've been giving him advice over the last year on how to choose stock. It turns out to be an excellent mental exercise, because although I have a lot of good theory ideas, I haven't always had the opportunity to put them into practice. Sure, I have a store, but I'm set in my ways. With his new store, I'm asked what to stock, how much, and most importantly, why. The why has me thinking, which leads to changes at Black Diamond Games.

One of the bigger changes is the product pyramid. You can get really obsessed with inventory metrics, which I discuss incessantly, but there are important exceptions to metrics. One of these is the product pyramid. A product pyramid has several meanings in retail, but in this case, it refers to a broad pyramid base of slower selling product that's necessary to accelerate the sales at the top of the pyramid. Pathfinder is an excellent example, with three quarter of the sales compromising about 5% of the books (hardcovers). Those three quarters of sales from 5% of the product line couldn't happen without the bottom 95%. Chop the bottom 95% and the entire pyramid collapses.

And the tendency is to chop the base, since it fails to perform under standard inventory metrics. This type of inventory works as a complete system, so you either accept the broad, bottom of the pyramid, stagger along with slow selling top only items, or you drop the line entirely. Knowing which product lines work in this fashion is mostly trial and error. This week the product pyramid strategy was applied to dice.

How much dice should a game store carry? Well, how much money do you have? The answer is as much dice as you can afford. You can't have too many. The broader the selection, the higher the sales rate. That bottom of the pyramid will sell poorly, but customers want selection, demand it really, even if they only ever buy 20% of what's available.

Today we put this into practice one more time by completing our selection of Chessex polyhedral dice. Say it's in honor of D&D 5th Edition if you like, but we now carry every set. Before we were using standard metrics, keeping only the top selling sets. When we first did this, we noticed that sales fell pretty sharply. It took a few years for us to realize why. And a few more years before we rectified the problem (as in we're fixing it now).

The product pyramid doesn't work in every category, but it's another tool in the toolbox to apply to special cases. I wouldn't have thought to apply it in this case if I hadn't been helping out my buddy.

Saturday, August 9, 2014

Failure Opportunities (Tradecraft)

My real job is process management. That means I create policies, procedures and work flows that maximize customer satisfaction, reduce errors, increase efficiency and allow for increased "mind-space" for additional processes to feed back into this system. I'm no expert at it. In fact, I've got a management style that's looser, more egalitarian and less ordered than most, which makes my job a little bit harder. The longer I stay in this business, the more process management will be my focus.

In stock Tuesday
I really hate when our processes break down, when we fail to perform. Hopefully, we've built in enough safeguards to counter a process failure, but sometimes we just can't win. Our job inevitably comes down to having stuff, having customers to sell that stuff to, and having the facility to make that sale. Any break down in that multi faceted process and everything comes to a halt. That's what happened yesterday with the release of the new D&D Next Player's Handbook.

That failure looked like this. Someone sitting in their living room last Sunday afternoon used my stolen business credit card number to buy airline tickets at an online travel site. The $1,300 sale instantly set off alarms at the credit card company. They texted me alarm. I texted back my denial. The sale was declined and a few minutes later, the card canceled, another card promised in a few days. This happens about once a year, but that's another story about the American credit card industry.  Monday morning our D&D order should have auto shipped from Wizards of the Coast with my credit card on file.

The card was obviously declined. Wizards let me know later on Monday. I called early Tuesday morning with a new card. The order was confirmed and it normally would have shipped that day. A Tuesday ship means a Friday delivery for me, so I hedged by buying a bunch of product through our local distributor, just in case.

This exception at Wizards didn't go well, with a process flaw on their end, since my order was now an exception to their process.  The order never actually shipped. Our local distributor order didn't cover all the pre-orders, mostly because I was hedging, knowing I had 40 copies of the book arriving that afternoon. Big mistake. The whole system collapsed after our Fedex order arrived with no books and that uncomfortable phone call to WOTC was made. Failure.

Not only would I lose sales over the weekend, but I had promised people this book, people who had given me money and trusted me. This is an opportunity of sorts. Before I talk about that, let me say I truly am sorry about what happened. I don't want to make light of a broken promise or a process failure in all its complexity. It sucks. I'll do what I can to make it right. I've contacted each of them. I'll pay a price for sure. But here's how failure opportunities work:

It's generally believed that good customer service should be the norm. Not being a screw up, besides what others might tell you, is expected. Nobody talks about how they didn't get their coffee order screwed up today. However, they will tell, on average, about ten people, if their coffee order was screwed up  (mine was messed up last night at the Barnes & Noble cafe in Emeryville). People like to talk about their drama. Everyone does it. So screwing up and not fixing it is an enormous negative hit, essentially anti advertising.

Now, what would it take to fix it? Make me another cup of coffee and you've inconvenienced me further and made the experience less than great. Could you take an extra step to fix the problem? You tell your friends your coffee order was screwed up and they make you a new coffee, and give you a free muffin? That's conversation worthy, although, I'll admit, the corporatization of this process will take the sincerity out of the equation. Manager on register four! Muffin compensation override!

How about an apology song sung by the manager? Just change the words to Happy Birthday. You can't really overdo this. I read a business book about a very successful bicycle shop. They screwed up an order for a kids birthday. The owner took that bike, adorned with streamers and birthday wrappings, and drove it thirty miles to hand deliver it to the customers door. I might have made up the streamers bit, but you get the idea. You're not trying to pacify your customers, you're trying to win them over. Wizards shipped our books Fedex Air to get them in ASAP, which is a personal bicycle delivery of sorts.

Make it better. Fix it for the customer and it's just an extension of your process management. It's an opportunity to show you care. It's an opportunity to spread the word that this business is not just about making a buck. They go the extra mile. It feels good too. If you're concerned about cost, try to think about what that customer is worth to you. I once figured ours spends an average of $600 over their lifetime sales with us. Or put "screw ups" as a line item in your marketing budget. Whatever it takes. Seize that failure opportunity.

And I truly am sorry.