Thursday, January 10, 2019

10 (11) Reasons Why I Might Skip A Product (Tradecraft)

I have purchased $10,000,000 in games. I know a thing about buying. Yet, I'm often in the dark. I mostly buy from gatekeepers, distributors who use their buyers to know what to buy. Some of those buyers used to work for me. On rare occasions, I'll play a game before buying it, and my instincts are usually pretty good, although not nearly as good as those who do this all the time.

Increasingly, relying on distribution is a failed strategy. More of what I buy needs to be through firsthand knowledge, or at least firsthand risk taking. Backing Kickstarters is a thing I regularly do now and I've gotten better at it, mostly because I can spot an inexperienced mess of a product pretty well now. It doesn't mean I don't get burned, I really do (Dark Souls stretch goals), but I'm making enough money up front to offset the losses.

Telling you what to buy would be one heck of a holy grail blog post. I can't do that. I'm good enough to stay in business after buying my ten million, but I can't tell you what to buy. If I could, I would crush your store with my national franchise. We're still specialty retail with individualized hand selling to an idiosyncratic base of customers that is different just ten miles away.

So why wouldn't I buy something? Here are some reasons:

  • Margin. Of course margin. I often don't know the margin until after I pre order something, in which case, if the margin is too low, I kick myself and set a product not to re-order.  50% is a great margin. 47-49% is reasonable. 45% and I better see above average performance. 40%? I better see stratospheric turns like with a CCG. There is technically no floor to margin. I'll take 10% if I know I have a guaranteed sale. Car dealerships make their living like that. Then again, give me a medium to low margin on a run of the mill product and I'll kick it to the curb (Tiny Epic).
  • Packaging. Is your game in a brown paper bag? Unless it's Poop: The Game (really, that sells like that), I'm likely not to re-order it. Same goes for tubes. Nobody likes a tube, unless it's full of counters or dice. Tubes and boobs. Meaning I also don't want explicit graphics on a game. I'm looking at you play mats. We recently had a long thread in a retailer forum about the logistics of dice bag packaging and how few companies have figured this out. This stuff is critical. Kickstarter products often fail here, although much less lately.
  • Installed Base. If you're trying to sell me a collectible card game, just no. If I need a community to support a game, I need that community to ask me to carry it, not a publisher. How do you get that community? Don't care, your problem. Most stores will tell you they can only support perhaps three games in a community at most, and they probably already have those three. I've simply passed on several CCGs lately as companies seem to have some arcane inner motivation to break into this realm, and I'm not going to be their guinea pig.
  • Devalued Online. I'll often look to see if a product is already being sold when I'm solicited by a distributor. If it is, it's not a disqualifier, but if I see it's going for 30-40% of the MSRP, that game is dead before arrival. There are ways to protect your brand value and often that product is under assault before I'm even asked to order it. If Dungeons & Dragons were a new game today, I would shun it (same with Magic).
  • It's Everywhere. There are some games I don't have that I've seen at Target that look kinda neat, but Target has it. I think they're doing fine satisfying the demand. This is not to say I won't try such things. There are perhaps 18 Hasbro games I keep in stock when I can (I can't right now). They sell just well enough to make sense for me, despite being everywhere.
  • I'm Poor. I could easily increase my inventory by 10-20% or even double it. That's right, I have room to double my inventory. But I'm poor. For me to say yes to one game, I have to stop carrying another one. Sometimes that lines up wonderfully. Whenever a store has a clearance sale, that's the sign of a mis-alignment (all stores have clearance sales).
  • My Customer Base. I have demographic envy, a desire to have my competitor's customer bases. My customers buy what they buy, and it's not always the interesting stuff I want them to buy. I would love to have more exotic stock for them to purchase, but I'm in the suburbs. Sometimes I buy something and tell myself I'll buy it myself if nobody picks it up. Then, six months later, I don't pick it up, because I've grown to hate the site of it.
  • Line Extension. Line extensions marketing theory has been debunked, but it basically says when you add more products in your line, the line eventually becomes too confusing for customers and they stop buying. I can see this with Munchkin, Red Dragon Inn, versions of D&D, LCGs and many miniature games. There is debate about line extension theory, and it's likely nuanced, but it has increasingly become more true. Endless supplements will eventually collapse a line, and I increasingly avoid them and often desire to dump the whole thing. I'm always on the look out for that tipping point.
  • Bad Company. How terrible a company would you need to run for me not to carry your game? Well, money talks. I'm not happy with a lot of companies, but they make me a lot of money. Usually my irritation with a company is directly related to my inability to make money with them. The more irritated I am though, the higher that company needs to perform. So you can be a giant dick and if I'm paying my mortgage with your game, we're good. But when your product slows, retailers look for excuses to let you go, often with a vengeance. There is a brittleness with companies with ill will, and we make excuses for you if you're good people. There are companies with people I just really like and their stuff is marginal and often gets a pass.
  • I'm Ignorant (or I can't get them). There are 10 new board games released a DAY. My gatekeepers might present me with what, three? I might pick one to sell. I may not know of a games existence. A game might not be available to me at wholesale prices. I really want to sell Matthew Colville's Strongholds and Followers, but he has no love for the middle man. I'll have to be content with my personal copy. I regularly bug one of the distributor buyers to look into a game and I'm often told they're not interested in distribution. Fair enough. There are a lot of games I have no access to either because I don't know or just can't get them. I suppose that's two reasons right there.
Anyway, ten reasons why I might pass on a product. Why might I buy something? You're one of my 30 top companies of proven performance in the marketplace. You personally impress me with your cleverness or innovation. You provide me early copies before the rest of the marketplace. Customers ask for it (number one reason). It's not just good, but cheap, which bypasses online price competition. See, I'm not all negative today.

Tuesday, January 8, 2019

New Year of Value Seeking (Tradecraft)

Wizards of the Coast has deeply screwed game stores with their margin reduction. New distributor prices, distributors being the only way to get their product now, reflects this in the new year. Many Magic centric stores will fail from this move. Of course, we've deeply screwed ourselves by relying on this one company to play such a prominent role in our businesses. Heck, I built my game center with the idea we needed a much larger space for Magic events. The L2 judge was still unhappy with my 121 proposed seats, as it wasn't big enough for large events (that no longer exist). Since construction completed, Magic events have yet to exceed 75 seats and I need an L2 judge like I need a war games coordinator. I fill my space with many other events, so I have no regrets, but if I wasn't diversified I would be in serious trouble.

I've spent the last 14 years not quite oblivious to margin at distributors, but pretty close. There had to be some significant margin differences before this was on my radar, and even WOTC direct sales discounts were often not worth the hassle. Now that I'm more established and I'm not seeing double digit sales growth every year (13% on average but far slower nowadays), the difference in margin between 2018 and 2019 is enough to sink my business outright. That's right, not hurt it a little like minimum wage increases of 9% this year, but rather a huge margin hit on a third of my sales.

That's not something a responsible business owner sits back and just watches happen, nor is it something easy to fix. Our rent and labor both went up 4% last year and that money came from reducing our marketing budget. This margin difference blows those increases out of the water and requires a behavior change. Most game stores (Magic shops) won't even know what happened, they'll just be unable to pay the bills and not be sure why.

There are a couple ways to fix this problem, the first being getting the best price up front.  For Magic I started looking at second tier distributors for better value. The best prices came from Magazine Exchange. My primary, ACD, had second best prices. There was a 5% difference between the lowest distributor and my highest. If you're one of those people who only have one or two accounts, it's really because you're lazy. Get off your butt and fill out a damn form.

Getting the best price is important, but with Magic it's far more important to look at how you sell it. Perform a GMROI, analysis, Gross Margin Return on Investment. Does Magic look soft? Are your events low priced as a loss leader? Are your box sales bottom of the market? Are you discounting at the pack level? Are you buying a bunch of crap singles for event formats nobody plays? Is store credit and single sales hiding your view of your true margin? Tighten up your game.

Singles are really hard to perform an inventory analysis on, but you should at least be getting solid turns equal to your store average. Selling singles poorly is far worse than not selling them at all. We're in this boat, I think. Raise your prices by at least your new margin difference (6%?). The back end problem of margin reduction can be solved with a front end price increase. Let customers complain, you're in business to make money, not to go down with the Magic ship. If Magic sales slow, let them and shore up your business elsewhere.

Next, pivot to safe harbors. This 500 pound gorilla got this big by steady feeding. Diversify away from CCGs and Dungeons & Dragons. Still sell them of course, we're not stupid, but look for alternatives. The new Pathfinder is out this year, and it may be the cleanest shirt on the floor. I don't believe it will ever have that number one position, but it should easily sit at number two. Board games is a thorny area, but there's room for best sellers. We've had good success with the core line from Asmodee (another 500 pounder in the making).

WOTC will measure your existence with butts in seats. If those butts aren't always making you money, stop chasing those meaningless statistics and use your event space for games from companies that won't cause harm. Drop slow attendance Magic events and make sure the D&D crowd isn't taking up a disproportionate amount of event space. D&D kept me afloat last year, so I'm happy with my ... what .. THREE nights a week of events? Jeebus.

Finally, if your lease is up or you're just starting out, understand there's a right size of event space and it's no longer as big as it once was. There are no giant PPTQs and pre-releases can be managed with more events, rather than bigger ones. Shrink your space, give up butts in seats, for an overall more profitable store. This country has 7-10 times the retail square footage as other industrialized countries and that unnecessary extra space applies to game stores too. If you were expecting giant Magic events with Magic being your core product line, I suggest you don't rely on that gorilla to lift you up.

Wednesday, January 2, 2019

Report to Stakeholders 2018

This is my fourth report to stakeholders of Black Diamond Games, Ltd. We're a private company with a lot of transparency. I'm going to forgo the formality this year and write informally about our year in general. Every store owner has a specific narrative about what happened to them, with generalities about what is happening in the trade.

A lot of stores have recently announced they're going out of business. More than average? Who knows, we have no data. I also have store owner friends with 20-40% sales increases in 2018. Your mileage may vary and your narrative is mostly your own. I think the trade is booming, but it impacts everyone differently. The rising tide lifts some boats. I also think that tide seems to be crushing it online right now, while the water trickles into the brick and mortar harbors. There really is no way to contain general enthusiasm to build up a head of steam in the Internet age. It's all on the store owner to locally build up enthusiasm. Retail is like a tea kettle and when a head of steam builds up, the release is the Internet. If you hear that whistle, it's money being added to Jeff Bezo's bank account.

I think it is increasingly difficult to funnel the bonkers enthusiasm to the friendly local game store. Parallel systems now exist to do what we do. You can buy your D&D books on Amazon at below wholesale prices and the important service of learning how to play those games can be accomplished by watching high production D&D in play videos online for free. This is an example of our Unique Value Proposition, game space, becoming a mere Useful Value Proposition. It's also an example of poor brand value protection by Wizards of the Coast.

These videos are becoming the normative way to play, and players are holding their local DMs to these professional standards. That's not how it's done on Critical Role they say, so it must be wrong. A good number of YouTube D&D channels now have over a quarter million subscribers, the tip of the cultural iceberg. Personally I can't sit through a recorded D&D session without growing instantly bored, I just don't get it. However, I find Matthew Colville's D&D channel addictive and brilliant.

The question of what would happen to your store if millions of people suddenly played D&D? For us it meant an 18% increase in RPG and dice sales and a 200% increase in miniature sales (because WizKids is awesome). I don't want to sound ungrateful, but I was expecting more from the revolution. Whenever I talk about the tea kettle whistle and how we're mostly left out of this building head of steam, a store owner will tell me they sell a metric buttload of D&D books. Yes, that's not the point. Or ... maybe it is.

Something was off for us in 2018. In retrospect, 2017 was a year too good to replicate, although we pretty much did. In 2017, Warhammer 40K was booming, board games were on fire, Magic staggered around like the giant Pillsbury Dough Boy of Ghostbusters, scaring everyone as it lurched about (while making money), ready to destroy buildings (stores). Our 2017 sales, with construction of our Game Center complete, jumped 14%. 2018 was a shadow of 2017 as it struggled to replicate that success.

2018 saw Warhammer 40K cool a bit as the new edition matured and customers tired of the weekly release schedule (down 20%). The board game bubble deflated a bit and it took months to figure out I was over ordering like we were still booming, right about the time the big hits arrived, and I was too gun shy to go deep (down 7%). I was ready to throw my hands up with board games. It was an enigma in 2018.

Magic staggered around as usual, with a tight embrace of the mass market, finishing up with a volatile December release that took everyone by surprise (down 1%). As I write this I have one box of Ultimate Masters left, and the difference between having it and not having it would have been the difference between losing money in 2018 and making money. You could say that about a lot of things, but since I practically wished Ultimate Masters would die in a fire, I can now say thank you, I was wrong (the $10,000 bill is due in 6 days, and there may be a game trade reckoning). We made money, but only because we sipped at the D&D tsunami through a straw to gain a 18% gain in that department.

There was much flailing about in 2018 with this flatness, and much gnashing of teeth about increased expenses. Our payroll costs and rent rose 4%, both somewhat fixed with the rising minimum wage and our lease structure. This led to a tightening of the belt and cost cutting in other areas, marketing taking the biggest hit. Facebook Page promotion has stopped being a functional tool at this point, and we rely on Groups to do the heavy lifting. Marketing is another enigma, but mostly how to spend money effectively, since Groups are powerful and free.  It's more labor intensive but it costs zero dollars, other than directing customers to them. 

In the end, cost of goods decreased significantly and cutting expenses rose profits. Dare I say, it was a better, more profitable year than 2017 by nearly 7%. When we're in boom times we crow about gross, but when it's slow and difficult, we can always talk about net. Cut your costs of goods by 1.5% on half a million dollars of stuff, and you've got a new car.

My book, Friendly Local Game Store released in May of 2018. It's on its fourth (small) print run and sells on Amazon and with game distributors, when they have it. It just received its first bad (2 star) customer review on Amazon! All reviews drive interest and this one has some valid criticisms about the narrative (and some off base ones). Publishing the book hasn't changed anything in my life, but it did help pay for an epic road trip visiting game stores and talking to owners throughout Mexico and Guatemala. 

Thanks to everyone who supported us in 2018. We have many changes in store for 2019. 


In Ensenada, Mexico

Wednesday, December 26, 2018

Complaining Like a Millionaire

I like to point out all the shortcomings, double dealings, and head scratchers of the game trade, but I do so out of love. I've been tremendously fortunate to be surrounded by fantastic people, both my staff and in the trade. I talk about all the things I would rather do, whether it be open a Subway franchise or live on a sail boat and never wear shoes again. I have a rich fantasy life, made possible by those who literally make it all possible.

The stress of the holidays has made me irritable, short, and difficult to be around. I kid myself, because that's pretty much me throughout 2018. It has been a tough, unpredictable, and worst of all for my store, tight year. In a retail store, money is freedom, and lack of it is being asked to make something from nothing. I haven't missed an opportunity to let those around me know these things. As I see my staff transition, people come and go, I want to both apologize and again stress how thankful I am for those who do so much of the heavy lifting.

I'm driving down to Baja right now, where we'll relax on the beach and become bored with being lazy. I'll do some reading on Native American mythology, as well as read through the 5E remix of Isle of Dread. I've got a big D&D campaign about to start. In a week or two I'll write an annual state of the store post. It will basically say in year 14 we grew a small amount, we had trouble making sense of a chaotic game trade expanding in some areas while bursting in others, and we'll do great things in 2019 with a renewed enthusiasm. I'm too tired and sick for enthusiasm at the moment, but the thankfulness remains.

Sunday, December 23, 2018

People Gotta and Three Ring Circuses (Tradecraft)

What is a successful product? It's about opportunity cost. A successful product is one where you make the most money compared to other product opportunities. This is why GMROI, Gross Margin Return on Investment is a superior tool to turn rate analysis. Given your gold pieces, what inventory you sold to the adventurers brought you the most return?

There is a caveat that says this product enables you to continue what you're doing. Sometimes a product line is slow, but it enables you to continue selling something fast. Right now I would love to drop my Magic singles. Lacking any meaningful tools for performance analysis, it appears to be an area I would normally give the axe. I find it unbelievable the IT leaders in this field can't provide the most basic tools for this analysis. When was that card added to my database? That's enough to begin providing me data. I continue to sell Magic singles because it's a major part of my Magic Industrial Complex. There are singles, sealed packs, card supplies, events, and at the rate of player involvement, even snacks play a major role in the MIC. Cutting Magic singles imperils my ability to continue doing what I'm doing.

I was at a store in Alaska many years ago that sold games, weapons and porn. That store is still there, dominating the landscape. They understand their target market, and apparently there's no worry that weapons and porn turn off a particular segment of their customer base (they are a culturally resilient crowd). It does not imperil their ability to continue doing what they're doing. Meanwhile, there are stores in the Midwest that are regularly harassed for carrying Dungeons & Dragons. Myself? We just received these really cool Frank Frazetta puzzles that I had neglected to inspect very closely. Barbarians on piles of dead bodies is perfectly acceptable in American culture, but there's a bare breast I hadn't noticed. I sighed, said something about art and a different time, and put them on the top shelf of our puzzle section, setting the item not to re-order. That puzzle imperils my ability to continue doing what I'm doing.

Frazetta Jigsaw Puzzle Barbarian ALC Studio ALCRHRZ003
That continuation assumes I have a personal focus. My business partner once compared selling game to widgets, as in "games, women's shoes, it's all the same." For me, that's not true. Well, not entirely. One concern many of us have is losing passion for what we do. I just finished writing a 300 page D&D campaign, so I love that this stuff permeates every part of my life. I have no passion for selling women's shoes. It might personally make me wealthy, but I would dread going to work in the morning. Selling a 13 year old girl a starter box of D&D gets me out of bed in the morning. Explaining which of the six monster books we carry is best for what you're doing puts a twinkle in my eye.  I mention girl, because I love the fact this game, that has been such a big part of my life, is branching out into so many demographics. Plus girls are more likely to ask for directions, while the guys are hesitant to look ignorant. That this puzzle box is next to this paragraph tells you of my plight in this field.

So we worry about the focus of our store. When I had golden handcuffs from selling Yugioh, in which my duel terminal investment required me to put up with a loss of focus and really poor behavior, I was counting the days until we had freedom to ask them to leave. We didn't hesitate when the time came, it was days after we sold the terminals. Likewise, I see the future of retail being one of two things, somehow, laser focusing on your one thing, using every trick in the book, every promotion, every three ring circus trick to eek out a living before Amazon and local government regulates you out of business. That's one option, and I know a group of top retailers doing that thing. It requires boundless passion to continue doing your thing.

The other option is selling women's shoes. You stop focusing on that one thing, stop trying to up your value proposition in this one area, and shift to something else. People gotta eat. People gotta get their hair cut. People gotta get gas. It's the people gottta strategy. You find that thing that's immune to the persistent pounding against value employed by the publishers, distributors and retailers in the game trade and you instead find something else, your women's shoes. Retailers stocked up like mad on Amazon on D&D books this month because Wizards of the Coast cares nothing about brand value protection. Wizard's allowed their partners to dump. Distributors likewise dumped. Retailers are hoping to sell the dumped product in the first quarter. I shake my head and look closer at the people gotta strategy.

The problem with people gotta is it's not continuing to do what you do. Most game store owners can't employ the people gotta strategy because they are not retailers, they are game store owners, a subset of gamer, a value seeking creature that employs short term satisfaction with rampant consumerism. Bless them all. Just as I balk from women's shoes, game store owners would be unenthused and pretty terrible at running a cafe, or whatever other people gotta business they fell into. But most are also incapable of maintaining the three ring circus of the one thing. Most will fail either way. I want to both help them and encourage them to fail faster.

Which perhaps brings up a third strategy, of waiting for the retail apocalypse when the crowded marketplace of 7-10 times the retail space needed, finally gets reduced to a manageable level. But knowing I get little benefit when competitors close, I wouldn't hold my breath for that. I'll continue with the three ring circus, get the occasional thrill of turning on a kid to my favorite game, and fantasize about what people gotta do. Until then, please ignore that puzzle on the top shelf. It's art and it was a different time.

Tuesday, December 11, 2018

Inconsistency of Commodity Experiences

When I look out the window of my store, I'm reminded of a story. I accompanied a friend to buy a new BMW at the dealership across the street. He did a Euro delivery deal and walked away with a date to pick up his new car in Munich. I went with him on that trip and it was a wonderful time and the car was fantastic. My own BMW, a higher end model with lots of problems, was costing me a fortune. I went to that same dealer, met with the same salesman and requested the identical car, with the identical deal. Nope.

The salesman insisted I pay another $700 for a delivery fee that wasn't required on European Delivery. But what about my friends deal? Nope. Can't have it for that price. To give you an idea of how car dealerships work, each dealer gets an allocation of cars each year, say 100, and they need to maximize the profit on each of those vehicles, which is why there's so much haggling and an attempt to get you to pay full price in a market segment where almost nobody pays full price. It's the poster child for dumpster fire retail. European Delivery, offered by a handful of manufacturers, is outside the dealer allocation, so they can sell as many of those cars as they want and it's essentially "free" money. Turning me down for $700 was turning down free money, in my mind at least.

I drove over to another dealer and I swear I've never seen a car dealer so overjoyed to work with me. I handed him a complete deal, with all the details, for an imaginary car in a foreign country and he would make $1,000 for his efforts that day. He would never see me again. I swore I would never step foot in that first dealer and it left a bad taste in my mouth. It's a taste I encounter daily, just by looking through my store window at that same dealership across the street.

Driving through France in my perfectly configured dream car (I ended up really hating it)

What's the relevance of this story? We sold a box of Magic the Gathering: Ultimate Masters to a customer. The clerk was unclear on the price, as it has been like shifting sands with us. This product was in fact, allocated, meaning, in theory at least, we are only getting so many and we needed to maximize profit based on market conditions. Even though the price was clearly stated in our point of sale system, the clerk sold it for 10% off.

Later, his buddy came into the store, and asked for an Ultimate Masters box like his buddy bought, with no sales tax. Pfft. That wasn't going to happen. No sales tax? That sounds like his buddy went to a competitor.  We rang him up and he was rightfully upset his box was 10% more expensive than his friends. He was angry, he swore he would never be back and said some mean things, and I lost a customer. He probably went and told all his friends as well. Nine friends more than likely. Or maybe he'll write a blog post.

Too much ketchup on your burger? Not at McDonalds.

There's two ways to lose a customer, one is treating them poorly through bad customer service. The other way is the irritation and anger that comes from inconsistency of experience. It's why people give in and just go to McDonalds even though the independent burger joint is often better. It's not always better, just often. Often is the enemy of consistent experience, and McDonalds may be kind of mediocre, but it's always mediocre in its consistent mediocrity. In any case, there is often a sliding scale of bulk CCG product, but there is only one game where we have this chaos of allocations and commodity pricing, Magic: The Gathering.

The shifting scale of commodity pricing and allocations adds a level of unprofessionalism to the game trade. It makes us all car dealers, makes everything negotiable in the eyes of customers, and lowers overall customer service. Every retailer thrives for consistency of experience. Wizards of the Coast believes these allocated products are a type of halo product that accentuates the brand, and they incentive their entire retailer marketing scheme so retailers chase these allocated products. The joke is they only care about "butts in seats," with their WPN program, but as retailers, we chase butts in seats in order to get these commoditized products. Everything about that program is designed to devalue the product while spreading the reach of Wizards of the Coast. It's great for them, but a terrible, inconsistent experience for everyone else. The halo has morphed into horns, trampling consistency of experience, and I think it's time to be discarded.

Monday, December 3, 2018

Fickle Store Owner

As a store owner, what really drives me nuts more than anything else, are comments like, "That's ok, I'll just buy it on Amazon," or "Amazon is out, so I'm here." These comments make me a little sick to my stomach and they're the worst thing ever.

Oh wait, that's not it.

As a store owner, what really drives me nuts more than anything else, is not knowing. When I accidentally order an expansion for a game I've never carried and it becomes a best seller. When a $25 map pack for a $50 D&D book outsells the book. When I can't figure out if Amazon is eating a quarter or a half or three quarters of a market segment, or whether it's actually Amazon racing to the bottom, or my friends who own game stores. When a long time customer simply disappears. When a group simply stops playing a game. When nobody comes.

Yeah, that's what drives me nuts more than anything.


Maybe what really drives me nuts is the apathy that develops over time because caring is so painful. Seeking the unknowable is an act of faith, and you can throw yourself off that cliff of faith or you can live in an agnostic world of gray. Deciding not to care is psychologically protecting yourself from heartbreak. It's building a retaining wall against the slow erosion of peace of mind. It's going through the rituals of retail never sure if They will come.

No, it's definitely the first one.