Cost Cutting (Tradecraft)

One of the projects I, and many, store owners perform annually is examining costs. Just because I have Internet and electricity doesn't mean I can't have Internet and electricity cheaper. Shopping around, including re-jiggering existing accounts is an important way we maintain very thin margins. With inflation at around 3% a year, and our profit margins in the 5-8% range, we need to get very creative. We can't just raise prices, like other businesses.

Games have very little "elasticity" in their pricing, meaning we rarely pass on higher costs to customers through price increases. For the most part, MSRPs are firmly established by publishers, tying our hands. Many publishers, fearing retailers will besmirch their value proposition, make a point of printing that price right on the product. They have no idea what the retailer pays for that product from distributors, as it's a sliding scale with a bewildering chart of publisher specific discounts. Our own system uses cost averaging since no product costs the same from different sources. I can buy six boxes of Magic in a week from six suppliers at six prices. But the MSRP on all those packs is $3.99.

As I've mentioned before, one of the nice things about toy stores, is toys don't have MSRP's, they just have costs, which allow for a variety of business models based on pricing structures. There's the low end toy store and the high end toy store on main street. They offer different experiences, different products and serve different demographics (remember it's parents with money, not children).  Games? Game stores generally look the same because they generally sell their goods at the same price, to the same demographic, because that's all they can do. Game prices are well known and game customers know them. So we all look the same, generally, unless we diversify away from games into more elastic areas. In the scheme of retailing, hobby games suck. Why do game stores have such a difficult time?  Why are they run by hobbyists and not professional retailers? Right here.

My cost cutting at the moment are the troublesome, potentially expensive cut overs. For example, I'm changing my AT&T service, dropping a line, and moving to their lower cost U-verse from DSL. This saves me about $50/month but it's opening a can of worms. They keep you from switching by making it difficult. They bundle services, and in the case of AT&T, simply lie about what they're offering and what they're planning to do. They charge for equipment but offer rebates for nearly the full amount if you stay. I've kept my fax line installed for two years now, despite no longer having a fax machine. Kicking that hornets nest was a headache I avoided.

Before you tell me how much better cable is, or whatever service you use, know that businesses often have little choice in the matter. I don't have a cable option as there is no cable run to my building. If I want Internet, it's through AT&T or with someone else over AT&T copper. I also generally pay higher rates for everything, some more than other, with telecom being one of the worst offenders. AT&T knows this and they treat us poorly, combined with fewer consumer protections, as businesses aren't people. If you're planning a business, don't assume costs based on personal experience, research what businesses pay for that same expense, it's almost always higher due to the rate or usage.

Next will be tackling our overpriced alarm system, which will mean canceling a contract and having expensive equipment installed, similar to what I needed to do with AT&T. This is how these companies get you to stay, by getting their tendrils into your operation and making it painful to leave. Switching credit card servicers involved five pin pads before they got it right. Five. Still, saving $25-40 a month on something as turnkey as alarm monitoring ads up.

One of the more interesting projects I'll be tackling soon is installing a pair of Nest thermostats. We already have "smarter" thermostats from PG&E, which cut costs very slightly (they were free). However, the Nest is a truly smart thermostat that learns behavior, can be managed with incredible granularity, communicates with its counterpart, and can be managed over the Internet. Most importantly, the Nest learns from behavior, meaning it works how we need it to work, not how we think we want it to work. With our electricity bills averaging around $600 a month, even a modest savings of 10% would cover the $500 cost of the two nests in less than a year. At my house, the Nest would be a neat, but pricey toy. At my business it's a potential powerhouse of savings.

This is retail. This is what we do when we're dong the thing. This is a big part of what we talk about when we talk to each other, rather than what's the hottest Planeswalker or best barbarian build for Pathfinder. Some of these projects will explode in my face, sometimes by design. Most will have an up front cost that most people, who don't run a business, would be afraid to tackle. All of these projects are simple survival for retailers. This is not extraordinary, this is mundane, day to day stuff. Tradecraft.

Kickstarter Hype Cycle

I was being interviewed recently regarding my Kickstarter experience as a retailer. One thing I brought up was the Gartner Group hype cycle model. This is often used to peg the trajectory and maturity of technological trends.

I think most publishers who use Kickstarter are camping out on the Peak of Inflated Expectations. They've got tents, a hot fire going, and they don't plan on coming down. Things are just way too good for them up there with Kickstarter, so they're not leaving the peak.

Myself? I'm in the Trough of Disillusionment, in the realm of disappointment, swearing off this technology as generally not good for anyone. My camp is as soggy and depressing as the melted candy dice I received as my first Kickstarter supported project. The question is whether I'm early or on time venturing into the trough. I'm certainly not alone down here.

The truth will eventually pan out to be somewhere in the middle, past the depressing trough and upward onto the Slope of Enlightenment. At this point, the charlatans, fraudsters, one time publishers who had to get that project out of their system, and dabbling corporations are gone. It's where the professionals and the truly in need of kick starting dial in what it means to properly crowd source a project. The free money period will be at an end.

That leads to the Plateau of Productivity, where we know what does and doesn't work for Kickstarter, where it can and can't sell, and in what mediums it's most appropriate. It will not live up to the Peak of Inflated Expectations and those folks will need to come off the mountain. Some will refuse and they'll stay up there like mad hermits, decrying the death of brick and mortar stores and eating their virtual trail mix and jerky.

Nobody knows what the plateau will look like. In fact, all we know is that it will be somewhat different. Supporter (customer) expectations will change and the customer base itself will likely drop off a bunch of people and add others. Project support (pre-orders) will have clearer expectations. Retailers may or may not be involved. Quality will need to be better established ahead of time. Taxes may be collected as states lose patience with this retail model. Winners and losers will be more apparent. Pies will be made larger. Some people will no longer be getting pie. They will survive. The one sure thing is we won't be talking about it anymore as it settles in for the long haul or the dustbin of technological obscurity or cautionary tales.

Top 10 Games of 2012 (The CCG Boom)

Here are our top selling games of 2012, year to date, with our top 2011 games next to it:

	2012	2011
1	Magic	Magic
2	Yu-Gi-Oh	Yu-Gi-Oh
3	Warhammer 40K	Warhammer 40K
4	Pathfinder	Pathfinder
5	Warmachine	Fantasy Flight Games
6	Fantasy Flight Games	Warhammer Fantasy
7	Cardfight Vanguard	Dungeons & Dragons
8	Pokemon	Rio Grande
9	Rio Grande	Mayfair Games
10	Munchkin	Munchkin

Our top four games remain steady, but we found a few interesting trends.

• Dungeons & Dragons is not on the chart this year (it's #15), as it goes through its play test period for the next couple years. Summer of 2014 is supposedly when D&D Next releases. There are some very good system neutral releases for D&D this year, especially the Elminster's Forgotten Realms book by Ed Greenwood (just finished reading that) and the new Menzoborenzen drow book. System neutral books are a lot like independent films, critically acclaimed but rarely profitable. Players want their crunch. Still, these two are worth picking up, even if you no longer play D&D.
• Warmachine makes the chart for the first time without being lumped in with slower selling Hordes (Hordes is #11 this year while it was #25 in 2011). Lumped with Hordes, Warmahordes, as the kids call it, would be slightly below Warhammer 40K. That's more about how 40K is sucking, rather than vindication for Privateer Press. You may have noticed that Warhammer Fantasy has dropped off the chart. You will find some of those WFB players on our Warmahordes nights. Our Warmachine crowd is rabid excited about their game. 
• Cardfight Vanguard and Pokemon have seen the same energy we've seen from Magic and Yugioh. I was skeptical of Vanguard, after being burned repeatedly by the CCG alternative crowd, but not only is it on our top ten list, it's beating Pokemon, a game we've slowly been building up over years. Pokemon suffers from a poor margin and ridiculously poor tournament support from Pokemon USA. It would be doing much better otherwise. Vanguard was only able to become successful for us when our mainstream distributors picked it up. As an expensive import, it started as more of a place holder than a profitable game, with a very low margin, a poor supply chain and no support. Yugioh acts as a kind of "feeder" game for Vanguard players, who tend to be older and looking for a new challenge. That successor game is not Magic.
• Board games may look like they're being pushed down the list, but board game sales this year are up 16% for us. They're just spread out and slightly off camera. Days of Wonder is doing well for us, Bandai has entered the scene strongly, and Asmodee and Whiz Kids are putting out strong games this year.

 As usual, the disclaimer holds that this is one store. We're the only store in a large area with eclectic interests, so we tend to be a good sample of what's being played in our region. There are no stores locally playing games we don't have, for example. I would love to hear comments from other store owners about whether this jives with their sales and what's working for them.

Kickstarter Follow-Up

I want to clarify an important thing about yesterdays post that has everyone's panties in a bunch. My decision to avoid Kickstarter products, does not come from emotion. It does not come from a philosophical difference. It does not come from a dislike, fear, or any sort of annoyance with publishers of any size. I like you guys and have supported a bunch of projects for my store and have attempted to be helpful in promoting the medium. I still have nine projects I supported for the store in the pipeline. There is only one reason I'm avoiding Kickstarter derived products: It doesn't make me money.

When I say Kickstarter projects don't make me money, I'm saying nobody will buy them in my store, mostly at all, sometimes ever. I'm willing to accept slow turns for the sake of fringe, but no turns?  Products and lines that weren't Kickstarter that now are Kickstarter have stopped dead in their tracks for me. These are not only the products that I've brought in for my store through Kickstarter, it's any product that got its funding through the Kickstarter process and then made its way through distribution. You're doing a good job of hitting the mark. The alpha gamers are paying attention. There just isn't anything left over, apparently.

Kickstarter projects of the small to medium tier variety, have successfully saturated their market. They simply don't need me. If you're planning a new game project today, you should decide if you want it to go Kickstarter or go retail. You are going to need to choose. This is true because I'm not the only one. I'm just the only one willing to talk about it. Why? Because retailers don't communicate and distributors can still milk this cow for a few drops, but it won't benefit the publisher long term. This is likely to change soon, much like the D20 glut slammed the breaks on all things not "core." My guess is the door will close. So I'm mostly just the self appointed messenger.

Is Kickstarter the disruptive technology that will destroy my buggy whip operation? Nobody knows, honestly, but it is far more disruptive than other newer mediums. It's still very new and evolving, and there may be a place for the game trade at the table. As a percentage of the game trade and a percentage of my sales, Kickstarter projects are negligible right now. It is irritating that I have shelves of these games that nobody wants, but it's an irritation as opposed to a serious problem of existential magnitude.

Kickstarter tends to suck the energy out of the experimental fringe, outlier games that we like to carry where we could usually sell a couple now and then, but it has little effect on the mainstream, where the money is at, what most game stores actually sell. But I do see that pie expanding and the problems growing. We all want to get along and have a prosperous, symbiotic relationship, but I don't see how that's going to happen, at least not now.

The Mark of Kickstarter

As a retailer, I'm inundated with new product announcements. The one I now avoid, the kiss of death, the mark of trouble, is the Kickstarter product. It's not all Kickstarter products, it's the small to medium sized publishers. Now that Kickstarter isn't this emerging technology, but a very well established medium for gamers to acquire games, it has managed to successfully capture the majority of local sales. This is a big change from the beginning of the year, when I was supporting Kickstarter projects as a retailer.

Bigger projects can break out of this market saturation, but for the most part, most Kickstarter products we've brought into the store lately, including games that are highly ranked and reviewed, have failed for us. This includes companies that used to sell direct to us that now use Kickstarter. They've captured all our previous customers. Good for them, but obviously I shouldn't continue participating in that.

Kickstarter on a product now says to me, "Hey, we've done our best to sell this exact product, along with bonuses you can't offer, direct to customers before you. But perhaps you know somebody we missed?" Unlike the PDF market, which sells a different product, or the direct sales competitor, who sells things at the same time as us, the Kickstarter product is sold to customers not only before we can get it, but with added benefits. As I've mentioned, the Kickstarter market is a tiny part of the game trade, but these small companies used to have a place on our shelf. Now I'm pushed to focus on the mainstream, which is unfortunate.

So my answer is always going to be "no" now, I do not want that product, and thank you for sharing your efforts to bypass traditional mediums that I happen to use to feed my family. You may keep that product, and if you're my distributor, note my opinion on this. In the end, publishers will wish to hide this mark of divergence, the Kickstarter origin of their product. Then my job, like I often have to do with re-prints of old games, is to research and ferret out the less than new, less than clean, somewhat rancid odor of the not right. Kickstarter, I've decided, is not compatible with retail in most cases.

The Cirrrrrcle of Life

Selling a game line in my store works like this: A customer comes in looking for a hobby game, and I attempt to sell them on this game, not as a one time purchase, but as an ongoing hobby. It assumes I have a method and product line both to initially engage them and subsequently keep them engaged over time.

The old Games Workshop model had a new customer spending $600 their first year and $300 in subsequent years. I've heard those numbers have nearly doubled from a decade ago. Their old strategy was to capture that first year customer, the cream, and shove off the grumpy veterans, the difficult crowd to support, on to independent game stores. Their approach was the hard sell for the easy money and then we would get the complex, expensive, logistic nightmare of support. It's far easier to sell you a thing than making you happy after the fact, especially when "making you happy" is expected to be supplied nearly free of charge. 

The sales process begins with a key question: Who will you play this game with? Game stores like mine need to answer that with an internal solution, as opposed to every other country on the planet, who seem to have a population who own kitchen tables, have friends and don't fear their neighbors. So my internal answer is "Why, you'll play that game right here, of course." We've got 14 events each week for this purpose (why the system does not actually support doing this properly is another post).

As I'm selling a game system, that initial sale is not nearly as important as hooking the customer into an enjoyable pastime, so "getting it right" initially is critical, while that initial sale actually takes a back seat to this. If I sense a customer is not going to enjoy the game or is not ready, I would rather not make the sale that day.

This system breaks down when the sale of the product and the events we provide to support that game don't align.This has been especially apparent with our miniature games, in which a larger than usual, or at least a more perceptible percentage of customers, use our facilities but don't buy product from us. This happens because our community is simply the best. It's big, vibrant, with diversity of play styles, and all our local competitors have failed at it, so we're the last man standing.

These folks (they're not customers) buy a small gift certificate to play, but that's a token sale that doesn't make up for a failing product line. The key to game space is it greatly increases sales, so any token purchase is really an illusion that doesn't support the model. We can't continue to sell an expensive miniature line on Mountain Dew and Pringles alone.

Getting back to the problem, there are several reasons they don't buy: some are price, some convenience, some out of protest, of all things for not properly supporting their game, a counter intuitive argument for sure as they're standing in my store playing with customers. Some, as we work hard to educate during the holidays, don't understand the difference between buying from us and buying from another store. They are brand aware but not store aware. This is especially true with Games Workshop customers, who have been trained to only by GW, and where is not important.

The bottom line, in our problem scenario, is they don't buy from us and the lost sales send signals. It's not that we actively perceive their actions, it's that the sale of certain products in the line begin to lag. The previously vibrant game is now a loser in the metrics, even if it's being played excessively in the store. The herd has some sickness. What do you do with sickness in the herd? Cull it. Take those dying products and turn the inventory dollars into something else, in our case, things like board games and the ever hungry appetite of our collectible card game community. It's an ongoing process. It becomes difficult to promote that ongoing experience when we begin losing cohesion in the herd. Miniature games are especially susceptible as there should be certain patterns that don't exist in other games, such as core and ancillary products that need to be carried at certain depths and breadths.

The inventory tweaking results in immediate repercussions to how we operate. When the herd is sick, we tend not to talk about it. In other words, if a game is not growing, if there are holes in the inventory, or we only carry "core" product, it's far more beneficial to us to promote another game that is growing instead. Why promote a lethargic game like Warhammer Fantasy (Only 21% of GW's sales we now learn) when a game like Warmachine is not only growing, but has excited champions for it?

You can certainly spend time shoring up weakness, but it's far, far easier to promote what's working and worry about weakness later, or you know what? Not worry about it ever again and turn the entire herd into proverbial glue. That's what being diversified allows you to do. Not working? Next! You don't want to do this, as you've promised that customer in step one a long term experience, but you often have no choice.

Eventually there is nobody to play this game with because there are no new customers playing it, because we're actively discouraging them from doing so. Events fall off the calendar. We're not telling them not to buy it, but we're not not telling them that. As game stores, we do have a role in what people play in the community, we are relevant, and we do decide which game gets the energy and promotion (if not, why the protest?). Product champions emerge from this community, but we're mostly responsible for that communities existence. Support your local store or don't support it. It's not about what we deserve or what we're owed, it's about this circle of life for a game. Don't expect to play where you don't buy and if you're a store owner, certainly don't provide game space for another store's product line.

Game Store Delegation (Tradecraft)

No, not like that

Everyone knows of that immigrant couple that works seven days a week, 365 days a year in their restaurant, gas station or liquor store. But how often does their menu change? How many times each week does a customer come in and ask what's new in Chinese cuisine? Or request that new 93 octane fuel formulation? Or want to learn the new paradigm in alcoholic beverages  I applaud hard work, but the game store owner job is amazingly more dynamic than most small businesses. You need to get away to recharge. To get away, you need to delegate.

Delegation is where you learn if you've been working in your business or on your business. If you can't delegate because everything goes to hell in a handbasket when you're gone, you've been working in your business, doing the tasks that less qualified staff could be handling. Your process sucks. If nothing else, you should take time off just to test your processes. What areas need work? Where were communication breakdowns? I still have issues getting invoices to appear in my inbox on orders that arrive while I'm out of the store. That's process in need of improvement, my primary job, working on my business.

But I can't afford to delegate you say. I'm barely getting by as it is. I would argue it's probably because of burnout and lack of new ideas. Getting away, not just playing games in the back, or going to trade shows or conventions, allows you to recharge. You're not serving your customers off a Chinese menu, you're in a dynamic field that's constantly changing, meaning you've got constant opportunities and ever changing problems in need of creative solutions. If you're permanently stuck in Moo Shu Pork mode, how will you gather the energy necessary to keep up on what's happening? How will you know if your processes work if your employees are just warming your seat? To use another small business cliche, do you own your business, or does your business own you?

Now is the time to do it, to get away, to find some quiet time before the holidays hit. Afterwards is fine too, but coming into the holidays fresh is a big advantage. Most stores have had great Summers, and if you're like me, you came out of it a little shell shocked. Our September-October sales pattern resembled a December-January, extremely high, followed by a modest return to normal. These cycles are stressful, so break your Moo-Shu pattern and get away. It's not an indulgence, it's your job.