Saturday, November 30, 2013

Tale of Three Game Stores

Having owned a game store for nine years, there have been three distinct phases of my business. The first was our initial store, which we had for three years until we moved to a bigger location. The second stage was three years of this bigger store, with solid growth. The third stage involves the boom times, which has clearly pushed growth well beyond where it would have been normally. The chart below shows what I think is a considerable jump between stage two and three.

When planning for the future, the questions are: a) How long will stage three last? b) When it ends, will it be flat, a slight dip down to normal growth rates, or a sharp correction back to stage two levels? We don't know the answer to these questions, so what we do is assume the worst and plan for the best.

In our case, we make sure we are making decisions that allow us to live in stage two. At the same time, we take profits from stage three to re-invest in the business, hoping that when it does end in whatever form that may be, we've used the windfall to springboard the business forward, rather than returning to "normal."So we pay off debt, upgrade infrastructure, and work on expansion.

The danger is not having context, or having context and losing focus. If you've got a three year old game store, the boom time is so normal that you can't conceive of anything else. I realized this with the housing crash. I bought my first house in the 90's, lived through a bubble and a perverted finance market and came out on the other end realizing that everything I knew about housing was wrong. My knowledge was bubble knowledge and all my assumptions were off. That's the danger for the game trade right now.

In fact, when you talk about the game trade and bubbles, people will ask which bubble?  Besides CCGs, the board game market is seeing a massive increase in new titles, especially in Europe. Is there a board game bubble?

Kickstarter is another potential bubble, with a lot of energy continuing to flow through the medium, but with some noticeable cracks. That "trough of disillusionment" is starting to show itself, where there is active fraud from both supporters and creators, along with simple fatigue with getting mediocre products at future dates with current cash on hand. As a store owner, I've learned I can completely ignore everything in the Kickstarter sphere with no ill effects. The Gartner "slope of productivity" is likely to rescue Kickstarter even if the trough threatens to kill it. It will emerge with purpose even if it seriously stumbles.

Heck, you could even discuss a distribution bubble. Especially on the West Coast, there seems to be an awfully large number of distributors chasing diminishing returns. Worse, if the bubbles sink a large number of unprepared game stores, namely those post-recession stores that have no concept of "normal," the distribution tier could be in for a train wreck. If I was in distribution, I would be analyzing my exposure.

For now, I assume I'm in a bubble (the worst case scenario for me) and plan for a bright future when it's over.

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