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.








9 comments:

  1. Now that song is stuck in my head. Jerk.

    (Last two months, we've done more business in phone repairs than Magic. We didn't mean for that to happen. It just kinda did.)

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  2. CategoryOneGames.comSeptember 14, 2014 at 5:24 PM

    The funny thing is my wife tells me I can open my hobby store after I open up a Jersey Mike's sub place in Utah. There aren't any in Utah, they are exploding nationally and California has seen a Boom of them. I think the problem with that though is you need over $150K of liquid assets while a game store is something like $30K on the low end or even lower as I've seen by some stores locally. My parents got into Sonic's when I was a teenager and our lives really changed after that.

    Your mention of Vegas is so true, my small town of Lehi, UT - 50,000 people, has it's 3rd game store opening. It's the town that two other towns of around 35,000 total have to go through in order to get to the freeway and we have seen incredible growth in the past 8 years but still, 3 game stores, it probably only needs 1. One of the stores does Magic and games only. The other does Comics and games and the newest one will do Games and then a bit of comics and Magic. Yeah, it's overkill and I don't believe any of them will actually survive when the bubble bursts.

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  3. I find barriers to entry attractive after the game trade. That $150K means every guy who likes sandwiches isn't planning his dream sandwich shop. That said, that $150K would open a pretty awesome game store that would stand the test of time, if you ran it properly.


    I also have to figure that if you do the numbers on a business like that, with say a 5 year ROI, you're assuming some healthy levels of profit.

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  4. CategoryOneGames.comSeptember 14, 2014 at 6:15 PM

    Right, when my Dad got into Sonic as a silent partner (1997), their first store was booming, it was almost a 2 million a year store and they made their money back in less than a year. They opened a second store in a town (1998) where they had a deal that the town couldn't open another fast food store in it - it struggled for the first eight years and barely made anything and they sometimes had to put more money into it.

    The first store is now makes a decent amount each year but that second store is booming, they bought the land next to it and expanded onto it and since the town can't have another fast food place, they are the closest food place for 7 miles with a high school right by it. Having a town boom around your store is amazing to watch. My Dad has tried buying 3 bars/restaurants and got out of it as quick as he could and then moved into rental condos.

    The food industry is really interesting. I've contacted Jersey Mike's about coming to Utah and they know I'm interested, I've just never tried getting together a group to actually make it happen. I know I could, but do I want to make that step and be the lead partner on it where I'm in the store every day as it starts and we build and infrastructure and management group for it. My wife is so afraid of risk and I'm the opposite - having seen that you have to take risks to get ahead in life.

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  5. That's the kind of situation where you would find partners too, and partners with real money, not this game store investment kind of petty cash.

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  6. "I didn't appreciate the way that you changed your Reuben, so I'm gonna open a Revenge Sandwich Shop half a mile away. That'll show you! Also, I'm basically unemployable otherwise and my wife has a great job."

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  7. If you want to cash in on more Magic quick money I have a collection I will sell you. Just let me know. Happy to let you cash in on the boom.

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  8. We're always buying at this point.

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  9. Well, if you tire of all this you could go be GW's new CEO :) http://careers.games-workshop.com/2014/09/18/chief-executive-games-workshop-group-plc-nottingham-uk/

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