Monday, January 12, 2015

Three (More) Startup Misconceptions (Tradecraft)

I wrote a previous article about start up misconceptions. Here are three more, based on a lot of what I'm hearing. One caveat, if you're paying rent the equivalent of a car payment and running a shop yourself, paid with peanut butter sandwiches, there are all kinds of possibilities in the realm of low finance. I'm talking adult retail stores where going back to a full time job won't cover your hobby of a hobby store.

Stealing customers. We'll put our store next to this other one and steal their customers. Now imagine the kind of world we would live in, if such a thing were possible. A major tool in my arsenal would be arson. Why build a business when I can burn down my competitors? You learn the truth of this once your first competitor goes out of business and you get ... nothing. When people stop shopping at a business, they go all kinds of places, but only a small percentage, perhaps 10%, go to a competing business. I've seen half our Magic community up and leave for another store, but again, not a big hit.

In the game trade, when a store closes, some customers stop playing games, some shop online, some just take a breather and play the games they have. This is another reason not to bad mouth your competitors. It just doesn't matter. A good relationship with a good competitor is more useful than talking smack for no benefit. Oh, and every store within 20 miles of me has people talking smack about it, no matter how good it is. I'm sure there's plenty of smack talked about me. Bottom line: You will build your customer base through hard work. You will impress one person at a time, hopefully creating elusive "word of mouth." Nothing is free. Everything is earned. Occasionally you catch a small break. That break doesn't involve combustion, metaphorical or otherwise.

The online model. If we can prop up a brick and mortar location, we can make a killing online. I still get this from my business partners. When I talk about other opportunities, they tell me to make sure I have an online component from day one. These two businesses, brick and mortar and online, are very different. The amount of work it takes to keep a brick and mortar location open is staggering.  They often need completely different identities to cover for the fact that one discounts and the other doesn't. The amount of work it takes to make legitimate money online is also staggering.

The two work loads are entirely different. An online business is a separate endeavor, requiring separate marketing, separate skill sets, and additional work hours. People spend every minute of their day working on their online business. Are you really going to compete with them in your spare time? Online is also an enormous pain in the ass, mostly because of a discount model which makes you work twice as hard for the same amount of money as a full retail brick and mortar store. There is rampant fraud from customers, often adding up to thousands of dollars. Unless you're serious about a second business, with people covering for your previous position, time spent on an online store is likely time better spent on an aspect of your brick and mortar business. It's probably an issue you're trying to avoid.

For most game stores, online sales is an escape valve, a place to dump dead product and occasionally speculate. Amazon is the place of choice. You know that game that's out of print that you want on Amazon that's twice the retail price? Game store. About 1% of my sales are online. As long as my brick and mortar business is growing, I see online as a distraction. Now, if you're in the middle of nowhere with little local sales potential, by all means, supplement your income.

The Magic store. If we can just get all the Magic players to come to our store, run pre-releases at a loss, and make it up in Magic singles sales, we'll own the market and profit. There are plenty of stores right now, "casinos" or "club houses," dedicated to the Magic community, box flipping, and singles sales, that are essentially living off the cream of the game trade. They are making it up in volume. For real. Here's the thing. You're being actively squeezed with smaller Magic margins, pre-release allocations, and allocations of exclusive products. There is an active attempt to push you over the edge, so you don't make it up in volume, as you're not viewed as having a sustainable business model by the powers-that-be.

There are professional variations of the Magic store that are stunning in their ingenuity, with custom computer systems, professional tournament organizing, and the like. Those stores are not what I'm talking about. The club houses are rows of endless tables with a wall of cards and very little to offer, other than a place to churn Magic players and sell Magic at a volume discount. Is there a problem with that?

First, it's usually a blight on the community. These places are usually hang outs with bad habits. Nobody usually cares about that. Second, that "cream" would normally go to a professional retailer with a sustainable model. Again, not a lot of sympathy, capitalism and all that. Finally, it's just not sustainable in the long term. You're not only susceptible to a downturn in Magic, which will come, but this boom has been going on long enough that stores like this are getting undercut by other Magic stores. So if you do this, do it for the money with a clear exit strategy. Like a first marriage.


21 comments:

  1. Just run lots of events, and money will follow.

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  2. Event driven stores are like handing the keys of the business over to the marketing department.

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  3. Unless the event schedule is managed by the sales department.

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  4. Oh, I like that.

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  5. Somehow Barnes and Noble is at least trying to flog 2 different price points, to do both online and off.

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  6. Uh huh, uh huh.

    http://retailindustry.about.com/od/USRetailStoreClosingInfoFAQs/fl/All-2015-Store-Closings-Stores-Closed-by-US-Retail-Industry-Chains_2.htm

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  7. I didn't say they were doing it successfully. And I don't think you can really make a case that the online component is hurting them much more than the rest of the online world would be doing anyhow.

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  8. Leaving B&N aside, game stores area held to a higher standard than most retail. We're co-conspirators with our customers and we're expected to be on their side at every level. Having price points vary will make them turn on us. I've actually discussed this openly with customers online and it's a touchy topic.

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  9. The brick and mortar Magic store with the online storefront is especially difficult to run. You're expected to make online margins out of your high overhead storefront. You end up cannibalizing the walk-in customers who would have paid your regular margin but now get online pricing. If your competition is especially committed to taking you down, you end up in price wars to see who can pay people the most for their cards...

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  10. I have had 3 Magic dens open close to me in the last year or so. My Magic community has dried up. (Alot of stealing of my customers and coordinated campaigns to badmouth me from a certain competitor) Couple this with really bad product from Wotc this past year and I can't see how some of these stores will survive. I am a well diversified game store. I have also pushed up our online strategy. I have learned a valuable lesson. Stay flexable, open minded and steadfast. These Magic stores are killing each other and online sites like TCGplayer will kill them all. While I still run packed RPG and Board game nights, these guys are most likely sweating how many boxes they have to sell to pay rent that month. I have come to the realization that Magic may not be the be all end all. But it won't stop me from making extra money selling a few boxes.

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  11. What exactly about the market has peaked and will be on the decline? It's possible you're talking about the bubble of "Magic clubs" and not the product's market as a whole. I understand that Magic can go through down phases when an unpopular set or block is released, but hasn't Magic grown a lot overall during the last 5-6 years?

    Khans was a widely popular set and has created an interesting metagame out of Standard and shaken up all of the other constructed formats at the same time. Fate Reforged may not hit quite that level, but I have a feeling that Dragons of Tarkir will. After that you have Modern Masters 2015, the final core set (both of which should be wildly popular with likely a higher quality card selection) and then into a new block structure which is going to allow for more a faster rotating constructed format and, according to Wizards, allow them to do more and be more creative with the block cards since they're nixing smaller sets.


    If you ask me, as a long-time player and aspiring store owner myself, I think the game itself is still on a steady incline for the foreseeable future, but one needs to get creative in order to weather the crazy amount of online competition nowadays, most of whom will eventually implode because of the volume they have to turn to make up for the small margins selling through third parties.

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  12. Magic has doubled in sales over that period, accounting for around a quarter of the game trade. Why did this happen? That's the question.


    It happened because of the economy, which for those in salaried position, have seen their incomes grow (others not so much). So more disposable income. Add to that practically free money floating around in the economy, although tapping that is much harder than pre recession.


    It happened because World of Warcraft came off the rail and for a while was spinning off millions of customers a month who were formerly interested in game trade related hobbies.


    Board games are also on fire and in a boom time, with Euro games breaking into the mainstream and Kickstarter acting as an incubator of ideas and products, feeding the alpha gamers who then excite their friends.


    So what could burst the bubble? A new World of Warcraft could do it. A second recession; we're due for one. A change to Magic organized play, adjustments to the retailer discount, with a bad block could see retailers move away from Magic (see Yugioh). Truly, I don't know, other than nothing lasts forever.


    What will happen when it bursts? New stores that are predominantly Magic will fail quickly. New stores that are diversified that can't learn thin margin retail will fail slowly. Old stores that over extended will see failure coming, and some will fail and some won't. Distributors are all hiring and expanding and that will reverse. The shelves of games at B&N, Target and Wal-Mart will disappear as they do.

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  13. Our website is woefully old, but it works. I'm shocked it has held up. I don't think I've updated it for several years now and the tools to do it are gone. It tells you how to get to the store, hosts our up to date calendar, and links to where the action is. We were (shockingly) complimented on it during an industry round table. Go figure.


    Updating the website with a Wordpress site and bringing the blog in house is in the plans, but honestly, it's not a business priority. It doesn't seem to matter. It really doesn't. Being dependent on Facebook is an issue though, so I get it.


    So yes! Over the last few years, POS web store integration has become common place. Five years ago it was difficult and expensive. Our new POS has the module installed by default. Here's the problem though. We have about 30,000 items in our POS system. We add new items every day, about 7-10 daily. If we sell those online, we need to add photos, weights, extended descriptions, etc., which is a lot of work. It's a lot more work than adding items now, but not a big deal if this is a major business focus. So I think it's kind of hard to do half assed. I do dream of having a laser printer set up to instantly print web orders that I can hand to staff to go fill, but it's so much more complex than that.


    The second part of that problem is you'll sell close to no merchandise at full price. We did this early on. At one point a distributor, Centurion, offered a store branded website that was their entire catalog. We sold very little. A web store nowadays needs to discount and ideally, offer some unique content.


    You can do well at around 20% online. However, my brick and mortar store would disappear with a 20% across the board discount. If I have two discount models, full price and online, my brick and mortar customers will hang me from a tree. So then I have to start a second business with different branding and identity and essentially start a business from scratch, with none of the advantages I've built up over a decade. It's possible, but it's not a slam dunk and it's not an obvious thing everyone should do.

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  14. "...play Magic in my very own store..." LOL
    How much revenue could 300 sqft actually produce? I would highly doubt that it could provide a living for one person let alone two. I bet you would make more money per hour if you had a part time minimum wage job than this venture. Which would free up more time and money to enjoy your hobbies. If you have doubts, don't do it.

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  15. Great article, and I'm enjoying second article going back-and-forth in the comments.

    On your last start-up you mentioned adding snacks to the store to help diversify & add a different revenue stream. Have you had much experience, first hand or second hand, with FLGS opening cafes within the store? I was thinking it would be a way to help expand the profit of events & RPG/boardgamers who might spend a few hours a week in your store.

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  16. Snacks help, although my impression is the larger your overall sales, the less significant they become. If a store is saying they're making a killing on Coke and chips, they're overall scale is probably pretty small. Snacks for us are probably 1-2% of our sales.

    Prepared food is another animal and it requires experience or money to learn. Now you're running two different businesses. If you've got the food prep experience, it makes some sense. If you don't, retail and food services is an awful big job to take on.

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  17. I hate people stealing my clients at work. Next time they better run.

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  19. You can earn $20 for each 20 minute survey!

    Guess what? This is exactly what big companies are paying for. They need to know what their average customer needs and wants. So these companies pay $1,000,000's of dollars per month to the average person. In return, the average person, like myself, answers some questions and gives them their opinion.

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