Rule Zero

This is something I've discussed before, but as we get closer to construction, I want to remind staff and event coordinators (and customers) of our special Rule Zero.

Rule Zero is normally everybody should have fun. We're going to push that to Rule One for now. Rule Zero in our new space is all players have the right to decide what level of the Game Center they wish to play on, no questions asked. Staff and event coordinators will facilitate this request to the best of their ability. What's this about?

Our Game Center will have two levels, a bottom level and a top level accessed via stairs. Normally, according to the Americans with Disabilities Act, you would need to have an elevator so that everyone could get to the second level. However, we're using a doctrine in the ADA called "equivalent facilitation." This means everyone has equivalent access in the Game Center. We don't have to provide them access to the second floor, but we do have to provide them access to the activities on the second floor. Male and female bathrooms will be on both floors, by the way. They can't be denied access to a facility function or game in progress because they can't get to the second level. 

This also means anything "special" must occur on the bottom level. Ding & Dent auctions, parties, and special equipment and tables should be featured on the bottom level, with, and this is really important, some space available to a top level event, if one is in progress. No exceptions. No arguments. No required proof of disability. No ghetto "equivalent facilitation" unequal treatment lower level corner. This is Rule Zero.

Holding Over (Tradecraft)

Six weeks is what's left on our lease. I'm not the panicking sort, which is why I started asking around. Should I be expressing emotion? Apparently our property management is perpetually busy. They work hard. That's in opposition to thoughts of manipulation or other notions of enemy action that arise when people you want to pay attention to you are ignoring you instead. I've dated. I get it. They're just busy washing their hair or something.

The scenario for existing outside of our current lease is not to be thrown out on the street, so that's not going to happen. I mean, that's about as terrible a scenario as possible, a forced closure of your business because of a contract dispute. That would be flat out disastrous. The alternative is a clause in our lease called "Holding Over." I like how this sounds: 

hold·o·ver

noun

NORTH AMERICAN

noun: hold-over

1. a person or thing surviving from an earlier time, especially someone surviving in office or remaining on a sports team.

Black Diamond Games would be a thing that survived from a previous era, a golden age with more legal clarity. Ah, the good old days. I remember them fondly. When gas was $2 a gallon, there were only five editions of Dungeons & Dragons, and rent was only a third of what is now. Wait, what's that? Yes, being a hold over is not cheap. According to our lease:

20.  HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after the expiration of the Lease Term with the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a rental in the amount of 300% of the last monthly Minimum Rent, plus all other charges payable hereunder, and upon all the terms and conditions hereof applicable to a month to month tenancy.

Yes, essentially a $10,000 a month fine for not getting the lease signed. That's a pretty devastating result of whatever this is we're dong here. So the advice I got from another tenant is to have a drop dead date, a point where you show up in their offices and demand the lease be signed. Right now. I'm not the one who put in a 300% rent increase clause, so it's not unreasonable to have a sit in. I'll be sure to bring snacks.

I am told we're very close to getting this thing signed. Not only will it get signed, but it will include the construction project for the mezzanine expansion. When I say include, that means there's a provision in the contract for how much I'm paying them to build it, when payments are due, and how they'll finance some of the new overages and permit fees (did I mention the $1,000 per hole plumbing permit? So many holes). We're really close. But we've been really close for months. I just don't want to be a hold over. 

Recession Thoughts (Tradecraft)

With the financial markets in turmoil, the talking heads are predicting recession, something that won't be realized for a few months at least, if ever. If you didn't own a store during the last recession, you missed out on a delightful period of confusion. Here are some thoughts on what's likely to occur:

Increased Sales. We're counter-cyclical, so when the world falls apart, people are more cautious with their money, and there's no better value than hobby games. They not only beat video games, hands down, but they're a great value compared to all the fees-for-service we call entertainment nowadays.

Local Economic Cratering. The exception to being counter-cyclical is if your town is dependent on the mill (or Boeing). When the mill closes, or lays off a slew of people, all bets are off. When housing took a nose dive (which won't happen again) we saw entire neighborhoods abandoned in the middle of the night, with local businesses soon to follow.

Watch Employment. As long as your customers have jobs, they will spend money in your store. This is your mantra. Repeat it regularly. It will keep you warm at night. I don't really care how people spin the unemployment numbers, we're as close as this country is going to get to full employment in this era. Watch that number. No, don't do that; repeat the mantra: As long as my customers have jobs, they will spend in my store.

Financial Pull Back. If you have a CapitalOne credit card or you have a shaky community bank, expect some pull back. I had my CapitalOne business card canceled due to "economic conditions." I didn't do anything wrong, they just saw increased risk and decided to cancel my credit card. That hurt my credit and could have left me in a bad position, if it was my only business card (thank you Chase). Imagine that happening before a Magic pre-release. For some stores, it did, as I recall. Community banks are under increased regulatory pressure, so they've already become more difficult to deal with. Expect underwriters to become even more strict.

Flight to Quality. 30 game companies make up 80% of our sales. Expect the other 20% to dry up for a period. Expect Kickstarter to take a kick in the nuts, as it's speculative nature provides no better game quality results than pinning a tail on a donkey. Expect fringe, secondary games to take a hit. We used to carry a dozen indie miniature lines before the recession and twice as many RPG lines. The flight to quality killed sales of those cold, and those segments never recovered. They were not good value. You will want to focus on your 30 game companies, because your customers will have made a similar transition. Watch carefully and consider dropping the money sinks with low turns. You'll feel better cash flow almost immediately. Many small companies, mostly dudes in bathrobes with day jobs, will fail.

Focus on Fundamentals. Watch your bottom line. If you engaged in a ridiculously expensive customer loyalty program (you'll see how expensive it is when sales fall), you're probably stuck with it. The same is true with hiring too many employees; this is where you learn the pain of laying people off and hopefully transfer that memory into your hiring practices. If you're going to start cutting, look at your variable expenses first. Does your Internet speed need to be so high for your POS? Are there shifts that don't need two people all the time? Can you downgrade from a dumpster to a couple trash cans, if orders have slowed? The exception to variable expenses is the fixed expense of rent.

Lease Renegotiation. If we're really in troubling times, and everybody knows it, you have a chance to re-negotiate your lease for a significant savings. It doesn't matter how badly you're doing, if local market conditions are poor, you have a shot at big savings every month. This applies even if you have a long term lease. We've got two months left on our re-negotiated lease. We haven't seen a rent increase in 5 years, but that's about to change.

Outrunning Success (Tradecraft)

We had our annual board of directors meeting today, which always brings up interesting issues. One thing we discussed was the strange nature of the game trade, about how we bring in customers, get them into the hobby, and then promptly lose them. Once they're established, many turn to the Internet to satisfy their needs. Successful stores gain and retain new customers faster than they lose them. We do this very well, albeit without a system or full understanding of exactly how.

There are not too many other businesses that lose customers in this manner. It's a pretty huge flaw in the business model. It only works at all because of how we utilize Third Place Theory, becoming a venue for more than just purchases. The plans for the store in 2016 are all about improving our sense of space with our big expansion. The whole endeavor is incredibly inefficient and unstable, however, which is the kind of risk you discuss with shareholders (AKA your friends).

When you talk about taking a step back from the business, or retiring, or selling it, or franchising it, you wonder if the people who will take your place have their finger on the pulse of this dance. Are they actively working on the two step forwards while attempting to reduce the one step back?  Do they have the next generation of customers in mind? Have they considered community outreach? Are they spending too much time with those with one foot out the door already? They do tend to be the most active and vocal customers.

The other issue we discussed was the price pressures felt within the hobby trade in 2015, pressures we've honestly never felt before. We dropped Warmachine last month, not because it doesn't sell well, because it's still a top ten game. We dropped it because the efficiency of the line is untenable. We can't get that efficiency (turns) up while the game is perpetually sold at 30% off online. When I dropped it, I was informed nobody else really carried it locally anyway, despite running events, all on the same day as us. I'm not sure when the Flames of Warization of Warmachine occurred, but apparently I wasn't paying attention.

The price pressure issue is well known with the changes implemented by the Asmodee Group. It's also why we can't take Vanguard or Weiss Schwarz seriously, with Potomac selling them near cost on release. Also, when a game begins to falter, games that were previously impervious to such pressure suddenly feel them. When we sell less than one of each Pathfinder release, that entire system is at risk of getting dropped, for example.

Anyway, we had our best year yet. We hit numbers previously unfathomed. We have systems in place for constant improvement. We're moving forward with our expansion plans. However, if we were hoping for steady, predictable growth, this is not that field.

2011	2012	2013
Magic	Magic	Magic
Yu-Gi-Oh	Yu-Gi-Oh	Yu-Gi-Oh
Warhammer 40K	Pathfinder	Warmachine
Pathfinder	Warhammer 40K	CAH
Warhammer FB	Warmachine	Pathfinder
Fantasy Flight	Pokemon	Fantasy Flight
D&D	Fantasy Flight	Warhammer 40K
Pokemon	Rio Grande	Vanguard
Rio Grande	Mayfair Games	Pokemon
Malifaux	Warhammer FB	Mayfair
2014	2015
Magic	Magic
Warmachine	Fantasy Flight
CAH	Warhammer 40K
Warhammer 40K	Pokemon
Pathfinder	CAH
Fantasy Flight	Warmachine
D&D	D&D
Pokemon	Pathfinder
Yu-Gi-Oh	Asmodee
Vanguard	Mayfair

Transparency Agenda Interview

I did an interview with Louis Porter Jr. over the weekend where we talked about the game trade, starting a store and the usual stuff you read here. Check it out.