Wednesday, July 19, 2017

Third Place Theory in the Devalued Marketplace

Third Place Theory is the foundation of the modern hobby game store. Here's a reminder of the characteristics of Third Place from the Wikipedia article cited above:

  • Free or inexpensive
  • Food and drink, while not essential, are important
  • Highly accessible: proximate for many (walking distance)
  • Involve regulars – those who habitually congregate there
  • Welcoming and comfortable
  • Both new friends and old should be found there.

Third Place Theory is the Unique Value Proposition every game store needs. It's not enough to exist and sell stuff well, it requires this special sauce. The problem with Third Place is it functions poorly in a devalued marketplace. When customers buy product online at a steep discount and use the Third Place to access community, the Third Place facility acts as a host in a parasitic relationship. 

With game trade product devalued, the response from the venue is to increasingly monetize Third Place, whether it be nominal fees or how we do it with paying a small fee to play that goes towards store credit, essentially guaranteeing anyone playing is a de facto customer. This is somewhat at odds with Third Place and a bit alien to store owners. 

Nobody wants to charge for game space. I'll just repeat that: Nobody wants to charge for game space. Game stores are not built on the movie theater or hotel model where our commodity is the space and there's a need to sell it in a particular space-time or forever lose its value. There is limited money and opportunity to make third space our main event. The main event is having things customers want, when they want it, with special sauce to increase that demand. We're not in the special sauce business.

Increasingly publishers are moving to protect their brands from predatory pricing. They understand the hobby game store is their marketing arm, and when people stop playing their games in stores, publisher sales fall. Store owners who understand this relationship between brand value and Third Place are actively shying away from devalued brands and actively embracing protected brands. 

Retailers no longer wish to be part of a polyamorous relationship. Let me be clear though that root cause of devalued product is the very system itself, the distribution model that sells to poorly run game stores that use the Internet like an exhaust port. There are only a handful of relevant online discounts, not that they don't bear responsibility as well. As with most dysfunctional relationships, there is blame and failed responsibilities on both sides.

The winners and losers in this selection of publisher value are not always obvious, they're not the usual winners and losers. 30 publishers account for 80% of my sales, and I'm increasingly looking beyond these top 30 for value, which assumes I have an apparatus in place that can push demand. For example, we're seeing stores shy away from Wizards of the Coast, with their deep devaluation and move more towards companies like Cool Mini or Not who are more active in protecting brand value and supporting retailers. 


Saturday, July 15, 2017

Competency Curve (Tradecraft)

It takes a long time for a new team member to gain competency. This often surprises people, especially those who think their teenaged children would be perfect for a game store position. The complexity of the job mostly has to do with the level of service we provide. A game store owner who makes a bunch of exceptions to satisfy customers is likely to create a chaotic environment. A store owner who turns those customer pleasing exceptions into policies and procedures is bending the service curve in their favor. Unfortunately, that also adds to staff complexity.

The complexity of implementing such policies and procedures is why working at my store is wickedly complex. I personally would have a difficult time learning all the tasks we're expecting new staff to master. There is a tremendous amount of detail involved in sales, special orders, receiving, and day to day operations of the store. Change exceptions occur on a daily basis, usually communicated through Facebook. Some of our tasks are now specialized with a division of labor for things like online sales and technical tasks, like iPad content updates.

The game trade doesn't help either, as we have no uniformity amongst suppliers, meaning it takes a holistic understanding of the trade in order to function well within it. Yesterday we had to adjust our cost of goods on Magic boxes, because Wizards of the Coast sells product by the pack, while everyone else sells it by the box. Our point of sale system had Magic boxes with $2.11 cost of goods. As an employee, you inherently understand this and know how to manage this in the POS, how exactly? 

Special orders are looked up on one distributors online system, but might be set to be sourced from another. The employee will need to know which product code to use based on distributor, as one insists on a space between their alphanumeric code, while another might just make them up as they go. Oh and margins on items? Yeah, they're all the same with our primary, our secondary changes on a quarterly basis, and they're always the same with Games Workshop, unless it's a web item, in which case it's not. You all should know that, right?

This is all fine with a single owner-operator, but with nine people on staff, it means there's a competency curve, often based on time in service. Institutional knowledge takes a long time to develop. This means there's always confusion. Always. It also means we're insulated from a lot of big competitors because the game trade is such a shitshow.

It takes about six weeks to train up a new employee. Acquiring competency takes even longer, perhaps six months. I still consider an employee new within the first two years. Mastery? That's probably at the four year mark. Mastery really means they've internalized store culture and behavior, good and bad. If it's hard to train a new person, it's even harder to change behavior in a veteran. There's the Zen saying, "In the beginner's mind, there are many possibilities. In the expert's, there are few."

As an IT professional, my longest job was two years, yet I'm expecting my own employees to stay for far longer than that, and in fact need them to stay far longer to acquire the institutional knowledge necessary to make the business function. Could it be simpler? I think the answer is no. I really do. I think the level of service needed to survive as a brick and mortar store is now at the level of "exceptional." It's a big reason why we're all so obsessed with our trade, why we write blogs and talk incessantly on Facebook within a half dozen groups.  Survival requires tricks, customer delighting exceptions turned procedure, and the goal of perfection, which will always fall short. We'll do it with a staff that isn't paid nearly enough for the years of service required to learn the skills necessary to maintain such quality. 

As I've said many times, achieve mastery working for me, and you can go anywhere, do anything. I thought getting into this trade would simplify my life. The complexity is enormous. I'm extremely lucky to have such dedicated staff making it look easy.


Thursday, July 13, 2017

Presentation Anxiety and GTS 2018 (Tradecraft)

I will be presenting my inventory management seminar again at the GAMA Trade Show, March 12th-16th in Reno. I really don't like talking in front of groups, another reason I've been hitting the YouTube hard with new videos. I'm not even comfortable with myself and a camera, so overcoming that anxiety is important for me and my future endeavors (I sound like a guidance counselor).

Funny story, I took my freshman speech class requirement as a senior in college. I had this absurd idea I could skip graduation requirements if I demonstrated I was well beyond the minimal requirement. Ha! I also turned in my MA thesis close to the deadline, in the last hours of the year, because I ignored the margin size requirements. I learned to follow directions by having it pounded into me.

So true story, I was also taking courses at an executive security school, namely bomb detection and identification. When it came time to do my freshman speech class presentation (as a senior), I chose bomb detection and identification as my topic. I went to the classroom thirty minutes before class and hid fake bombs throughout the room.

Then as I explained each type of explosive device, I went over to the hidden bomb and demonstrated a detonation, using a battery and flash cube element to simulate the explosion. There were motion sensitive bombs, time bombs, pipe bombs, you name it. It was a huge hit. This was 1991, so we were still a decade away from 9/11 and the social more against joking about explosives. I suppose the point of the story is find ways to personalize your presentation to take your focus off your anxiety and onto the topic at hand.

If you're planning to go to GAMA in Reno, now is the time to reserve your room. The block with the cheapest rooms is already full. Yesterday, when I reserved my room, I ended up in the next most expensive block. I've stayed at the Peppermill a couple times, on purpose even, and it's an excellent, smoke free hotel. It is away from Downtown Reno (a good and bad thing), so if you don't get a room at the Peppermill, you will be commuting to the show.




Tuesday, July 11, 2017

Video Roundup (Tradecraft)

I've had more free time than usual this summer, with my family out of town, so I've been playing more with game trade videos. I started with some "around the store" topics, but settled in with business interests. I've had readers wondering if I had switched mediums, but rest assured, I'll keep writing. I'm going on vacation in a week, so the videos will stop for a while and I'll consider if I want to put more effort into them when I get back.

If you watch the videos, I think you'll agree they get better going forward. I learned important techniques, like holding the camera horizontally, taking the case off the phone for better sound, trying to use the best lighting (and locking the iPhone to keep it from hunting) and not letting them see your nostril hairs. I've also become more comfortable in front of the camera. Part of that is doing most of the later videos by myself in an empty house.

My goal was to do this without new equipment, and so far that has worked. Videos also get made without a script, editing and in a single take (lucky you). I figure if I need a script, it probably deserves a blog post. As I've gone forward, "one take" has meant multiple takes, and I've gotten comfortable re-shooting the same topic with my thoughts better organized. Sometimes I re-shoot four or five times.

If an idea comes to me and I can organize it in my head, I think it's worth a video. If it's deeply complex, and many of my video requests are complex, then it's probably a better blog posts. Blog posts take more time, especially complex ones, so you'll see I've shot a bunch of little videos in a little over a month.

Anyway, if you like the videos, please "Like" them on YouTube and Subscribe to the channel. Someone recently discovered my YouTube channel and tweeted I was a great resource on finance, known by less than 100 people. You would get that impression on YouTube. It's not that I need personal validation (which is always nice too), I just need to know if it's a medium worth pursuing.

Here's what you may have missed since my last post about videos, in order except for the first two (two parts). There are more besides these, so please explore the channel if you find them interesting.

Introduction to Commercial Leases, Part Un


Introduction to Commercial Leases, Part Deux


The Successful Hobby Game Store


Game Retailer Success


Avoiding Discount Culture


Monetizing Game Space


Process Improvement


Impressions of Kobold Press D&D 5E Products


So You Want to Start a Game Store: Business Plan


Rejection of Expertise in the Game Trade


So You Want to Start a Game Store: Your Income
(Most Views)

Monday, July 10, 2017

Ordering Board Games (Tradecraft)

I banged out a post on Facebook over the weekend that store owners appreciated, so here's an expanded and cleaned up version of how I order board games. It goes more into my thinking process of why I do what I do.

What distinguishes board game ordering from every other type of ordering is new board games are almost always not that new. What I mean is they've been out in the wild. People have played these games, reported back their thoughts, and there's a general consensus about its quality and value. Many games are derived from Kickstarter, so I also need to determine if the market is big enough, too big, or if there's artificial hype related to this.

Nothing else in the game trade is like this. If I want to order a new Magic set or new RPG book, there are very few people who have touched this product before me.  Being a buyer for board games is a bit like playing catch up, even though the game hasn't technically been released yet. Board games are also tricky for new store owners because reprints are always coming back into the trade, yet distributors never mention this when soliciting for a game. It's easy to get burned ordering a cool looking game, only to find out it was released five years ago and everybody already has it. There is institutional knowledge gained from doing this over the years, skills that both irritate store owners and insulate them from competition.

Below is my process for ordering board games. Note that although I have product knowledge and can sell a lot of gateway games to new customers, I am woefully out of touch personally, with most new releases. I also don't work the sales floor that often, so increasingly I rely on my staff to do the heavy lifting of board game sales.

Also, I'm not saying anyone can do this. Unlike games like Magic, there tends to be one dominant board game store in each market. If you are not it, you are not going to be happy attempting to sell board games. I struggled with board games for four years before the dominant board game store closed when the owner retired. It has taken my many more years to be deserving of that mantle.



We're going to pick on Vikings: Invasions of England as our example today because it was the first item solicited by ACD on Saturday.

Here's how I do it:

1. Solicitations. Every Saturday, ACD Distribution, my primary distributor, sends me an email. This email has everything new for pre order. There's nothing new on their emails throughout the week, so I completely ignore them. This one email is my key to pre ordering. If it gets lost or it's not worked on by me or my sales rep, bad things happen (ask me how I know).

I'll also go through Game Trade Magazine from Alliance and pick out things ACD is not carrying (since Alliance is my secondary). Then my GTS rep will call to tell me about some exclusive they've cornered or a game he thinks isn't getting enough attention. So three distributors all wanting to sell me generally the same stuff, along with emails from a few more. If I'm certain of a hit and supply or release date is in question, I may order the same game from all three.

I pre-order everything I will want in my store. Everything. Let me mention one more time, absolutely everything that comes into my store was on pre order. It means when distributors get allocated product, they first fulfill their pre orders and then divvy up what's left. All the complaining about being allocated comes from people in the divvy pool. My fill rate on allocated product is close to 100%. There's a caveat to that though. Because I only order a 30 day supply, I generally order reasonable amounts. If I had a robust demo program and was ordering a hundred or more copies, I would likely not get my full request. So stores that don't do the right thing, as in not pre ordering, are punished by the system along with alpha stores who do everything right. I'm in the middle for now.






2. Research: Ranking. I hate to say it, but I rely on boardgamegeek for most of my information. So do buyers at distributors. I'll go on boardgamegeek and look at the ranking. Ugh, that game looks terrible, or wow, that designer has a LOT of friends. This means ... something, like the Richard Dreyfuss mashed potatoes scene from Close Encounters.
Like the Vikings game above, a game with many rankings in the "8" territory is a good sign. A small number of rankings is meaningless. A huge number of rankings is a warning sign the market may be saturated, usually reserved for a Kickstarter game that's getting a reprint for distribution, or something similar.  The 8.68 Vikings game above has 46 ranks. That's not bad. You have my attention. Anything below a 7.5 is not a win in this category. It doesn't mean I don't order it, but I'll need more positive information.
Note on Kickstarter rankings: There is the belief that Kickstarter games have a strong confirmation bias when it comes to rankings. This means customers who backed this game, bought into the hype, waited a year, and then finally got their game, tend to rank their games higher than something they just bought off the store shelf. I might knock off half a point for that. 


3. Research: Desirability. I'll look at the desirability stats for this game. How many people have it? How many people want it? This is far more important than a ranking really. That's because rankings on boardgamegeek are a bit elitist and many popular games are not well ranked. Munchkin has a 5.95 on boardgamegeek and 1,200 people still want 15 year old Munchkin. 361 people want Vikings so that's a market I want to tap. 
Note that 5,425 people already own Vikings, a game that hasn't been released it.  Is that a deal breaker? For me, no. This game raised half a million dollars, showing it has depth of interest. If it had 500 backers and $50,000? I might pass. Around $50K is where I begin to pay attention. 

4. Quantifying an Order. Now I decide how many Vikings I want. This game has a very high ranking, which is a plus. It has a very high desirability, which is also a plus. However, it's $80, which is a huge negative. It's not that my customers can't afford it, it's that the higher the price point, the more likely a game is purchased online at a discount. 
If I had some early release offer, it would boost this number, but I don't.  I should also do actual game research at this point, and see if this game is a niche game, like a deep simulation or strategy game, or whether it has broader appeal. I think it's the former. 
I might look at how well Viking themed games sold for me in the past. It's not a popular theme for me, it turns out. If it had a popular license or theme, it would certainly boost numbers. 
If I'm really on the fence, I might post a link to this game and ask my store board gamers their opinion. We're partners in wanting to get them cool games from me, so they'll often chime in. Through a lot of marketing effort, we've built our private group to over 400 board game customers, so it's often a tremendous resource. My board game customers know way more about board games than I do, and I ask them regularly for help. 
So how many do I buy? First, I want to buy a 30 day supply. Why 30 days? That's my terms with my distributor. I want to sell all these Vikings copies before the bill is due. If I had COD terms, my thinking would be different and my opportunities curtailed, as I would need money up front to back my Vikings.
Because this is an $80 game, the number I'll buy is severely curtailed, but because it's ranked so highly, and it's so desirable, it gets bumped up a bit. I believe my local market will move through 5 Vikings in 30 days. Something else to consider is the publisher. Academy Games is not a big publisher, so my likelihood of getting a restock on this game, especially starting as a Kickstarter, is incredibly slim. 
Kickstarter games that get into distribution usually consist of a small print run over the backer numbers, so I will assume that I will get my 5 copies of Vikings and never see it again. If I have strong feelings about the viability of Vikings long term, and I have deep pockets (I don't), it would be wise for me to go long on this game and get perhaps a six month supply. 30 copies of Vikings. With those deep pockets comes the responsibility to better research this game, but with my 30 day supply, my risk and responsibilities are significantly lower. If I miscalculate, my 30 day supply might be 90 days, while the deep play might leave me with unsold copies of Vikings for years.

5. Sure Things. There are 30 publishers where the question is not whether I'll buy a game, but how many copies. Even a low ranking game (or not even listed game) from one of them is worth one copy. 80% of my sales come from these 30 publishers, so I don't mind going a bit deeper or taking a risk on one of their games. There are a ton of "dog" games from Asmodee, but in the aggregate, I make out like a bandit. Taking a chance on an unknown Asmodee game is still pretty safe. When I was new, I would have stuck with these 30 (once I figured out who they were) and avoided independent board game publishers, but I've learned if I want to lead in this category, I have to consider everything. 
"Everything" for me includes distribution solicitations and many games on Kickstarter. Although I'm highly critical of Kickstarter, I've backed 51 projects. I've lost about 10% of my money doing this, so a Kickstarter project for me instantly has a 10% lower margin. It has to be a sure thing. Because Vikings is obtained through distribution, and not Kickstarter, I don't need to factor in that risk (resulting in lower quantities). To really succeed with board games, I believe you need to be out beyond the bubble of the game trade, talking with publishers, going to trade shows, and buying games without someone in the middle curating your experience. You know, like alpha board gamers do. I don't do that, but I will in the future.

6. Social media. I'll pay close attention to my peers in the game trade AND my local board gamers. What is everyone talking about? Retailers have gone quiet over their scoops, because supply is limited and we are all competing for the same limited pool of product. I made a big deal here about Gloomhaven after hearing the inside hype and ended up with a single copy from my large pre order. 
I'll listen to board game publishers and give extra attention to specials. For example, if I'm given a month of exclusive access to sell their game in exchange for ordering a higher quantity, I'll often take publisher's up on that offer. Kickstarter hype is also important for me, especially since I'll back projects for my customers. They will now come to me to ask me to back a project, and I'll usually assume there's stronger demand behind their request.

7. Supply. When the game is finally released, I'll ask about supply from my sales rep and if it's low, I may up my order quantity. This is often my last chance to keep that game in stock. Also, a limited quantity means higher demand, another variable in determining stock quantity. 

8. Missed Opportunities. How would I improve this? I would be at the forefront of board games and attend fan conventions. I would play more board games to understand the trends and desires of my customers. I would have better publisher relationships. I would visit board game forums, pay attention to what's hot. I would most certainly demo games and be looking for games that demo well. We have an expanded demo library but it has a long way to go before it becomes an impressive resource. 
I can't emphasize game demos enough, as it trains staff and supercharges sales, yet it's hard to implement. I would hire board game specific staff at every opportunity (incredibly difficult). I would do more staff training, including paying staff to attend board game nights. I would have a bankroll for going deep when I know I need to go deep. I can often identify opportunities, I just lack cash reserves.
9. Results. We sell a quarter million dollars a year of board games with this method. I believe I'm successful in getting the hits in my limited, somewhat provincial market. I believe I'm paying attention to what customers want. I'm certain I'm missing a lot of opportunities, especially because of cash flow, but definitely because of lack of product knowledge between myself and staff (sales is a whole other topic). To be successful selling board games, customers need to want a game within my economic window of being able to obtain it. That's a narrow window that taps buying, marketing, and sales. The better I am at all three of these skills, the more I sell and the happier my customers. 

Friday, June 23, 2017

New Facebook Page

I have a new "Gary Ray" Facebook page for posting my videos, blog posts, and writing updates. There's a book coming at the end of the year and I've agreed to write a column for Wizards of the Coast. The first article is already done. I've got a lot going on and it makes sense to separate this stuff from my regular posts about my wonderful son and my beautiful Jeep. Or is it beautiful son and wonderful Jeep?

Why a Facebook page? I don't do Twitter, which is the best method for communicating with a vast number of people, so that means folks default to finding me on my personal Facebook page, a very limiting thing. I've got a couple hundred followers and about 450 friends, most of whom are game trade acquaintances. I know my content is extremely niche and I'm not pretending to be some sort of rock star, but this should help sort my electronic life.

The down side to a page versus a group, is Facebook monetizes pages. That means you'll want to set it for See First in your news feed.

As I don't make squat writing or making videos, there's no ad budget to promote this page. So, something I almost never ask, please tell your friends!

Thanks!


Thursday, June 1, 2017

Protecting Brand Value (Tradecraft)

The game trade eats its young. It's a painful realization that the mechanisms of the trade are designed around the pump and dump, the acquisition of new product dumped out as quickly as possibly to anyone who cares, so the lever can arc upwards once again for the next pump. Publishers are impeded from building long term businesses as their product life cycle is measured in months rather than years. They can have good intentions, solid sales policies, but there are bad actors at both the retail and distribution tiers that undermine their efforts.

So today Asmodee exerted control over the process by consolidating with Alliance, the biggest game distributor. When your product is devalued in the marketplace, it loses long term viability and sales begin to fall. When you try to maintain that value through policy yet you still see your suppliers selling to companies that devalue product on release, be it to Amazon or Cool Stuff, it's reasonable to consolidate suppliers to a single, capable, trusted agent, ensuring long term viability. 

Will they sell less product? Probably in the short run. They know that. Will it maintain long term profitability for the company? Absolutely, as the brand value is retained and the product life cycle preserved. Will it hurt game stores? The inefficiency and slop in the system benefits retailers, no doubt. We have multiple suppliers sitting on stockpiles of multiple products allowing us to pick and choose our just-in-time inventory at our whim. Without slop, product will be harder to acquire and possibly at a lower margin. So yes, it's not good for retailers who think short term, but what about long term?

Maintaining strict control of supply maintains brand value and increases long term viability. This rewards stores that build community around these games. It rewards stores who forecast sales and order accordingly, a skill made even more complex without the exhaust valve of the Internet (because of publisher policies). This all works to maintain brand value and increase sales for everyone, provided you have skills. If you don't have skills, if you don't pre order, if you don't forecast and budget, if you don't build community, if you can't dial in your purchasing without dumping on the Internet, well you're kinda screwed. But I'm alright with that. This trade has a barrier to entry lower than a snake full of buckshot. That low barrier to entry allowed bad actors to get us to where we are today.

This is the point where customers bemoan their inability to purchase deeply discounted games. I have to ask, could this possibly benefit you as well? Is it not possible that you too are the victim of the pump and dump? Are your X-Wing ships collecting dust? Does your game store shy away from running all but cardboard related events?  Do you have games still in the shrink wrap on the shelf because you've been convinced to hold a giant bucket for the pump and dump? Perhaps your so-called "investment," is actually more valuable when the pump is given a rest.

Wednesday, May 31, 2017

Dialed In (Tradecraft)

When I first started the store in 2004, I recall some odd conversations with friends. One friend, an executive at an Internet start up asked me:

"So you're going to sell video games?"

"No, it's hobby games."

"You're going to sell hobby games online?"

"No, just brick and mortar."

"And you've written some sort of system to optimize that?"

"No, customers come in, I tell them about a game, and they buy it."

(Blank stare)

Why anyone with an education and an IT background would want to engage in old fashioned brick and mortar was beyond his understanding. I get it. I was looking for a slower lifestyle. I expected to be like Mr. Olsen of Olsen's Mercantile on Little House on the Prairie. A slower life. I was so wrong about that, but that's another story. Bottom line though: The Internet and technology of the 21st Century would never allow a Mr. Olsen to exist without it.

The Internet and online sales existed before I had a store. I don't get to complain about the ecosystem that existed before me. I chose to exist in that reality. Still, there was constant tension and the worst was the inability to communicate with customers unless they were right in front of me.

My first couple of years, I created a mailing list and sent post cards of new releases to every customer. I spent about $500 a month on printing and postage. I had to pick which items would most likely appeal to my customers, even harder because there was one list and gamers are fragmented into at least four departments with limited and unpredictable cross over. I would create posters printed on an 11x17 color printer that would get updated weekly; high tech.

The Internet was essentially the enemy, with some unknown amount of sales eroding and seemingly growing over time. Discussions and activity happened amongst customers that I wasn't tuned into. They would go to conventions and I would pump them for their interests and inclinations. At one point, I was privy to some online sales data when I started advertising online and was told the hottest online seller in my zip code was GURPS. I couldn't sell a GURPS book to save my life, yet GURPS was the hot seller. The disconnect was astounding.

That was over a decade ago, and I'm happy to report the Internet and I are now getting along swimmingly. Social media, namely Facebook in Group format, has allowed a level of communications I could have only dreamed of before. I can not only mention every new release, but I can gauge demand, tweak policy on the fly, and create opportunities in real time, rather than waiting weeks for customers to arrive with wrinkled post cards.

The store is fine tuned with social media, the Internet finally assisting rather than impeding our progress. I'm not sure what I would do without it. Even the boogeyman of Kickstarter is becoming a bit more fine tuned, with retailer programs available to let us participate in cost effective ways. We generally pay at the time of shipment, stretch goals are included in projects, and we've got enough time to collect pre orders from customers. That's a win-win for everyone.

It's amazing we survived as long as we did, deaf, dumb and blind to the demands and needs of our customers. Even GURPS is selling well after some discussions about what customers were looking for.

Tuesday, May 23, 2017

Now with Video (Tradecraft)

In the past, I would have never considered creating a video for anything other than something dire. You know, like a plea for cancer treatment money for my dog or a Kickstarter video. I am not at all comfortable in front of the camera, but my views have changed. This is mostly because my viewing habits have shifted towards YouTube for many of my hobbies. Anything technical, for example, is much easier to understand with a solid YouTube video.

One of my favorite video series is Oh Hey There! with Jeff. I'm sure Jeff and crew does a lot of work to set up and plan his videos, but the core of this series is a basic topic, demonstrated in a straightforward manner, without the usual endless futzing around you find on YouTube videos. Jeff has my undivided attention for the 2-4 minutes his videos usually play. So Jeff is my inspiration for making my own videos. If I had to plan them any more than what was in my head, If I had to buy equipment, if I had to script them out, I honestly wouldn't do them, which means I need to make these crude productions quick, useful and to the point.

I've done three so far, posted publicly to my Facebook page, but I just uploaded them to YouTube so you can watch them here. I think the best topics are areas where we've managed to do something clever, but where there's also room for improvement. I can talk about great store fixtures, because I'm also stuck with some crappy fixtures. I have a great setup for CCG play mats, but my set up for miniature mats is abysmal. My card dispensers look great on the wall, but they probably lose me sales and I don't recommend them. I could do this all day, as most of retail is a compromise. How you compromise sets your tone and your style.

Anyway, here they are! They're in order, and I know the first one is probably the weakest:


Choosing Slatwall Gondolas

How to Display Mats

Pros and Cons of Booster Displays


Friday, May 19, 2017

Narrow Windows (Tradecraft)



There's an interesting article here that talks about the aspirations of employers and what they actually get. It's exemplified with the chart above, which I would much rather riff off than the actual article. I've managed people as a line manager in large companies and it's significantly different in a small business. There is the obvious difference between skill sets in say, an IT department, than your typical minimum wage job, but the basic issues remain.

To start, as a general rule in this country, just about everyone without a severe cognitive disability, is employable somewhere. This is important, because as a small business owner, I regularly employ across the spectrum we see above. My problem, the problem most small business owners have, is we have a much narrower window of compatibility compared to big business. We have fewer positions and they're not fillable by most people.

I need an employee to master half a dozen important skillsets while showing competence in customer service. A bigger business can always shoehorn in an employee into a narrower slot. I did a lot of those jobs in my life, from word processing specialist, to chauffeur to car washer. Those jobs required you do one thing, and had little customer facing interaction and a low bar for competence.

My business tries hard to find the right fit, like every other business, but inevitably we hire employees outside the upper right box. We need competent and outstanding nice guys. If you're incompetent and nice, there's no car wash position to shunt you off to. If you're an asshole but great technically, there's no back office word processing job to keep you away from customers.

Parents regularly suggest their children apply for positions with us, but the reality is our needs and requirements are far narrower than larger employers. In fact, we never hire someone as their first job. There's too much baseline employment training we don't have time to teach.

We can train people for the job, but there are those for whom competence will be elusive, even as they master some skills. We might love that a person is great on the computer and is great working on technical tasks, but if they can't smile and develop customer service skills, or if they can't put their ego down long enough to let those skills shine through, there's not much we can do with them.

While a larger business will employ the entire spectrum, we essentially have only two viable categories: nice and competent (line employees), and nice and outstanding (managers who will eventually shine elsewhere). All others need not apply, or if they're already hired, they're usually on their way out or we're exasperated they're still around. There's exasperation with the large employer too, but in our case, we're far more likely to fire the assholes and we're always looking for an excuse with nice incompetent guy. Large employers will always keep the assholes if they're competent, while the incompetent ones can often outlive their managers.

If this all sounds arrogant and demeaning, let me tell you, nobody recognizes they're an asshole more often than store owners. Amongst my peers, it's pretty much a given you self identify if you've survived more than a few years. You've had to make hard decisions, often because people try to regularly take advantage of you.

Myself? I needed to step away from daily work at the counter because I was most definitely becoming an asshole. Just ask my manager. Don't be so surprised. To stay in the same exact job for nine years, you've either found your true calling or you've reached your level of incompetence, which for me was competent asshole in need of something else to do. I was lucky as owner to be able to carve out a new job that fit my skillset, but others aren't so lucky. It's a good enough reason as any to close your store.

Tuesday, May 16, 2017

So, You Need Some Money (Tradecraft)

One of my minor claims to fame is I'm one of the few store owners who has succeeded in leveraging the hell out of my store, while still surviving to profit from it. This is what happens when your Intelligence stat exceeds that of your Wisdom. So let's talk about the need for cash and how to go about getting it.

The worst way to acquire cash is an equity stake. This is when you seek investors to take a permanent chunk of your business in exchange for operating capital. Why is this bad? Wherever you are right now, you're betting your business will be more valuable in the future. In fact, that's what those investors are expecting. Once you take them on, they will be there until you buy them out or you close your doors. Every month I send checks to these guys. It took a lot to get them on board, and a longer than reasonable time for them to see their ROI, but you would have a hard time dislodging them now.

Ironically, equity investors are often the easiest people to convince to give you money when you're starting, since you've got little to offer other types of lenders. If you're just starting out, most will be wanting this to be a professionally structured investment, but in the back of their minds they're probably thinking this is more charity than an investment. It's a great way to get your friends wives to dislike you.

It's your job to prove them all wrong. If you do decide to take them on, spend the first grand of their money to hire a lawyer to craft a shareholder agreement (I waited ten years to do this). This document will explain how to (dynamically) value the business, how to buy out partners, and what happens to shares in cases of divorce and death of investors. You don't want their angry ex wife as your new business partner, she already hates you.

Also, the best investors are silent investors, meaning you own 51%+ of the business and they don't work in it under any circumstances. Keep them away, as it ruins relationships, pierces the corporate veil that protects them and generally leads to arguments and dissolution. Form an LLC or corporation and buy them lunch once a year at your annual shareholder meeting. That's a good degree of contact.

Although I say you should own 51% of the business, consider your business plan to determine if that level of income is enough for you, assuming profits down the road will make up a big chunk of your income. What I see out there are successful businesses with near equal partners, where none of them are capable of earning an income because of how value is divided. They rely on the SWGJ (Spouse With a Good Job) to make ends meet. I'm at 75% and I think that's about as low as I would want to ever go.

The next best way to generate some cash are private lenders. This works best if you're already profitable but have a great plan to generate more income with minimal risk to the business. We did this with our mezzanine expansion project. If you can show you can currently make the loan payments without your plan succeeding, you'll have a much easier time convincing private lenders. Honestly, if you need your plan to succeed to survive, you're better off saving up some additional capital before taking on lenders.

Private lenders will want a Promissory Note and perhaps an additional agreement they'll get their money back. They are high up when it comes to dissolution payments, so they're not in a bad position to start. Some of ours wanted security agreements, with liens on our furniture, fixtures, equipment and inventory. One was crafted as "senior debt" which put it before other loans. Some loans were reduced in interest by offering games at cost for the loan term. All of these loans have me as a personal guarantor of the loan. The goal for us was to take out these loans for a five year term, but pay them off early at our convenience. We're in our second year of loan payments without any missed payments and our sales are up 15%, so it has paid off so far.

Make sure your investors are aware of their new position with any new loan you take out. They are generally last in line when it comes to winding down a business. In the event your business closes, the required order of payouts goes like this:

  1. Employees (wages, sick and vacation time)
  2. Government taxes
  3. Lenders with Senior/Secured Debt
  4. Other Lenders
  5. Shareholder loans (something to consider when a shareholder is a lender)
  6. Shareholders (including you)

Crowd Funding is a way to generate some cash, but it's a poor option for store owners. You can read about my successful Kickstarter in this blog (and in the upcoming book), but it only succeeded because I leveraged industry contacts. In general, a new store has nothing to offer a non existent community of backers. An existing store can sometimes succeed with a Kickstarter with a promise of future services, recognition of goodwill,  and various tchotchkes. Our $26K Kickstarter generated about $15K of cash and a whole lot of entitlement for a project that ended up costing $133K. On the plus side, we met most of our private lenders from the Kickstarter project.

There are other methods I write about in the upcoming book, such as community lenders (we got a loan through one, but paid it off before construction began), SBA loans (available to existing businesses or new store owners who own a home), and traditional tricks of the trade, like credit card cash advance checks and the now nearly unobtainable HELOC (Home Equity Line of Credit). The best way, by far, is to be smart and stockpile a bunch of cash.

From Sperennial Financial





Saturday, May 13, 2017

Benevolent Dictatorship (tradecraft)

I hear stories all the time from retailers who have had their stores hijacked. Perhaps it's the customer using your RPG section and generous return policy as a library. Maybe it's the players who come to your Magic events decked out in your competitor's t-shirts and playmats. Then there are rogue employees who manipulate employee discounts to game your system. How can you possibly manage this chaos of your own creation?

Luckily I have this useful tool for you to use, a magical utterance. It goes something like this: "No." The store is yours. We work with people who enjoy games and gaming systems. They often see reality and your store as a game in itself, a system worth gaming. They like to skirt around the ragged edges of the rules to define their own win conditions. As a gamer yourself, you may feel this is normal behavior. In fact, it is not. You are the benevolent dictator of this banana republic. Policies, procedures, rules and general codes of behavior exist to serve the needs of your business and protect the inhabitants. When the system is being gamed, feel free to flip the table.

This assume you understand your needs. A good benevolent dictator needs a vision. You have to understand what a well functioning benevolent dictatorship looks like. Otherwise you're just insisting on an extra scoop of ice cream because you can. Because benevolent dictator. A solid vision means you're building community, profitability, and have an idea of the unfolding of your plan. There will always be someone who wants to challenge the plan, but that doesn't mean you need to re-write it. The return policy is just fine. There's no need to write a customer dress code because of one jackass. You don't need to re-write your employee manual regarding employee discounts. You just say no.

To balance this, the benevolent dictator has the bonus Feat of being able to say "yes." I never contradict my managers who are following policy, but there are occasionally situations where a simple yes will enhance a customer or employee experience. You want to buy a $200 army bag but you would like to substitute a two inch foam tray for a pre cut one for your army? Yes. You're a well meaning customer and you need to make a return after the return period because of a mix up? Yes. You need to leave work early? You're willing to buy those Age of Sigmar models I can't get rid of at a larger discount? You would like more comfortable work shirts? Yes, yes, yes.

The benevolent Yes and No are why a "4-Hour Work Week" is bogus, why there is really no such thing as a successful absentee store owner. Someone has to say No and Yes and if it's not the owner, it has to be someone with a nearly equal amount of power. That's a rare thing in a dictatorship.



Monday, May 8, 2017

Dance of Desire (Tradecraft)

When I think about long term plans for the store, whether it means keeping it well into retirement, selling it later, or keeping it going after my death, I'm reminded the value of the business is the dance of customer desire. It's an elegant, free form dance of constantly shifting movements in which your partner is thousands of people and their desire for joy. Sometimes we forget we sell joy and happiness, since after a while our passion for games can wane. This dance creates waves throughout the organization that informs sales, purchasing, finance and personnel. It's the finger on the pulse, the ability to listen to the music and adapt in time.

The tendency is to think of a hobby game store as a static business, in which we sell the same stuff day in and day out. Sometimes customers will walk in and try to get a deal on some box, since it's been there for months, not understanding that this static, unmoving box is a vibrating string in our symphony of retail, having been sold half a dozen times since they last visited us. The dance is dynamic.

The movements are constantly changing. Our ability to dance and change to the music is our strength, our security even, as large stores can't possibly hope to adapt as quickly as us. If we were static, for just a moment, we would be devoured. We don't just dance for customers, we dance for our very lives. We move to avoid being devoured by the slow moving leviathans of retail.

It's not just stock that's dynamic, it's every element of the business process. There's no better way to see this than visiting a store that has lost its manager. The staff go through the empty motions, the dance they've been taught, without any connection or understanding of the movements and their purpose. I was at a store once that continued to demo a board game that hadn't been in stock for months. Their manager had set up this demo program and then disappeared. They showed me this great game, I asked to buy it, they declined. It didn't exist. They were dancing without a partner.

My goal as an owner is to teach the dance to my managers who will then teach the moves to staff. There's no way staff will grasp all the nuance of the dance, only the movements with correction needed occasionally. I can't claim to have mastered this model, as I still dance myself, rather than fully focusing on developing the dance and passing it along. That's the problem with game stores and determining their value, as they really don't have any unless the manager is entirely off the dance floor. The dance instructor does not come with the sale of the studio.

Removing yourself from the dance floor is a Catch-22 of sorts. It assumes you have someplace to go, another dance to engage in. Yet, until you do it, until you're off the dance floor, you don't know if your choreography was properly transmitted to your dance troupe. So you disengage slowly. Your troupe thinks you've lost interest and have abandoned them, but it's the only way to build value, to let them do the dance. Does your staff know how to pivot and turn to the rhythm of the music, to the response of the customer and the trade, or are they just going through the moves, like some stiff and empty karate kata? Do they listen and adapt or do they use demo games to sell false promises? You don't know until you disengage. You can't really disengage until you have a new dance. You can't have a new dance until you decide to stop dancing.



Wednesday, May 3, 2017

Sales vs. Discounting (Tradecraft)


Sales

I believe, for a variety of reasons, that the only good sale is a clearance sale. A clearance sale should be like putting down a rabid dog. You want to end this situation quickly without delay. That dog is not getting any better. It's unsavory work. This means a clearance sale with a deep discount up front. If I could perform this unsavory task out in the woodshed, even better. For some stores that means the Internet. There's no shame in doing this. It's the circle of life.

As I've mentioned many times, purchasing is a zero sum game. If I buy $100 of Games Workshop product today, there needs to be $100 of stuff I sold I don't re-order. When that $100 of sold product doesn't happen, I'm in a purchasing deficit, something my Open to Buy spreadsheet will tell me. Sometimes it's like this example and it's only $100, in which case I don't worry about it. Sometimes it's $5,000 like I found with Modern Masters last month. Now I care. There's no way I'm going to have a clearance sale to make up $5,000, but I need to do something, right?

A more mature store would go $5,000 in debt on purpose, a hedge on what's clearly a long term profitable product. My maturity level is not that high, mostly due to risks taken with construction that has left me cash poor. So I have a clearance sale. I look around and see what needs to go. I say look, but it's mostly my retailing nose. There's a metaphorical odor to departments that need pruning. It might seem instinctual, but it comes from being the head buyer while watching sales reports, every day for years. "When's the last time we sold that?" turning up my nose.

We take the stuff, mark it down, usually 40% or so, and put it in our clearance section. Then we contact our painstakingly created network of people interested in these things. If you just put it on a shelf and let it linger without such a network, that dying dog will haunt you. Through the miracle of social media, we're able to ask our community for help and they'll show up to take this stuff off our hands, often within minutes. Now I'm wishing I started this post with a barn building metaphor.

Here is where some retailers will not be happy with me. "Are you not discounting, Gary?" "Did not the venerable Dave Wallace tell us not to discount?" "Aren't you training customers for the sale? "Why didn't you get Old Yeller his shots?""Old Yeller's death is on your hands, Gary!" Other than the questions about the dog, these are all things I've actually received.

Discounting

Discounting is different from sales because it's a systematic, day to day, low margin activity on product you intend to keep around. It drags down your bottom line. This is unlike a clearance sale, which is a one time hit to your margins, in exchange for cash flow to build high performance inventory.

There are some things that will never sell for MSRP, like boxes of Magic. However, my CCG turns are 10 a year, and a box of Magic takes up as much space as the box of tissues on the counter. Selling some boxes of Magic (ours are $120) is better than selling no boxes of Magic (at $145). I do make the value judgment that selling some at $120 is better than pissing in the pool and selling them for $95, but that's a whole other post and an experiment Lincoln Erickson of Rooks Comics & Games (in Bozeman, Montana) might share with you if you corner him at a trade show.

You can certainly discount and survive, but why would you want to? There are stores that regularly discount board games 20%. I just did a sales per square foot analysis of my store for the book I'm writing and board games are space hogs. They take up twice as much space as RPGs or miniature games and ten times more space than CCGs. Why would you take a giant space hog of a department and then give away nearly half your gross profit?  Give up already and sell some used video games. Since GameStop wants to eat our lunch by going deeper into hobby games, used video games, the only thing they do well, is my new go-to. Eat that lunch.

The bottom line on discounting is it kills your bottom line and it wastes vasts amounts of your energy. It's a failure of creativity. It's hanging onto a category of product that you have no business selling. Let it go and find something more profitable to sell. If your community is a bunch of savages and everything is discounted, perhaps there are too many stores.

Below is a chart that shows the tremendous amount of work it takes when you go down the discounting road. We'll assume this quarter million dollar a year store is profitable now and wants to maintain that same level of profitability. A store with $250,000 a year in gross sales, with just a 10% discount, now has to sell $321,430 of product to make the same amount of gross profit. You have to work a third harder for the same money. Bump that to 20% across the board and you have to sell $450,000, working 80% harder for the same money.


Those doing this will argue that their sales go up when they began discounting, but when you press them for the numbers they usually don't see the increased sales needed to justify discounting. Also, costs don't stay the same. It's likely staffing and other costs will increase to handle this load. Giving away the store isn't cheap.

So sales are putting down a rabid dog, quick and with as little drama as possible Discounting? That's a recipe for overwork and lost opportunity. Find what works at full margin or find something else to do.

Monday, May 1, 2017

State of the Store

It has been six months since our big construction project completed. Our store square footage is now at 4,300, an increase of a third, all directed towards event space (with a 10% loss of retail space). We've added many new events and expanded existing ones as we moved from a very crowded 65 seats to a much more casual, fire and building code rated 121 seats. Even when full, there's plenty of room to get up and move around.

Measured by seats, this is not a huge game center, although it's a far more comfortable place than many stores. We were complimented yesterday on actually being able to see when playing games. The design process included architects, designing the game center to code as a public assembly area, exactly as we planned to use it. Design also included a lighting engineer. The lighting engineer went over the entire plan, including vetting brands of fixtures.

The result is our game center is a comfortable place to be, for sure. We experienced it at capacity for the first time Saturday, so I know we'll have a discussion this week about what that means for events and staffing. As we know from researching whether to build this space or not, at around 75% capacity, customers perceive a space as "full."

We have increased staff to keep up with the added event traffic. We now have nine people on payroll, mostly part time, some still being trained. To be honest, some I haven't met yet. I'm sure they're great. Before this year, we had six employees, so I guess increasing by a third tracks with the square footage (not that this is how staffing works). Our theft level has also gone up, with a regular parade of thieves and rip off artists, some of whom we're still waiting to return so we can inform them of their status. I've moved product out from behind the counter in hopes extra staffing and traffic would result in higher sales. It has, along with higher theft. Our staff needs loss control training in a big way.

Money wise? Sales are up 15% for the year, an astounding number for a teenaged store. Sales are up across the board. The goal of the expansion was more people coming, more people spending money, personal hopes for a more stable income, and that seems to have come about. I can't put my finger on anything special as the driver. Magic hasn't pulled its weight for a while. Board games haven't quite recovered from the Wheaton Effect upswing. One day I dream of bringing back Warmachine, because I know people are still playing and it's sales model is structurally different, but the money isn't there for us (I figure about $10-15K).

With most games doing just fine, but not great, the only thing I can point to is the fundamental change in our business model, Third Place Theory delivering on its promise. Events lead to stronger sales overall. We still have some running debt from construction that we'll need to address this month, since brushing it under the carpet with credit cards is getting tiresome. It's possible to defer bills for quite some time with a card, and although I enjoy the frequent flyer miles, suppliers charge a small fee for this service, and it's time consuming. I've been in denial and it's time to admit we still have some debt from the process. Overall though, we're profitable and we're hoping for our first seven figure year. We've flirted with seven figures for a number of years now, pulling back to drop Yugioh (a six figure hit), a year transitioning from chasing gross to shoring up profitability, and of course, missing our mark last year due to six months of construction.

2017 is a wait and see year, as we hope to stabilize from a major shock to the system. We just bought new store fixtures, a row of gondolas. It was a large, but necessary expense, since we've got a row of fixtures that promises to murder a small child at any moment by collapsing. We've made small investments in getting our Magic singles online, a new thing we do that has resulted in a little extra income but a huge opportunity to increase our in-store offerings through more aggressive buys. We'll likely need to upgrade our iPad kiosk as the new TCGPlayer software overpowers the hardware.

I finished the first round of revisions for the book last week. The book is turning out as I imagined it, thanks to my excellent editor, Jeff Tidball. Jeff added excellent editorial insight, including making me better explain things. I can't just mark a concept as "Tradecraft" and assume everyone is in the know. About 25% of the book resembles blog content you see here, but even that has been improved upon beyond recognition. Another 25% is personal, behind the scenes stories, some of which are only known to my business partners and close friends.

The process so far has taken about two months, with the revisions far harder than the initial writing, since I had to answer some tough questions and develop a lot of new content. I think I've maintained the focus on my core competencies which means I've avoided areas that you might want to know about where I would be speaking from ignorance. This is not the ultimate guide to game stores with a comprehensive, how to on how to run a store. There are a couple e-books on running stores out there, and they're certainly complementary and aren't in any danger of being replaced.

That's it for now! Let me know if you have any questions.



Monday, April 24, 2017

Ptolemaic Retailing (Tradecraft)

Everyone is trying to get the best deal, be they retailers, distributors or consumers. In the game trade, we go through this twisted psychology of denial where we pretend Amazon doesn't exist, since our trade is so fundamentally devalued. It's clear something like half the market, half the people in our area playing games, are buying online. It's such a dominant force, it's amazing we have conflicts with other brick and mortar store owners.

A retailer, not a "game store owner" would look at this and pivot. Pivoting means selling something not devalued. There are plenty of areas of commerce where the manufacturer takes responsibility for their product value. They don't allow it to be dragged through the mud for short term gain.

If I want to buy a Smittybilt bumper for my Jeep, it's a free for all and the market has no bottom. Smittybilt gives zero effs and retailers will race to the bottom with ridiculously low prices on Amazon, along with every off road shop in America. If I want to buy an AEV bumper, I must choose from several approved retailers, all of whom will charge me exactly the same price, and it won't be cheap. AEV can do this because they protect their reputation and their brand value. People complain, they claim AEV is overpriced, but customers enjoy a quality, prestigious product with superior engineering, because the company has the extra cash to do their job. The off road equipment market is mature enough to have both types of manufacturers.

The game trade has very little brand value protection. Just about everyone allows their product to be sold online for less, especially the 500 pound gorilla, Wizards of the Coast. It's a choice they make. Consumers have identified the Amazon price with the MSRP, claiming retailers charging over this price are "gouging." 

Getting back to retailers, what we have is a constant mental crisis as we wrap our heads around the equations necessary to make it all make sense. The game trade is what I call Ptolemaic Retailing. Ptolemy was an astronomer who created this incredibly complex, convoluted theory of how the Sun rotated around the Earth. His math was complex, but entirely correct in describing what he saw. However, the underlying reality of what was actually happening was entirely wrong. Ptolemaic Retailing is attempting to stuff our complex set of wrong observations and assumptions into a business model that works from sheer force of will. 

We guilt customers. We entice them to shop with us with Things Not Retail. We have arguments and worries about authenticity and reputation and even issues of love. We squabble amongst ourselves for the crumbs that fall under the table. We build exotic edifices to the pursuit of ancillary reasoning. We're told the game trade penetrating mass market is good for us, as sales of affected games evaporate. It's madness and it wears you down, let me tell you. A retailer, a dyed in the wool retailer (to paraphrase Jean-Baptiste Emanuel Zorg ), would look at the trade, a sea of Smittybilts, and look for the AEVs in the rough. Perhaps it's specific product lines. Perhaps it's moving on to a different line of business altogether.


Friday, April 7, 2017

Magic Formula vs. Pump & Dump

There is a magic formula to board game sales. It assumes you do everything right as a retailer. It goes something like this. You become the primary source on what's good in board games. That means playing these games before most of the public, attending shows, reading forums and knowing, not just hearing, that a board game is solid before release. This is the traditional role of game store taste maker. You will figure out first hand what is good and you will provide that to your customers.

Next, you go deep. You have properly capitalized your game store because you're a damn professional. You don't buy one and wait and see if it sells. You buy fifty or a hundred. You're not going to stock it and hope people notice it. No, you will demo this game. You will own this experience and sell it with you and your employees with the enthusiasm that comes with being a true believer. You know it's good because you did the work to gain the knowledge. This will result in selling all those copies. Maybe not right away, and that's OK, because we're not buying in hopes of clearing inventory by the bill due date. No, we're in this game for the long haul. Just in time is for chumps. One and done is for chumps. Wait and see? Yes, for chumps.

The problem with this model is the pump and dump. Not only are you being pro active in your choice of games, but online retailers are also out there, possibly standing next to you, with dollar signs in their eyes. They have deep pockets, often enough to achieve discount levels undreamed of by retailers. They will buy deep too, just like you. That's where their work ends, however. They'll discount that game on release and sell it deep, way deeper than dozens of game stores combined could manage. That's the pump.

Next comes the dump. Once sales begin to slow and they need to regain that capital, they dump that game hard. The market price plummets (or spirals) and it's now a game of hot potato. Stores not using the magic formula watch sales dry up. I might order six copies and when the dump occurs, I might sit on two for an extra few months or even a year. Those using the magic formula? Oh man, are they in trouble. They've got twenty five or fifty or more of this hot game. They've done everything right. They're model retailers. They're also screwed.

The pump and dump online folks are clear cutting the forest. Rather than evergreens, we have rotten stumps. The publisher suffers. The other retailers suffer. The distributors? They feel it as a weakened ecosystem, but there are known suppliers to the pump and dumpers. When we talk pump and dump, we're talking a deliberate strategy involving new games. We know many retailers accidentally over order. We know online retailers are stuck with large quantities of end of life stock. That's not what we're talking about. I'm talking about pump and dump as a business model. It's legal. It's also reprehensible.

Now lets look at a retailer like myself. I sell hundreds of thousands of dollars of board games a year. I'm a prime candidate for the magic formula. Will I drink the potion? Hell, no. The risk is too high. The opportunity costs are far more expensive than other, easier to deploy options. The formula is beautiful in that it requires me to be a model retailer. It requires I do so many things right. By it's nature I'm growing the hobby! The problem is the handful of pump and dumpers who ruin it for everyone else. It's going to be up to publishers to decide they want a future, some evergreens rather than rotten stumps.

Wednesday, March 29, 2017

Retail Apocalypse (Tradecraft)

There is much talk about the demise of retail. We have Sears, JC Penneys, Macy's, Radio Shack, K Mart, GameStop and many other big chains closing shop this year. It has been described as an apocalypse, with over 3,500 stores closing. But what's it all about and what does it have to do with specialty retailers?

The first thing to know when assessing the victims of the Apocalypse is the number of stores starting out. According to the National Retail Federation, there are 3.8 million stores. This bloodbath of end times stores therefore accounts for .09% of retailers. So why the hyperbole and rush to declare retail dead?

Business reporters are only interested in publicly traded stocks. Unless the entirety of retail were to be feeling some sort of stress, they'll focus instead on companies with well known stock tickers. Nobody cares about my store because you can't make a buck buying from selling bits of it. You can't predict the future by reading my annual report. My CEO compensation is definitely not worthy of a social justice meme. So no, this is not a condemnation of retail and I don't even think it's condemnation of the venerable shopping mall. It's a failure of UVP.

UVP is Unique Value Proposition. These stores lack one. In fact, they're so far away from a UVP, the concept of UVP isn't even used in the conversation. Unique is instead changed to Useful. They need to have a useful Value Proposition (uVP), with a small "u." While their online competitors battle it out for Unique, they struggle for relevance, for Usefulness. These legacy stores are unable to come up with a uVP, and are simply waiting to die. They are so big, so entrenched in the 20th Century, they actually take a long time to expire, like a dying star going supernova. The only question is whether they'll become white dwarfs or black holes.

The main reason they're not useful is they've failed to change with the times, something specialty retailers are especially good at. Millennial customers, in particular, are about experiences rather than acquisition of goods.  Specialty retail has embraced concepts like Third Place Theory to take the experience economy into account. Barnes & Nobles is known for Third Place too, with their in-store coffee shops, but with a 30,000 square foot store footprint, there is no way to use specialty store tactics with big box real estate. If Barnes & Nobles was 5,000 square feet, sure, but they're doomed with 30K and a business model that can't adapt fast enough.

So no, retail is not dead. Business reporters like to report to their investor community, meaning we (the public) are not the target audience for apocalyptic visions of the future. As specialty retailers we need to stay nimble, stay useful, but aim for unique.


Sunday, March 19, 2017

Competition (Tradecraft)

Here's the thing about competition, a well run, well rounded store is shielded from direct competition. You can't generally steal customers. It doesn't work that way. If you could steal customers, game store owners would have endless online debates about their favorite Zippo lighter style rather than preferred brand of point of sale machine. The tool would be fire. Just burn down your competitors store and voila! Instant customer base. Instead, we see this figurative burning down, petty back and forth bickering and low ball giveaway events, between small stores.

This is because a poorly run, narrowly focused store is entirely vulnerable to having customers stolen. Customers will be taken and their store will die. If all they sell is Magic, their tool chest consist of a calendar and price. That's not even a tool belt, more like a pair of hammers in your back pocket.

So the same customer base runs back and forth between stores as each store owner races to the bottom with customer appreciation events for unappreciative customers. Here's a tip, run customer appreciation events after customers have shown loyalty to your store, rather than trying to constantly bribe them. What a clown show.

I know all about this because we experienced the clown show first hand. I had competitors open to steal my customers because of their superior pair of hammers. However, because we were well rounded, and sold many other things, we shrugged and waited for them to implode. When they imploded, the competitive Magic community came back (which were really perhaps half the people who bought Magic). You can't build a game store with a pair of hammers.

If you're looking for a solution to this problem, it's pretty clear. Your construction skills are weak. It's not about pounding with your hammer. A solidly built, diversified game store is built to weather the storm of the ups and downs of the game trade, as games and customers ebb and flow. If the need to succeed at any one game or the need to cater to any one community is enough to sink your store, you are a slave. Your stated goal to run a small business and be independent is a lie. Put down the hammers and start building value for yourself and your customers.