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.




Thursday, March 16, 2017

A Path To A Middle Class Income In Five Years

I've been writing the book since the last blog post. As you might expect, it's a lot of work. It is not a bunch of blog posts turned into a book, although the core of it is a re-written and expanded section on how to start a game store, complete with numbers and examples.

A bunch of meat is then hung off those bones, such as marketing, selling online, third place theory and the cafe model, and similar themes you've probably read here before, completely re-written. A blog post is a nugget of ideas, but it's rarely a starting point for writing a book chapter. In fact, it has messed up my writing style quite a bit. Lets just say I'm brief.

The book is essentially two parts, a how-to book on opening a successful game store, and a narrative portion of my personal experiences doing so. This is stuff I only share with close friends and fellow store owners. According to my buddy who has written a personal finance book, the book could have the sub title: A path to a middle class income in five years. That's kind of sexy in a mass market way. You've got a path towards a real, sustainable future in this book, and you've got a narrative that hopefully makes you think twice before starting. Or maybe I'm just crazy and you'll see that on display.

The narrative parts are the behind the scenes of starting a small business, the fear and loathing, the sense of freedom, the crazy things that happen along the way. If you already own a store or are just curious about starting a small business, this narrative part is likely the appeal of the book. I honestly can't read a book on starting a business without falling asleep. The narrative portion should cure your insomnia. When I ask people outside of the trade, they want to hear more about this stuff.

I've been posting teasers on Facebook. Here are some of the sections I've written. Most have been re-written after posting, but I'll post the draft versions for now. I've completed most of the how-to and I'm about a third of the way through the narrative. Then it will likely get thrown in a blender and re-written to some degree. That's my guess. I hope to finish by the end of April so we can have a book by the end of the year. Gameplaywright is my publisher on this. They're a small publishing house in the game trade.
















Thursday, February 23, 2017

Growth and Books and Miniature Games

I'm on vacation, so of course I'm writing a blog post. Here are a few updates on what's going on:

Post Construction Growth
We spent $133K to build our two story game center with the hopes this would increase sales, grow the business, and solidify Black Diamond Games as a regional gaming hub. The ROI on this project meant we needed modest growth of around 5% to cover our costs within a five year window, our loan period. That didn't seem like a big ask. When I approached lenders, this 5% number is what I pitched, and since cash flow could already cover our loan payments, risk was minimized.

What we've had since construction completed is a sales increase of around 16% (February has been phenomenal, by the way). That's pretty good, considering our average growth was around 10%. That extra 6% is right on target for our ROI.

Expanding the game center has allowed us to run many more events, thanks to a legion of volunteers and our employee organizers. Magic went from one night a week to five nights a week. Board game nights are now twice a week with lots of activity. New events are being added all the time and existing events are growing, with some nights already packed like before.

We're poor, having paid off over $20K of cost overruns in December, but we're healthy and looking forward to the next challenge.


Writing the Book
I've got a publisher for the book I discussed writing. The book will have a dual focus. One aspect of the book will be a how-to of opening a profitable, hobby game store making a reasonable amount of money -- my way, as you've read about it here. The second focus of the book is a running commentary on all the mistakes, problems and surprises of starting and running my own store over the past 13 years. I made a ton of mistakes, almost lost my marriage and my house, and in the end survived, even managing to leverage an international bank over a barrel to get my way. Business taught me that.

There is a "do what I say" aspect to the book, combined with a "not as I do" element. The goal is to write a book my peers would want to read while also writing a book a prospective business owner would find useful. I personally can't read a business start up book. The letters don't even register as words any more and my brain shuts down.  Usually these two types of books are two very different things, but we'll try to combine them. Together they may even form a cohesive whole that's of interest beyond the game trade.


Miniature Games
We came to the difficult realization last year that we're not a miniatures store. We dropped Privateer Press (mostly) and stopped bringing in the miniatures game flavor of the month that inevitably brought heartache and a clearance sale. But have we really stopped selling miniatures?

Talking with other store owners, their concept of miniature games is a much expanded category. My category is narrow, comprising of unpainted models with rulesets. That leaves out a lot of pre-painted miniature games, not to mention things like Reaper Bones and D&D/Pathfinder miniatures.  I ran the reports and here's a pie chart, because everyone loves pie:



So when I look at this, I see what I see in every other game category. A strong market leader (40K) with half the pie, a strong secondary game encroaching on a quarter of sales (X-Wing) and everybody else. So maybe we are still a miniatures store.

Thursday, February 16, 2017

Tariffs and You

With a proposed 20% import tariff, I was wondering about the game trade exposure and specifically my store. Only six of my top 30 best selling game companies manufacture exclusively in the US. As with everything nowadays, a lot of companies have mixed content, like boards printed in the US and pieces manufactured in China. All that could change with a stiff tariff.

* Battlefoam confirmed all their products are made in the US

My guess is there's an economy of scale advantage when manufacturing large quantities in the US for the US market. The good news is some of the top game companies are in this top six, especially Wizards of the Coast and Pokemon. Around a third of my sales are products manufactured in the US. For some game stores it's much higher, considering how Magic (Wizards of the Coast) dominates.  If prices do rise dramatically, it may mean a shut out for the smaller manufacturers who can't afford US production, meaning a consolidation and thinning of the herd. This makes a lot of assumptions, so maybe some publishers can comment on that.

If prices do go up and manufacturing continues abroad, the likely scenario for retailers is higher prices and more market erosion, with sales moving online. A $50 board game is expensive enough. Make it $60 and a portion of our customer bases will break off in search of cheaper options. Perhaps publishers will respond with more economical games, either lower quality parts or less content.

This tariff is all speculation, since this is being debated at great length. It's also unclear if a "pass through" tax reduction would follow. That would help someone like me, as I make a good portion of my income on my S-Corp profits, but most small retailers make their income via their salaries. That is, if they make any income at all. So like all things proposed with corporate taxes, the more money you earn, the more the proposed legislation helps you. Personally, I like a steady, even playing field without the massive disruption these schemes entail.

Friday, February 10, 2017

A Book

This week I've spent time thinking about writing a book. Let me tell you up front, I find nothing particular amazing or noteworthy about writing a book. I love books. Some of my favorite things are books. But I also have giant stacks of unread books. It's just a written medium, no more important than any other.

I used to publish a small magazine that had national distribution in Barnes & Noble. Part of that role was writing many articles, including when we were short content and sometimes under pseudonyms to hide this fact. Seeing my name in print is no big deal. Seeing my hard work published without credit is no big deal. Writing and publishing is kind of a slog, especially if you aren't making money (most writing). Publishing a magazine takes not making money to dizzying new heights, let me tell you. At least when I'm sucking at running a game store I know right away.

I learned the Ten Tricks To Magazine Article Writing, using lists and other magazine industry crutches to generate prodigious content. One time I wrote a completely fictional article about a Tibetan lama living in the hood, under the name of my Top Secret character and channeling my inner lama. I was just trying to fill pages with something true to my spirit, even if it was completely fabricated.  The article was re-published as a truthful account in Harpers, which I found terrifying and hilarious at the same time. I ended up fielding calls from Leno and Letterman for interviews, or at least interviews with this fictional street smart lama. Eventually the buzz faded and the reality of magazine publishing set in.

To help pay for the magazine, I got an entry level job in IT. The magazine eventually fizzled, doomed from the beginning with no proper research that would have been performed with even a rudimentary business plan. This left me in an IT career during the exciting and ridiculous dot-com days, where I quickly discovered adapting and learning new skills meant new opportunities and compensation. Don't know how routers work? Read a book. Take a class. Eventually I transitioned from IT to owning a game store. I read some books. I took some classes. Here we are.

What kind of book would I write, nobody asked? There are two possibilities. One type of book is a nuts and bolts book, similar or possibly just including blog posts massaged to be helpful to new or existing store owners. There have been books like that before and there are a couple out there now.

The second type of book is a more narrative style, "tell-all" about the trials and tribulations of owning a small business. This has broader appeal. It's also much harder to write and could go in many directions. The first type of book is more assembling existing content in a meaningful way, while the advice I got for the "tell all" is to just write it and pitch it, a more daunting task. The end goal is to leverage this exposure towards consulting, but to be honest, writing is a lot more fun, if there was a path with some modest income.

If you're a publisher and reading this, I'm ready to talk. If you're a reader likely to buy my thoughts in dead tree edition, please let me know what you would like to read. Here are my most popular blog posts, showing that even a cursory review of the Imperial Guard codex is vastly more popular than most of what I write about the game trade. Maybe I need to write Game Store in the Hood.


Monday, February 6, 2017

The Order Narrative (Tradecraft)

This is a nuts and bolts article about understanding where a product stands at any given moment. Before an order is placed, even while talking with a customer, I like to run down this flow chart so I have an idea of product availability. I have it in my head, but it's worth printing out until you get it down:



The flow chart may seem complicated, but once you do it a few times, it's quick enough to perform while speaking with a customer. All my sales associates should be able to do this for every item we sell. Where we get hung up though, is information at distribution. The part of the flow chart where it says "tell them it's not available and why" is often a bit of guesswork. If you don't know, tell them you don't know, but there should be a product narrative available from distributors.

This starts with product codes. When I look up an item in a distributors system, it's more than likely by product code, especially if their keyword search is janky. One of my pet peeves is the seemingly arbitrary changing of these codes.
*Often, code changes are manufacturer driven... There are other reasons that codes get changed. But at least in our case, the majority of the time it is either dictated by the manufacturer or done to move to "code synergy" in the industry. One example of manufacturer-driven: Warlord is switching their codes from the long mostly alpha codes to very long mostly numeric codes. Liana Loos-Austin at E-Figures.
GTS has their own codes for a lot of products, especially Ultra Pro, but the standardized code is searchable on their order site. For example, Top Loaders is inexplicably UPTLX at GTS, but I don't care because the description includes the standard Ultra Pro code of 81579. This is smart. Usually when a code is changed, the item is difficult to find. It would be helpful if other distributors kept old codes searchable (Alliance does this sometimes).

Getting back to product narrative, I need a story when a product is no longer available. I need to know why. Some distributors just delete products from view if they're sold out and not expected to return. Others don't add pre-order items to systems until fairly late in the release schedule. This breaks my narrative and results in often not ordering from these distributors. This is because my staff uses the system with the best narrative for pre orders and special orders, which can sometimes lock in that sale to that distributor. The best story teller gets my business.

Alliance tends to be the best story teller. They recently added "X" marks for items no longer carried in a particular warehouse, either because it's discontinued or just not coming. This extra bit of nuance confused some retailers, but it added to the product narrative. I won't be waiting any longer for the "X" product, so I know to order it from another warehouse, another distributor, or give up on it.

Any other status indicators is also helpful: Limited, Discontinued, Pre Order. The goal here is to provide retailers good information to make us informed customers who can help our own clients. I am assuming all this information is true and accurate. This has come a long way in the last decade, where there used to be a lot of disinformation, laziness and accusations of outright deceit regarding information from sales reps. More than likely, they were just as clueless as us and trying to create their own narratives.

Saturday, January 28, 2017

Reasons For Your Unearned Success (Tradecraft)

This is a harsh trade. When I first started, employees of other stores would come over and tell me how badly I was gong to fail. Their store had been around for decades and there was no way I could compete. So you say? Another competitor would come once a quarter and give me the bad news that the game trade was failing and there was no hope going forward. So you say?

Eventually, you outlast those people. There were six local competitors when I started thirteen years ago. Every one is gone. There are some new ones, but the original ones are ancient history. You usually don't have to do anything to fight competitors, if you've got a sound business model. Failed business owners self exit. The primary key to living is not dying. Then just do a little better tomorrow.

After a few years, they stop taunting you about how you're going to fail. Instead they give you excuses why you succeeded. They will come in and tell you this. I get it in my store reviews sometimes. Most people, including game store employees, have no idea what it takes to run a small business, so they have no idea what decisions are necessary to be successful. As store owners, we work exceedingly hard to set the stage. The audience arrives and gazes at our wonders. They leave and tell their friends. Most assume we stand around watching them gaze at wonders all day, having no idea what it took to set the stage. How hard can that life be?

I've compiled a list of excuses you're likely to hear. I've heard just about all of them. By the way, I would like to think I'm not a hardcore narcissist who believes success is all mine, acquired in a vacuum. I do believe many people have been instrumental in our success, including a community that provided me opportunity to succeed, be it this great country, which encourages small business and offers a safety net for failure, the state of California with its many opportunities that have enriched my area, or the SF Bay Area, with a culture of appreciating small business and quirky endeavors. That's what President Obama was getting at in his infamous "You didn't build that" speech. I'm grateful and aware of this assistance and it's a major reason I live where I do. That said, nobody succeeds without smart, hard work. So here's my list.

Reasons Your Success Is Not Your Own:

  1. Luck. Right place, right time. Ignore the feasibility study and the business plan, it was luck. I'm about to run a Norse D&D campaign and nobody is a hero without Luck. Nobody is noteworthy without snatching victory from the jaws of defeat. That means Luck is risk taking. It's not something that just happens.
  2. Easy Local Market. Anyone can succeed where you are. Over here? Much harder. This is true in the SF Bay Area, which is sheltered from a lot of Game Trade concerns. However, it also requires overcoming tremendous barriers and costs, along with high taxes and fees. I had to interview with my first landlord and the answer was no until I revealed the nest egg I had ready to invest. The barrier to entry is why we don't constantly fight pop up stores. Start with six figures or GTFO.
  3. Timing. Something was going up and you road the coattails. After a few years, my main competitor retired. I also started at a time of relative calm. Imagine starting your store the month of 9-11, or in 2008 during the financial meltdown. That said, timing is just one factor.
  4. Bad Competitors. Clearly since they're all gone, they weren't very good. Now if you had real competition, bam! Running a store is like flying. To paraphrase Douglas Adams, the goal is throw yourself at the ground and miss. Making sure you miss is where the work comes in.
  5. Staff Are Smarter Than You. The brains behind this operation is clearly not you. In fact, you're holding this place back from its true potential. This might be true, but it's also true hiring smart people is a management strategy. Bottom line: I can't run my business the way I want without smart people helping me. Thankfully I have them.
  6. Volunteers Smarter Than You. You've built this on the back of organized play and coordinators. Again, it's a team effort, and we're grateful for the assistance.
  7. You're Rich. The "you think you hit a home run, but you started on third" argument. One of my well known competitors was thought to be a dot com millionaire. I asked him and he laughed. "Ha! I'm sitting here in my back office eating my tuna fish sandwich." Ask Wizards of the Coast about this. I recall a story about the local Wizards of the Coast store manager installing a six figure mosaic in the front lobby of the store. There's no amount of startup capital that can save a business from a bad model. 
  8. You're Lying and You're Not Successful. I have one competitor who couldn't believe my sales covered the expenses I revealed. I must be lying on one end or the other. Then there's the question of defining success. My definition at year 13 is very different than year 6 and year 2. The definition of a 20 year veteran is likely very different than mine. Do I have to wait to be a 20 year veteran before I'm allowed to speak? Most 20 year veterans I know would rather just take a nap. Also, I can think of a combination of not inconceivable events that could easily destroy my business today. That's just the life of a small business owner.
  9. You Cheat On Your Taxes. This is usually the excuse successful store owners give for why pipsqueak start ups haven't failed yet. They're often not wrong. Having a really conservative accountant and business partners looking over my shoulder helps keep me honest in this area.
  10. Your Business Model Isn't Pure. Perhaps you've diversified into another area like used video games or cell phone repair. Perhaps you've vertically integrated your distribution or publishing business with your game store business. There are people who do this and offer a reverse excuse: The game store is only possible with such a model. 
  11. You Get Special Treatment From Suppliers. This might be true, as business relationships are not entirely transactional. In the game trade, your margin is determined by your purchasing loyalty and there are side deals and opportunities if you know where to look and who to ask. Opportunity doesn't just knock on the door.
  12. The Internet. Either you sell enough to survive on the Internet or they'll tell you the Internet will crush you any day now. Only a fool shops at the LGS. Notice they drop the "F".
And there you have it. Feel free to add your own to the list. I hope you'll excuse the negativity. I would like to think the vast majority of this blog is not about excuses but talking about how to succeed in this excruciatingly difficult field. 

Wednesday, January 25, 2017

Too Many Board Games (Tradecraft)

There are too many good board games on the market for my store to carry, and I think this is true throughout the trade. 2016 was the first year I stopped carrying board games that met all my performance metrics. The primary metric is turns, with three being a minimum turn rate for this category for me. The average is now around six.

With sales so strong, there just wasn't enough money in the purchasing budget to carry everything good, so good games gave way to great games. Inventory, whether it be store inventory or distributor inventory, is a zero sum game. There is only so much money in the pie and if I have to bring in one thing, it means something else has to go.

You might be reading this and thinking, well sure! That's just common sense. However, that's not how this trade usually works. It's often a case of stand out hits propping up a lot of crap. An enormous pink pond of pig poop, surrounding a few prize hogs. For my board games, there is no crap, no propping, the market is on fire. It's all tasty bacon.

I can't find enough product like this in RPGs or miniatures, it's fairly unique to this one category. I would throw thousands of dollars at RPG publishers, if they had something for me to sell. They just don't, at least not without a lot of time consuming farming.

This embarrassment of riches has migrated to purchasing. I've begun using the same strategy as my customers. All things being equal, games are bought on pedigree. A great board game from a top publisher not only gets picked over a great board game from a one off publisher, but it gets bought deeply. And if budget allows, very deeply. There are break out hit exceptions, but we have top 30 publishers where it's not a question of if I'll carry a game, but how many. By the way, this does not mean mediocrity from name brands sells well as in the past. Customers are well researched and don't buy entirely on brand. A solid brand is a guarantee of no surprises, like poor component quality or rule sheets ran through Google translate.

I'm planning a larger board game budget for 2017, but it's not about expanding my breadth, it's about jumping on board game intelligence when I get it. Games like Terraforming Mars and Scythe were hot in 2016, but we couldn't get them without a deep order.  We didn't have the cash, so we lost out. We had an angry review recently from a customer because we lacked product knowledge about Terraforming Mars. That's because we had it for 10 days in October and never saw it again. What can I tell you about that? It's rectangular with nice artwork, as I vaguely recall.

What does this likely mean for the game trade? I think it will mean increased balkanization, with Kickstarter games lacking penetration into brick and mortar. I think it will mean distributors will take the same approach as us, essentially not taking new clients and using their budget for big hits. Small publishers are likely shut out. Metrics for picking up a new game will increase. Good is no longer good enough, we all want great. It should also mean retailers like me need to dig deeper, go to more shows, play more games and network with like minded individuals to crack the code of hotness.


Gloomhaven is one of those "go deep" games in 2017. It's a $120 Kickstarter game, currently at the number one "hotness" spot on boardgamegeek. It's sold out on release but still open for pre order at distribution (I'm encouraging my customers to put theirs in).  I'll get my copies and won't expect to ever see it again. I could be wrong. Also, someone will point out there are areas of the country where a $120 board game is a non starter. I think if you consider it an RPG cross over, with legacy game mechanics, $120 isn't a big commitment for a group. 



Saturday, January 21, 2017

The Struggle is Real (Tradecraft)

I've got five days of cash flow, a huge sales tax payment due, a massive credit card bill, payroll, and the need for a new cars worth of sales in the next ten days. This makes me happy.

"The struggle is real," is a popular meme, but the struggle is often the only "real" part of this business. Success is ill defined. Money in the bank, real money, capital expenditure money, is a rarity for most store owners, at least until they've become well established. The need for things far outstrips cash flow. Entropy is a bitch and she demands replacement fixtures and an endless flow of toilet paper.

We're poor because we just paid off tens of thousands of dollars of construction debt, enough to enter the new year with a sliver of a chance of making it through January without dipping into some form of debt. But it's a pleasant place to be, especially knowing I won't be writing some of those monthly checks ever again. It's mostly pleasant because it removes decisions from my life. You work, you get paid, you pay the bills. We sold the van and tweaked our insurance to save $400 a month. This is the comforting work of the ancestral merchants. Wash, rinse, repeat. Routine has a warm embrace.

It's far easier to obsess over what's in front of you than forecast the future. It's like that person whose always busy at work, who has to constantly work late to catch up with what's in front of them. Those of us who've gone beyond that level know they're just poor planners, that resources haven't been allocated, that they're poorly managed in one aspect or another. It's a weakness of sorts, a comforting one that enshrines them in long suffering work and avoids the complications of social interaction or happiness seeking.

What I should be doing is planning. I should be working on a marketing plan. I should be setting up our demo programs. I should be planning those mini cons I talk about wanting so badly. I should consider a path to a book, but I question the value of such things. I should really find a way to swing the GAMA Trade Show this year. What I really should do is go on vacation. But five days of cash flow, man. I better put my head in the sand and and get back to the grind.




Monday, January 16, 2017

Less is More (Tradecraft)

Much of the last several years has been more about dropping games than adding them. This particular post is about saying it's a viable strategy for a profitable store. Don't be afraid of making hard decisions. I'm not talking about culling the herd, dropping slow board games or low performing SKUs. I'm talking about identifying broken game trade participants and showing them the door. The end result has been slower sales growth, since it's turning your back on gross, but much higher net.

Our net income topped out in 2015 at an astonishing 11%, and that's without significant sales in used product or other (highly profitable) cheats. It was straight up game trade retail at MSRP. This does require you to stop the genitalia measuring, which is gross, as in gross sales. I've written about that before, so no need to go into the "nothing but net" mantra again. Gross is a lie. You can't pay your mortgage on gross.

This is, of course, one way to do things. It's saying it's not necessary to be the one stop shop for all things games, because all games are not worth it for you, personally, to carry. We're talking big titles like Yugioh and Warmachine and for you, it might even be Magic. There are no sacred cows. There is nobody worthy of your unquestioned loyalty. This is also about crafting your store identity, admitting to yourself where you stand in the marketplace, acknowledging the limitations of your demographics.

No publishers are immune. If Wizards of the Coast can't protect their brand value and you can't make a profit selling it, drop them. If Warmachine can't discontinue SKUs in their creep towards infinite models, well, let them go. If Konami can't address the violence inherent in the system, send them on their way, give up their low margin product and troublesome crowd. Also, because this is business, it's not personal, so don't take it that way (your customers will). Also because it's business, reconsider if companies change.

Focus on net and the slow roll to higher profitability. Like fertilizer, take the money you get from dropping the bad actors and spread it liberally where it's needed to enhance growth. What you'll likely find is a lot of pent up demand in cash starved areas. We put our Warmachine money into Game Workshop and it paid off wonderfully. You might do the exact opposite and have the same results. It's a weird field. What you'll likely find though is a lot less cash crunch, a lot more time to explore new opportunities, rather than the churn of low margin, high gross nonsense.




Thursday, January 12, 2017

Report to Stakeholders 2016

This is my second year writing this report, a public document meant for our various stakeholders, modeled after the Steve Jackson Games annual report. I hope it provides our stakeholders as well as the rest of the industry a view into how we do business, which is just one of many viable ways. 

Overview
A stakeholder includes employees, event coordinators, shareholders, distributors, publishers and, of course, our customers. This year, it includes private lenders who helped us finance our Game Center. We have four private lenders who lent us thousands of dollars to make the Game Center happen.

We are a single, brick and mortar store with no significant online sales. Online is where we go in the rare occasion we can’t sell something in store. With a highly developed system of clearancing old product, our online sales are something in the neighborhood of less than one half of one percent. 


We intentionally and entirely focus on our single brick and mortar store customers. We have no interest or desire to sell online to any degree, nor are there plans at this point to ever have multiple stores. One great store. That’s the model.

2016 Summary 


Sales for 2016 were flat, +/- half a percent, depending on how the accounting is jiggered. That’s good considering the trials of the year.

2016 was a very difficult year for us. April found us without a lease, still in negotiations for construction and new lease terms. At the time, there was a chance we would have to move, and a smaller chance we might shut down for a short time, if we couldn't come to an agreement. The risk was small, but it was there. I spent the first quarter scouting new locations.

I had been seeking conventional construction funding since January and was unable to secure a loan, so when we signed the lease agreement in April, including the build out, I was financially unprepared to begin right away. Construction was delayed about 10 days while I came up with the first payment of $20,000. I spent the following two months securing the rest of the construction money through private lenders. Although construction was delayed significantly, one reality of funding was I wouldn't have had the money if they had finished on time.

So how did we fund the second half of this $133,000 project? We found private lenders by mentioning our need for funding in a Kickstarter update. It made sense that we were able to find people in the estimated 20% of the 20% of people who used our game center (or supported the project), a really small number. For those wondering, we offered competitive interest rates, promissory notes, amortization tables, and a personal guarantee on each loan. Each loan was slightly different based on other perks we offered or requirements we had to provide. I don't think I would have been able to craft such deals earlier in my career.

It actually went up another $2K since I made this

Construction was scheduled to take 4-6 weeks but instead took an astonishing 6 months. The project scope was just poorly conceived by the project manager, along with some smaller delays. Our sales suffered pretty badly.

The project cost us an additional $15,000 more than planned at the end stage. Things that worked fine at the beginning of the project, often were found broken by the end. To help us make this up, we were given free rent from September through December. These rent concessions were critical in digging us out of a deep hole.

With strong holiday sales, we ended the year broke but happy, with all our “running debt” paid off and our invoices up to date. I had started using credit cards in the fourth quarter to pay distributor invoices, and by January, I had 100,000 new frequent flyer miles (which I've since used for my Summer vacation).

Rather than entering January with a nice bankroll, we now enter it poor but happy with a bunch of great product releases coming soon, along with strong events that come with increased sales. We saw some of this already. After construction completed, we saw a 20% sales increase in November. December was up 12%, making it our best month ever and Q4 our best quarter ever. January is projected to be slightly stronger than last year, with Star Wars Destiny re-releasing, a Magic pre-release and a Pokemon pre-release for the second half of the month.


Winners and Losers 

Sales numbers for this year are suspect, and not worth much, considering the store was in shambles for six months of the year. Some customers kept shopping with us during this time, with the miniature gamers being notable standouts, their department being the only one that went up during construction.

In the beginning of the year we dropped a game we opened with in 2004, Warmachine. The reality of our region is there aren’t enough miniature players beyond Warhammer 40K. There’s a core group that wishes it wasn’t so (as do we). I might bring Warmachine back if we can get a weekly event going, but honestly, the store has functioned much better without the cash flow drain and mediocre sales that have plagued us with this game, and the popular miniature game of the moment.

It’s my understanding that Privateer Press has addressed some of our issues last year, so there’s always a chance it comes back. However, decisions were made. Bridges were burned.

2017 Plans 

With a 7 year lease in place and construction completed, the plan for 2017 is to heal. We still have projects to get the store into better shape. Our board game library is going to be greatly expanded. We have a demo program we plant to develop. However, we are cash poor, and need to better understand our new financial situation with construction loans and the like.

Events are our growth focus. We have space for new and expanded events. Some of these are beginning to blossom. Our board game nights have doubled. We have Magic events six nights a week. The new Star Wars Destiny events are drawing crowds.

We’re working on new concepts like mini cons and board game designer fairies. We’re hoping to see modest sales increases with event attendance and so far we’ve been pleasantly surprised.

For the long term, we plan to settle into this space for our lease term and expand inventory. We’re poor now, but future investment is inventory, inventory, inventory. There are a few things we still need for the store, like a sound system and an upstairs TV monitor, but those are minor items. The primary goal is to build our economic engine, the inventory. We could easily triple it in our existing space.

Finally, the long term plan is also to transition into what I would call a second stage store, complete with full time employees. We’ve ran the store as a scrappy start-up for years, something I credit Michael Parker for designing. As we grow with that model, we sacrifice sales and customer service. In the future, I’ll be looking at full time staff with a full time outlook. There’s nothing wrong with our current staff, there’s just a different outlook when you’re a 40 hour a week, full time employee.

2017 is looking pretty hopeful!

Wednesday, January 4, 2017

The Two Game Stores (Tradecraft)

When we talk privately about our stores, I sometimes feel I need an asterisk next to my name. The asterisk would denote something like "coastal" or a similar notation about geography. Why? There are two types of game stores out there, and their needs and problems are different. The issue is geography.

Most game stores in this country are in markets with unconstrained geography. This means there's plenty of flat space for commercial development and the only restriction is drive time. With near limitless space, rents can be dirt cheap. The barrier to entry for a new store is therefore quite low. This works like a tea kettle that releases steam when the pressure builds up (the Internet does this too).

Rather than boom times, game stores in most of the country instead face amateur competition from pop up game stores that rarely last 18 months, with more prospective owners happy to take their place upon their inevitable failure. With a handful of cash, these store owners see opportunity to make a quick buck, but also lack the skills to keep the business going. Sometimes there are dozens of these stores in local markets. Dozens. Let that sink in for a moment.

This is in stark contrast to coastal stores in states constrained by geography. Real estate is limited, the barrier to entry is high, and pop up stores are forced way out to the margins to where they can do no harm. Rather than a month to month lease with a handshake and a small deposit, coastal stores are looking at multi-year leases with credit checks, experience required, and perhaps $15-20K down to start, roughly the budget of the entire pop up store.  Also, these are not strict geographical terms. The SF Bay Area has coastal qualities, while Southern California does not. I'm sure there are heartland areas with coastal qualities as well.

Why does this matter? When discussing issues in the game trade, much of the problems facing game stores are other stores. While the coastal shops are working on professional marketing plans and looking for where to buy the best store fixtures, most stores are trying to work out why they should bother with a Magic pre-release because the new store down the street is running them at cost -- and that's just the most current new store for them in an endless cycle. This lack of barrier to entry is a game of whack-a-mole, where the new stores pop up, cause harm to the established store while they're busy failing like a chump, and are soon replaced by a new pop up. This is not a problem unique to any one area, the uniqueness is in the coastal stores with their rough real estate markets that insulate them from nuisance competitors.

Not all of these pop ups are nuisances and many excellent retailers will tell you they started with a handshake and some Ikea furniture. That's great! The problem is the vast majority of these stores have no idea what they're doing and they have one lever, one trick they know of to survive, and that's discounting, both in store and online. They race to the bottom because they know no other way. That's why you'll hear store owners talk about good and bad competitors.

Good competitors are knowledgeable and will create that rising tide that lifts all boats. Bad competitors are ignorant and will race to the bottom, dragging down the local market to sometimes permanent levels of devaluation that makes it impossible for good stores to succeed. Any area with a blanket 20% discount on all games is dead in my book. They've salted the earth. It means an owner can't make a proper living without running a crap store. This is the state of large swaths of the country. So for most customers out there, their idea of what a game store is to them, is rather crappy. You can't argue with them, because in their world, game stores are simply not very good.

I am not arguing for artificial barriers to entry. That's not a solution. If I thought there was a solution, and I'm doubtful of this, it would to educate prospective store owners. Unfortunately, with that nonexistent barrier, that's practically educating our customers.