Saturday, November 18, 2017

Bad Decisions (Tradecraft)

Game store owners, like regular people, can get into bad situations and make what look like bad decisions. If as an individual, you simply run out of cash and run out of options to feed your family this week, a payday loan is not a terrible idea. You do what you can to survive and hopefully learn how to avoid the mistake in the future. If you're getting a payday loan every pay day, something is terribly wrong, and the sting hasn't taught you anything. The same is true with store owners.

As someone who has had to survive hard times in the game trade, followed by adopting strong policies during good times, and then seeing lean times once again, there are short term strategies that only make sense when I have no other option. I may blow out product because the bill is simply due and I don't have a cash cushion to sit on it long term, which is the better play. I know I need a cushion, so I see my actions are not optimal for the long term. I endeavor to improve.

The problem in the game trade is there are too many store owners who are grossly undercapitalized, forced to make short term decisions that hurt not only their prospects, but the long term prospects of the trade. They don't just use their online sales as an exhaust port for unsold product, they need to blow out product and collect revenue, any revenue, upon product release. Anything that generates cash for their 7 day terms or even COD terms, is a win if it gets them to their next FNM, which they also treat like a cash cow. These are the payday loan customers who are there every pay day, unable to feed their store and without other options. Most will never have the capital to do otherwise.

Of course I'm talking about Magic, the cash cow of the game trade, as there's nothing else quite as liquid as cases of Magic cards. For the vast majority of the country, it's unlikely the bar will be raised to limit the number of undercapitalized stores. Here in the SF Bay Area, obtaining a commercial lease in even a reasonable area, requires a multi year commitment and demonstrated capital. But in most of the country, there's plenty of commercial, month to month real estate that can be leased with a handshake. So anybody can start a game store with ease, usually with some folding tables and Magic boxes. If you want to raise the bar, you have to regulate livestock.

That cash cow needs to have its value protected. How that's done is none of my business, and it's not legal or helpful for me to suggest how. I just think it should be noted that her udders are sore and inflamed from being milked at an increasing rate of speed. Her legs are wobbly from not getting enough rest between milkings. Worst of all, the kids have lost a taste for her milk. There's no longer anticipation, no longer curiosity as they guzzle down glass after glass, while being handed another glass before the first is even finished. Treat the cow with some respect and most of these problems go away.

As Much Rope As You Need (Tradecraft)

I could have called this post, "Boned," as a description for retailers sitting on a stockpile of Iconic Masters. Boned assumes their predicament was something that happened "to" them as opposed to poor judgment and bad circumstances. Perhaps there is a mix, but in general, I think Wizards of the Coast offered them as much rope as they needed to hang themselves, and they chose to swing at a length above the ground of their own choosing.

The problem with Iconic Masters is about timing, mostly. Mid November is not a traditional time for a significant Magic release. It's a dead season before the rush of the holidays. Generally things released during this season languish, either to be sold during December or never sold at all. It's a risky release time. So it's not surprising many retailers are reporting terrible sales during this slow lead up.

The second problem is the cost in relation to the season. My initial order of Iconic Masters was $20,000 of product on one invoice. I wrangled that down to about $12K. The problem is the end of the year is six weeks away. For a hot set or a set with a predictable sales cycle during a predictable time of the year, I'm likely to take 3-4 weeks to sell through an order and pay back that invoice. If I'm a little late on my predictions, and I've got some overstock, that's fine. However, with six weeks left in the year, what I don't sell is likely to become inventory overage, taxable as income on December 31st. There is strong incentive to dump this product for this reason alone.

Strong incentive may be an understatement, as this product is being dumpster fired (using this as a verb now) like no set I've ever seen. There are the usual suspects, but everyday stores also see the writing on the wall. At any other time of the year, the wise retailer would settle in and ride out a 3-6 month cycle of what's admittedly a very good product. But six weeks before end of the year? The risk is too high. Shove it out the airlock.

Did I mention Wal Mart has a Masters set for the first time? Oh yes. They have Iconic Masters as well as future product with the usual street date violations. The market is flooded with this product. Rather than banging the gong on Iconic Masters, Wizards has moved on, hyping the next Magic release, and making it easier for customers to just skip this one and jump on the next bandwagon.

Retailers can smell the blood in the water. They've made ground pronouncements of how they've had enough, which really just means they're reducing their upcoming orders of Magic downwards, something they should have already been doing, if demand indicates it. Distributors are going to be in a world of hurt when bills for this set are due and those retailers looking for the holidays to save them from a tough year will find their grandma money savior will go to pay the Iconic Masters.

The market has hit rock bottom folks. This is what bottom looks like. It's a shame too, because this is a very good product, despite the YouTube low lifes attempting to bad mouth it for personal gain. This is not enough to put anyone big out of business or topple a distributor, but it's a tipping point, a move from a bull Magic market to a bear market. For stores, diversification is the answer, but it was the solution to a problem that's too far gone for most.

Wednesday, November 15, 2017

Measurement and Reward (Tradecraft)

The game trade retail tier is a perfect expression of measurement and reward. When you begin to measure something and reward behavior,  you skew behavior in that direction. For example, if I give a bonus to employees for upselling product, they will absolutely upsell to every customer, whether they need it or not. My goal is to sell more things, but the reality is customers are driven away by the hard sales tactic. Upsells work in some situations, but not this one. So how are retailers measured and rewarded?

Wizards of the Coast measures butts in seats and rewards stores with status and limited product. If you look at game stores failing right now, the number two reason I've seen is the lamentations that players have done this or that. Players have moved to the store across town. Players don't like Standard right now. Players don't like the new tournament format. Oh dear, players have abandoned us!

Rewarding butts in seats has turned retailers into tournament organizers. They are not graded on their sales performance. They are not held to account for dumping $145 booster boxes for a dollar over cost. It's butts in seats, so butts in seats is how many game store owners measure success. Most don't know how to retail. Most would be offended, calling me a sell out, if I told them what they needed to do to effectively retail.

Distributors measure gross. The more you buy from a game distributor, the better the discount on games. It doesn't matter what you do with that product, just so long as you bulk up to the next discount tier. This leads to dumping, of course. If I'm $1,000 from hitting my next discount tier, why not buy that $1,000 of product and flip it online at cost? Distributors measure throughput and what we get in the game trade is tremendous throughput. Then we wonder why we have rampant product devaluation. It also ties into the number one reason stores close, undercapitalization.

Why invest in inventory that's worth ten cents on the dollar if you close tomorrow? You don't need dump trucks full of soy beans in your office to be a commodity trader, you just need to know they exist out there. I see store owners trying to sell their stores with acres full of tables and a few shelves of mostly card boxes. Pass.

Being a well diversified store, one which is a proper steward of game trade products, one that introduces and demos games to new customers, that protects brand value, that invests in inventory as a long term strategy, is not rewarded by the current game trade model. You measure throughput and butts in seats and you get throughput and butts in seats. Then retailers fail in droves, confused as to why their business model failed to perform when that's what they were being incentivized to do.





Thursday, November 9, 2017

The Stinky Gamer (Tradecraft)

Welcome to my high horse, where I survey the land around me so that I may pronounce my judgment.

Game stores have an odor problem. They smell and the problem is often blamed on gamers themselves and their poor hygiene. While there are such olfactory offending characters in our stores, the real problem is the game store itself.

Game stores are not meant to be assembly areas and most are not zoned or built for a large number of individuals with their body heat and natural odors. I'm on my high horse because I just spent six figures and six months bringing our store up to code, an unreasonable expectation to be sure, since I don't even own my own building.

So game store owners spend time masking odors, purifying air and otherwise embracing toxic chemicals to hide the stench, rather than doing the work to fix the problem. Now, if I were consulting for a prospective game store owner, would I be budgeting in a $10,000 HVAC upgrade and a bathroom remodel for typical assembly requirements? Heck no. At least not at first. However, those whose business model includes tables for hundreds of people, not dozens, would be wise to include such upgrades on their wish list.

This of course just adds to the impossible requirements of running a small business like this, the fact that nobody at the bottom could possibly afford such upgrades while everyone in the middle will have such expectations forced upon them. It's another example where it's good to be small and good to be big, but the middle has the expectations without the resources.


Our project board, so we know what to buy during the rare times we have money

Wednesday, November 1, 2017

They Want Too Much

Customers demand everything. They want price, selection, strong customer service and the new thing, experience. They want unique, "third place" experiences that provide them mental stimulation and a sense of community. These are a lot of wants, especially in a commoditized market.

The population also demands high wages. They want $15 an hour minimum wage. They want a Guaranteed Minimum Income (GMI). Conservative and liberal alike will shrug when a small business fails because of these demands. Meanwhile, job seekers languish, underemployed with job mismatches where worker skills are not the correct skill set for the hundreds of thousands of jobs that go unfilled.

Despite the higher wages, there are few workers to be had, what would normally be a sign that the pay is too low, but we've been forced to raise the pay. Where are the workers? For my store, almost every new employee requires significant training, and almost none of them match our job descriptions. The applications are notoriously slim pickings, and it's true for most stores around the country.

So everyone wants everything, nobody wants to do the job of providing it, retail increasingly moves online, and and we complain bitterly about big box retail treating us badly. Sounds like conservative talking points, but it's my experience in the trenches. Is this an impossible situation? Nope, don't despair, here's where the opportunity comes in.

Small business owners fill these gaps, delivering the impossible. The problem I have, as an established store owner, is I can't hire people to make miracles. I can either make miracles myself, or I can throw my hands up and declare miracles are phony. There is no amount of reasonable money that will let me hire a miracle worker. I cannot provide what people want under current market conditions. Can't do it. That right there is an opportunity for small business.

My inability to hire miracle workers is my competitors opportunity to make it rain. If you are delighted, entertained, awed by a local small business, I can almost guarantee you there's a business owner making miracles, because you can't hire saints and prophets, you have to become one.

This is both a competitive advantage and job security for small business, as well as a reminder to us middling businesses that you better bring the mojo. And if you continue to go to Toys R Us and Wal Mart and Target and complain bitterly about your mediocre, bargain basement experience, please remember you're asking the impossible. Maybe a small business will arise to provide that miraculous experience you crave. Maybe the prophet is you.