Sunday, October 14, 2018

Demographics (Tradecraft)

I would rather talk about sex, religion or politics than demographics. Demographics is about class and race and some rather unsavory conclusions about how people spend money. Many new store owners ask about demographics and I'm reluctant to have that discussion casually, because it's nuanced.

Demographics for a game store are how people spend money right now.  We may want people to spend money in a different way, we may (and should) build a store inclusive to everyone as we seek out new markets, but demographics is about right now. How is money being spent on hobby games right now. Who are these people?

Some store owners and even corporate retailers erroneously believe they should place game stores where there's the most money. Games Workshop did this in my region about ten years ago, placing a store in the highest income zone in my region. I laughed, and they were gone in a couple years. I've charted out my customers by zip code and those high income areas might as well be pastures, for the revenue it brought me. 
High income is not the key to demographics. The wealthiest among us tend not to play hobby games, or at least they don't buy them in local game stores. I used to be one of these people before I started, just making six figures, driving a new BMW and wondering why stores weren't catering to me with my particular tastes. It turned out I was an outlier. I was not the target market, and it took opening my own store to realize that. My high income peers spent their hobby money on skiing, buying cars like mine, and travel. The chart above shows hobbies by income (click on it to blow it up).

On that chart, towards the bottom is playing games. It's a past time for those making around $50K a year. However, I would put hobby games a tad hire than that, being a high brow type of playing games, perhaps $60K-$80K a year. This is my tribe. Any higher or lower and I'm spinning my wheels.

I have no way to track education amongst my customers, but my general feel for hobby gamers is they are fairly well educated, but somewhat underemployed. They are smart people underutilized in the work force. What that tells me as a store owner is I seek out high education levels but only upper middle income. A low level of education and a high income is not my tribe, as games for them are Monopoly and they spend money on their Jeeps and jet skis. Low income and high education better be a college campus or I'm sunk there too. An awful lot of store owners are slogging away in communities like this due to the hollowing out of the middle class.

The graphic below is from the Phoenix area (thanks to Michael Bahr for finding it). If I were planning to put a store in this region (which dear lord doesn't need another one), I would be looking for that third tier of income, the $60K-$90K crowd. I would shun higher and lower income areas and hopefully find a central location along a corridor with third tier customers. I could be entirely wrong about the Phoenix metro area, but that's where I would start.

Of course, I would also want to look at the education level of these Phoenicians, hoping they had college educations and they weren't high paid blue collar workers. Now you can see why this is a touchy subject. 

Gender is really only an issue if you're planning to open near a military base (85% male). Our customer base tends to be 75% male, but there's not a good way to build a store around that, since the population is evenly split by gender. Note that college campuses used to attract more men than women, but now women make up 56% of college campuses, with their number expected to rise slightly over time. Gender is a growing segment of hobby gaming, however, but that's more about store design than choosing a location.

Now lets get on to the elephant in the room, race. The hobby game trade does not appeal equally across racial demographics. It just doesn't. Publishers might dabble with themes and concepts within hobby games, but you can't change cultural norms by trying to make a version of Catan that appeals to a new racial group, although games like Yuigoh have somewhat cracked that. If a group doesn't play hobby games, it's going to be tough to change behavior. We explored that a bit when we visited game stores in Mexico and Guatemala this summer, where machismo meets Not Invented Here.

The vast majority of our customers are Caucasian and Asian. I live in Richmond, California which has some pockets of the right income and high education levels, but racially it's primarily African-American and Hispanic (65%) with a lower income threshold. I enjoy living in Richmond, but I wouldn't put a hobby game store here, so I drive 30 minutes a day to where a game store makes sense. As my neighborhood gentrifies, the local people fret, but I see game store opportunities emerging. Maybe another decade. I'm so conflicted on the topic of gentrification as a capitalist liberal.

Anyway, this my impression of what I'm looking for in a game store demographic. There are entire states in this country where this demographic doesn't exist. It's not there, no matter where you look. When you don't get your demographic, you either get wealthy people who couldn't care less about your existence (cater to their children and sell them toys, there are examples of how this can work), or you get gamers obsessed with value-seeking in a salted earth retail environment. I can't tell you not to build a store on salted earth. People want to put stores in the communities where they live. However, If you have a choice, look for greener pastures (but only a few shades, not too green!).

Friday, October 12, 2018

Find Your Tribe (Tradecraft)

When I first started my store, I applied to the GAMA mentorship program. I got a call about 18 months later asking if I was interested, and considering how far I had gotten in my business, and how I had established my support network, I declined. That has been a major shortcoming of GAMA since I began, and it's not much better now.

Although I never had a mentor, I had people in the trade I networked with and followed -- sometimes too closely. Most are gone now, retired, passed away, or they simply stopped doing the thing. Some newer people looked up to me and sought my advice and now they've far surpassed me in the trade and I seek them out. Some are plugging along doing the same thing without much change or growth, and they're no longer on my radar. It's almost always about finding smart people full of good ideas and a positive perspective, and less about comparing bottom lines.

Besides the obvious need to learn how to run a better store, the biggest reason for finding your tribe is temporal displacement, something most Millennials are familiar with. If you do this long enough, you'll likely find yourself in a time bubble. The world around you will continue at a fast pace. Your friends and family with likely make great strides financially and personally. Meanwhile, you've chosen the Slow Path. Relationships and family, home ownership, plans for retirement all take a back seat to the voracious monster you feed each day.

Running a game store might bring you happiness, but the Slow Path certainly doesn't bring riches or leave a lot of time for many personal accomplishments. If you start comparing yourself to those outside the field, you may experience alienation and disorientation. Depression and suicide is not uncommon in small business. That's where a strong support network comes into play.

Finding your tribe is finding like minded individuals to share your victories and drown your sorrows. As I've said before, only other small business owners are likely to understand the lifestyle of a small business owner (those on the outside get upset when I talk like this). Find that understanding to keep you growing, maintain sanity and support your business. Eventually you're likely to get to the stage where you'll poke your head above the trees and see daylight again.

Monday, October 8, 2018

Do What You Want (Tradecraft)

There's a Mark Twain quote, "Find a job you enjoy doing, and you will never have to work a day in your life." He also said, "All you need in life is ignorance and confidence, and then success is sure." That tells me he would have intuitively understood the game trade.

I talk about numbers and metrics and policies and procedures near endlessly. The thing I don't mention, because it seems like we have an overabundance of it rather than technical rigor, is doing what you want. I didn't say do what you love, because passion is fleeting. It comes and goes. You may be doing this because you love Magic or Dungeons & Dragons, but you may have periods in your life where that passion flags and you think about ending the relationship. D&D 4 almost made me pack it in.

Doing what you want is a bit more low key. It means surrounding yourself with the type of product you want to sell. It means being around the type of customers who make you happy. It means choosing staff who enrich your life and help fulfill your vision. I had an employee I let go simply because he made me miserable. Every day my life was worse because he was in it. And you know what? I didn't want to do it any more, so I fired him and gladly paid his unemployment, simply because he was a black hole of human emotion.

Doing what you want also means taking the degree of risk that makes you happy. If you have trust issues, you may never hire more than an employee or two. That's fine. Own it. You're a one man shop. Maybe you get to go home and have dinner every evening and you don't have PPTQ bastards giving you one star reviews because your prize payout is crappy, because you don't run events.

If you really like systems and processes, you may never be happy until you have a half dozen stores. Everyone will tell you such an enterprise is a disaster, but it really means it would be disastrous for them

When it comes to debt, I'm pretty miserable as we reach the half way point paying off our construction loans. I'm miserable because I like a dynamic environment where I can dodge and weave and have various initiatives in the works, all of which cost some money. I've got a white board with $20,000 worth of capital projects and I could easily add that amount just in inventory value without blinking. No money means I have less space to dodge and weave, even though my decisions will have long term positive effects. For me, slow and steady is maddening, but it might be just the thing for you.

So when you're reading my stuff, or getting advice from other store owners, you really need to weigh what they're saying against what you personally want to do. That's because this is generally a bad investment of time and capital. Your time is more valuable elsewhere, your money worth more invested differently. You will likely defer retirement and work many more years than if you had a conventional career. That means you better damn well enjoy what you're doing now, since you'll be doing it for quite some time while others are lying on their beach (if they don't die of stress related diseases from working for others first). 

Friday, October 5, 2018

Tyranny of the Neurotypical

As an owner, the biggest part of my job is creating processes and procedures. I create these by thinking about how my brain would most efficiently perform a task. My brain is fairly ordinary, often described as neurotypical. However, about 10% of the population have some sort of learning disability.

Disability is a cruel label, as the brains of the learning disabled process information differently. Our education system is designed to specifically teach the neurotypical, leaving behind those who process differently. American education declares 90% is a good enough success rate and drags their heels on the other 10%, because that's inefficient in their processes and procedures. Inefficiency, as we know from business, costs money. Even better, if they can call a portion of that 10% cognitively challenged (stupid), they don't have to do anything at all for that child.

I know about this because my own son has learning disabilities and you would be nowhere in my position as a parent, if you didn't learn a bit about how these things work. Amongst my employees, only one of a huge number has ever expressed they have a learning disability, and only after succeeding at the job. The stigma and potential downside of such a declaration must be enormous.

Before I learned about how my son's brain worked, I assumed some employees were just not very sharp, coming to the easy conclusion, like many schools, they must be kinda stupid. This is not surprising, because it's a struggle the learning disabled deal with daily, thinking they're not very sharp, often being told that by their peers and hints that may be the case by their teachers.

The consternation on my part usually arises because the employee is often really, really good in other areas, but they're unable to do some tasks we consider basic. How can this person be so amazing at X, but so terrible at Y? It's a discussion we have at our weekly management meetings. The answer is we are making neurotypical demands and if we just adjusted a bit, perhaps they would be more successful.

This is all my assumption since we don't really have a program where we're up front about accommodating learning disabilities. We've been focused on making a work place safe and comfortable for female employees and customers. It would also be great if we could be better employers for the 10% of people who could use a accommodation with learning disabilities. The goal as an employer is to play to strengths. Employees can work on weaknesses at home, but you shouldn't be asked to play to your weaknesses at work, if it's possible to avoid them.

Anyway, if you know of resources to address this in the workplace, I would love to get more information on how to delicately bring up this topic in a safe, compassionate and legal method. You know, a neurotypical policy and procedure.

Wednesday, October 3, 2018


Let me tell you about my new wristwatch. No, don't go! Come back!

I accompanied my son's boy scout troop on a camping trip. As this was my first time with them, I went out with a list and bought the gear they were expected to carry. I didn't want to be a burden, and I do love me some gear. A wristwatch was on that list.

I last had a wristwatch ten years ago. I did a little consulting work for a friend, enough to buy a nice watch, and when it broke, I took it in for repair. I never got a call back. At the same time, I enjoyed being free from this bit of technology that had dogged me all my life, staring at me from my wrist. The repair shop didn't call. I didn't call the repair shop. Voila! I no longer owned a wristwatch.

I do have a wristwatch on my wish list. It's a $300, Casio G-shock solar Master of G with a compass, altimeter, barometer, thermometer and sunrise-sunset date. It's a wristwatch that's more Swiss Army Knife, as opposed to the very basic $50 G-Shock I bought for the scouting trip, which is more a single blade pocket knife. The Master of G only reluctantly tells time, as opposed to my basic G-Shock, which has two really cool functions: a) It tells time, and b) It tells time in the dark. The unstated c) is it's classically unpretentious like only a $50 wristwach can be. Respect the G-Shock.

My son is jealous of my basic, $50 G-Shock, as I bought him an even more basic Casio watch at Target for $20. This is a boy with two iPads, an Xbox, and an allowance that's spent entirely digital. A wrist watch is a novelty, an interesting gadget, a link forward to adulthood and a link to the past of a more basic level of technology. His fascination with this tech from the 70's had me thinking about hobby gaming.

Hobby games for most of us older folk has been on a linear historical course, much like wrist watches. I remember when the digital watch was shiny and new, much like I remember how Dungeons & Dragons hit the world by storm. With our linear perspectives, these bits of culture have played one role in our lives.

They've been with us all along, having been initially ridiculed, peaking in popularity, and then falling along the wayside for most people, while we chugged along slinging D&D books through half a dozen iterations. We once kept playing D&D a secret as to not offend religious relatives or bullies looking for easy lunch money. Now the geeks have inherited the Earth and celebrities declare their love for the game on talk shows and publicly display their prowess of Tolkien knowledge.

Discovering hobby gaming had been re-invented, while I was in the hobby, was beyond my comprehension, and of course it did it with a new technology (YouTube). This is a modified Gartner Hype Cycle, where perhaps both digital wristwatches and D&D have been slowly climbing the Slope of Enlightenment to reach a new plateau. Or maybe it's entirely cyclical and we're someplace uncharted. I'm sure there's a fashion industry model that instinctively gets this.

For now I'll be at my desk, planning my Vault of the Drow 5E campaign and trying to figure out how to set the alarm on this damn thing (I'll use YouTube).

Monday, October 1, 2018

Shenanigans to Relevance Ratio

There are 400 or so publishers we represent on our sales floor, of which maybe 30 would make me cry if they suddenly went away. Those 30 publishers are relevant to me. It's not that the other 370 are irrelevant, just that there's always more product I could carry than money available to purchase. If I generate a purchase order from my main distributor this morning (which I need to do), I will see $10,000 of product to buy. My budget is about $2,000 (for the week it's $10,000), so I focus on the more relevant stuff. If you told me I needed to spend $10K right now on inventory, it wouldn't be adding new lines, it would be loosening the tightness on this purchasing. It's that easy.

Those 30 highly relevant publishers have a degree of shenanigans they can pull while still retaining me as a retailer. That degree is determined by my sales levels. A small publisher, with one game that sells a few times a year, is so irrelevant that if a distributor changes the code, I might not even bother looking up the new code. If it's out of stock, I probably won't seek it out elsewhere. My book is in that category for most retailers who carry it, so I regularly mention it's on Amazon, since they know how to sell books properly.

The more money I make off a product, the more shenanigans I'll put up with. But shenanigans is watched closely, as if it's in a debit column of a balance sheet. The more shenanigans, the more sales need to add up to balance it out. You can watch the shenanigans balance sheet and see the inevitable clearance sale in the distance. One misstep and it will snap like a rubber band.

For example, I really like Paizo and just last week dropped all Pathfinder 1.0 in anticipation of 2.0. For many retailers, carrying Pathfinder was in protest, as they watched Pathfinder PDFs sold online, a Paizo online store that discounted game trade product, and a room full of Pathfinder Society players who were using store resources while buying all their game products directly from Paizo. They made enough money to tolerate this ... until they didn't, notably when D&D 5 came out and there was a shift. The shenanigans no longer matched the relevance and the loud thud of retailers nationwide dropping Paizo was deafening, or at least that's what they all said. They did so gleefully because the shenanigans was epic.

Wizards of the Coast is the most interesting in this regards. The relevance of Wizards of the Coast cannot be overstated. It's the only publisher that's actually capable of shaping the retail tier itself. Store owners build stores around Wizards of the Coast. We spent $133,000 on expanding our play space, for Wizards of the Coast events. If Wizards of the Coast stopped publishing Magic, my guess is half the game stores would be instantly out of business, and the other half would be making major shifts, like dropping staff, and not renewing leases in the same location (they would choose to have less game space). Yet the shenanigans level of Wizards of the Coast is breathtaking.

Just to reiterate, they've dropped retailer margin on product twice. They sell Magic and D&D at near wholesale prices on Amazon with no concept of brand value protection. They pick and choose winners, offering products and events to exclusive individual venues. They treat retailers as their marketing arm, judging them and the exclusive product they receive by butts in seats. The ability to continue to survive as a retailer in the game trade is actually dependent on Wizards of the Coast, so it's interesting to see how many debits they can rack up in the shenanigans column before their relevance begins to falter. It's likely if they ever overplay their hand, they won't see it coming.

Some of this shenanigans was practically asked for, even by me. The barrier to entry in the game trade is so very low, the professionalism unexceptional, and Wizards of the Coast is now making it harder to exist as a Magic only store. That's good news for professional retailers! What's not good news is realizing how very relevant they are to us. Last week I looked at Magic sales over the months, single sales especially, which you would think are faltering along with our dying Magic events. I looked at how D&D groups use our event space several nights a week, and whether we could combine more Magic events on one night. I'm balancing my relevance to shenanigans ratio. For now, the relevance is still strong, but the shenanigans is at a level that strategically, I know I can't count on this company in the long term, and that is likely to result in a massive shift not only for me, but most professional retailers who are trying to make this ratio balance.

Every store owner should be looking at what their business would look like without a Wizards of the Coast. They should have cash reserves for when the shenanigans exceeds the relevance. Like I said, most stores will simply be gone, but the other half will adapt. It's the nature of the game trade that diversification within it is without it, meaning real diversification in the trade means not spending more money on new games and play space, but on different wares and a different environment. Give an experienced retailer $50,000 right now, and they're more likely to build a coffee bar than buy new games or expand their space. The relevance is high, while the shenanigans is more predictable.

Friday, September 28, 2018

How Game Stores Work

This is (perhaps) a series of posts about the basics of understanding how a game store works, and as it's fairly typical of retail, how most stores work. I'm going to attempt to keep this at an extremely basic level, covering things most consumers don't understand, and admittedly, some concepts I didn't understand when I started my own store. If you have concepts you're having a hard time wrapping your head around, please leave them in the comments and I may write about those next.

The purpose of the game store is to make money. When I say "money" I mean net profit. Net profit is what's left over after you pay for product (50%), rent (15%), wages (15%) and the rest of store expenses (15%).* If you just did the math, you may have realized there's a missing 5%. That's your net profit. So when you sell a customer a $100 board game, your net profit will end up being about $5. If you've got your business really dialed in, it may be as high as $10. It will never be much higher than that. Retail in general is in the 1-10% range of net profit. Most of the business world tops out at 15%.

Making money is incredibly hard. Some will look at my statement of purpose and become offended, but let me tell you, nobody accidentally makes money in retail. Look at your personal income and expenses now and how hard they are to manage. Now blow them both up by 10 to 20 times while trying to come out with that 5% excess at the end to be profitable (not at the beginning, which is how personal finance works best). You are like a millionaire who has to worry about toilet paper prices. Half the community feels sorry for you for your toilet paper problems while the other half thinks you are wealthy because of your gross income. You will be pinching pennies while being regularly asked for donations.

Money is made in the buying. Stores buy from suppliers or directly from the publisher, receiving a discount from the retail price, also called margin. So a $50 board game might cost a store $27.50, providing the retailer a 45% margin (which also equals a Cost of Goods of 55%).

You buy product based on your cost of goods. This confused me in the beginning, but if I sell $10,000 of product this week, and my costs of goods is 55%, then I have $5,500 to spend on games the next week. In fact, I very much need to spend this money to maintain sales levels and pay expenses. If I spend under this number, I am screwed as my sales will fall and I can't pay my bills. If I spend over this amount, I won't get increased sales, and I won't have money to pay my bills. You need to spend ALL the purchasing budget, no more and no less.

The hobby game store is built around a roughly 45% gross margin on product (which used to be higher). All retail is based on a particular margin with a particular level of sales acceleration (or turns) that provides a traditional gross income to cover traditional expenses. When the margins begin to shrink or the sales begin to slow, stores are forced to modify their traditional model, perhaps with weaker locations with cheaper rent, less staff, or tricks to make it all work, like selling high margin used merchandise. Store owners work harder for less. As you see the retail tier of the hobby game trade begin to falter, you see an increase in hybrid stores designed to counter changing conditions.

The traditional retail model is on shaky ground. Despite having 7-10 times as much commercial real estate as the country needs, rents seem to only go up. Minimum wage in many urban parts of the country are rising 5-10% a year with no end in sight. Energy has gotten more expensive resulting in higher electricity and shipping costs. Prices are inelastic in the game trade, so they cannot be raised to compensate for rising costs. You can only sell more, find a cheaper way to run an operation, or close. This level of crisis is baseline in retail.

Why do publishers need game stores? Publishers believe game stores get their product out to a wider swath of consumers than they could accomplish through their own marketing, which is often weak to nonexistent. They believe game stores create community and build markets, but they almost all sell direct to consumers anyway. They want it both ways.

In the game trade, publishers compete directly against the retailers. Publishers often provide customers discounts, sell early at conventions and offer unique incentives to undercut retailers and capture sales. This use of "multiple channels" has many excuses attached to it, but in general, publishers don't believe they can sit and wait for retail stores to push their products in a crowded marketplace, and they're generally correct. It's their stuff, they can do what they want.

There's a general tension in the partnership between publishers and retailers. Although nearly every relevant publisher is also a competitor, retailers let this slide, providing publishers are competing against them on only a slightly tilted playing field, often while providing some brand value protection (which protects retailers from each other). So although Games Workshop will sell direct only items on their website, they also provide enough brand value protection to make selling their front list product a profitable endeavor.

Companies like Paizo offer PDFs and a discount to subscribers that retailers can't participate in, which results in many retailers deciding not to carry Pathfinder products. Publishers will all compete against retailers, they'll all find minor advantages, but when a minor advantage becomes a huge advantage, most retailers walk. The same is true with product badly devalued online. The marketplace is big enough for retailers to shun devalued product.

The exception is when velocity overcomes margin and a product is just too good to drop. Consumers can buy D&D books on Amazon at distributor costs and Wizards of the Coast is now selling Magic boxes at very low prices. The de-facto MSRP of a Magic box is now $95, leaving a 17% margin for retailers. Is that enough to crush retailers who are Magic centric? Not if they can keep their velocity up (Pro tip: they can't, so don't be Magic centric).

But what about Amazon and the Internet? It depends. The Internet only accounts for around 12% of all sales nationwide, but it might be as high as 50% for hobby game product. There is still a lot of meat on the bone, so to speak, although those with distressed local markets, which is a godawful lot of the country nowadays, will feel Internet price pressures more than higher income, urban markets.

It's possible there may be a ratio of customers to brick and mortar retailers that falls dramatically with Internet price pressures that is felt more keenly by smaller markets with fewer customers. For larger markets it's possible to grow faster than the shrinking ratio. A bit like finding a job, you only need one customer base and what everyone else is doing is not so important.

How much do most store owners make? This is the realm of bistro math, as we don't have much data to go on. In general, most game stores are small. Lets call them $200,000 a year endeavors. A $200K a year store has a working owner who makes a small salary. Lets call it $30K a year. If they have a 5% net income, that's another $10K a year, bringing their income to $40K. This is known as a Buy a Job, and the owner can't get sick, go on vacation, retire or likewise show any value from this bought job after they decide to quit. Their businesses are valued at the liquidation number.

About 5-10% of stores are alpha locations that do over a million dollars a year in sales. The owner might make that same $30K base salary, but their net profit on $1,000,000 is $50K, meaning they make $80K as their income. As an alpha store has usually been in business 10-30 years, that might provide a reasonable lifetime salary range for a long term retailer ($40K-$80K). Neither amount is very much money, considering the skills needed to run such an enterprise, and most store owners in a Buy a Job are usually trapped without the ability to grow or expand to alpha status.

Got questions? Ask below...

* Yes, it's usually something like 55%, 14%, 13%, 13%, but you get the idea.

Sunday, September 23, 2018


Just a quick post to point out that employees don't inherit or otherwise wrestle control of businesses from their owners. Every once in a while I hear talk like this, but no matter how good an employee might be, they will not become an owner unless the owner decides to somehow sell it to them.

Most game store sales are of this variety, usually with the owner disengaging while the employee provides a certain amount of profit for a certain amount of years. If the employee founders, the owner can step back in and take over, per the stipulation of the contract. Most are likely to just shut down at that point, as they clearly have life goals that no longer align with running a store.

I'm not sure it's necessary to explain US contract law or how an LLC or corporation works to maintain control of a business, but that's where you might want to look when you're mentally voting on who should own a store. These exist to protect business owners from each other, the public, employees and anyone else who wants to have their hand in the pie (except the government). On top of these, we have partnership agreements, which add additional protections, like allowing owners a chance to grab shares before a divorced spouse has a chance to become their new partners. No where in our partnership agreement do I see the validity of game room leadership coups.

Also note that most excellent managers have seen how the sausage is made and usually have no desire to own their own store. I've offered such ownership or other attempts at retaining their talent on a couple of occasions. The community may believe they should own it, but not only is it unlikely, the candidate is not interested in the position.

Finally, my job is to create processes and procedures and hire excellent managers and employees so that they are doing most of the heavy lifting and I can do other things, like have vacations, family life, or one day retire. The more successful I become, the more my staff will shine. This is by design.

Wednesday, September 19, 2018

Honesty in the Balance (Tradecraft)

You know what needs to go. I'm referring to the small business with the blind spot on their balance sheet or income statement. Most stores have a blind spot. Maybe it's an employee. Perhaps it's a luxury you think you can't do without. Perhaps you refuse to properly manage inventory because you're afraid of disappointing customers. For successful stores, who have conquered all the big problems, it's often owner compensation.

Some blind spots are a refusal to admit you are defeated. Rent that's far too high is often a sign you're doomed, as it's usually non negotiable. If you've got a bad lease, you may be sunk, spending your time re-arranging the deck chairs in hopes to slow the intake of water on the lower decks. As Dave Wallace lectures, when he attempts to acquire stores, the only deal breaker, the only unfixable thing, is a bad lease. If you're in this situation, you may be trying to wait it out, although it's possible to re-negotiate a lease. Everything is negotiable all the time. If this is you, bring your broken financials to your landlord and lay it out before it's too late. I did this during the recession and got a steep reduction with no increases for the lease term.

Debt is also one of those things you may be trying to wait out. I'm in that situation after a big expansion. As long as you can proceed slowly and it's not getting worse, you're not going further into debt, it's the bed you've made and you've got to lay in it. Debt can be re-negotiated as well though, as in restructuring it to kick the can down the road and smooth it out. It's a logical thing to do if you're against the wall. I did a little of that earlier in the year.

Staff is a hard one because you've invested in people and through no fault of your own, you can't afford them. It may also mean regressing in your personal lifestyle. You may need to work an extra day a week or take a pay cut to get things back in balance. You may need to stop expensing your personal life through your business. This is often the necessary strategy when sales take a steep downturn. The economy is strong in most places, but it won't always be. Rolling up your sleeves is something to consider and plan for, as a contingency. If you have employees, know who can cover what areas, and make sure staff are cross trained.

What I see are elaborate plans to avoid obvious imbalances. Any experienced small business owner in your field can look at your income statement and point out your obvious problems. It doesn't take an expert, an accountant or a broker to point out you're off course. So why is it so hard for many of us to do the same? The good news is when I see a bad income statement, I see profit. I don't see terminal mismanagement, I often see what's known as SDE, or Seller's Discretionary Earnings, all the dumb things you do that I would change to equal profitability. If you think you're in trouble, if you want to sell or restructure, maybe take a look at your SDE, take a deep breath and do the hard work of fixing your business. You go first.

Tuesday, September 18, 2018

Board Game Analysis (Tradecraft)

Welcome to the annual jumping to conclusions event! I hope you're wearing your special jumping shoes, because I have a tiny sample of my sales data that I'm going to tweak into a narrative that provides me meaning and allows me to sleep at night. Ready?

This came from a discussion in which some game store owners will avoid games that rank highly on Amazon. Some will also avoid game exclusives out of principle or laziness, exclusives being games only sold by one supplier. Publishers will claim exclusives provide various benefits, including brand value protection by implementing control over where their product goes. Is this true? We'll take a look.

I'm also noting games that were crowd funded. This will show whether crowd funded games have penetrated my best sellers, as many believe Kickstarter will be the death of the game trade. I think you'll find that's not quite true.

Below are my top 50 sellers over the last twelve months. Past performance is no indication of future results, so if you're a new store owner, staaaaaaaap. Buy new games going forward and avoid the strong temptation to back fill. This is not a buyers guide.

So what do I see?
  • 14 of my top 50 board games (28%) were crowdfunded. Most are at the bottom of the top 50 though. I've managed to back two of those, despite backing eight board game projects in total. Most were terrible. The other 12 top crowd sourced games came through distribution, making their origin more of a footnote for me. These numbers are significant, so I certainly wouldn't want to be shut out of the Kickstarter market. It's clearly part of the ecosystem. However, my ability to pick winners via crowd funding is sorely lacking. Years ago when I tracked every KS board game product, my conclusion was Kickstarter games were no better ranked nor worse ranked on Boardgamegeek. 
  • There's not much difference between Amazon discounts of distributor exclusive games. The distributor exclusive games average a 15% Amazon discount versus 17% for non exclusive.  Those are averages, however. If you look at very deeply discounted games, more than 20%, you see they are 2:1 more likely to be a game that's not exclusive. With exclusivity we usually see a brand value protection strategy, which for brick and mortar stores is quite welcome.
  • Amazon top selling ranks make no difference.  8 of our top 50 games (16%) are on any of Amazon's top 50 lists. The average ranking of both distributor exclusive and non exclusive games is around 1,000. That might be because Amazon has already saturated that market or perhaps we're a little too niche within the game market. I personally don't look at Amazon rankings for games, although I'm intensely curious about how my book ranks (#144 in starting a business, but anything is possible if you create small enough categories).

So what did we learn? Amazon rankings are meaningless. Kickstarter is important for the board game ecosystem, but my ability to pick winners is poor. Distributor exclusives aren't especially brand value protected online, but those without exclusivity tend to be very deeply discounted.
Betrayal at Baldur's GateNoNo64018%-
Betrayal at House on the HillNoNo3631%-
Dead of WinterNoNo40810%Alliance
Cards Against HumanityYesNo100%CAH
Arkham Horror LCG: Core SetNoNo7417%Alliance
Legend of the Five Rings LCGNoNo58421%Alliance
Twilight ImperiumNoNo177827%Alliance
Mansions of MadnessNoNo16150%Alliance
Codenames: Disney FamilyNoNo5536%-
Stuffed FablesNoNo120320%Alliance
Harry Potter Hogwarts BattlesNoNo4736%-
Star Wars: Imperial AssaultNoNo81910%Alliance
Boss MonsterYesNo20923%-
King of TokyoNoNo10020%-
Warhammer: ShadespireNoNo15%-
Pandemic: Legacy Season 2 - BlNoNo38635%Alliance
Dark SoulsYesYes52345%-
Ticket to RideNoNo2214%Alliance
Dominion NoNo1233%-
7 WondersNoNo15810%Alliance
Terraforming MarsNoNo2780%-
Massive DarknessYesNo3,77021%-
Eldritch HorrorNoNo27923%Alliance
Fallout Board Game NoNo33720%Alliance
7 Wonders: DuelNoNo16510%Alliance
Exploding KittensYesNo20%-
Bears vs BabiesYesNo370%-
Rising SunYesNo76925%-
Near and FarYesNo70136%-
This War of MineYesNo26%-
Century: Spice RoadNoNo132324%GTS
Mice and MysticsNoNo53614%Alliance
Sushi Go!YesNo110%-
Axis & Allies Europe 1940NoNo62729%-
Pandemic: Legacy Season 2 - YeNoNo145221%Alliance
Small World Board GameNoNo105917%Alliance
The Grimm ForestYesYes22133%-
Dist. ExclusiveAvg111315%

Saturday, September 15, 2018

FLGS: The Card Game

"I really like your book, but what I missed was customer stories."
-- customer

I laughed and said it was a terrible idea. It would be my last act as a store owner, before they strung me up. In my book (currently 13, 5-star reviews on Amazon - go check it out), I was careful not to include the interesting cross section of humanity I call my customers. I love these people. They are my tribe, as much as they like to divide and question authenticity.

I don't actually know if they're any more insane than the rest of the general public. However, despite their unusual antics, they're far more predictable and rational than regular people. I've said it many times, if I had to sell things to mundanes, I would quit. I've got better things to do, for more money and less stress. Which brings us to the card game.

FLGS: The Card Game is all about quirky customers. It's basically a Guillotine knock off, since I lack creativity and skill in the arena of game design. If you're questioning whether it's legit to copy game mechanics, let me refer you to a little black box known as Cards Against Humanity. Each card in FLGS is a customer and each player is a store owner.

Your goal is to acquire high value customers, the alphas and the angels, while fobbing off the difficult customers, the vultures and parasites to your store owner opponent. These are categories I wrote about eight years ago in a blog post called Law of the Jungle, and they work very well for a game (stereotypes are like that). As the customer comes up to the counter, you can be your smooth self and retain them or use action cards and such to fire them and and send them on their way to your competitor. My real-world competitor actually collects these people, providing an important service to the gamer ecosystem.

The point of this game is the cards are amusing. That's it really. The game mechanics are pretty standard fare. If you find the idea offensive, first you have no sense of humor, and second, this game is not for you. I've got 14 years of anecdotes and customer stories I can't share publicly. But I'll happily put it in a game. This may only appeal to other store owners and my readers, so who knows if anyone cares, especially in an age when people take themselves far too seriously (gotta maintain subculture authenticity).

I've got to be careful to file the serial numbers off. I know from experience people will think I'm talking about them, so when possible I'm creating a composite. Your crazy behavior is probably not unique to you. My fading memory is actually a help here. For example, my energy drink swilling and candy binging Doctor Goodbar card is a composite of my next door neighbor dentist who buys Red Bulls (diet) and the dental staff who binge on candy bars.

My plan is to make maybe 25% more cards than needed in the prototype and let an editor weed out stuff only I find amusing. If it's all funny, who knows, maybe we can be idiots and launch the expansion at the same time as the base game. Did I mention I can pillory the rest of the game trade with the action cards?

Although the vast majority of my customers are white males, a trend that is changing rapidly, I'm trying to be as gender neutral and inclusive of people of color as possible, without falling into stereotypes, of course. Writing the book, the proof readers pointed out quite a bit of Ferengi-level sexist crap I had acquired over the years in the trade to describe various business practices, and the book was better for removing it.

I've posted some card concepts on my Facebook author page. I've got one mildly interested publisher (not my book publisher) and I've thought about using Kickstarter. The pitfalls of a first time game designer are many, even if it's a bunch of cards, so I would rather not do this on my own. If you're an interested game publisher, let me know. For now, I'll be working up (really writing up, since mechanics are established) a prototype.

Saturday, September 8, 2018

How I Knew

The question people sometimes ask is "How did you know you were going to be successful as a game store owner?" You might be surprised to learn it was fairly recent. I spent far too much money building my stores, and it wasn't clear if these sunk costs would ever pay off. You can easily overbuild a business with no financial benefit and a really, really, long return on investment (ROI). I still wince when I think of the startup losses for the first year, and what I could do with that money if I hadn't been paying to learn retail. I could start a store now for a lot less, that's for sure.

I took no significant profits from the business for the first five years. We moved to a bigger location, with stratospheric costs, after three years, expanding with loans and the like, so eventual profitability was in doubt. That's right, after five years, which included writing my blog for the last two, I wasn't entirely certain this whole thing wasn't a boondoggle. When the profits finally did arrive, what did I do? I expanded again. Too much money leads to risk taking.

During the early years, I started doling out ever increasing distributions in the $1,2000-$2,000 a year range, as a kind of success place holder. Maybe if I faked profitability for long enough, it would actually happen. It's kind of like budgeting for your salary, even if you know you can't pay it in the beginning. Getting up to speed on profitability was critical, because my financial life had a five year period where I had an artificially low mortgage, and at year six, I needed to make nearly double my salary. My mortgage was set at fives years of "interest only," something banks don't do anymore. Year six was a wildcard.

So for five years, I felt like we had overbuilt. It was like we were waiting for demand to catch up with the supply we were providing. We were overstaffed, over-inventoried, and growth was slowly putting wind in our sails. I say slowly but it wasn't uncommon to have 10-20% growth a year during these early days, but with corresponding infrastructure and staffing headaches to manage it. We talked a lot about gross sales, but I carefully avoided the "n" word.

By the end of the fifth year, profitability started to climb. It appeared to be enough to guarantee I wouldn't lose my house solely because I couldn't make the payments. Was it a blip on the radar? Maybe, but my trend lines in Excel told me we were onto something. Just sit back for a moment and think about that. After five years of my life, maybe I wouldn't go broke. How is that rational? Who does that? If you think I'm bragging, let the stupidity of these statements sink in.

2013 was year six in business and I had enough steady profits to know I was doing the thing. I was making a steady middle class income, enough for the Bay Area even, but still not quite as much as when I worked in IT, nine years previous. Even with painful construction loans taking a big cut of profits, I still managed to maintain profits and my extravagant rise to the middle. Although the trade is constantly changing, I'm fairly confident I can weather most storms and continue running a store in some fashion.

I say in some fashion because I've gotten a lot older over the past 14 years and I need to consider retirement options, which might mean a second business, getting another job, or reducing my costs, like living someplace cheaper while running the store remotely. It's either that or keep doing this thing for the next twenty years or so.  If I had been working in IT over these game store years, I would have a million dollars in the bank easy, just in salary differences. Instead I have an economic engine that doesn't always need me, but it's a volatile engine running on moonshine and false promises. If you can't decide which is better, let me suggest you take the million dollars.

Thursday, September 6, 2018

Rising Cost of Goods (Tradecraft)

I've been tracking my cost of goods every day since I opened my store in 2004. I wasn't really sure what I would do with these numbers on day one, but I thought they were important. I can't stress how ignorant I was about retail back then, but I knew from working in IT you couldn't over measure.

The numbers I tracked were the COGS I actually got on the sale of merchandise each day rather than what I bought the product for. It doesn't include some tiny categories like used products and card sales, so it might actually be a point or two higher. This was all tracked on my Open to Buy spreadsheet, which today is on line 5,053.

I might have bought a $50 board game for $25, but if I had to clearance it for $30, that's reflected in my numbers as higher COGS. As margins shrink, especially with the recent announcement Wizards of the Coast is reducing margins on Magic the Gathering for a second time, rather than raise prices, I've decided to attack low margins head on.

Usually low margins have historically meant inefficiency. When I'm growing quickly and taking a lot of chances, I make more inventory mistakes, which is reflected in a higher cost of goods. It's like how geologists can look at a cross layer of rock to discover historical events, like volcanic eruptions. Yep, that rise is when we moved and guessed wrong on product. That low point was when we were saving for construction and not taking any chances. For the last three years, cost of goods have risen steadily and margins have shrunk, and with Magic about a quarter of our sales, I can't imagine it not moving a point or two higher next year.

There are a few tools you can consider for addressing low margins. In the past, turn rates have been all I've cared about. If a product moved fast enough, the margin was far less important. I don't think speed is making up for low margins, as the industry margins seem to be shrinking overall. Turn rates are about opportunity cost, and we have limited money, limited opportunity, to pay our bills and be successful. For the first time, I'm running margin reports.

Most point of sales systems can't run a margin report, much like most can't do turn rate analysis. To make your own, run a report with prices and costs, dump it to a spreadsheet and create a new column with a percentage comparing those numbers. Now sort. The first think you'll probably notice is errors, which should be fixed. For me, there are items with no COGS noted. Then look at your lowest margin items. Like working with turn rates, perhaps address your lowest 20% performers.

I've delegated entering data into our POS, so sometimes low margin items get past me. Some companies, like Ultra Pro has laughably low margins, if you use their MSRP, for example, as do some direct accounts where we pay shipping. These are easy to fix.

When I looked at Magic a year ago, I saw how it had shifted from pack sales to box sales and singles over the years. In 2004, it was inconceivable I could sell a box, which I sold at full MSRP ($133). It's 2018 and we're selling them hand over fist at $120 (like $92 in 2004 money). These are inherently lower margin sales, and combined with low margin draft events, Magic doesn't look so hot. Our solution in the case of Magic is to increase our discount prices to less of a discount for these things. Event fees will go up a dollar, box sales by five. If the market won't bear it (customers have shown tremendous understanding), we'll shift.

So now is the time to raise prices, set items not to re-order, or maybe even clearance entire low margin product lines to free up cash for other areas. You might combine this with a turn rate threshold: 50% margin needs to turn at four times a year, 45% turn at five times a year, 40% six times, and anything lower perhaps ten times a year. We're using multiple tools here to get results. There is no impossibly low margin, if performance is good enough. I'll take a 10% margin, if I'm buying a product on Tuesday with a guaranteed buyer on Wednesday. New car dealerships make their living on low margin, near guaranteed sales of 10-15%.

Like turn rates, blowing out low margin items is about opportunity cost. You need to have a better place to put your money when you do this. If you don't have a better place, you're better off leaving well enough alone. In a small market, low performance may just be your lot, and a Subway franchise may be in your future.

Another option is to use GMROI, which I talked about in this blog post. Gross Margin Return on Investment is the perfect tool for calculating inventory performance when margins are all over the board. You'll definitely see under performers using this tool. In my example from that post, I beat up on toys for not performing. After I wrote that post, I ditched toys. Classic games also underperformed, and we streamlined that department, treating it as a seasonal department.

Here in California, inflation is a staggering 3.6% and wages are rising around 10% a year. We're being eaten alive by expenses while cost of goods is going up, and we're seeing a re-alignment in our product mix, resulting in lower board game and CCG sales. It only makes sense we look deeper at exactly what we're doing and make some hard choices.

Tuesday, September 4, 2018

Facebook Marketing (Tradecraft)

Here are my three stages of Facebook marketing:

1. Pay to attract local people to my Facebook Page. Here is where I use my age demographic, both genders, a 15 minute drive time, and a bunch of different hobby game interests. These ads are ongoing. The interests need to be updated regularly as Facebook changes. 15 minute drive time is probably a little high, with 10 minutes being more reasonable, but at this stage in my store life, we need to pull farther out.

We currently have 7,773 people following our page, which is far more than a normal store should have. It's one of the top followed store Pages. I used to track that when Pages were new, but I've realized it's more a curse than a blessing. Marketing to a Page with a lot of people not interested in what you're offering locally, just causes problems.

2. Pay to attract local people on my Page to my Groups. If you're on my Page and local, I can assume you're interested in my store. Although I recently had one woman angry about "ads on HER page," after she somehow saw one of our Ding & Dent posts. People are weird (I just ban those people, in case you're wondering about my response).

We have eight special interest groups with 1,663 members. There is a lot of membership overlap, so I can't tell you how many unique customers we have in Groups. I do not allow non-local people in these groups and I'll cull the herd if I find them. "If I wasn't 1,200 miles away, I would totally jump on that." Cut.

3. Relate to Group members. I could say market to group members, and there is some of that, but having people in Groups allows them to have a place to discuss stuff. I'll interrupt their socializing with new releases, event information, interesting articles I find, or even what I'm doing in my game. As we know from social media marketing, being all business all the time drives people away. Add value to their lives, not just your store. 

One of my jobs during receiving is taking photos of new arrivals and posting them to each of the related Groups. By lunch time, some of that stuff is usually sold. It's a powerful tool. Of course, everything in the bubble, stays in the bubble. Asking people to spread the word isn't an option in a Group. They have to copy and paste and do their own social media marketing, which rarely happens. It's a big reason why we have difficulty building some of our sale events.


I spend less on this system. When I was focusing exclusively on Page likes, I was spending twice as much money and getting worse results. I've spent about $50,000 over the years building our Facebook community, with none of that aimed at outside systems, like our decrepit web page. It's still nothing like when I would spend 2% of my gross on advertising on cable TV, print, and radio. It's more like half a percent. I think you need to be ready to walk away from Facebook at a moments notice. Good luck with finding a plan B. 

I have privacy. I have store owners and other industry professionals following me on the Page. They tend to question every move I make, often publicly. "You put that game on sale? We sell ten a day." Yeah, whatever, go away now. The intimacy of Groups means I can be more frank with customers without the scrutiny of my entire profession. I don't have CEOs of companies calling my twenty minutes after I make a statement about a game line. Yes, they do that.

Where to Begin. Start with your Page. Spend money to get people to know your business exists as a basic marketing exercise. This may be as far as you go if you've got less than 500 or so customers on your Page. Break them out into Groups as needed. There's no need to start a new Group just because someone asks for one. Do it based on need, like when we got far too many photos of painted CMON miniatures in our board game group. I have some Groups with 20 people in them that should really be brought back into the fold, but those ones have their own co-administrators doing the work, so I don't worry about it (never give up control of your Groups).

Finally, don't put all your eggs in this one basket. People are regularly fatigued by Facebook and move on. Cultivate other marketing methods outside the walled garden. Consider Twitter, Instagram, and supporting local causes, like placing ads in school papers. Have a marketing budget and understand it can take weeks or months for efforts to pay off. If you're certain something doesn't work, don't feel like you're a slave to the budget; cut it and find something else. One day it may be Facebook.

Monday, September 3, 2018

Labor and Work

Happy Labor Day!

I wanted to pontificate on work for a moment, since I've been talking about minimum wage. There is no job inherently undignified or beneath a person when it comes to work. I've worked many a minimum wage job in my life, from my first job cutting up chicken at a Japanese take out restaurant to cashier at Carl's Jr. All work can be dignified, and from my perspective, has inherent value.

I did these kinds of jobs for eight years while in school, and I look back fondly on my car washing, chauffeuring, word processing, process serving, chicken cutting, and security guarding. Bills were often late, I could never afford a full tank of gas (or a car without problems), and upcoming rent was often a motivator. Work can even have a spiritual dimension, with the Zen advice of "Chop wood, carry water," turning daily life into spiritual practice. With the right perspective work can be uplifting.

The problem with our economy is not work and wages, it's mobility. You can certainly cut wood and carry water in the intentional, simplified life of an ascetic, but that's generally a choice, if not a means to make misery more palatable. Most people in minimum wage jobs, once reserved for teens on their way to bigger and better things, are adults. Nearly half of American workers make less than $15 an hour, which is still pretty low, sometimes at poverty levels. It's one thing to work a low wage job while in school or while you write your business plan, or even in your small business, but it's another thing when you're stuck and mobility is out of reach.

It's no wonder people are hitting the road, living in vans and tiny houses, considering a move to Mexico as a retirement plan or actual retirement (that's me), while turning their backs on the economy. Over a third of adults have no savings whatsoever, and 78% are extremely concerned about retirement savings. Checking out of a no-win situation is a sensible alternative, even if it means your address is now a U-Store-It. We watch our expenses soar while our incomes stagnate.

I'm 50 this year, and my 50 year old friends and I have different means but often similar problems. We are all in various stages of considering retirement or semi-retirement. In all of our cases, work is a critical component of retirement, work by choice. Some could quit their jobs now, but then what? Retirement when your mind and body are still sound is literally deadly, so meaningful work becomes the answer. But if you haven't found meaning in the work you're doing now, finding it doing something completely different is a challenge. Still, that's a life of choice and good fortune, compared to those who must work just to get by.

Finally, making work out of reach and paying people to do nothing with an alternative income scheme is really only valuable to them if they have something better to do. If you want to become a productive artist or build houses for Habitat for Humanity (what President Jimmy Carter does at 93), I'm all for working a little harder so you can contribute and follow your bliss. If you want to sit on your Xbox all afternoon, I'm going to be less inclined. I already have one of those in my life.

Saturday, September 1, 2018

Nose Ring and Everything

I used to date this really cool woman. She was studying Indian religion, had a nose ring, and she was a good kisser.  After a while I noticed our dates were always on weeknights. She was seeing other guys, which was fine, because we were just starting out, but I was a little miffed I was in the week night time slot.

I mean what kind of ranking as a dude do you have to have to be a Tuesday night date? If I were a TV show (checking the TV guide website) I would be re-runs of House. Who gets her attention on Friday? It drove me a little crazy, so I brought it up, and she told me I was right to question my inferior slot, and we stopped seeing each other.

Wizards of the Coast has been busy making products for mass market. These aren't just differently packaged products, but new items designed to allow players to completely avoid hobby game stores. The word we use is disintermediation. Some are game events in a box, but others are just really cool exclusives. I know Wizards of the Coast is by far the coolest, nose ring wearing of all game companies, but I think your Friday night time slot is moving to Tuesdays, you know, metaphorically speaking.

If the last year hasn't been a wake up call for game stores, with a deteriorating Magic environment, you should take note that your relationship may be in trouble. You're certainly not exclusive, and it does seem like all the creative energy is going to Wizards of the Coast's other suitors, while we get a lot of reruns, like a boring Tuesday evening.

If you still have a store after the last year, my guess is you're well diversified, brand spanking new, or just do Magic better than everyone else. If you're hemorrhaging cash or just starting out, take note that diversification is a strong survival strategy. You can certainly play into the supporting role of a Tuesday night date, but with shrinking Magic margins, and disintermediation, the writing is on the wall. She's just not that into you.

Wednesday, August 29, 2018

GAMA Is Not Me (Yet)

I am a member of GAMA, the Game Manufacturers Association, because it's required to attend the GAMA Trade Show. In years I don't attend, I'm not a member. But this year, I'm a member. I certainly don't feel like a member. As a retailer, I feel like a customer, and occasional content provider.

This is because the organization is dominated by manufacturers, and retailers are only tangentially included to help put on the show which represents such a large part of what GAMA does. Retailers are allowed to have a seat at the table, but the short one next to where the adults sit. We retailers are customers and when in leadership roles, show content providers.

GAMA has done a poor job of representing retailers over the years and worse, by taking on this role and doing it poorly, it has prevented a legitimate retailer organization, which serves retailer needs, from taking root. Retail organizations come and go, their leaders undermined, their mission ridiculed, their membership fractured.

These organizations exist because of GAMA's failings, yet they can't prosper while GAMA pretends to serve retailers like me. GAMA is divisive in this way. So what I would really like GAMA to do is stop pretending they serve the interest of retailers. Keep putting on your show and feel free to charge a fee that would include a membership amount of money, because there's strong value there and a low price, but let us go as members and admit you're all about the interest of game publishers.

Or the opposite.

The opposite would be to take a far stronger role in serving game trade retailers, starting with tightening up the mission statement to explain who exactly GAMA serves. You haven't been genuine in the past, so it needs to be right there in writing. That's right, start with stating retailers are sitting at the big table. Because the vague mission statement has been used to underserve a large portion of GAMA constituents, it should be re-written.

If the opposite means letting go of obstructionist leadership, then I'm all for it. I have no doubt the current executive director has great organizational prowess and leadership skill. But I also know the executive director is obstructionist and disinterested in retailer needs and interests. So if finding a new leader is part of the opposite, I'm all for it.

I'm a little excited to think this is the direction GAMA is headed. I'm also a little apprehensive, because I've made it abundantly clear, I don't believe this organization is really about serving me as a retailer. I don't want to be responsible for breaking your organization, if you happen to be a publisher. But I'm also tired of GAMA sucking all the air out of the room and preventing retailers from proper representation. Make it my organization too. I'm a member after all.

I'm Sorry (Tradecraft)

Sometimes customers get upset. They may have been treated shabbily, or they want it one way, but it's the other. We have a culture of false apologies. There's an interesting article about the six types of apologies, with only one of them sincere. Most apologies are to get people to calm down and move along, especially in the corporate world.

It's difficult for a faceless corporation's communications director to show compassion when their company just did something atrocious. They're hardly in a position to take personal responsibility in any sincere way. Apologies are engineered and carefully worded, and vetted by the legal department. We don't have to do that in small business. Your most important asset is you, the person in charge, who built this thing and cares. Plus it's all your fault anyway, as we've established.

If you aren't sorry, the worst thing to do is apologize. If you cut a product line or canceled an event, well that's business. You can say "Sorry, but this isn't working for us as a business any more," but that's an explanation, not an apology, and it will be viewed as such. Disappointing customers is inevitable if you're around long enough and take enough chances. If you've never disappointed a customer, you're either lying to yourself or you have an extremely narrow line of business. Congratulations on playing it safe.

If you've legitimately screwed up, you should sincerely apologize. The article I mentioned calls this the apology from love. It's when you empathize with a person, putting yourself in their shoes, and put yourself out there. It's a real apology. You messed up, you apologize. What happens next is not important. You've done damage and it's up to the aggrieved to decide if it's in their interest to continue to engage you. I think the more you try to retain an aggrieved person in your apology, the more insincere you become.

Because sincere apologies are so rare, especially in business, people will often try to take advantage of you. They assume you're the corporate mouthpiece and now is the time to hit you up for free airline ticket or a discount coupon. Some will use your apology as an admission your business process is broken and their interpretation of how you run your shop should take precedence. I once apologized to someone in a store forum and they agreed to continue being my customer, if I gave control of that forum to someone else. A sincere apologize is an opening to some people, and you've put your heart on the line if you did it properly.

Here's where you need to be firm. "I'm sorry, but no," is what often happens when the opportunist sweeps in with their demands. In my mind "no" often means "get bent" or "GFY." My apology is not an invitation to become my business partner. And here is when you get to decide if you want to continue to engage with them or have them move along. The important thing is to stay firm to your convictions and your processes, provided they're good. You did your job, you've sincerely apologized, you've considered necessary changes. I'm always open to changing bad processes and a complaint will certainly trigger that change. However, many people just want it one way when it's the other.

Tuesday, August 28, 2018

Wages (Tradecraft)

I want everyone to make as much money as possible, including my employees. However, when it comes to wages, retail is where the rubber hits the road. It doesn't matter how liberal you are as a store owner, you are still subject to math. Math doesn't lie or hold a political opinion, it's quite indifferent to your views, much like the science of global warming. So although I'm fairly liberal, and would like nothing more than my employees to make a middle class income from their jobs, I don't see how most small businesses will survive on their way to a $15 minimum wage (currently at $11) at the rate it's scheduled.

We can look at the math by examining our three buckets. In retail, we have three buckets of expenses after cost of goods: labor, rent and other. When these buckets start to overflow, growing in size, our revenue needs to increase to cover them. So if the labor bucket increases by 10% a year, as it is generally doing with minimum wage, our revenue needs to increase by a third of that, or 3.3%. If we don't increase revenue by 3.3%, that money is coming from profits or if you're on the edge, you're losing money. Lose money long enough and you and your jobs go away, like it or not.

But what about inflation? We need 3.3% to cover increasing wages every year, as we've established. Inflation doesn't include wages. So now retailers also need to grow to cover inflation. Did you know inflation is actually growing pretty quickly despite low interest rates? Inflation last year in my region was 3.6%. That's another headwind to deal with, and nobody likes to talk about this, but it might be related to fast growing wages. Rather than needing to cover a 3.3% mandated wage increase, small business now needs to add that 3.6% inflation to the mix. That's roughly 7%. So should we expect small retailers to grow 7% to cover these costs?

When you look at recent historical numbers, 7% growth for retail is phenomenal. It's emerging market growth like that of China and India. Mumbai, Shanghai and Beijing had recent historical growth in this range, but most other cities are far lower. The growth rate in California cities like San Francisco and Los Angeles is 1.5-3%, not even keeping up with current inflation levels or wage growth. Certainly not both.

So when you ask a California retailer to grow 7%, you're picking winners and losers. You're essentially cutting the legs out from all marginal businesses and many average businesses and giving a gift to profitable businesses, who regardless of whether they hit that absurd growth target, can always absorb wage growth with profits. Those businesses will inevitably be large, like Wal Mart and Target. If I had local competition, I might actually like this and hunker down to wait them out, but they've already failed.

This fast wage growth scheme is really a gift to big business at the expense of small business. When I predict small businesses will disappear because of this, taking jobs with them, of which the job market is roughly half small business, this is what I'm talking about. I'm not being gloomy, I'm looking at math. The math is not good. I have no political horse in this race, I want everyone to get as much as they can.

The hope with 10%+ wage growth is the rising tides theory, but again, you're expecting growth rates of 7% for small business. The left regularly mocks Trump for predicting 4% GDP growth as impossible, but they don't seem to care when unreasonable high growth is expected from small business. A more reasonable approach to this, if we decide dictating wages is the right choice, would be a slower progression that isn't so destructive to small business. The problem is it isn't politically expedient to provide a slow correction, just like Trump's ridiculous 4% annual GDP (I know it peaked there for a quarter, but that can't last).

Finally, I really, truly, hope I'm completely wrong. I hope I'm talking out of the wrong orifice. California will be seen as an economic miracle, which it already is, but now by raising up the bottom tier of workers. It will be glorious and will be copied across the country. It pains me that I'm on the same side as the Koch brothers in this debate. As the saying goes, a stopped clock is right twice a day. I really hope I'm wrong on this.