October Dip

My store has seen tremendous sales growth post COVID, a lot of that is a result of expanding inventory. Common in the game trade, we are somewhat dependent on new releases for profitability. We are "front list driven," meaning we make our money on new stuff, rather than selling the same old stuff. October has always been a slow month, as there must be some common wisdom to avoid new releases in this month. I'm talking about my top 20 publishers that make up 80% of our sales. There are plenty of board games and RPGs releasing right now that will languish for another six weeks. 

I have a calendar spreadsheet tracking sales, and when there's a projected profitable release, I change the background of that day to green. These green days help me forecast. September and November have three "green days," releases where we'll make windfall profits. October has none, although the one off October release of the D&D Dungeon Master's Guide might move the needle. 

This pattern of hot September and November and slow October repeats itself year after year. I draw down inventory in September and try not to spend money, knowing bills will be due in a lean October. I may borrow money in October to cover expenses and pay it off with holiday sales (hopefully). The October dip is about a 30-40% decline compared to sales in September and November. This pattern has repeated for as long as I've run the business, although the depth of the dip is exaggerated because of the increased height of the surrounding months. 

The solution, if there is one, is attempt to make your own rain. Perhaps have special sales in October, although people are not buying as much (perhaps why releases are thin). We've had a couple big clearance sales. I would prefer to shift sales to Black Friday, but November doesn't need any help. October sales are up 10% so far this month, compared to last October, but that's not enough. Perhaps there is no solution. Every business will have a slowest month. Some will know it in advance. As much as it pains me to save up for slow times, at the moment that's the strategy that seems to work best. It does feel defeatist. I want to be the raging bear all the time. I don't want to hibernate. Rarr.

Remote Management and Time Abundance

I've been on a path to reclaim my time after many years of long hours. This is a desirable entrepreneurial goal, although in my trade, it's frowned upon. Small business requires passion, connection with the community, intense degrees of product knowledge, and an always-on mentality of monitoring social media and responding to customers. Signs of disconnecting, signs of financial progress, are looked down upon by both customers and industry peers. Well, let them watch.

Step one is deciding it's your money or your life, and you no longer care what other people think. This is not to say you let things slip, disengage, become unresponsive, but you simply value your time away from the business and take steps to maximize that time. This huge psychological barrier, keeping you chained to the business, is often self imposed. 

The analogy I like to use is the circus elephant. The baby elephant has a small chain attached to its leg and it learns quickly it can't escape the chain as it pulls against it. As the elephant becomes an adult, it could easily pull up the stake that chain is attached to, but it learned as a baby it couldn't get away. That's what it can be like working in your small business. You can't get away, because you've conditioned yourself to this previous truth, after many years of long hours. 

At a certain point in growth, it's entirely possible to simply not work a part of the business you don't like, or take a job your can do from home. My manager had to fire me from the counter in year nine. I was burned out, surly, and didn't belong as the front man of the business. Many people would have quit in this position. I had the luxury of choice, with the chain off my leg. I wonder how many years I worked the counter with that chain? 

Step two is developing processes, procedures and most importantly, the culture that allows you not to be there all the time. Policies and procedures are necessary for operational survival with a qualified manager, while the culture is the strategy that leads to more or better processes and procedures. Having a moral compass, understanding employees come first, that profitability is important, that everyone who walks through the door deserves respect, prevents many problems that lead to phone calls in the middle of the night. A solid culture means sometimes staff push back on you, because we don't do things like that here. Culture is not top down, culture is a promise we make to each other.

Step three is figuring out what work, if any, you should continue doing. I spent a couple months traveling six years ago, while the entire store was delegated to a manager. The store did not fail, but it was essentially in a holding pattern. I've been to stores where the manager has left and a new one hasn't been hired yet, and it's like a zombie circus, where employees just keep doing the same things each day, although they've become stale and ineffective. I've been doing this long enough that I can recognize the signs of the undead. A store is a dynamic environment and requires dynamic management. It's unlikely you will get that for long by entirely delegating the business. 

My next foray into remote management came four years ago after COVID. I had completely taken back the store as the sole employee for a time, and I identified key elements of the business that drove growth, but also jobs I wanted to do. I wouldn't have understood this without a complete shut down and ramp up. 

Buying product was 10% of my job while I worked at the store, a necessary nuisance that interrupted my time with customers. When I took that 10% of my job home, it exploded into a full work week. Thankfully I had new money in the business to support this expansion, which resulted in about a half a million dollars a year of permanent sales growth. I began to enjoy buying, and although I know how I could be better at it if I were there, it seemed to be the key to successful remote management. I could grow the store remotely as a buyer. The down side is it ended up expanding into a pretty normal work week, albeit one that could be time shifted. If you can't make time, at least shift time.

Step four is similar to what one encounters when contemplating retirement. You might have millions of dollars in the bank, as some of my retirement age friends do, but you need something to retire to, not retire from. Without the direction of your next step, you will be like the adult elephant with a little chain on its leg. The same is true when you begin sculpting out time from your small business. If you don't have something you want to do with that time, you will either keep on trucking at the counter, or simply sit around lonely at home. For the vast number of my peers in the hobby game trade, they would honestly rather be at work. Sometimes I would too!

I have a dream of long term travel. Last year I spent four months on the road in my RV with my son. We traveled and lived throughout Central Mexico, exploring 31 Pueblos Magicos, or magical towns (there are over 150). We had adventures, immersed ourselves in the culture, had various hardships and enjoyed an amazing trip with plans for future trips in coming years. The business coincidentally experienced an enormous bubble during this time, making it appear like I must be some sort of financial genius. 

On our way back, the bubble burst and there was a realization I was probably a few years out from having the funds to take a trip like that again. It was more expensive than we budgeted, and the business return to normal required a steady hand back on the wheel. From a buyer perspective, we had to analyze and re-imagine some of what we were doing. This year I've lived on half the money I spent last year. Which brings me to another point.

Step Five, which could be in a different order, is deciding what's enough. At a certain point in your life, you may realize debt is the promise of future work. I would like a bigger house in a nicer area, but I don't want to work any harder for it. I would like to renovate my house, but I don't want to work any harder for that. You might want a new car, but are you willing to work harder, put in longer hours or more years working? If you're going to work harder and longer anyway, you can find yourself in a debt trap. I am at the stage where I have enough, granted, I have an expensive RV with payments and fees, but that was part of my escape plan. Anything new in my life needs to be paid with cash, because I don't want to work any more than I do now. 

This year I'm on the beach, to use a consulting term. I am taking a year off from travel. I am attempting not to promise myself future work by engaging in new schemes involving debt. Next year I hope to take a trip for two or three months, but it's honestly fifty-fifty whether that will happen. 

Step Six, which also could be in a different order, is understanding the limitations of delegation. Anyone who manages people understands the job won't be done exactly as you like. In the case of small business, it's also likely you will be the driver of innovation. If you're not willing to come in and innovate, it's likely you'll know precisely what needs to get done, but it simply won't ever happen. Remote working means you come in and do the innovation yourself, if that's what you want to happen, or accept you don't have the people on staff to make those projects happen. 

This is where the absurd degree of small business expectations is compromised by your personal goals. You will not have the best business you could imagine and you will have to live with that compromise. You might know the answers to all the questions, but you'll leave the solutions unimplemented in your environment. So because of this, we don't talk about the topic of disengagement. Best practices are often designed for survival and profitability, not personal happiness. Work-life balance is a term used by employees, not owners. Step six is re-defining what success looks like. Step six is a necessary compromise. Success, in this model, is owning your time completely. I have wealthy friends who are envious I've managed this. It doesn't come without sacrifice. But you might decide to make that sacrifice when you realize what you have is enough.

Lightspeed POS

Many retailers who use the Lightspeed Point of Sale system woke up to an unpleasant surprise on Monday. Lightspeed was drastically raising credit card processing rates. Every retailer has a negotiated rate, based on volume. In my case, our rates went from a 2.1% to 2.4%, a 14% increase of additional fees of around $375/month. Here's the thing though, although the rate is a shockingly large, this level of increase is not uncommon at the moment. It was Lightspeed's approach that caused a lot of pain. 

Their phone lines were inundated and sales reps were flooded with angry customers. I waited 90 minutes on hold before getting an email of sales rep.  If Lightspeed had been somewhat apologetic, explained costs had gone up, had raised rates to correspond with annual contracts, not mid contract, it wouldn't have been a big deal. That is not Lightspeed's way. 

Lightspeed has onerous contracts when it comes to credit card processing. If you move away from their processing, they impose a monthly penalty, well in excess of any savings. In my case, the penalty would be $680/month, if I didn't keep up the transaction volume on my Lightspeed credit card processing. They gave me one month before the new rates go into effect. So much for partnerships.

What are retailers doing? Contractually, we're obligated to suck it up and pay the higher rate, which will absolutely sink some businesses. If you're on the edge, losing .3% of your net income could tip you right over. Still, contracts are broken all the time, and if you're a large business, a broken contract every decade or so is probably no big deal.

However, to break your contract with a hosted POS system is a bid deal. They will cut you off. You would need to completely change POS providers, migrate data, move DNS to your new host, and completely divest yourself from Lightspeed. Migrating from an older version of Lightspeed to their hosted version during COVID took two months. Afterwards, you'll be disputing charges with your bank, possibly canceling a credit card, but that's all manageable. They'll attempt to collect and eventually ding your credit. Survivable.

What about legal remedies? I contacted my lawyer and his first question, "What does your contract say?" There may be some unfair business practices, laws being violated, but that is something a state attorney general would have to take up. You're not going to be able to start a crusade over this. If you signed a bad contract, you're pretty much stuck, unless you decide to break it. Many judges will let you hang yourself with your own rope, even if you signed something not legal. Legal remedies are off the table.

The other option, and all options are on the table for me, is do the heavy work of researching a new provider and migrating over at the end of the contract. For me, that's accepting Lightspeed dinged me for over $2,600 in extra charges in credit card processing, albeit charges I would have likely paid anyway. That is because my next best option is no better. I shall explain.

My next best option for a POS provider is Shopify. Shopify credit card rates are publicly listed as 2.6%, and from talking with peers, I think I can get that down to no lower than 2.4%, right where Lightspeed is putting me. Shopify does not have a penalty for using third party processors, but neither do they have third party processor integration. Without integration, you end up running credit cards on the side, resolving returns and disputes on the side, and generally having a not great POS experience. But you could cry over complicated processing while leasing a new car with your savings (assuming you can find cheap processing). My peers who use Shopify just pay the money and use Shopify's integrated processing. That's what I've been doing with Lightspeed, but mostly because 2.1% was pretty good at the time and not worth fussing over for a tenth of a point.

So there's no clear option, no cleaner shirt on the floor. If Lightspeed had handled this differently, had they not been, what's the technical term? ... assholes, this could have been avoided. A softer hand explaining rates are going up and competing rates are no better, would have avoided anger and rage quitting. If they had bundled higher rates with new contracts with onerous penalties, this would have been fair. Instead, after 90 minutes on hold trying to talk with someone, I finally had "my" sales rep send me an email saying pay up or eat the penalty, with a helpful link to their website explaining what I had agreed to.

Lightspeed used to be a great company, with fantastic customer service, thoughtful product upgrades, and reasonable pricing. They were a breath of fresh air after feeling abandoned with Microsoft RMS. Lightspeed is now LSPD on the New York Stock Exchange. They report to shareholders, spend their time on acquisitions, and half ass new features nobody asked for, like their awful demand forecasting. Their goal is to compete with their rival on the New York Stock Exchange, SHOP, rather than serving their customers. Lightspeed lost its soul and it's really a shame. 

The Event Problem

There are two problems hitting game stores: rising costs and failing events. Costs are easy to understand. I'm keeping my store open longer hours, dedicating space to events, paying staff to supervise and hopefully sell product, and and running precious air conditioning to make the space habitable. These costs have skyrocketed. Failing events include a few issues, such as Magic standard (FNM), the cash cow of weeknight events, losing its mojo, Pokemon flailing, the long tail of Dungeons & Dragons reducing interest in new product, and the shortage of alternative options. Finally, we have social change, in which young people are reluctant to get together in person. These are just my observations and some stores are able to overcome these headwinds better than others (I'm thinking out loud, not looking for advice).

Let's take a look at costs, my costs in particular. I will be your model today. Despite the ever present predictions of the death of retail, and rising inflation, retail rental rates since COVID have only gone up 3-4% annually.  Rent for our 1,000 foot game space costs $3,000 a month, 8% higher than 2021. It doesn't include our second floor mezzanine, another 1,000 square feet of game space, which we don't pay rent on (why we built it).

Labor rates have increased an average of 17% across the US since 2021, but the bottom of the labor market has seen the largest rise. We tend to pay towards the bottom, which in California is 45% higher than most of the US. We've seen a 40% increase in labor since 2021, partly because no events during this period meant fewer employees. In the case of evening events, I am paying two staff members $20/hour, including all the businesses labor costs, to maintain the store while events are in session, for four hours. That's $160 in labor. We'll only look at weeknight events, since our weekends are clearly profitable. I want to say we make money on weekends and lose money on weekdays, but it's more complicated than that.

I won't include all the utilities in calculating that four hours of week night events, but it's pretty easy to figure electricity. Electricity has skyrocketed in cost. We have a unique situation in that 2021 was the only year we had no evening events since 2007. We can easily compare 2024 electricity costs to an event free 2021. Our electricity is up 58% from no event 2021, costing an additional $366/month.

Overall for event space, each month we spend $3,000 on rent, $3,200 on weeknight labor, and $366 on electricity, which we'll round up to $400/month when you consider additional supplies like toilet paper and the like. The toilet paper and other bathroom expenses, when we resumed events, caught us by surprise. Week night events therefore cost a total of $6,600/month, or $220/night. This is not news to me, and I've often considered our events space similar to a (once luxury, now standard) hotel room. It needs to be rented out every evening in some way that makes up for that $220. That's $220 of profit, not gross sales or store credit.

What's going on with events? The event "anchor" each week, for as long as I've owned a store, was Friday Night Magic. FNM is a "standard" card event involving purchasing and opening product to play in the event. Product is built into the event fee, so it's a forced purchase. Stores will move boxes of booster packs throughout the month, if they can get reasonable attendance. 

Unfortunately, standard events like FNM have become unpopular because of WOTC changes. Attempts by WOTC to fix standard have not been successful. We went from packing the house during FNM to getting perhaps a dozen people on a Friday night. Our event calendar is blocked off for FNM, but it shouldn't be. Instead we've needed to shift events to make room for an overflowing Commander night, a pre-constructed format in which we don't sell product (not even Commander decks, ironically). Therefore, Commander makes us little money and it cannibalized a profitable FNM.

The other event, which draws so many people we've had to limit it, is Dungeons & Dragons. D&D is an event where, without monetization, you expect players (mostly DMs) to buy game books from you. D&D has been flagging in its tenth year, with plans to only refresh the edition over the coming two years. The idea here is the IP is more valuable as a potential digital placeholder than an actual role playing game in book form. Corporations be like that.

This leads to very little incentive for most players to buy more, although the refreshed core books should sell very well.  The hope that D&D players will somehow maybe, possibly, buy a book from you after those core book sales is pretty slim. Plus we've established in other posts DMs buy most of the books and players don't cover their ratio. D&D groups are generally 4:1 players to DM, but sales tend to be 2:1; for every book a DM buys, four players buy two books. Oof. If you want to talk about freeloading and event space, start with that ratio. If we could have a D&D event that only included DMs, that would be a great thing. You could charge them to sit around and argue about what they wanted to run.

There is a lot of flailing when it comes to other games. We've gone full line on Warhammer 40K this year, but energetically, that game does not bring in a lot of new players. You can debate why 40K doesn't innovate with rules, but generally see WOTC: the product is the models, not the game play. Pokemon has struggled this year with lackluster releases, the community we built during COVID has dwindled, and the income statement warping, stratospheric, high margin sales, have slowed tremendously (but not back to pre COVID levels). My CCG concerns as we pivoted to One Piece and Star Wars was we would be overstocked and potentially sunk by debt, but instead we saw enough shortages this summer to see our fledgling indie CCG community dry up and blow away in the wind. It's Grapes of Wrath over here in CCG land.

We struggle to get young people re-engaged in society. This was a problem pre COVID and now it's a bit of a known crisis. It's not some kids, it's most kids. A lot of people have returned to in store play, but growing that is much harder. My own kid (and some friends) don't see the value of going out with people, when you can hang out virtually. I don't think it's healthy, and from the owner of a Third Place, it may one day re-define how we allocate resources. 

These are all headwinds and known problems, and it has to be said, there are stores overcoming all these challenges, innovating, finding other products and interests to engage people, and of course, better monetizing events and de-linking events with product sales. My store is profitable. It is struggling financially, due to higher costs and lower sales, but we will grow through this tedious problem. Part of growing through this is event monetization.

Event monetization is a topic I've touched on before. But look at it this way, how do I net $220 each week night through events? I if can't incentive people to spend thousands of dollars on product, which is what it takes with such a nut to crack, how do I instead monetize that space to earn back my costs? Assuming a 10% net margin, I need to sell $2,200 of product during an event to break even. Our plan to charge a small $5 fee to use the 100 seat space will cover costs, even if we only manage to fill our space half way.  Also worth noting to those who ask what more do they get in return, $10 would be the cost to actually "professionalize" events with paid coordinators. We're far from that.

But Did You Die?

I know I'm not supposed to, but I want to talk about Gen X Club. There was a muscle car forum discussing zero to sixty times (stay with me here), a common way to measure car performance. Seven seconds was pretty good back when we had muscle cars, but nowadays it's just a minimum reasonable speed to merge onto a highway. I no longer have a muscle car, but I have a sports sedan and a heavy duty truck that both do it in seven seconds. No big deal. The difference with a muscle car, as I explained to the younger group, is while doing your zero to sixty, you might die.

Muscle cars nowadays are expensive collectors items costing upwards of $270,000 for rare specimens, but back then it was what we could afford. As a teen, a 25-30 year old car was what I could buy for $900, what I paid for my first car, about $2,500 today. That age and price of car happened to be a bunch of tired muscle cars, which back then were pretty well shot at 100K miles. My friends had them too. As cars go, they are pretty awful.

These muscle cars were fast, that seven second time, but they had poor brakes, they didn't turn well and they had no safety features other than a seat belt. Most didn't even have head rests. It wasn't uncommon to find yourself facing the wrong direction in traffic after spinning out, even when you were taking it easy. This was just a Generation X feature. We spent our childhood nearly getting killed on our bikes, which we rode endlessly, and easily transitioned to dangerous cars. It was not uncommon to have school announcements that some kid had died; it was just life. That we had no money to keep these tired cars in good mechanical condition was a big part of the danger.

You might complain about nearly losing your life on the highway, but the common refrain from friends was "But Did You Die?" I now use it all the time when my players complain about the difficulty of my D&D adventures. It turns out they want to nearly die; that's their play style and you better not fudge it. All rolls out front. Generation X is the self raising, "come back when the streetlights are on" group of kids who had adventures all the time. We did it because we were bored. Later in life, with a kid of my own, I've been telling my shocked parents about some of those adventures.

We're the generation that keeps their head down, works hard, and strives towards internal authenticity, with the catch phrase "purchased experiences don't count," direct from Douglas Coupland and the book Generation X. We are Cold War kids who look for the mushroom cloud when we hear an explosion, accept we're a shadow of our Boomer parents, and worry our struggles aren't authentic, versus trying not to struggle. 

We keep our identities secret, having grown up in a time when we would be beaten senseless for our Dungeons & Dragons books. Teachers let kids handle their own disputes and bullies ruled the school. Whatever made us different was kept in the closet, for safety and later, to avoid marketers. We did pretty well, despite wars and recessions and living in the shadows. I think our shadow natures make us more receptive to the problems of younger generations.

As adult employers and managers, we are bemused by the various requirements and hand holding younger generations demand. However, we are absolutely on board. We are about it, as the kids say. As a generation that lived without guard rails, that played on concrete playgrounds without foam padding, with high expectations in a resource poor market, that risked death to drive to a minimum wage, part time job, we are absolutely on board with people chasing their authentic selves and holding others accountable. We would never ask them, "But Did You Die?" That's an attitude our parents might have had, or inflicted on our peers so they'll accept the next "adventure." 

We will absolutely encourage a younger generation to not struggle like we did, not risk life and limb for $3.35 an hour, to enjoy their Disneyland versus risking death exploring abandoned houses, or making home made explosives from the Anarchist's Cookbook because they're bored. We value our near death experiences, our adventures, but we are also a bit jealous of younger folks insistence on full authenticity and truth, and their expectation of a work-life balance. If we have a problem, it's not that they might not come back when the street lights are on, it's that they may never leave their bedrooms.

Business Ethics

I took a business ethics course in grad school. I didn't want to. I didn't care about business, and ethics was something informed by personal morality or whatever path you're on. I needed a cross-denominational course, being in a Buddhist studies program at Graduate Theological Union. The "Union" part of that meant I needed to take a handful of courses from the Judaism program or various Christian schools. After bailing on Dominican philosophy, feminist theology, and struggling through Christianity in film, I figured the Lutheran business ethics would be a breeze. I heard they had good coffee.

At one point in class, we were given a scenario. You are the CEO of a drug company. A drug your company has developed saves lives, but causes severe birth defects. The drug has been banned in the US. However, there has been an outbreak of a deadly disease in a developing country. You have the opportunity to save millions of lives by exporting your life saving drug to this country, but it will cause severe birth defects in thousands of children. Do you export it?

Everyone in the room agreed they would sell the flawed drug in this developing country... except me. As the CEO, I figured my job was to protect the company, and thousands of children with birth defects is what people would see, not the millions of saved lives. Of course, this is a moral dilemma, and the rest of the class time was spent discussing this very issue. 

By the end of the class, my mind was changed, the needs of the many outweighing the needs of the few and all that, and I agreed I would sell the drug. What's more surprising though is I weigh this decision in my mind about once a year, for the past 30 years. This decision changed me and forever after I have been open to scrutiny on my decisions, and more than willing to change my mind. How many classes could have accomplished that?

In religious literature, merchants are scum. Money changers in temples, greedy merchants selling bad food, you name it, the business community was predatory. Today I still see predatory merchants. My opinion on this is it's a form of confirmation bias. Business is brutal, margins are thin, and if you were an asshole to survive early in your business, you believe you need to continue being an asshole as a form of core competency. If you stop being an asshole, you will be trampled by all the customers and employees waiting to take advantage of you. 

If this sounds like you, believing you need to be an asshole to survive, let me attempt to change your mind. You need to be firm. However, you'll do much better with a flip side of compassion rather than venom. It's an illusion that you have to be underhanded and nasty to make it in business. It's true you will likely be taken advantage of, if you open yourself up to the world in this way. There is some pain embracing the world, but it will make you stronger, if you can avoid cynicism. In the long run, you will be far more successful, metaphorically touching millions of lives, even if there's some relatively minor suffering along the way. I try to get through it with a good cup of coffee, as the Lutherans taught me.

The Water Frog

One day a customer came in and bought a water frog. This was a rubber toy frog, filled with water and glitter. You could shake the frog and it would make an odd, warbling noise. Some people found the sound of the water frog disturbing, which meant everyone needed to hear the sound of the water frog. Warble, warble. 

The water frog was part of a collection of toys I had recently brought in. That customer came back later and bought all the water frogs. This guy sold toner. That was his gig. It wasn't a glamorous business, and he was always looking for ways to stand out. He decided to buy water frogs, tape his business card to the bottom of the frog, and put them on all the chairs at various business breakfasts and get togethers. This got him attention, because who doesn't like the water frog?

My order for water frogs grew as his business grew. I was ordering water frogs by the case. When the regional warehouse was empty, I would empty other warehouses. I was always on the hunt for water frogs. How many water frogs do I want? All the water frogs! My sales rep called me:

"I don't want to know what you do with those water frogs, but I'm sending you all the cases."

"Well, actually, we're using them for..."

"No! I don't want to know."

We went through cases and cases of water frogs. At first I was cautious, not knowing when the gravy train of water frogs would end, but eventually I had water frog cases stacked in the office. My POS records show I bought them for 50 cents and sold them for $2.50. 

Eventually the entire toy line was discontinued, along with my water frogs. It turned out nobody else was ordering water frogs. I snagged the last couple of cases, but when that was over, the reign of the water frog had ended. My toner guy stopped coming in and eventually all the other toys went away. But I'll never forget the water frog. 

Warble, warble.