Monday, June 3, 2024

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.

Tuesday, May 21, 2024

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.

Thursday, February 1, 2024

Anatomy of a Pre Order

Wyrmspan by Stonemaier Games has gone up for pre-order for both retailers and hobbyists. How do I go about figuring out how many copies to buy? This one is a bit of a head scratcher, but let's get started.

Wyrmspan is a Wingspan spinoff. My peers have described it as a love child between Flamecraft and Wingspan, two of our hottest games ever. The love child part was mine, but you get the idea. 

The first step is to determine if I want any. Visiting the House of Horrors, also known as Board Game Geek, I see a couple things: 

1. An overall low score. Looking at individual reviews, there seems to be a concerted effort to tank this game. I am told this is typical of BGG for unreleased games. So many experts on something that doesn't exist! Maybe it's too simple, too similar, or the fantasy theme rubs the high brows the wrong way. This is curious, but a low overall score will likely mean many customers will pan this game. If this were an unknown game, from an unknown designer, as a buyer, I would pan Wyrmspan. Another note: If enough people see this and pan the game, and it takes off as expected, there will be a shortage.

2. Very good reviews. A watched two reviews in a row that ranked Wingspan as a 7.5 out of 10 and Wyrmspan as an 8. The overwhelming consensus is the game mechanics are improved upon in Wyrmspan. I won't get into the details, because I honestly don't care about the details, but this is generally a good sign. So we have a concerted effort to tank this game by the BGG nerds and very strong reviews by the reviewers. This does make Wyrmspan slightly less than a sure thing, which was probably the intention of the bad peanut gallery reviews.

The second step is to look at past performance. As anyone in the stock market can tell you, past performance is an excellent gauge of future results. Err. Something like that. Let's ignore the love child aspect for a moment, ignoring Flamecraft (50 copies sold in the last year without a significant outage, I guess we're not ignoring it!) and look squarely at Wingspan's past performance.

Here I have a big problem, in that Wingspan was a COVID baby. I was selling it swimmingly for a couple months when it went out of stock and disappeared for six months. I admit I under ordered it a bit. This extended outage occurred right before we shut down. When we finally restocked, the game soared. Past performance on Wingspan is a bit of a mystery, so future performance of Wyrmspan is a bit unknown. This is an example of how in the dark you can be, if you didn't order the first thing properly. It's also a warning to learn how to properly parse your data. Under ordered plus COVID, means you don't know as much as you think you do.

Despite all this, I can crunch numbers and generally take Wild Ass Guesses. Now that I have a general feel for the likely sales numbers, the next step is budget.

How Much Can I Afford? Part of that question is how much can I afford right now, because a pre order with Stonemaier is a credit card charge for the full amount upon placing the pre order. If I order at a lower margin from GTS, I can pay for it on my terms, with the bill due a month after its release. The normal method for a game that's unlikely to go out of stock is to order the quantity I think I'll sell in that 30 day terms period. Wyrmspan is not normal and a 30 day supply will not be enough, as we think we know from Wingspan.

If I'm sitting on a pot of gold from the holidays, which I am not, I might risk up to a years supply of this game, considering how Wingspan disappeared for six months after release. At this stage I would like a six month supply of Wyrmspan, but I don't know what that is, because of Wingspan performance, and I can't afford it, regardless of how well it does. Instead I figure on something approaching a three month supply, which is really not enough, but it's what I can afford, even if this game tanks. This is an example of where having a strong cash reserve results in opportunities.

What can tank a game? So many things. Stonemaier might make everyone an offer they can't refuse next week. We compete with our partners and this kind of pump and dump betrayal is common. Do I trust Stonemaier not to do that? Today, yes. The components might be defective or low quality. It might be dumped online by low margin sellers. The boardgamegeek wankers who low ball the reviews, might turn out to have been right. 

Basically, see Magic the Gathering on how a product can be screwed up by the publisher on a near quarterly basis. Also see Magic the Gathering on how everyone having a cash reserve and betting on the sure thing can screw up supply and demand and tank a game. Here we have to look at Stonemaier's past performance and how much you trust them to get it right. My trust level is moderate.

Triangulation and a Final Count. I set this game up in my online store for my customers, matching Stonemaier pricing. I announced it and... nobody has pre ordered yet. Maybe they will, maybe they won't. I have increased my Heat expansion pre order four times now, as my customers got on board. They were burned by the Heat outage, so they get that. It might be that my regulars, who are probably not the target for this game, send me the message that Wyrmspan is not for them. Maybe they'll all order direct. 

My semi final numbers: 12 from Stonemaier with a few accessories. 36 from GTS. If Stonemaier didn't charge for everything in advance, I would order just from them.

I have sold 240 copies of Wingspan since late 2019. Let's hope past performance is an indicator of future results.

Thursday, November 30, 2023

Brands versus Games

I finished Dungeons & Dragons, Baldur's Gate 3 last night. I've played 322 hours of that game since May, compared to an average of 88 hours a year with friends around the table. I haven't watched a movie since starting this game and it has dominated my free time. It is an example of brand management, taking the game I love and managing it across various platforms with the hopes of turning that creativity into money. Wizards of the Coast's Q3 profits were up 99% because of BG3, along with other brand extensions, including Lord of the Rings Magic and Warhammer 40K Magic. Brand management is also at the heart of my professional problems. I shall elaborate.

I love games. Game designers are passionate about making games. Every successful company in this trade has found a balance between the passion of game design and the very difficult business of the game trade. Go through Shannon Applecline's history of role playing games and the same balancing act plays out, decade after decade. You can be passionate, but without business sense, you will fail. 

The problems occur when our beloved games are managed by large, corporate entities. These entities have passionate designers, at least at the moment of design, but the power in the company is with the executives, the brand managers. Brands must perform, more so than just smart business in the game trade. The game itself takes a back seat to the potential of the property.

Brands aim to extend, leverage, and exploit properties, previously known as games. Brands will take a rounding error like D&D, which we love, and coddle, protect and feed it just enough to maintain it in the public eye, in hopes of a more profitable brand venue. D&D is devalued, de-contented and sold at close to a loss for maximum peak public awareness. That's how you build a brand. It's also how you strangle a game.

This brand management sounds terrible, until you get a gem like Baldur's Gate 3. BG3 is successful brand management, which happily resulted in a great, creative game. It's the best video game I've ever played. It's a wonder of game design. It has made me better at tabletop D&D. It will occasionally fall on its face, but that's just game design pushing the limits, something tabletop D&D, intent on careful brand management, hasn't done in perhaps 20 years. 

You don't get creativity with place holder brands. With brand management comes vanilla brand self preservation. Real employees make money for the brand, while creatives are contractors, hired to write middle of the road, safe content, for when there's a need for the brand to maintain public awareness. It's pretty awful and the community takes up most of the slack in both creativity and on boarding players.

The modern game trade is dominated by brand management, not in the number of companies but in the percentage of sales by top publishers. We don't speculate so much about the content of the next Magic set as much as we do about how (not whether) Wizards of the Coast will manipulate supply.  We don't worry whether Asmodee will develop a great Star Wars CCG, because we know the fantastic designers will do a great job. Instead we worry how Asmodee's brand management will tank this game through various missteps that might keep that game relevant with consumers. I have no idea how popular Games Workshop's Warhammer 40K game actually is, only that my turn rates are fantastic due to short supply from tight allocations, under production, and channel strangulation. My metrics say it's a winner, so probably? Starvation can be mistaken for fitness. 

All of this has nothing to do with the actual quality of the game, only how corporations self perpetuate and maximize shareholder value. By the time a game player has achieved peak disillusionment, they are likely on to families and home ownership and other peaks of life's disillusions. This was stressed in a recent video by Matt Colville, who discusses brands versus games when it comes to D&D. As a store owner, I'm still here, selling these games, as a disillusioned brand champion, to the kids of the disillusioned. I shouldn't care, because the money is good, but as a player of games? It makes me sad and if dealing with the public hasn't crushed your soul, brand management certainly will give its all.

I am not guilt free in this charade. I embrace the brands just as hard as anyone. When 80% of my RPG sales come from 20% of my D&D product, I might still bring in a slew of indie RPGs, but who am I kidding? It's all about the D&D. I would love a miniatures game replacement for 40K or a CCG alternative to Magic. The truth is those brands are solid, even when the game falters, even when they load balance gender in D&D books rather than write progressive content. Brands can screw around and not find out, something small publishers can't get away with. 

Anyway, I shall now slink back to my corporate lair and prepare for my next D&D game, like the hypocrite I am. 

Monday, November 6, 2023

Demand Forecasting (Is a Lie)

My POS company, Lightspeed, is enamored with demand forecasting. They rolled it out as a test and have now made it a permanent part of the purchasing process. I'm going to explain why demand forecasting is a mistake and why it's dangerous for a buyer to rely on it. 

Demand Forecasting is based on some basic math. If you've ever watched a TV commercial on investing, they'll add the disclaimer, "Past performance is not indicative of future results." Demand forecasting is using past performance as a guide for you to spend money for future results. If demand forecasting used AI, or if it actually used some of your past seasonal data, it may have merit. Instead, it's using some basic math to say, you should really have 6 of these, because you sold 6 in the past. 

I'm going to explain this simply, as if you were a software developer at a point of sale company, this is not how buyers buy product. Product comes in hot and cools off over time. The fact I sold a bunch of new product, is no indication I'll continue at that pace. It's almost guaranteed this won't happen. A good demand forecasting program would understand a trend in sales.

Demand forecasting is also not supply forecasting. The system has no idea how to calculate these variables:

  • Seasonal Stock. Am I going into or coming out of a busy season? A good demand forecasting system could look back over a year and perhaps know. 
  • Safety Stock. The Fantasy Flight Games solution to out of stock situations is to always have more on hand. A POS system doesn't know what stock is safety stock. This is stock to have on hand to avoid outages, because reasons.
  • Flash Stock. Much of our sales in this trade includes items that come out hot and peter down to slower sales very quickly, like collectible card games. Understanding that I will not have sales levels of days 1-30 of a Magic release in days 31-60 should be part of demand forecasting.
  • Space. There is often no consideration for space available in demand forecasting. My demand forecasting POS suggested I order 50 cases of Mexican Coke, based on past sales. Where the hell am I going to put 50 cases of Coke? Getting it weekly makes a lot more sense than a 30 day supply.
  • Budget. Of course, the biggest problem with demand forecasting is it will suggest you obtain an optimal stock level, without knowing your budget. It doesn't integrate with an Open to Buy spreadsheet. It doesn't know you're saving up for a big release.
So did I try demand forecasting? I did! I realized demand forecasting is a perfect representation of what I should have ordered a month ago. Demand forecasting is a look back, a score card for your previous purchasing. Until it has artificial intelligence involved, where it can look at larger periods of your sales, and perhaps work its way into the Internet to provide intelligence, it's really more of a gimmick. If it had AI, it would be amazing. Imagine a system that could do that! Instead we get some basic formulas using limited data that look backwards instead of forwards.

Don't get suckered into demand forecasting. It would be like using a self driving car that only had cameras in the back. If you're using Lightspeed, I suggest you open a ticket and tell them to get rid of this clutter.

Wednesday, November 1, 2023

Magic Pricing Experiment

While sitting in my RV in Mexico, I came upon an idea that probably wouldn't have occurred to me, if I were closer to my store. What if I took this pretty much dead, Magic product from 2020-2022 and sold it at market prices? It wasn't selling at all and was starting to clog up my inventory reports. The stuff was dead, so why not try? What did I have to lose?

Market prices for a lot of this stuff range from well below cost to slightly over cost. Putting it on sale, in store only, would hopefully get it off my reports and perhaps bring in some extra cash that I wasn't realizing. My big hope was flippers would take notice, buy my Magic, and re-sell it online; something we should be doing ourselves. I have three people who watch my online store for discount Warhammer product and they buy it up within minutes of the listing.

The results after several months of this Magic pricing experiment were not great. Sure, it moved enough to get that product off my dead inventory reports, but not enough to make much of a dent in the supply. Worse, it tended to skew my numbers. 

If you've ever had a great sales month and your bank account is empty, it's probably an issue with margin. When Pokemon was on fire and sold well over keystone, I would stare at the income statement and not understand what was happening. Where did this money come from? We are accustomed to a pretty static margin, and adjust that up or down and we've been transported to a different universe.

What I think happened was I was diverting strong margin sales into poor margin sales. I was taking my best product line in the store and deciding not to make any money selling it. Is it possible I wouldn't have had sales otherwise? Sure, and with a true experiment with a control store, maybe we would have found out. At this point, I will be happy knowing all Magic sales have a reasonable margin.

No flippers took interest in my cheap Magic, although the customers at the lowest economic tier tended to buy a pack or two here and there. We put some booster boxes out on the counter at below cost, and the reception was lukewarm. The fire sale price of Magic is probably about half of the market price. Since we were already losing money, I didn't really want to just make a bonfire in the parking lot.

Then Wizards of the Coast announced a consolidation, a combining of Draft and Set booster packs into Play boosters. For stores, there are far too many SKUs and too many chances to get things wrong. This is just one small example, but it did promise to take two confusing, similar products, and combine them into one. Here's the important part, the Play boosters will likely be priced like Set boosters. Why does this matter? This inflationary move makes older product look more attractive.

If the going rate for a booster pack is now $5-6, Magic draft boosters, especially, have just become about 20% more attractive in the long run. It will take some time for this to be noticed, and time is what these COVID era sets need to regain some value. We'll start seeing Play boosters next year. 

My decision this week was to be informed by market prices, but not driven by them. I went through, and with the exception of Commander Masters and some truly dead Jumpstart releases, set my Magic prices at a margin I was comfortable with. My goal was around 30-35% and I mostly achieved that. A lot of sets didn't change, but the deep discounted COVID sets had an overnight price increase that was pretty substantial.

Two things happened. First, I started selling boxes at that new price and second, I was accused, by others, of price gouging. Yes, if you have been following market prices, selling at a loss and hoping to making it up in volume, there will be those who accuse you of gauging for attempting to get 30-35% off a product. It's not that they have even the foggiest idea of what I paid for it, only that it was cheap before and now it's not. They could have bought me out, but they were happy to make micro purchases well into the future.

To be clear, I don't expect these now sustainably priced packs to sell well, or maybe even at all. I am willing to relegate them to museum product. You can see them up on the shelf, perhaps buy a pack or two out of curiosity, but I generally don't care if it takes years to sell them, provided I have stability in my numbers. There's probably $15,000 worth of product like this, down by about 40% from the beginning of the year. 

I fully expect my dead product to return to the grave and show up like a zombie on my inventory reports. I have resolved that this is my fate. I am buried in the manure of COVID era Magic, and only time will convert that product into rich soil. With the help of inflation through WOTC, of course. Customers will be happy to buy your Magic at below cost (on their schedule), up until the day they chain up your front door.

Tuesday, October 10, 2023

Magic: The Supply Problem

How did we get to such a severely devalued situation with Magic the Gathering? There are a number of factors. I think we had a unique set of circumstances, a perfect storm of product expansion, COVID fear leading to a flight to quality, and an inability to calibrate supply and demand because of all the noise. It was exacerbated by a publisher who not only pumped out a tremendous amount of product SKUs, but likewise dumped it alongside frantic retailers. It is a closed loop system, unable to self correct, because of a publisher likely grappling with the same issues. Let's look at each issue individually:

  1. Massive Product Expansion. By looking at the chart above, this seems to have started well before 2020, when COVID made Magic a safe harbor. We've seen a huge number of sets, with an expansion of formats and specialty offerings. The end result, I think most retailers would agree, is overall higher sales across many more products. The problem came from how we ordered those sets.

  • Past Performance is Not Indicative of Future Results. Retailers ordered their typical amount of product based on very steady past sales. However, what we discovered were sales were split over a variety of products, with overall higher sales, while leaving us with overstock of nearly everything, as the average SKU underperformed. We were in new territory. We figured this would all work out eventually, so it was allowed to linger on.
  • COVID Money. In 2020 and 2021, many of us were in pretty desperate straights. We had restrictions on customers coming into the store, no or reduced organized play, and there were few sure things to pay the rent. Magic was pretty sure. In 2020, with my store closed, I made personal deliveries of Magic product to my customers homes. It was astounding they were willing to work with us and I'm grateful. Because Magic was a safe harbor, it was easy to not only spend money on it, but to buy deep. 
  • Safe Harbor. Nobody ever lost money on buying too much Magic, if you waited long enough. This is similar to the IT phrase, nobody ever gets fired for buying IBM. In troubled times, when things are chaotic, there are some safe bets out there, and Magic was a pretty safe bet. If you had the aforementioned COVID money, you could simply sit on any slow moving inventory and consider it a retirement account. Unfortunately, this situation continued well past 2020. I think it culminated last month with the near instant price collapse of Commander Masters. COVID money is mostly gone, both for retailers and consumers. Magic is no longer a safe harbor, but more of a boat anchor.
  • Variety Impeded Purchase Reductions. When Magic is a huge percentage of your sales, perhaps the majority, a reduction in Magic sales is a big reduction in overall store sales. Retailers have been attempting to fine tune purchases, rather than just stop them, because as you can see from my chart, overall sales are up. If you could predict the demand for each item, you could crack the code! Unfortunately, there was too much noise in the data, too many Magic releases of different styles and formats to get a foothold on purchasing. You could reduce your orders multiple times and still lose as the bottom fell out. Those years of steady growth had a very simple product makeup, and we're now seeing a lot of expensive experimentaiton.
  • Wizards of the Coast Was/Is Dumping. What hurt sales and the ability to get rid of overstock was WOTC on Amazon. The Amazon price becomes a benchmark. Some customers see it as a de facto MSRP, since it's the only place that has Wizards of the Coast is listed as the seller. Yesterday they were dumping Ravnica Remastered at below cost on Amazon, a set that releases in January that retailers haven't even been solicited on! There will be some who will argue that it's not WOTC on Amazon, it's Amazon itself, but it's happening on Wizards of the Coast's watch. They are responsible. It has their signature on it. When the publisher is devaluing product, selling at retailer costs, there is nowhere for the price to go but down. It's why the market price of so many products online are at below cost. In the race to the bottom, Wizard's of the Coast is the 500 pound gorilla shoving everyone out of the way to the finish line.
So what's the solution? Retailers will continue to attempt to fine tune, to order less. Wizards of the Coast is dumping product before its release, which is perhaps a sign that we are beyond pumping the brakes. I'm at the stage of just slamming on the brake pedal and letting the car go where it must. My holiday profits may be about weathering a much reduced Magic sales environment. If this were the stock market, I think my advice would be to sit on the sidelines with your cash in the short run, focus on your growing non Magic investments in the long run.