Sunday, February 28, 2010

Supply and Demand (and the manipulation thereof)

Magic: The Gathering Zendikar was the best selling Magic release ever for Wizards of the Coast. Supply was short and demand was very high, partially because of the quality of the set and partially because of the amount of supply made available by Wizards. Sales for retailers were stratospheric and there was talk of Magic becoming viable once again, as retail pricing and online pricing reached parity. For those who did well with Magic, it promised a potential golden age of sales, in which reward once again matched effort. Worldwake tossed all that in the trash.

Worldwake is the current Magic set. It's a "middle" set in the block, although it has a high number of cards. We were told early on that supply was also going to be severely limited, as with Zendikar. Oh, happy day. Limiting supply should create a price floor and provide price parity online. Magic was beginning to lose its "commodity" pricing, staying close to MSRP. However, there was one detail that was different from Zendikar, fat packs would be allocated based on how many cases of boosters you bought. Therein lied the problem.

Fat packs are one-time, limited run products that are in extremely high demand and at full margin. Every store will always sell every fat pack at full price, or they're doing something wrong. The supply will run out far before demand is met. So to link booster box sales, the "commons" to fat packs "rares" was to encourage stores to buy too many booster boxes. Stores were incentivized to over-order booster boxes to get the fat packs. Booster boxes could then be "flipped" online for close to cost. Who cares, right? As long as you get your fat pack allotment.

The supply of booster boxes, therefore, became very high. The online price immediately tumbled to about $85, $13 over cost, while at the same period during the Zendikar release, boxes sold for $125. That $125 price was important, because it meant stores could sell boxes at close to full price. Those who ordered Worldwake based on Zendikar sales, assuming they would be in price parity with the online world, were now vastly overstocked. The crowd that was buying in-store went back online. Store owners in turn began flipping their boxes online, which drove the price down even further.

As I sit here today, the price of a box of Worldwake sells on Ebay at below cost. I know this because I'm the lowest price seller by fifteen cents. I've got massive Worldwake overstock, as do other retailers I know. There is incentive to dump quickly. First, most who bought this didn't have the thousands of dollars up front, so the bill is due soon. Second, about half of all sales of Magic sell in the first 30 days of release. For example, if you sell a total of 50 boxes of a Magic release, 25 of those will be within the first 30 days and 25 will be from 30 days on until a couple years later when you sell out. There is great incentive to dump inventory before demand falls off. This Friday marks the end of the first 30 days for Worldwake.

So what did we learn? Wizards denies any sort of manipulation of supply and demand but they manipulate it by their actions nonetheless. If you were clever enough, you saw the writing on the wall with Worldwake (I was warned by some), but you also envisioned the money in the till from Zendikar, and nobody wanted to miss out on that (I was encouraged by others). So what's happening with the next set? A complete allocation of all product, full manipulation of supply. Of course, I'm welcome to source from multiple suppliers. Should I be worried? Oh yes.

Pucker up.

Saturday, February 27, 2010


Perhaps it's an obsession with order that makes me think this way, but I believe a major part of retail is theater. The stage is literally set for a special retail experience. We work for hours before customers arrive for things to be just right. Displays must *pop* with interest and engagement. There should be no distractions. Customers should not see the inner workings of a store, arrival of new product, stains on the carpet, dark corners with broken lighting, unusual odors or employees talking to their friends. Employees should greet customers and be clean and well groomed. It's an ideal, however, as game stores are specialty stores and don't have the resources for such mass market perfection. We strive for all of these things, but often have problems in at least one area at any given time.

What we lack in resources, we hopefully make up with personal interaction and enthusiasm. A mass market store is like a movie theater, with a generic, consistent experience, but nothing compelling. That's part of why home theater has become so popular as ticket prices have gone up. A specialty store is like a community theater that interacts with the audience. There needs to be something that can't be purchased online or at the local book store. This was hard for me grasp at first, as I wanted everything to appear corporate.

It was my customers who reminded me of my proper role. Professionalism doesn't exclude the personal touch, so I have no problem talking at length with customers and getting to know them and their likes, writing a blog that shows the man behind the curtain, and generally accepting that part of our appeal is that we're not a sterile, corporate experience. I'll apologize for the dirty carpet and the giant stack of incoming boxes, but I will strive to improve.

We have a lot of work to do to achieve our theatrical goals, also known as merchandising. My last store had engaging displays, but in the rush to simplify the new store, most are gone. They took time to maintain and clean and usually required an investment of product. This was part of my streamlining phase a while back, in which I worked towards efficiency by being more like a franchise. In many cases, The Four Hour Workweek and similar books were helpful in getting our processes established, but there are "soft" areas of store management that do poorly when streamlined (more likely these soft areas need to have a better process established, like display rotation).

It's no excuse, there should be more displays and fresh ways to interact, like our miniature villages, war game demo tables, and perhaps a couple of new board game demos like we had for Blokus. Display cases need fresh content. Product needs to be displayed in innovative and unusual ways. Displays are abstract concepts in retailing. They often don't result in sales of the displayed game, but instead engage a customer with the store, increase their time shopping, which then results in increased sales. "A = B which equals C," which is hard to see if you're not working every day. Employees, therefore, see them as a nuisance (A = B, B = 0) while owners see them as income generators (A = $$$).

On the flip side, some store owners reject theater and see their lack of cleanliness, order and engaging displays as more honest. They play the music they want to hear, not what fits the theme of the store. They wear what was clean that day, rather than a uniform or other identifier. Retail theory plays little to no role in their store. They hire whoever comes along. It might be fun to work in Rob's record store in High Fidelity, but it was the kind of '90's store that could never exist in our modern world. Perhaps Rob knew this as he transitioned careers.

Ah man, that's great. That's the fun thing about workin' in a record store - you get to play crappy pap you don't even wanna listen to. --Barry

Friday, February 19, 2010

Duel Terminals

I ordered a pair of Yu Gi Oh Duel Terminals yesterday. This is a rather innovative product in the game industry. It's a video game that dispenses cards that can be played either in the tabletop game or on the system by scanning in the card. This was tried last year with console gaming unsuccessfully, suffering from piracy and other setbacks. The Duel Terminals allow players to play each other or simply get the hot card. It's big in Japan, has regular sets unique to the terminals coming out every few months, and the player base has clamored for them, making wild promises and predictions that has caused lots of investigation on my part. They may be right. Analyzing it from a business perspective, it seems like a worthwhile investment with acceptable risk.

So what about the character of the store? One of my business partners wondered what I would do if other game companies came out with electronic variants like this. I welcome it. If Wizards of the Coast wants to create some really cool electronic gaming table, I would consider it a worthwhile investment. We're a hobby game store, but it's inevitable that our hobby games have electronic components. How many people out there are gaming purists that never click on a computer, buy a PDF or play an electronic game? How many game masters use laptops to prepare or even have one at the table? Our biggest concern about RPGs is that the electronic variant is killing sales (D&D DDI). Wargames died when that model went electronic. Sticking your head in the sand and relying on the uninformed and technophobic is not a valid business model. I feel I'm doing that sometimes.

Also, here's a thought: These kinds of cross overs aren't cheap, which rewards those who are running their businesses successfully and leaves out lazy game store owners who only go after low hanging fruit. One of the problems in the game trade is the barrier to entry is so very low. It might sound elitist, but the more initial investment required to open a store, the more likely we'll have better stores with solid business models.

Still, we don't want to run an arcade. Nobody wants to hear beeps and annoying music while somebody else plays electronic games in what's supposed to be an analog refuge. This includes the customers but also the staff. As a game store owner, I recognize that I'm doing something I love in exchange for less compensation. Losing focus and character is something that happens gradually, so we're naturally suspicious about these things.

We struggled with where to place our Duel Terminals. They'll go in the front of the store next to the doors. It's an area known in retail as the Decompression Zone, invisible to customers who have just walked in the door, yet still visible to staff. It's dead space really, which is why, if you've ever noticed (you probably haven't), we place our Monopoly rack, toy wheelbarrows and other stuff that's unloved in that space. There should be enough room, but we'll have to make sure we avoid large crowds around them and that the sound is turned down. Their location was also chosen to avoid shoplifting (basic stealing of stuff) and pilferage (when stuff is pocketed in unwatched areas). In other words, our biggest concern is that these things don't become a nuisance.

Wednesday, February 17, 2010

Glug Glug Update

Part of addressing issues, as we're learning from the fascinating Toyota debacle, is following up on what you did to fix the situation. Here are some of the requested drinks we'll have arriving tomorrow:

  • Izze (finally back at Costco)
  • Red Bull Sugar Free (requested by our dentist neighbor)
  • Sunkist Orange
  • Country Time Lemonade
  • Diet Dr Pepper
  • Canada Dry Ginger Ale
What we can order is constrained by our supplier, Costco. The problem is that we need a steady supply of delivered Mexican Coke, which puts Costco as the obvious choice. Mexican Coke is consistently one of our top five items in the store. If we have to divide our order with two distributors, getting MexiCoke from Costco and other stuff from distributor number two, we're suddenly not that attractive a customer and it becomes difficult to get that Costco order to the free shipping minimum. This is actually how the game trade works, with many orders driven by free freight. Costco, unfortunately, is the LCD of suppliers, meaning they don't offer anything out the ordinary. 

Tuesday, February 16, 2010

Bubbles and Crazy Kings

I was mentioning to someone in the game industry today that one of the biggest problems a store owner has is figuring out how to sell to customers. What do they want? We simply don't know, and worse, aren't in the loop when their demand is eventually satisfied. We've got this conceit that we sell games, you buy games from us, therefore, all your games are bought from us. It's so not true. What we desperately seek is the equivalent of little bubbles over peoples heads as they walk in the door, listing the games they've bought.

Sometimes we get a glimpse of these little bubbles if we get to know our customers well enough. They play games away from the store with titles we don't carry, or get them before our release date. We'll sell a half dozen of a $100 starter game, and then sell twenty $30 expansions. There is a retail escape valve that opens up called the Internet when an item is perceived to be too expensive. We also forget that we just can't carry everything and, in fact, often hint that the customer should just go buy that obscure thing where they saw it. At the same time, we push special orders, hoping and praying we can get the biggest chunk of their entertainment budget. It's a strange high wire act.

At the end of the day, we're lucky to get glimpses of what's going on, and occasionally we will figure out why something doesn't sell or why they don't by from us. For example, a sale or other adjustment of the value proposition can shift perspective radically. We have dozens of people we only see during our auctions. Many are local, they're just not our customers except for this one day. They buy only online based on price or they only buy during the sale.

Ebay is often the final arbiter of a games value. When I've got a game I can't sell for a penny on Ebay (Abagio), it explains a lot. Likewise, RPG books have a "true market" price slightly below Amazon. At the same time, although we're forbidden in various ways to sell Games Workshop products online, it's rare that a GW clearance item would slip below our cost.  In fact, many go for MSRP or above.

Price is only part of the proposition. I've got customers who won't buy games unless I've played them. "Let me know when you've played that." is what they'll say as they wave goodbye. Convention sales are often based on that demo/play experience. Having enough product knowledge to actually explain a game well enough to sell it is hard, and with 650 board games, nobody has played all of them. Some store owners will go as far as only carrying games they've played. Good luck with that.

It almost goes without saying that we serve at the pleasure of our customers. However, it's like working for a schizophrenic monarch who can't decide what he wants, who he wants it from, and when he wants it. He may tell multiple servants his desires and then randomly choose one when it's time. The king is a madman and we serve at his pleasure. What does that make us? Part of being a clever retailer is deciphering what the monarch is saying, asking him leading questions, and getting him to commit to a course of action. Otherwise, we're working on false pretenses and likely to lose our heads. Game stores are made and broken with purchasing. Understanding the customer is key to that endeavor. Long live the king.

Monday, February 15, 2010

Shifting Mediums

With the success of our Facebook fan page, we're now getting as many or more blog comments there. It seems the blog is becoming a feeder service for Facebook, which I suppose isn't all bad. The down side is we sometimes have two conversations going at the same time. I don't have a solution for that, since we've got two different mediums.

Nobody knows where all this social networking is going. There are different demographics for social networking services. Facebook used to hit a younger audience, but it's becoming the Microsoft Windows of social networking, with the default medium for young and old. Some hate it, most use it. Twitter is like the counter-culture Linux of social networking, but a bit too hip for my liking. The value of Facebook dawned on me slowly, while I still grasp at the point of Twitter, especially now that Facebook has evolved with more "public" profile "fan" pages. I suppose it's personal taste.

The same study that tells us all this also claims that blog reading and writing is down. Without the import to Facebook, my own blog would be of only marginal use and interest, I think (more marginal than it is now at least).

By 2009, just 15% of internet users ages 18-29 maintained a blog, a nine-percentage-point drop in two years. However, 11% of internet users ages 30 and older maintained a personal blog.

Some business owners ask if they should write a blog. I think they should if they enjoy it and have something to say. From a pure marketing perspective, it's probably the least useful medium if they're interested in connecting with their customers. I've been doing it for a couple years, with over a thousand posts, but I only get about 150 visitors a day, while after two months with a Facebook page, we're approaching 300 people.  Feeding Facebook makes the blog a useful "widget" for that service.

Saturday, February 13, 2010

More with the Venators

After a contradictory post about how I'm not a gamer, here are the three Forge World Venators after construction. I'm still working on the one drivers hands and arms (if you're noticing that). It turned out I could fit a Tallarn into the drivers seat without modifying the roll cage and raising the turret. I added Hellstrike missiles to the first one to hide the extra space created by the modification.

Technical: If you want to give your Tallarns Venators (which they deserve, after all), you'll need two blisters of  Tallarn autocannon or lascannon teams per vehicle.  The gunner loses his legs below the knee and has his canteen removed so he'll sit flat. The driver's lower body fits in without modification, but you'll need to trim off all the raised seat detail. Then saw off the models hands. Create forearms by putting the hands on the steering wheel to his torso. It works if you don't look too closely.

In the Closet

Polyfabulum: (from Greek πολυ [poly, meaning many or several] and Latin fabulum [game]) is the practice, desire, or acceptance of playing more than one hobby game at a time. It can refer to the nature of a gaming relationship at a given time, or be used as a description of a philosophy of gaming, rather than a person's actual gaming status at a given moment.  --gary

I have a resistance to being classified a gamer. True, I wasn't always a gamer, in the polyfabulum sense, a multi-genred creature who can't be satisfied with just one game.  I was happy to play Dungeons & Dragons for decades before starting the store. In fact, my dream game store is a creature from the '80's, a "fantasy store" that's about a third RPGs, a third lead, and a third "other," like war games and those little creations in plastic baggies that were sold off spinner racks, like Car Wars. Alas, that is not our simple world.

I think my resistance to "gamer" comes from my academic training. In Buddhist Studies, you were considered not to be objective if you "went native" and actually practiced what you studied. It somehow clouded your brain and damaged your objectivity. I went to a grad school where practice was considered your first priority, so this slight was always at the surface, and we knew which "famous" scholars were closet Buddhists. The "gamer" situation is in reverse.

The baseline in the game trade is that you are a gamer, a compromised business person who "went native" and gave up serious business or endeavors in exchange for a hobby store, in which the store is your hobby. In that world, I think I seek to stay objective by resisting the "gamer" moniker and comparison to the type of people I associate with those stores. I'll commiserate with my customers about their D&D campaign or their 40K list, but professionally I want to talk turn rates, cash flow and SBA loans. Business is right underneath the surface. I never play games during my work day and always make sure my in-store gaming is clearly off the clock and not as an employee.

In a trade where everyone has gone native, and there's hardly a reason to stay in the trade without going native, I desperately seek to stay objective and business focused, which turns my self perceived rebel Han Solo into more of a money focused Ferengi like Quark, spouting Rules of Acquisition (actually my rebel alter ego is more Garak the tailor). It even feels crass to me sometimes, but taking to business as second career, it's hard to have perspective.

This business-gamer dichotomy isn't cut in stone, however. I think as I get more comfortable with the business side (remember I'm a business convert, not a trained professional), I'll likely put on that gamer cloak with more confidence and acceptance. There is a huge amount of resistance to owning a game store with the outside world. My family is happy I'm "having fun." Landlords won't give me the time of day unless I can somehow shove my financials in front of their faces on their way out the door. Banks can't decide if I'm a high risk (during the holidays) or a financial genius (after the holidays), as my credit score roller coasters from wildly fluctuating utilization rates. So for most of the world I stay closeted, at least until they can't deny my business acumen.

Friday, February 12, 2010

Glug Glug

Looking back at beverage sales for 2009.... Any requests for 2010?

Thursday, February 11, 2010

Black Diamond Games Photos

Our Wizards of the Coast rep, Charles, was on tour of Bay Area game stores and visited us this morning. He took a bunch of photos of the store. I'm posting them here. I find them more interesting than taking my own photos, since it shows what interests an outsider visiting the store. It also shows the store in full operation, warts and all. If I were to take photos I would feel obliged to painstakingly arrange items on shelves or omit photos of half empty display cases (I hate display cases) or rogue slatwall hooks. Click on the interesting ones for a larger photo.