Tuesday, April 30, 2013

Invasive Species

The ecosystem has recovered nicely. The circle of life is stronger than it has been in years. What? What is it you say? You would like to introduce a new species into the mix, one that's not native to these lands? Oh, and it competes with the creatures in the existing ecosystem? And it's biologically less efficient? Now why would I want to do that?

That's exactly the case with collectible card games. A community can at most support a handful of CCGs before it begins to fragment, break down and spin out of control. Each game store owner knows how many games, exactly, they can support, and each knows precisely what those games are. For us it's Magic, Yugioh, Cardfight Vanguard and Pokemon. Add another game and I'm more than likely sucking the resources, customers and event space, from an existing game or just spinning my wheels. For other store owners, it may be three games or six, and they might be different, but we all know what they are.

It takes a tremendous amount of effort for a store to get a CCG off the ground. It includes volunteers, staff time, inventory resources, dedicated high value play space, and a ton of marketing. A dead collectible card game is the only thing we'll ever throw in the trash.

As for what gets introduced, there are predatory companies with poor margins like Upper Deck where it makes no sense whatsoever to even risk their new games. They are the worst of an invasive species, one that sucks the resources from vibrant species and leaves the environment worse for wear. Dollar for dollar, I'm poorer, plus I know from experience, I will curse their name on a weekly basis.

Game companies want very much for us to take this risk, to introduce the new species, whether it's a new superhero game from Upper Deck, the re-skinned Duel Masters (Kaijudo), the super high tech but no street cred whatsoever Redakai, or the "other" game from Bushiroad, Weiss Schwarz. If customers start asking for it, we'll certainly consider a new CCG, but oh my god is this a dangerous game to play.

Right now we're in a CCG bubble, a highly profitable period where it feels almost like a race to accomplish financial goals. Pay off debt, repair and replace old FFE's (furniture, fixtures and equipment), build out new spaces, and possibly, maybe, put some money aside for the future. Game stores, for the first time I've ever seen (in nearly 9 years) are acting like real businesses. They have capital and staff and ideas and they're doing new and interesting things. Nobody wants to pop that bubble with some dangerous, sharp edged new things.

Saturday, April 27, 2013

Selling Out

Selling out is only a virtual when the supply of your product is limited. Selling out of hand made cupcakes, a product that will be obsolete tomorrow, is a great thing. That last hotel room for the night should be sold, as it won't have any value tomorrow, as is a seat on a departing airplane. Print runs of magazines are in a similar category. Yes, perhaps you should have printed more, but an old magazine is about as popular as yesterdays hotel room. You should do whatever it takes to sell out of these products, short of free.

It's not a virtue to sell out of your everyday product. When demand exceeds supply of a board game, card game release, or role playing book, you have failed to gauge the marketplace. You have left  money on the table, you've under performed. You've treated your product like that hotel room from yesterday, like the hot potato of last months magazine. You're not making cupcakes, cupcake.

If this is a strategy, your company is under capitalized and your marketing budget is going to waste, promoting items that may or may not exist as you carefully turn people into potential customers through repeated exposure. They say it takes nine impressions before a prospect becomes a customer. Do you really want your product gone as the counter ticks over to nine? What a tremendous waste. Of course this assumes you're trying to be a profitable company, that you have a marketing budget. The game trade is peculiarly resistant to these arcane concepts.

The rest of the game trade is not amused. You may have trained your customers to snap up your product when it's released, but you've trained everyone else in the supply chain not to value it, not to promote or support it. Why should they when the supply won't exceed demand?  Do you think Ferrari ever puts a car on sale? Do you think the salesmen puts effort into actually selling the car? The car sells itself. Eff you if you don't want a Ferrari; go buy an Audi, plebe. Demand for a Ferrari is never lower than the supply. You will likely wait for one. The same is true for your high demand, low volume product. As a retailer, I'll bring it in and often not bother reading the box. I'm busy doing activities with value.

Super low volume releases, like special Magic sets, fall into this category. It's a widget to me when there's zero effort required to sell out upon release. However, certain low volume Kickstarter derived products are in the same boat. If you plan for your product to be in my store for half the year, I'll give it a half assed promotion. Why? Demand will exceed the supply, so why bother? Congratulations on building a Ferrari, I hope you're making a living off it, but I doubt it as it's an ordinary product with a premium supply.

How about events? Selling out of an event is a good thing, it's like the hotel room or the airplane seat, with limited supply. However, if we hit capacity on all of our events, all the time, we have a problem. We're in the midst of a Magic pre-release today. For the last few pre-releases, we've had four events over the weekend. Our midnight pre-release is well attended, the Saturday morning one turns people away as it hits capacity, and the Saturday night and the Sunday morning events are well attended but under capacity. This is a good kind of selling out that can be managed.

However, when staff started tracking weekly events this year, we found we're hitting capacity all the time. Sure, it's nice to be popular, but we're experiencing the Yogi Berra Effect, that it has gotten so crowded, nobody comes here anymore. Our last store had a parking problem, and after we moved, customers would comment that they would drive by, and if the parking lot was full, they would keep going. That's a terrible thing to hear as a business owner.

Capacity for our game center isn't about filling it to 100%. There's a point where it becomes uncomfortable. For me, personally, it's at around 50%, but for most people, I think, there's a perception of too many people at around 70%. As you can see from the chart below, all of our events are well over 70%, and customers tell me they're avoiding it well before we hit capacity. My guess is if we had more space, more people would be willing to attend up to that theoretical limit.

Selling out of event space is a virtue of sorts, as it's nice to be popular, but if my business, any business, can find the capital to fix this sort of problem, they will get to the next growth level. For us, it's about an expensive construction project, but for others, including the ones I criticize, it might be a much bigger leap. It might mean running their business as their day job, a massive capital expenditure in equipment, hiring of new employees that may or may not be sustainable in one of those nasty catch-22 growth curves, or maybe just more risk. However, for many it might just be a change in perspective, accepting that their shortcomings and clever promotions are not virtues.

Saturday, April 13, 2013

Embarassment of Riches

This is one of those rare times of the year when I have a big purchasing budget surplus. I have thousands of dollars that must be spent on inventory. It's my economic engine and it does no good to sit on cash. If I don't keep the money in circulation, it will evaporate. The problem? There's nothing to buy.

In some cases, like several companies at the Gama Trade Show, I threw money at them and they neglected to pick it up, never shipping my order. In the game trade, it's surprising how often you want to buy, but the seller isn't receptive. It's so much work. The stuff. The boxes. The UPS guy has BO. Yadda yadda yadda. I'm waiting for a game company with that name, the honesty would be refreshing. Yadda Yadda Yadda, LLC.

In other cases, what I want is small, esoteric and new and there's no supply for it. That happened yesterday with two fledgling miniature companies and one of our classic games suppliers. "Give me all the stuffs!" Sorry, there's no stuffs. Come back later. The big problem is the time of year.

The game trade is really geared towards a couple big release periods: Summer and Christmas. Stores like mine see big sales during December and we come out of the period with a bankroll that we would like to spend, but there's nothing to spend it on. Since inventory is a zero sum game, we really should spend it, but it makes no sense to buy things that don't work, so we sit on the cash if we're lucky, or spend it elsewhere, if we're not. Instead, we wait for the Summer release schedule to rev up or the more traditional suppliers to get their post holiday manufacturing orders back in. 

When I say there's nothing to buy, I'm referring to new things, what we might call front list, as opposed to older, back list product. The game trade is front list driven more than ever. Weeks where there's new stuff are weeks we're profitable. The worst thing you can do is take your newly minted cash and buy a bunch of old stuff, unless you're filling in holes you might have in games that are doing well. A good example of that is how I went through our Warmachine stock and increased depth on top sellers. I did the same with our Tabletop featured board games. The advantage to that tactic is I can always pare it down later if sales slow. It increases sales to a small degree without much risk.

"Nothing to buy" also refers to inventory performance. There are a bazillion products I could buy. We probably have 5% of the available board games, for example. We just can't buy willy nilly though.  To give you another example, we have five miniature game systems right now and there's interest in another one, although consensus is murky. The truth of these games is none of them meet my performance metrics, so a sixth game, or even that fifth game, is throwing good money after bad. Performance metrics refers to turn rates, meaning either the sales are not strong enough to support the inventory or the inventory is too vast for what passes for sales.

Role-playing is in the same category, with our department never so skewed between D&D and other as it is now. The second generation, 90's era games have been going direct or disappearing and it's clear we need to pay more attention to the third wave, more indie games, although, by their origin and nature, they've never had a strong footing in game stores. It's adapt or die in this area, with "die" referring to shifting inventory, as RPGs haven't kept game stores in business since the 90's.

Patience is clearly not a virtue I possess. Luckily, I've been doing this long enough to know what's going on, so this month we're doing more maintenance related projects. We're painting the bathrooms, repairing the flooring, fixing the pinball machine, moving around impacted inventory, considering merchandising projects, and generally making the store a better place for when we do have shiny new things to sell. It's what I used to refer to as re-arranging the deck chairs on the Titanic. We also started having management meetings, which, if nothing else, keeps me on track. That, along with obsessing over my car, should tide me over until the new release announcements for the Summer.

Brendan, wondering about the strange orders we've been receiving

Tuesday, April 9, 2013

Gama Trade Show Follow-up

Now that the bills are in, orders received (most never arrived) and I've had time to digest information, the question my wife asked yesterday was whether GTS was worth it. I would say yes, but probably for different reasons than most. First, there was nothing that caught my eye this year, as the game trade booms on collectible card games and mines the depths of the deck building game model. Second, I'll mention the surreal and often astonishing disconnect I had with the droning on about the glory of Kickstarter. The dialogue at GTS is about a year behind where it needs to be, but then again, it's essentially a show for game manufacturers and what do they have to lose? Other than reputation and their brick and mortar support model. But on to to the good stuff.

I'm in my ninth year of owning a game store and most of the basic challenges are behind me. My current issues are things like improved management of people and processes, deciding strategic steps on how to expand, and models for how to run a successful store well into the future. I can always fine tune things (the majority of what you get at this show), but my job as an owner is to do the heavy lifting, the strategic thinking, rather than improve already functioning processes, which is a lot of what I do, but kind of a waste of time and not where success lies. I don't usually talk about people, but here are a few that stepped up to share their wisdom publicly, so I suppose they're fair game for public praise.

When it comes to inspiration, I need to see successful people, doing what I do, longer, and with bigger results. What can a store owner accomplish in 15 years? 20 years? 30 years? A good example of that was the industry award winning store The Sentry Box in Calgary and its friendly owner Gordon Johansen. The Sentry Box is a 13,000 square foot wonderland of gaming and has been the set for the independent movie Lloyd the Conqueror as well as the site for a wedding, because some people love that store so much they want to marry (in) it.  It's rare that a veteran store owner like Gordon attends a show like GTS, and even rarer when they let you peak under the hood. If you can point and say, I want to be like that, it's the first step towards reaching such a goal.

The Sentry Box does the huge store well, with modern processes and procedures, strong inventory management, well run events, and an eye towards the future that includes embracing the latest technology. Many stores this size are what I would call legacy stores, or shock and awe. They're from a pre-Internet past, have no replicable business model and are basically artifacts created by eccentric owners. That's thankfully not Sentry Box, the first truly large and dynamic store I've seen, and it left me deeply impressed and inspired.

Inspiration came from Dave Wallace, as usual. As I mentioned, he touched on high level esoteric, strategic stuff when he gave a seminar on building a better manager. He was also candid on his business model and how you might step away with a general manager handling much of an owners responsibilities. Dave is also a cautionary tale, which makes his voice even stronger. He can tell you what happens when you do it wrong, because he's done it and recovered, building up to nine stores, semi-retiring, but having to come back and pare it down to three, including firing his own brother. A common response to uncomfortable truths from successful business owners is perhaps they just got lucky. That's not Dave Wallace. You know you're listening to hard won wisdom. He's the business equivalent of a cancer survivor whose now running marathons. You should listen to those people.

Marcus King blew us away with his new Troll and Toad store in Kentucky. It took me seven years to reach the sales goals he achieved in his first. He might claim it was a fluke, but he's been running game stores for decades and I don't believe that. What I believe is if you know what needs to be done, know what mistakes to avoid (probably because you've made so many of them), it's highly likely you'll succeed on your next run much faster (failing much faster is fine too).

For me, it's a reminder that the past doesn't have to dictate the future. Expansion or new ventures don't have to include the same painful learning experiences, there are new and interesting painful learning experiences ahead. That's an enormous motivator for a store owner, because honestly, I won't open another store if it involves the same lessons as the first. That's why when I go to my happy place I rant about opening a sandwich shop rather than another game store.

Besides these game trade giants, it was great talking with various store owners throughout the show. Some knew me by this blog and they thanked me or gave me their impressions on how they might tackle an issue or problem. I should start every post by saying, "this is just one store owner and there are many opinions on how to do stuff." For every insurmountable problem, you can almost guarantee there's a store owner who has found a solution. Hearing those solutions and gaining that inspiration is the main reason I go to GTS.

My trip back on US 95. These signs make me smile. Possibilities are endless.

Wednesday, April 3, 2013

Wild Swinging

There's a steep decline in video game sales, the big example being World of Warcraft sloughing off millions of users a year. Then there's the 22% drop in video game sales reported in 2012, an amount equal to about two billion dollars. That's a billion with a "b," a designation hobby games rarely see. The entire hobby game industry is estimated to be about a billion dollars a year in sales. So video games saw a decline equalling twice our entire industry. Money that just evaporated, although to some extent, the game trade has been a prime beneficiary.

As for the millions of WoW customers sloughed off annually, the only relevant data for hobby gamers comes from a twelve year old Wizards of the Coast study, that put D&D players at around a million. So imagine twice that many people, just in the last year, looking for something new to do, something that already ties into their current gaming interests, something with better value for sure. It may even be something they've done before, considering when WoW was launched in 2004, it reportedly devastated much of the RPG community.

So why the wild swings? Why the massive drop off? That's the second half to my previous question of why we're on such a stratospheric trajectory. The fear, if we admit to being afraid, is that hobby gaming will experience similar wild swings, a sloughing off of customers as they engage the Next Big Thing. 20% increases in sales was a fairly common number for successful retailers as we talked at the Game Trade Show this year. ICV2 informal surveys confirm these big increases. Assuming our time will come, that our growth is not organic, what's a game store to do? I'm not putting on the brakes, but my foot is riding the pedal.

(I can't recommend Googling Wild Swinging)