Tuesday, October 29, 2013

Cognitive Dissonance of the Progress Narrative

Fancy title, eh? What we are told about where we are going does not compute in our brains.

The American narrative is entrepreneurial. Business degrees are about the skills needed to get other people to do things for you with money derived from someone else. You don't do anything or make anything, you manage wealth creation. Those whose money you used expect you to sell out or strike it big on your own, with little middle ground available for such pedestrian ventures as a mildly useful product or, say, a store. This is what we're taught is success in this country.

Success is also about online, about the future of all things, available now, cutting out the middle man for competitive, as close to zero profit margin products as humanly possible. Is tomorrow too late? How about now? We are told we want it now, we want it cheap, and of course, we're told what we want, but that's another blog post.

So that's the progress narrative, which leads many who inhabit their online under bridge locations to declare that brick and mortar is dead, that print is dead, that things not bought in megacorporation online stores are things you both overpaid for and wasted your time accumulating. These online under bridge dwellers have drunk the progress narrative Cool Aid dispensed from the Wall Street band wagon. The reality is quite different.

90% of retail still occurs in brick and mortar stores, with the 10% of Internet sales stagnant for the last decade. Sure, the Internet sales number grows, but not as a percentage of the pie. And sure, there is probably a lot more Internet sales in the game trade, but I believe most of this is fringe stuff that even the bizarrely antiquated, fan boy infused game trade can't seem to process as having value.

The under bridge dwellers of the Internet will say brick and mortar exists because people are stupid, that they don't know any better, which is why these bridge folk are so vocal. THEY NEED TO LET YOU KNOW YOU"RE DOING IT WRONG! But the reality is our human brains are wickedly complex.

We want to interact with people. We want community, as roughshod and haphazard a gaming community might be. We want to feel like we're part of something local and intimate, that our communities aren't tax base eroded nodes in a corporate strategy. I'm not naive. There is no binary yes or no response to online sales. I've personally spent a small fortune on Amazon over the last few months because my local stores in other areas are inadequate or worse, profiteering. There is a wide spectrum of commerce, which only contributes to the wicked complexity in wrapping your head around what people really want. And if you think you know what you want, you're probably wrong -- I know I am. Unless you live under an online bridge and find yourself screaming a lot.

Monday, October 14, 2013

Women and Game Stores

Looking down from the desert ridge, we saw several four by fours and half a dozen men making camp. There were four of us crouching on the ridge, armed with rifles and shotguns, dressed in camouflage, whispering to each other about what we were seeing. We weren't in the military, we were camping.

This always happens when Jim comes with us without his girlfriend Linda. Things spiral out of control, with no common sense. Don't get me wrong. Linda is no slouch, either with a shotgun or in the outdoors. As a woman, she just brought a different perspective to the situation, one that young guys didn't possess and one that successfully countered her impulsive boyfriend.

From a store owner perspective, I try to avoid finding myself on the metaphorical ridge line with my rifle. It's one reason why I welcome women onto our staff, as well as anyone who has a perspective different than my own. It's not about women as caretaker or mommy figure, it's about suggesting different approaches, seeing things in different dimensions, along with having values of order and cleanliness that often seem to be lacking in most men. Some of this is perhaps my shortcoming as a manager, but that's why I have great staff, to bolster my weak areas.

Appealing to different people, as a store, also means those people are more likely to, you know, buy things from you. In the case of women, it's true that women often control household spending; about two thirds. So even if a 30 year old woman has no interest in Pokemon (some do), little Sally isn't going into that snake pit of a game store when the same product is sold at Target.

Having more women playing in our game center also avoids The Ridgeline Effect. Once the wooing of the women subsides, the guys eventually fall into a normal rhythm, one not fueled entirely by testosterone and energy drinks. This creates an enjoyable environment for everyone and creates a more welcoming and open experience. This is where I put an equals sign, followed by "profit!"

As for games themselves, they are traditionally about fighting, racing or building. It has been this way for thousands of years. Racing games are few and out of fashion, so that leaves fighting and building, with fighting generally a turn off to most, but not all, of our female customers. Building, however, is all about board games, and Euro games have about a 50/50 mix of men and women playing them. So we at least put the board games in the front of the store to not scare off half the population.

I've had women get angry with us for the war games. I recall one pointing out all the war: Warhammer, Warmachine, Flames of War. It doesn't help to counter with a thousand options for building and racing. Some people are just going to find their hot button. A couple decades ago, war would have been fine and we would have been accused of demon worship in the RPG section.

I suppose that brings us to the big question of why there aren't more girl games. I'll answer it with the very common occurrence of "Honey, this is a store for your brothers." Culturally, we steer girls away from games. At least that's what I see, often from mothers. Occasionally, I'll intervene or come to her defense and get a young girl started with Carcassonne or Ticket to Ride, but it's a long shot if mom isn't on board.

Thankfully, the combination of women on staff and how it effects the store, from layout to cleanliness to welcoming of female customers in the front and back, has made slow inroads in this area.

Thursday, October 10, 2013

Special Orders

Proficiently handling special orders is the difference between being your average game store and being a really good game store. Special orders are why I got into this business, because my local game stores sucked at them. Handling a special order is difficult, as most point of sale systems do a poor job, so retailers resort to binders of special order pages, spreadsheets, or note cards in little plastic boxes. Not surprisingly, the level of success of special orders is so low that many stores don't do them or do them half heartedly, discouraging customers and driving them elsewhere.

When selecting our new point of sale system, special orders was the primary problem I wanted addressed. It needed to have a real system, not some cheesy add on, like each of the POS systems has with employee time clocks. I'm happy to report that after two months with our new system (Lightspeed), it works very well. It's not perfect on our end, mostly because of some strange accounting and sales commission weirdness, but on the customer end, it's brilliant.

Customers come in and place a special order. We use a different section of our POS called Orders, which differentiates it from the usual transaction. We take the order, charge the customer, and have the option of printing an Order sheet or emailing it to customers. I really want to encourage customers to allow us to use their email, as it speeds things along. When that item comes in, we can send an email with the Order attached telling them their order is ready.

The four order stages answer the question of where an order resides through the process.

Orders are tracked, through this system with one of four designations: Requested, Processed, Received and Invoiced. This takes most of the guesswork out of figuring out exactly where an item is in that process. Has it been ordered? If so, what PO is it on? Has it been received? Has it been picked up?

As an accounting aside, Ordered items aren't "invoiced" with the sale booked until a customer picks up the item and it's manually Invoiced in the system. This is some extra brain candy to get that final process accomplished. It also accounted for our best sales day ever, when the last Magic set was released. Everything special ordered in the previous six weeks was booked as a sale on release day.

Pending Order Requests shows the special orders by item, which helps quickly identify items in need of order. About half our pre-orders are for items that don't exist yet.

Invoices are queued for generation, and during receiving, it's very easy to tell when a special order item has arrived. I would say this system has turned our manual, 95% success rate system to as close to 100% as we can get.

On the Purchasing Actions screen, the top two lines show items waiting to be special ordered from suppliers.

Friday, October 4, 2013

Game Store on a Budget (The Boom)

Lets assume we're building an average game store in Averageville, USA. We've got a decent population base, perhaps a college or military base, and we're hoping for modest, lets say... average ... gross sales of around $200,000 a year. My average salary will be about $30,000 plus profits, which with $200K/year will be $12,000. A $42,000 salary is actually the national average. Good for you!

How do you get to your average salary? That requires that $200K gross sales, which requires inventory. We're going to assume again that you're average, and average inventory turns in the game trade, when things are normal, is three. We'll also assume average cost of goods of around 55%. The opposite of this number, your gross margin, is 100% minus 55%, or 45%. These numbers get confusing, just remember they're mirror images of each other.

So this isn't so terribly hard. We now have a simple math problem. $200,000 divided by three turns is $66,666. 55% of that number is $36,666. That's your inventory number. You'll probably spend an equal amount or more getting started, but it's possible to get going for a lot less. That inventory number is key though. It's your economic engine. You won't hit your numbers without it, unless you boost your turns, which is what's happening right now.

So how does this look? We'll assume your first year you won't open your doors with $36,666 in inventory, as you really don't know what customers want. You'll add inventory over that first year as you narrow it down, and because of that, your turn rates will be low.

Year Inventory @ Retail Turns Gross Sales
1 66,666.66 2 $133,333.32
2 66,666.66 2.5 $166,666.65
3 66,666.66 3 $199,999.98

So before you can make your average salary, you'll need to have some money put away to cover the losses you'll incur during the first couple of years, what we call startup losses. How much? Good question, since sales projections are just that, projections. I would be lying if I threw a number out.

So why are stores popping up like crazy right now? It's the turns! Magic is huge at the moment, and turns on CCGs are nothing like your regular game sales. CCG's which account for 50% or more of a lot of store's income right now, turn in the 8-16 range. Now lets look at our calculations, assuming 50% of our sales are CCGs:

Year Reg Inventory Turns Gross Sales CCG Inventory Turns Gross Sales Total Sales
1 33,333.00 2 $66,666.00 33,333.00 4 $133,332.00 $199,998.00
2 33,333.00 2.5 $83,332.50 33,333.00 6 $199,998.00 $283,330.50
3 33,333.00 3 $99,999.00 33,333.00 8 $266,664.00 $366,663.00

Look at that! Your average $200,000/year store is now at $366,663/year. Your average salary is now well over $55,000/year. I would like to say that's what motivates new game store owners, the math, but it's really more abstract, as in "Magic! Shiny!"

So is there a down side? Well, if you built your store to be a $200,000 store, no. You've just gotten a kick start for your small business. However, if you built a $366,663 store, with $366,663 expenses, expecting the CCG boom to continue, assuming it's your baseline, you will, without a doubt, have serious trouble down the road. Lots of stores are going to fail.

So what do you do if the majority of sales are Magic and you're worried about a fall? First would be not to overextend yourself beyond what can be easily scaled back when sales begin to flag. That primarily means your harder expenses, like rent, but also wages. By all means hire the people you need, but know there will come a very uncomfortable day. Also delay buying that fancy car and if it was possible, I would say delay buying a house (I don't think game store owners can get houses anymore).

I can't say don't take advantage of what's happening, because that's what business is about. I can say build muscles in other areas or work out atrophied muscles if you had a store before the boom. Build communities in other game departments, diversify inventory and work to sell it, even if it seems kind of futile with all that Magic money around. The reason is it takes a lot of time to build muscle after it's atrophied, and your store will be dead if it's only muscle is the Magic muscle. If you have no idea what to do, just bank the cash. Cash solves a lot of problems, although no amount of cash can save a failed business model.

Personally, we've paid off all our debt, upgraded our infrastructure, and, I'll admit, I've had a year of fun. The future will be about expansion in one form or another, with the assumption that things will return to normal soon.