Sunday, December 29, 2013

The Crunch (Tradecraft)

December is a peculiar month from a company perspective. We have very high sales, roughly 50% higher than a standard month, which requires a bulk up of inventory. We also have the end of our fiscal year December 31st. The positive difference between our inventory on January 1st and December 31st is considered profit by the IRS, so the goal is to get back down to that January 1st number, while also serving customers during this high sales period. If you don't have the inventory when that "grandma money" flows through, that sale is lost forever.

The business can horde up on expenses, costs moved forward from Q1 of 2014 to the end of December, to reduce profits, but you can't hide inventory or distributions to investors. That stuff is unavoidable. We could change our fiscal year, but the hassle is probably bigger than what it takes to make inventory work out, and with an S-Corp, profits and losses are passed through to investors and their mid-April tax filing can't be deferred to another date.

To give you an idea of the crunch, on December 13th, we had $15,000 in extra inventory. That number was partially planned and partially my "open to buy" process losing fidelity over the months. On December 31st, the goal is to get that number at zero. That's something like $35,000 in sales that I'm essentially predicting will happen in an orderly fashion in a roughly two and a half week period. Will it happen? I think so. I don't know yet. I monitor it daily, hourly, and it looks strong. If we were unintentionally overstocked, I might be stuck with slow sellers, but most of this is inventory I've stocked intentionally for the holidays, which should be manageable.

It's also why you see us having a quick sale of slow sellers right after Christmas. Besides needing the inventory cleared out, the golden rule of sales is this: The best time to have a sale is when people have money.

So my primary job is to burn down $15K of stock in a two week period, while at the same time  ordering thousands of dollars of more inventory every day to keep the wheels greased until the new year, but without adding to the deficit. Each year I get a little bit better at this and I see it as an elegant dance, a ballet of commerce. I really enjoy this part of my job.

Saturday, December 28, 2013

Ducks in a Row

2013 was a year about ducks, as in getting them in a row. It was not flashy, but instead, was about things like infrastructure and finance. We began the year paying off the remnants of long term debt, so that as 2013 fades behind us, the business is entirely debt free. I think I said that this time last year, but the accountant informed me I was wrong and owed myself money. A strong financial footing is important because in 2014, we're planning to take out a construction loan for our upgraded, two story, Game Center.

The IT infrastructure was upgraded, with new Sonic broadband in the beginning of the year, Nest "smart" thermostats, and a change over to Apple both for myself and the new point of sale system. New cash wrap fixtures seemed a logical choice when replacing all the hardware that sits on them, so that made a big internal change for us as well. Getting the POS up and everyone comfortable on it has been a five month project that I think I can say is still in progress. As you can imagine, Apple stuff and their consultants are not cheap, but a good POS infrastructure should last us five years.

We've implemented management meetings to not only keep up on the big projects, but to handle small changes along the way. It's probably invisible, but we've made hundreds of small improvements to the business that had been overlooked for years. These are not the time wasting meetings of corporate life, but a twice a month, agenda driven, desire to get everyone on the same page. Before this, we managed via emails, a short briefing between shifts, and the occasional lunch. Of all the things we did in 2013, this was the most important.

The big result of meetings was the discussion about this year. We made a conscious effort to back fill, to buy fixtures, to get the things done that many small businesses don't survive to perform. Everything breaks and needs replacing, and if you're around long enough you'll be doing that work. 2013 was about getting all that stuff done before we take on a life changing project that will likely tie up resources for a couple years. Are you building on a shaky foundation? At the beginning of 2013, the answer would have been yes.

Ending the year, we sold off our Yugioh Duel Terminals, which were no longer supported by Konami and required expensive repairs to continue to generate revenue. Another reason for this is we're going to need to re-arrange the store in 2014. To get to the 123 people proposed by our architects, we need to lose about 10% of our retail space, namely the back of the store.  This was the bargain I struck with them to hit the magic number I wanted.

Part of the Game Center build out will be thinking how the store has evolved over the years, how we're using space now and how we might more effectively use it in the future. For the most parts, there will be a literal shift forwards, but some areas could be pruned or removed, expanded and enhanced, or left entirely as is.

The cash wrap area will have another display case for Magic singles, since I've always said we'll expand that as events come online. We're expanding our buy list starting tomorrow. Areas like the front corner with puzzles will likely be eliminated or highly condensed. Puzzles is a thing I wish we could sell, but they don't remotely make sense financially, so they'll be ghettoized if not eliminated.

Other than that, I don't expect big change ups, as most segments of the business have stable inventory. RPGs for example, meander along like a zombie, but always seem to take up the same amount of space. Miniatures might see one game go away, but there's always plans to increase another. Board games are the tribbles of gaming and with over a thousand, they tend to seep into other areas of the store.

2014 should be an exciting year and I'll be posting more drawings and schematics of our proposed build out as more information becomes available. Our engineering study will soon be underway, which will lead to drawings beyond the conceptual, which is where the initial agreements are tested. We're expecting the construction project to take a month to complete, with likely a week to ten days of the entire back area being closed. The retail side of the store should be open during this time, hopefully with minimal disruptions.

Rather than glass, the barriers in the Game Center will be an "architectural mesh," represented by the fencing you see (it won't look like this). The mesh allows for better safety, air flow, ambiance, and it's easier to clean. It has a very modern look that can be polarizing, but it's the best material in this case.

Thursday, December 26, 2013

What's Your Deal?

I have a fun little bio here, where you can read about my past, but you might wonder about my deal as a game store owner. Along with a handful of minority partners, I own Black Diamond Games, Ltd., a game store in suburban California that just celebrated its 9th anniversary.

Among hobby game stores, it's likely BDG is in the top 10% in the country, or "alpha" stores, based on a number of factors, including breadth of what we carry and especially our sales levels. Also, it cannot be done outside of a high population base, so demographics is a huge factor.

Our sales level is around the seven figures range, with steady growth for nearly a decade. Sharing that is a mortal sin in the game trade, and I should be expecting the inquisition any time now. That sales number, by the way, is still just enough to feed a family and plan a future, so don't get too excited.

We got big by leveraging real money to start our store, rather than the usual shoestring approach, and when it kinda worked, we did it again, and soon, again. It's not a particularly smart move, and our return on investment, which I recommend you work to calculate out at 3-5 years with your future store, is probably more like 10 years. Like the ridiculousness of the dot-com days, we're working to build market share, plus just being kinda dumb. A long ROI is stupid because a store has little value at the end of the road. The reason to do it is to raise your returns.

There are perhaps 250-300 owners in the alpha category like myself who have similar experiences to share. Several do share, but most don't. Store owners who don't share include some retail geniuses that have sales several multiples of mine. Nobody ever talks about them, and outsiders don't recognize them as the elephant in the room they actually are. The elephants like it that way. Man, the books those guys could write.

So my one in one hundred status mostly comes from my desire to share my experiences and my ability to express it. Each of the other 299 game store owners is going to tell a slightly or enormously different story, and they could if they wanted to. We're all self taught, we all have different experiences, and we all grow from them in different ways, like an enormous game trade tree with crooked branches jutting into the sky. Clearly I don't speak for them. Some would like this very clearly stated, so there it is.

I describe my approach as syncretic, as in I steal ideas from everywhere and attempt to deploy them to improve my store. I welcome others to steal my ideas and I'll never call you out for that unless you use them in my proximity, as in down the street from me. Improvement is about process as most alpha store owners have too big an operation to do on their own, so others need to carry their vision and process. I believe we have nine, no eight, yes, eight employees. Like phone numbers, I lose count after seven. They need to do the thing in the way I do it, all the time. Getting this to work is part of training and hopefully in the future, a better system of customer feedback.

Finally, there is our secret sauce. I can't write this without mentioning the sauce. Our store is in the San Francisco Bay Area, a powerful mix of people open to ideas, cultures, philosophies with enough prosperity to do something about it. I moved here from Southern California, which has the money, but nothing else and I did it because of the cultural opportunities.

There is something special about our customer base, something unique about the Bay Area that rewards good things that tend to be a bit out of the ordinary. The people here are special and what I do here I couldn't do in most places around the country.

If I were a farmer, this would be me giving credit to the soil. I came to the Bay Area for Buddhist Studies, and we're suckers for agrarian metaphors. A lot of stores owners will tell me, yes, you're a fine farmer, but it's your amazing soil. I don't argue with them.

Thursday, December 19, 2013

Hub and Spoke (Tradecraft)

I once heard a theory about game stores from Heather Barnhorst called Hub and Spoke. In Hub and Spoke, there is one large, regional game store with lots of little game stores around them. The spoke stores are feeder stores for the hub store, essentially providing some local services but also driving their customers to the hub, where much product is purchased and games played. That's because the hub is large, has resources, and generally satisfies the larger demands of the spoke store customers.  In the Bay Area, there are hub stores in each micro region, probably half a dozen in total. These are world class stores. We have six of them. Six. There are states without even one. Southern California struggles to have any.

When I first heard this theory, I had been running my small, "spoke" store for a couple years and found it deeply offensive. It really pissed me off, actually. The implication that I existed for the benefit of the larger business got my a bit bothered. Now that I have a "hub" store, it's not offensive any more, because damn if it's not completely true.

Hub stores have a palpable orbit around them that sucks in customers, regardless of whether they have their own local spoke store nearby. Get too close to a hub with your spoke store and their gravity will pull you in and destroy you. It's nothing personal. It's just gravity. Get out of its orbit into a game store "goldilocks zone" and you'll be alright. But, and this is a big but, you'll always be feeding the hub. You'll work to build something, but customers will be pulled into the hub's gravity where they'll make many purchases. Also as a hub store, it's pretty common to see spokes appear within your gravity zone, get crushed after a couple years, and blame it on things not gravity. My advice is don't get crushed by gravity.

Back when I was angry about being a spoke, my goal was to be much bigger (not necessarily a hub, because I thought that was nonsense). Now that I've discovered myself running a hub, I see that there are hub related opportunities available. I'm very tempted to say responsibilities, because most good hub stores are active in their communities. They're the ones who take one for the team, such as running events at local conventions, participating in community outreach and other activities that are not worth the time for the spoke stores, who are usually trying to scrape by or are too busy planning to be a hub. Because this is a business and not a charity, we'll use the word opportunity instead.

The biggest opportunity for hubs is running events. We received a report from Wizards of the Coast in May that exemplified this best. In every metric, we were exceeding advanced stores, except events run. It's not often you have an outside company give you a report of your great performance while showing exactly where you need to improve. Because I didn't embrace Hub and Spoke, I essentially built a very good spoke store when I should have had hub in mind by having regional event space. As they say, these are problems you want to have.

I've talked about our big expansion long before I should have, perhaps two years too early. We're now moving forward. We have a team of architects we've been working with since Summer. We have a general design along with initial approval from the city for our plans. We're at the point where I'm told there's not likely going to be a problem that can't be solved by the proper application of capital. I used to like hearing that. I'll post details in the future, but I can tell you 2014 is the year this will happen. Or won't ever in this location. Projects fail too and there are some really interesting alternatives to this. But I'm not expecting to fail. If this project succeeds, it will take Black Diamond Games well into the future and cement us as a hub.

Monday, December 16, 2013

Goodbye to Yugioh

I wasn't going to write a post about how we've canceled our Yugioh event, mostly because I've already written one. It's kind of an inside joke, as we've canceled Yugioh and brought it back twice already, and who knows, it may happen again. But people would like to know what set off this latest round. It turns out not to be one thing, like a felonious assault or theft, both of which have happened before, but instead an inflection point of problems and opportunities that came to a head.

There is Konami, which badly mismanages the Yugioh brand in the US. Besides the complete lack of communication, their event coordination has been piss poor at best. I've never had a game so popular sold by a company so intent on standing in our way from profiting from it. In the current situation, their new event software and tournament format required very long events in a format that nobody liked, neither the staff nor the players. There were angry protests that this was a requirement for play and we were looking for ways to get around that. Skipping Sneak Peak events was likely going to be part of that, not that those have functioned properly for years.

Next was our own management of this event. Managing a Yugioh event is much like managing a staff of TSA employees at an airport. To maintain some semblance of order, we have stricter rules for Yugioh. This is because this particular group of young people won't behave like human beings unless you impose some accountability, like requiring ID and name tags. The profanity got so bad last week, I told the staff to penalize entire tables for the actions of individuals. Sadly, it was the only way. The recommended reading for managing Yugioh is Lord of the Flies.

On top of this, our "golden handcuffs" rolled out the door on Saturday. Many a time we considered canceling the event, but the Duel Terminals either hadn't been paid off yet or there was still money to be made with them. Konami screwed the retailer community with these, especially those who got in later, by cutting short support of the terminals earlier in the year. Getting rid of them as they began to break made sense. We had grossed over $20,000 with them, and sold the second one for $41. It still felt like a Tom Sawyer moment, getting those things gone.

Finally, the community itself was unruly, unmanageable and generally sociopathic. As in taking enjoyment from the suffering of others. Yugioh on Yuigoh crime is now a term in the game trade. In final protest regarding our rules about profanity, food, and generally acting like human beings, a bunch decided to have an event at a competing store last night. It's not often you're handed an opportunity like this. It's like finally catching your horrible partner cheating on you. Oh, of course you know what to do now and sure, you could attempt to salvage the relationship, but why? The kids in the relationship are the problem. So we ended it.

It's not like we don't have other suitors. Magic, for example, now makes up an astonishing 50% or so of our sales. Giving them another night to play is worthwhile. There's also the new My Little Pony collectible card game, whose players are the antithesis of the thugs we get for Yugioh. Such nice, young men (in an old lady voice). So no, we won't be having open gaming on Sundays. It's my guess this space will be filled without much time in between, and with the holidays, it's a great time for a break anyway.

So should you run Yugioh events in your store? Well, if you don't care about problems like profanity, thefts, assaults and cleanliness, you should be fine. A gamer pit should do well with it. This story is so universally prevalent among game store owners, we'll often stand around and tell horror stories at trade shows. So to paraphrase Gandalf, I would not take that route unless there was no other choice.

Thursday, December 12, 2013

Do You Have?

This is the season when we get requests for every game that ever existed. The customer played this cool game in 1983 and they've decided after 30 years that they would like to now own it. That's one long tail. The easy answer to give them when we don't have something is no, and as Christmas gets closer, their capacity for patience for a longer explanation diminishes. However, that longer answer, if it can be given, often results in a sale of another game. You are showing expertise. Perceived expertise is at least half of why we exist. Along with convenience, expertise makes up our value proposition.

I've made that further research into a flow chart. This is what I try to do with every call or request. Do I have it? Can I get it from my distributors? If not, what the heck is up with it? That final bit of "deep research," which is really an extra minute or so online, often leads to suggestions for alternative games. Most rookie clerks don't get past step one, a simple stock check. Some of my veterans don't either, which I want to change.

The flow chart seems complicated, but all of this can be done very quickly, especially if you set yourself up ahead of time, as in having browser tabs open for each of these places.  Lets look at how it plays out on the phone.

The customer calls looking for The Ungame, possibly the worst game ever made, with a generous boardgamegeek rating of 2.67 out of 10.

Customer: "Do you have The Ungame?"

Staff: "Let me check, it will just be a minute." Thankfully eye rolls can't be seen over the telephone.

Checks in our POS and can't find a record.

Checks the ACD/Alliance/GTS websites, conveniently open in browser tabs, and can't find it.

Staff: "Our suppliers don't carry it, would you like me to do some quick research to see what's up with it?"

Checks boardgamegeek and sees it exists and there are several used copies for sale on Ebay.

"It appears to be out of print. Your best bet is to search for a used copy on Ebay."

To show off your retailer fu, you can see that The Ungame is classified as a storytelling game on BGG, and you might tell them you've got over 1,000 (or your number) board games in stock and they may enjoy a similar game, like Once Upon a Time. You don't have to be super accurate, you just need to entice them to come check out the store.

If it's not on BGG, I've learned to check Kickstarter. While most games from the past live on BGG, Kickstarter is the future of a lot of board games, so you can get a glimpse ahead in time with your crystal ball.  If it's on Kickstarter, you can send them in that direction or tell them you may carry it later. It's a great way to gauge interest in the dwindling number of Kickstarter games we're bringing in.

Saturday, December 7, 2013

Friendship is Magic: The Gathering

Why aren't there any games that don't involve fighting? Why can't we have a game of peaceful conflict resolution? Well, there is one, or there will be as of next Friday. Black Diamond Games was one of 16 stores chosen to host the My Little Pony Collectible Card Game pre-release.

This was very low key, something I asked my event staff to sign up for over an email. I think I got at least two "Are you sure?" responses before they did it. A couple people called the store to express extremely strong interest in coming, which is how it even got on my radar earlier in the week. Then, bam!

About ten boxes showed up, containing a jumble of event product and unusually generous prize support, such as enough t-shirts that we had to spend time sorting by size. Enterplay called an hour later to inform us that their Evite for our event was showing 55 confirmed attendees and about a dozen maybes. "Uh huh," I told them. "We'll see." Either they were mad, sending us enough product for 160 people, or they were tapping into something way bigger than I could imagine. It was my lack of imagination that was confirmed this morning.

116 people have purchased the pre-release kit so far, and we're still going today. They've also gone through boxes of MLP dog tags, fun packs, and even purchased one of the MLP Monopoly that we stock. I have never seen this before, a collectible game, out of the gates, completely on fire. Granted, our exclusivity in getting the event was probably a large part of this, but I've worked through some real duds, and this is not one.

So before you make your Brony joke, know a couple things. This is a real, non-violent card game played by solid individuals who are willing to buy in to have fun. Don't be a mean, meanie pants. Friendship is indeed Magic.*

* The real question, the key question: Is it any good?