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?

Saturday, November 30, 2013

Tale of Three Game Stores

Having owned a game store for nine years, there have been three distinct phases of my business. The first was our initial store, which we had for three years until we moved to a bigger location. The second stage was three years of this bigger store, with solid growth. The third stage involves the boom times, which has clearly pushed growth well beyond where it would have been normally. The chart below shows what I think is a considerable jump between stage two and three.

When planning for the future, the questions are: a) How long will stage three last? b) When it ends, will it be flat, a slight dip down to normal growth rates, or a sharp correction back to stage two levels? We don't know the answer to these questions, so what we do is assume the worst and plan for the best.

In our case, we make sure we are making decisions that allow us to live in stage two. At the same time, we take profits from stage three to re-invest in the business, hoping that when it does end in whatever form that may be, we've used the windfall to springboard the business forward, rather than returning to "normal."So we pay off debt, upgrade infrastructure, and work on expansion.

The danger is not having context, or having context and losing focus. If you've got a three year old game store, the boom time is so normal that you can't conceive of anything else. I realized this with the housing crash. I bought my first house in the 90's, lived through a bubble and a perverted finance market and came out on the other end realizing that everything I knew about housing was wrong. My knowledge was bubble knowledge and all my assumptions were off. That's the danger for the game trade right now.

In fact, when you talk about the game trade and bubbles, people will ask which bubble?  Besides CCGs, the board game market is seeing a massive increase in new titles, especially in Europe. Is there a board game bubble?

Kickstarter is another potential bubble, with a lot of energy continuing to flow through the medium, but with some noticeable cracks. That "trough of disillusionment" is starting to show itself, where there is active fraud from both supporters and creators, along with simple fatigue with getting mediocre products at future dates with current cash on hand. As a store owner, I've learned I can completely ignore everything in the Kickstarter sphere with no ill effects. The Gartner "slope of productivity" is likely to rescue Kickstarter even if the trough threatens to kill it. It will emerge with purpose even if it seriously stumbles.

Heck, you could even discuss a distribution bubble. Especially on the West Coast, there seems to be an awfully large number of distributors chasing diminishing returns. Worse, if the bubbles sink a large number of unprepared game stores, namely those post-recession stores that have no concept of "normal," the distribution tier could be in for a train wreck. If I was in distribution, I would be analyzing my exposure.

For now, I assume I'm in a bubble (the worst case scenario for me) and plan for a bright future when it's over.

Sunday, November 17, 2013

Sandbox and Magic (Gaming)

I've run a sandbox game for the past couple years, a Pathfinder game of exploration of a long forgotten island. Pathfinder and D&D have high levels of magic, which means sandbox games tend to excel at low levels but run into difficulty at high levels as characters easily overcome physical challenges with spells.

My game limits certain types of magic as a conceit to the sandbox format. For example, teleportation magic has been nerfed thanks to a dispute amongst the gods. You can only teleport between standing stones you control, located on ley line conjunctions. Teleportation doesn't come into effect in this game until 9th level, so even if you don't do this, it leaves a lot of low to mid level play available.

My conceit limits teleportation to areas you control and encourages acquisition of nodes along this network. It also means once you've explored an area, you're not constantly hiking back and forth.

Flying is another sandbox foil. If characters can do an overland recon of your sandbox, there's not much reason to hike through it and explore. You can accept this, or like I've done, create flying hazards. First, my island is foggy and always overcast, like the real world island it's modeled after. Second, there are nasty flying predators that consider air space their territory, usually griffons and rocs, but there are a few dragons. Starting at 5th level, overland flight is going to be limited to the wizard, and the wizard doesn't need that kind of trouble.

So just a couple tweaks, really, to keep the sandbox alive. They're coming up on 12th level and it mostly works. Magic still overcomes challenges that were once skill checks, but it just means the nature of challenges need to change, but that has always been a feature of this game. Here are some capabilities characters gain by level:

Level 1
Animals: Calm, Charm, Hide From, and Speak With Animals. Even the smallest animals become NPCs. Think about what they know and how they know it and their limits of understanding.
Healing: They have minor healing and suppression, but could be beset by disease, poison and other ailments. The Heal and Knowledge: Nature skills can be used to good effect to prevent and treat these problems. The Serpent Skull adventure path, book one, is a good resource. Use Environment to full effect.
Mobility: Druids can Pass Without Trace, but the others can't. Wizards can cast Mount but for a limited time. One or two characters better have Survival for tracking. A Ranger's favored terrain is likely to be very helpful, depending on the variety of environments.
Food & Water: It can be purified and extended, but not created. The Survival skill will be key at low levels.
Elements: Druids have Endure Elements against the heat or cold, but it's resource intensive at low level. Extreme temperatures should require Survival rolls to avoid the environment killing them.
Communication: PCs need to hike back and forth to deliver messages.

Level 3
Animals: Hold Animal
Healing: Delay Poison helps, but herbs (Knowledge: Nature, Heal) can still be useful. Lesser Restoration solves many symptoms. The environment will remain a threat until 5th level.
Mobility: Wizards can cast Communal Mount for a good amount of time, so assume everyone is mounted. Levitate comes into play. Druids got Trackless Step at 2nd and now have Woodland Stride. Spider Climb can get past obstacles.
Food & Water: This will remain an issue, but their Survival ranks will continue to rise, making it easier. At 5th level Create Food and Water makes this irrelevant.
Elements: Communal Endure Elements makes weather temperature issues moot. You'll probably just stop checking for this. Rope Trick will eventually provide shelter for the night, but for now is limited to a few hours, like when animals attack.
Communications: Animal Messenger delivers messages as fast as the small animal can travel. Whispering Wind is good for a few miles.

Level 5
Animals: Dominate Animal: nasty predators are now their best friends. Speak with Plants means even those can be a resource or tell a story.
Healing: Poison (for druids) and Disease are banished.
Mobility:Fly is in play. Communal Spider Climb. Lily Pad Stride and Water Walk means they can even walk on water. Phantom Steed improved on Mount. Water Breathing for underwater encounters.
Food & Water: Create Food and Water in play, so I ignore it at this point.
Elements: Campfire Wall plays a role in protecting camps from attack. Rope Trick is up to 5 hours now. Survival, as a skill, is beginning to shine.

 Level 7
Animals: -
Healing: Clerics get Neutralize Poison. Restoration.
Mobility: Phantom Chariot, Communal Phantom Steed. Ride the Waves and Communal Water Walk for full aquatic mobility. Air Walk for clerics and druids. Dimension Door.
Food & Water: -
Elements: Secure Shelter means they get a time out at night.

Level 9
Animals: Commune with Nature to check out what's ahead.
Healing -
Mobility: Teleport, Plane Shift, Communal Air Walk, Tree Stride, Overland Flight.
Food & Water: -
Communications: Dream

After 9th level, most sandbox challenges are no longer about wilderness survival or overland travel. These things happen, but it's now about the destination.

Monday, November 11, 2013

How Much is Enough? (Tradecraft)

When stocking shelves with product, how much do you need? There used to be this concept of a "full line" game store, where a store would carry everything from every line they had. This was pre-Internet and I see the appeal, but it's not a reasonable expectation in a modern store with modern inventory management that demands high turns. It's inefficient.

Anybody can keep buying stuff until the shelves are full. Keeping metrics strong, at around 3-5 turns a year, is how we stay profitable and alive. If you don't do this, your inventory will be rich, and you will be poor, and in extreme examples, your busting at the seams inventory will sink you as you can't pay the bills.

The term I use is "full spectrum," as in we carry a wide variety of brands, best of breeds, with a wide selection, sometimes full line, across the store. My exception to full spectrum is I like to carry the full line of the leader in each department. For example, I carry the full line of Pathfinder, I used to carry the full line of Warhammer 40K, including bits, and there are key board games that I carry everything that has that word in the title: Munchkin, Catan, Carcassonne, and many others that make up our 1,000 or so board games, which itself is about 10%, or what I consider the "best of breed" that our customers buy (it's different for every store).  Not having everything available for Magic is kind of dumb as well; even a slow selling Magic item outsells 90% of my stock.

There is also a retailer rule of seven to consider. The thinking here is if you have less than seven of a particular type of item, say your Shadowrun collection, you don't have a coherent, psychological assortment. You just have some random things. This generally means you need to step up and create a product presence, rather than a simple, shotgun approach. If you're starting out with a new line, you need to take a risk that includes at least seven items. If you have a perpetual selection of less than seven of a mediocre seller, drop it.

When it comes to games like miniatures, the rule of seven doesn't come close to being a reasonable standard, and you need a much wider assortment of product. Companies like Privateer Press and Games Workshop have core lists that they think represent best sellers and best flavor models from their lines. I recommend stocking core as a minimum, supplemented going forward with new releases. You might try seven as a conversation starter, but don't even go there unless you've got money in reserve for core (or have a plan, like if there is interest, we'll go deep after the holidays).

When you decide to go full line, you're deciding you want to be "top of mind" in your customers perception of your store and their game. When your customers think, say, Pathfinder, you want them to think of you first. You want them to know that if they walk into your store, you will have what they want, or will at least most likely have that item.

Being top of mind with a hot product will lead to extremely strong sales, including many impulse purchases. Full line will mean there will be hot performers and there will be duds that are dragged along by their betters. In the case of Pathfinder, the hardcover books represent less than 5% of the product line, but account for 75% of sales. I've learned this is how the line works for most. However, you won't get those high sales if you don't stock the slower 95% of the line. If you begin to run metrics on the slow stuff and cull the herd, you'll lose top of mind.

The reality is most product lines are going to be an assortment because most product lines are not strong enough to get you that top of mind effect. So for me, top of mind is special immunity from prosecution. These lines get a free pass from ruthless inventory metrics, such as turn rates and sales per square foot.

What you'll sometimes see in my store is a drastic fall from grace, like when Warhammer 40K lost its top of mind status, its special immunity from prosecution and one day had to perform like everything else. The game had soured because of price increases and competition and online sales bit hard into "full price, full line" selection. When our regulars either stopped coming or came with models they didn't buy from us, a change was in order. Huge swaths of the line were dumped overnight as they couldn't comply with performance metrics. Boxes that had been immune were found not to have sold for a year or more. You can also tell you have a structural problem and not a demand problem when you see discounted product fly off the shelves. People wanted 40K, they just didn't want to pay full price.

Some products don't need the full line but benefit greatly from a wide selection. These are usually lines without particular titles, like paint, food, fantasy miniatures and dice. Most people are looking for a dwarf with a hammer, not Darnit Deepdamage, model REM03030. Most people have a favorite drink, but have a couple others they'll consider. Dice too are about coming to find a red set or perhaps red and blue. Having a wide, yet not complete selection is important. Cull the herd too much and there's a perception of a lack of variety, and sales fall hard. Like full line, you may have to put up with some slower sellers for some moderate top of mind.

When it comes to commodity items, consider no more than three price points. We used to have a glue problem. We used to carry seven cyaonocrylic glue lines. There was P3 glue and Citadel glue in thick and thin, and GF9 glue and Zap a Gap glue and Army Painter glue and Testors glue. This makes little sense, especially when you run the metrics and discover only a couple of these glues, which are essentially all the same, sell well. There will be the glue enthusiast who has to have a particular nozzle style, but most people just want some damn glue. Save money by limiting your selection of commodity items. If you really have that customer that comes in and must have a particular brand, hey it's the game trade, stock one bottle. But generally, cheap, standard and premium pricing is a good start, or if you have metrics, your best three sellers. Then learn how to upsell them.

Finally, if you've got an established store and are looking to increase inventory, STOP. Rather than back filling with older lines, consider using your money to bring in new product going forward. The game trade is front list driven, rather than back list, meaning most of our sales are coming from new things. Old things are better off as things you have that were once new, as opposed to things you think people may want that you don't offer. If you're going to go full line, or wide selection, by all means back fill. Overall though, new releases are what sells like mad in the game trade. Half of what we bring into the store is one copy that sells and isn't re-ordered, so back filling is dangerous without a strategy.

Thursday, November 7, 2013

Nine Years In

We celebrate our 9th anniversary on Sunday, with a big party, lots of games and our usual, amazing, tri-tip sandwiches. We're doing well this year, with sales up 7%, despite many of our top games seemingly in a transition year. We've hired two new, excellent staff members, Taylor and Alexis. We've expanded our operations to include a convention person and because of this, went to more of them this year. In general, I would describe my attitude about year nine as "pleased."

Last year was a more exciting, bombastic year, with the BDG van, Black Knight 2000 pinball machine and the really big accomplishment of paying off all our debt in a giant chunk. This year was more of a nuts and bolts, bolstering the business year. I believe the request from the investors for this year was more business value and "less pimp value."

So with maximizing shareholder value and reducing pimp value in mind, we installed intelligent, Nest thermostats to attempt to better manage our dual zone climate and save money (although the Nests are pretty pimp). Did it work? I know it does, but I can't put a number on it, since electric bills are so dependent on outside weather, which is unpredictable. It does prevent some of the dumb things that occasionally happen, like half the store blowing cold while the other blows hot. It understands that we want FNM to be nice and cool at around 6pm, and it's smart enough to start working towards that temperature in advance. It also brought up the fact that we don't have the capacity to really keep the place cool when the outside temperature tops 100. We've tried to fix that with fans, but really, all bets are off in triple digits.

We spent three months on network infrastructure, after an attempt to save a few bucks with AT&T Uverse went horribly wrong. The business is dependent on Internet for everything, so you can imagine what happened when I switched to an intermittent service at the beginning of the holiday season last December. I gave myself two weeks for it to settle down before our critical sales period, but it took three months before we could rip it out and install the excellent service from Sonic, along with several more months of getting out of the breached AT&T contract. "You suck, I'm not paying" is a valid business argument, especially backed with a complaint to the public utilities commission.

Once the Internet was stable, we upended the rest of our IT infrastructure with new, professional grade, cash wrap fixtures and an entirely new, Mac based, point of sale system. Lightspeed was installed over the Summer and included two weeks of the most stress I've experienced in the business, as we had to shoehorn our old database into this new system, while training everyone how to use both the POS and a Mac. I had switched to the Mac earlier in the year, so that was a test run to see if it was something great or the questionable Mac of my youth. It's certainly great. Several months later and we're just now seeing the dividends begin to pay out from the change over. Special orders, especially, are smooth and efficient.

Finally, there is the expansion. I never should have started talking about it until it was farther along, but we do have news, which I only report because I'm asked so very often. We commissioned a feasibility study over the Summer to get an idea of whether such a build out was even worth doing. We were surprised at the results, mostly because they included things we weren't expecting but also didn't include deal breakers we were expecting. Sometimes you go down a path just so you can be officially told "no," and that didn't happen. The feasibility study suggested it just might be feasible. If I'm vague about this, it's because I need to be since there are so many stakeholders in this and it's such a delicate project.

The feasibility study was step one. Step two began a couple weeks ago with a formal layout, including the complex structural issues in our building. There is a number we're looking for, a seating capacity for the game center that I won't reveal now, but the goal was to get to that number. If that can be done without breaking the bank, then the project could move forward. If not, it isn't going to be feasible. That's step two. How many steps are there? At least five. However, we are now beginning to plan internally as to how we'll use it, rather than if we'll have it. For us, that little binary mental switch is usually all the difference between success and failure.

Monday, November 4, 2013

How to Order (Tradecraft)

This is a topic discussed right now in the game store forums, plus something of interest to my friends opening new game stores. How do you do it? I've covered this before and have written and talked about Open to Buy at trade shows. Here's an overview of what I do.

Do I have any money? For me, it's not a question of do I have cash in the bank, because I buy everything on terms or using a credit card. If you have COD and no terms, by all means arrange them. The question for me then is do I have money in the budget? Budgeting for purchases is tracked separately from your store budget with Open to Buy, a process large retailers use to track their inventory budgets.

You must spend this budget or your sales will fall and if you start using this money for operations, you can end up in the dreaded inventory death spiral. That's when you can't pay the rent, so you borrow money from your inventory budget (usually you don't have one), which lowers sales, which means you can't pay the rent next month, so you borrow more purchasing money and eventually you've had a liquidation sale without intending it.

Here's a simple version of Open to Buy to get you started:

Starting Budget: $ 1,000.00

27-Feb $ 358.15 $ 208.59 $ 1,208.59 $ 201.00 $ 1,007.59
28-Feb $ 543.69 $ 255.59 $ 1,275.96 $ 1,193.30 $ 82.66
1-Mar $ 334.35 $ 194.12 $ 286.49 $ - $ 286.49
2-Mar $ 690.33 $ 415.53 $ 722.79 $ 500.00 $ 222.79
3-Mar $ 597.10 $ 339.16 $ 578.91 $ 901.44 $ (322.53)
4-Mar $ 453.38 $ 246.19 $ (64.03) $ 94.61 $ (158.64)
5-Mar $ 391.26 $ 212.69 $ 64.68 $ - $ 64.68

Above is a clean example, but below I've included my Open to Buy from the first week of January, warts and all. It's a spreadsheet I've used for 9 years. Like the one above, the important information is the COGS (Cost of Goods Sold), Purchases, and Balance. Available tells me how much I've spent or how much I've gone over budget.

There are some other columns with notes and room for adjustment as well. For example, on January 1st, rather than keep my negative budget of $5406, I accepted it as an inventory increase going forward. Likewise, I can use columns to budget, if necessary. I track other things on here too, like COGS percent, usually with an explanation. On the far right are things like "Need" which is kind of a moving target on whether I hit my sales goals. At the bottom of this spreadsheet, I've got half a dozen charts showing sales per month, per quarter and per year, cost of goods per year, and other random tracking of this data with 9 years of thought gone into it.

I then have to decide what to buy and from whom. The first priority is special orders. Our point of sale system tracks special orders for us, but in the past we've used a spreadsheet. I've seen some stores use a special order book, or (shudder) a spiral notebook with scribbles. Every time I open my pending order requests, I look to see what's available. In this example, only one item is in stock today, so I'll have to make an extra effort to order it from that supplier.

Next I'm going to generate some purchase orders. There are several ways, based on lowest cost supplier or primary supplier, and of course there are direct items you have to get from the source. Today, I've placed an order for Magic with Wizards of the Coast, a Games Workshop restock with them, and a primary order with my main distributor, ACD.

I also need to handle my special order (Creeping Infection 2 base from Secret Weapon Miniatures) with my specialty miniature distributor, E-figures. This week I'll likely get calls from my classic games people (Wood Expressions) and possibly a puzzle company or two, as I asked them to call to get my holiday orders rolling. Did I budget for that? Mmm, no, but the credit card I'll be using will have a due date of 12/26, meaning I'll pay for it with holiday cash.

The top section of the screen above is prompting me to create a PO based on my special orders, which in this case would only include Efig, since that's the only special order item available today. The other items are pre-orders for future product. Below that section is the ability to generate a PO based on default supplier, which is the raw report I run to make the bulk of my order.

The date used to generate that report is the item record in our system with the re-order information. You can see from the item record to the right that we try to keep 12 white sleeves in stock at all times. When that number gets below 12, we order up. So there are 8 available right now, with 4 coming on the order I placed today.

Every item in our system, tens of thousands of items, has this re-order information. It's constantly tweaked based on demand of the product and budget. This is critical business intelligence and for a couple weeks this Summer we flew blind without it, creating chaos, over budget spending, order guesswork, and a loss of sales. We also lost our sales history which meant I had no idea what to drop when budgeting for new product.

Open to Buy is a zero sum game, so if we order something new, it means something old has to be eliminated by not re-ordering it or reducing its stock level. That might be by permanently changing the item to not re-order, temporarily letting it go and bringing it back later (there are hundreds of items like that from our primary at the moment), or simply going lean for a while and not ordering up when it tells me to.

From this data, the system can generate a purchase order of things that may or may not be available at the distributor. I then have the option of emailing it off to my sales rep, a lazy way that gives him control of my spending that day, or I can go on their online system and spend hours selecting items they have and removing items they don't from my PO.

In this case, I'm ordering 177 items from ACD today and NOT ordering 975 for whatever reason, that number shown in the Actions screen above. Eventually I'll go through those 975 items and order from another distributor, decide the items are gone forever and set the reorder to zero, order them later when my budget says I can, or just let it ride. It's a pool of data to draw upon, rather than a laser focused tool.

Only 15% of the items my system told me to order were actually ordered. That's from a combination of purchasing decision making, distributor availability, available budget, and the strength or weakness of my data. I could not, for example, just generate a PO and send it off blindly. That happened once with an employee and it created a mini disaster as all the considerations of a purchase were thrown out the window.

I'll repeat this process for every supplier I use today, budget permitting, including a secondary to pick up items that the primary doesn't have, with free freight being a priority. The game trade offers free freight at thresholds of around $350 and I hate to spend money on shipping. For our specialty distributors, like puzzles, I'll often wait for a trade show special for a free or reduced freight deal (which is why we don't do special orders on those items).

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.