Friday, August 29, 2014

What Landlords Want (Tradecraft)

I've gone through three, about to be four lease negotiations and I've helped other people with this. I've been turned down for at least as many properties, if not more. When you're starting a game store, the lease seems like one of many items in your project plan, so it's natural that it doesn't get your full attention. You're busy with a business and marketing plan, inventory and fixture selection, insurances, and many more things. Choosing a site is critical though, it's the one and only irreversible mistake you can make. All the other mistakes can be fixed with more money or even selling your business, but a bad lease is terminal. Nobody can help you.

Finding a location is hard, but even harder is getting a landlord or property management company to give it to you. This is especially true with your first location, as you don't have a track record and you're considered high risk. If you can't get a prime spot, you could end up in one of the grubby, starter business locations in the bad part of town. The guys who rent retail spaces like apartments with one year leases, first and last months rent and a guarantee that no parent will leave their children with you.

I found after just one completed lease I was a shoe in for many locations. Landlords courted me. Site selection and lease negotiation are important, but I'm going to talk about what they're looking for. What does the landlord, and the city for that matter, want from you?

Money. They want to know you'll last your lease, which could be three to five years. Money means a couple things, but primarily you can dazzle them with cash on hand.

If you've raised $50,0000 or $100,0000 for your business, even if its a loan or money from family, leave it in the bank until you have your lease negotiated. Show it up front. Flash your cash. Consider a cover letter with that number in bold.

The landlord wants to see that. I recall doing an entire presentation for my business and the landlord said, "That's well and good, but do you have any money?" He never asked for forms from my newly opened business account with a six figure bank roll. Once that was disclosed, they were happy to separate me (the fool) from it (my money).

Experience. I've said it before, you need a lot of experience or a lot of money to survive your first couple years in business. If you've got retail experience, especially management, show that off. They want to know you have a chance of making it through your lease and that you won't be a pain in their butt during that period.

New commercial lease holders are likely to ask a lot of dumb questions or make requests not covered in their lease (like asking for anything, really). Who pays for the garbage? I used my neighbors garbage for two years before they yelled at me to stop. I didn't know. Who pays if someone breaks in through your front window (probably you, hopefully you have plate glass insurance). Experience says you'll be smooth sailing through this period.

If you don't have retail experience, show some business education, SCORE classes, or management in other areas. It can't hurt, but retail is its own animal. Most MBA graduates would be hard pressed to run a game store, especially with their own money. After completing the lease on my first business, my property agent confided in me that she talked to the property owner and they both concluded I would never make it through my lease, due to lack of experience (see Money above).

Tranquility. That pretty much sums up what they're looking for. Gaming means a lot of different things to different people. It might mean a card room, for example. Card rooms, legalized gambling, are horrible for communities, attract crime and desperate people and generate trouble. Gaming means gambling to most.

Gaming can also mean an arcade, especially if you have an older landlord. Arcades were often associated with selling drugs, juvenile delinquency, and hooliganism (again, if they're older). Imagine teenagers on bicycles littering the parking lot and painting graffiti on the wall. Damn vidya games.

With gaming comes consumption of alcohol, and if you've applied for your proper permits so you're zoned for "public assembly," they might see you as a social club which would include alcohol consumption. Our current building permit approval was very clear we were not going to sell alcohol on the premises.

What I recommend is you stress the community focused, family friendly nature of your business. If you're going to sell board games, make that a focus, even if it's 10% of your sales. People don't quite understand how you'll sell enough of them, but they know what they are. If you lead with Magic: The Gathering and Dungeons & Dragons, because that's where the money is, you'll alienate people and possibly bring up their prejudices. Focus on family games and educational value in your presentation.

That also leads to age and gender issues. Show that the demographics of the game trade are primarily men in their 20's, not teenagers. Stress that half the people that buy board games are women and that women make up the majority of family purchasing decisions, and you'll be creating a store catering to them.

Just about every game in a game store has an age range on it, and they all range from 6-14 years of age. They wouldn't be wrong in concluding that your customer base will comprise of a bunch of marauding 6-14 year olds, riding their bikes, graffitiing the parking lot and leaving Yugioh wrapper everywhere (that last one is probably true). Show that you're family friendly and you cater to intelligent adults with disposable income.

Finally. Understand your tables and charts, your ROI, your break even analysis, the difference between gross and net and net gross. Know your expenses like the back of your hand. Research the heck out of your expenses. Your sales projections are already made up, fairy tale numbers. Nail your expenses and you won't look foolish. I honestly had just a sliver of understanding of many of these things when I started, but that extra research ensured later success. Anyone looking at your plan will see that.

One more thing. They're going to compare you to local game stores. If those stores are bad, you should distance yourself from them in advance. If there are good stores around, tell them how you plan to be a local version of that store. If there aren't any good stores around, include aspirational photos from stores across the country, showing the great things you hope to do in your location.

Friday, August 22, 2014

Deciding What to Buy

This post answers one of our Kickstarter backer requests. How to decide what games or game lines to bring in, what to pass on and what to discontinue. I'm going to focus on purchasing.

Deciding what to buy starts with the budget. My budget is the Open to Buy worksheet that I use daily to track how much I have available to spend. In reality, Open to Buy is an after action report, since most of my buying decisions happen long before I pull the trigger and the product arrives. Stuff that gets placed on a purchase order today was often ordered weeks or months ago.

Solicitations come in nearly daily from distributors for products that won't be available for 30-90 days. If I were to divide the total SKUs in my system by the number of days I've been in business, there would be eight SKUs added every day. And get this, purchasing is only around 10% of my job. How long do you think I spend analyzing those eight SKUs during my day? Doing some bistro math (minutes in the day, times ten percent, divided by eight SKUs), no more than eight minutes per SKU. Some dude just poured his entire creative existence into this new game. He's got eight minutes to impress me somehow. You can see how I might be a bit jaded after a while, contracting "widget fever."

How do I decide what to bring in?

Alliance lists over 430 manufacturers in their online catalog, but 75% of my sales comes from only 30 game companies. Solicitations from those companies are more along the lines of quantity, rather than deep research to determine if I want them. Magic alone accounts for about a quarter of our sales. Half of what we order tends to be of the "fire and forget" variety, items we bring in a single copy. sell, and never see again.

But how to get on my radar? There are a number of ways. A solicitation from a distributor puts it in front of me, lets me know a buyer stands behind it, and hopefully provides me enough information to make a decision. I probably pick up 20-30% of what I'm presented.

If the product is a board game, I'll be looking on boardgamegeek for reviews and checking to see if it's a Kickstarter project. If the reviews are good, and I mean really good, and the funding was high ($50,000+), I'll pre-order one. Just one. If you're one of my 30 top companies, that number can be much, much higher. I don't do deeper research than this, such as trolling forums and the like. I don't have time.

When it comes to roleplaying games, the level of hand selling in that area means I generally have a person or two in mind who will buy the book I'm bringing in. Of course, about 75% of sales in that department is D&D and Pathfinder, so that takes a lot of the work out of it. Anything FATE is also a no brainer. If I were more indie focused, I would need to do far more research (sales are pretty low for us in that category).

Kickstarter projects in the RPG department rarely meet my backer metrics, but I'll often waive that for a well known author, either by supporting their Kickstarter beforehand or stocking it after the release. Kickstarter RPG projects, in general, are not getting placement in the sales channel any longer. The board game market is far more profitable to the consolidators that once represented small RPG publishers to distributors. They're generally not accepting new RPG clients. This is a bit alarming and the flow of quality, indie RPGs in the distribution channels seems to have slowed quite a bit.

Miniature games are complete systems in need of large scale adoption and have very little chance of getting picked up without a vocal customer base. That has happened recently with Relic Knights and Wild West Exodus. If you want me to pick up a miniature line, my customers need to sell me on it. Even then, it's high risk and low reward, and as the flavor of the month recedes, we're left with a lot of unsold stock. They still play, but they have what they need. I think miniature games are inventory freeloaders that only exist in stores on the backs of more profitable departments. They rarely pull their own weight. I love them, but they're bums.

Collectible card games? Forget it. CCGs require communities and they don't develop overnight. There has been some success with anime games of late, but I'll generally get left holding the bag in the end. CCGs are the only product that will ever get tossed in the trash. Nobody wants a dead CCG. Nobody. Customers need to drive these requests, and I'm much happier taking a chance with a pre-order of a booster box or two of the game in question.

Where else do I learn about new games? Besides sales reps, I like to go to trade shows, when I get the chance. Shows are excellent sources of information, but costly to attend. The annual Gama Trade Show in Las Vegas is always worth the time and money for me, although I generally only go every other year. Various Games Day events from distributors are useful. Regional game conventions often generate buzz and I'll listen to customers as they return from these shows.

Social media is where I tend to focus, namely Facebook. I follow over 500 pages, many of them gaming and game community related. It works for me because I intensively use Facebook for marketing the store. Actually playing the game rarely happens. Noting buzz about games and a general fluctuation in the matrix, is what I'm looking for. That also means listening to other retailers through private groups and listening to customers in our local and regional gaming groups.

I listen. That's my biggest purchasing skill. Whether I like a game. Whether I play a game. Whether I've read the book, turns out to not be all that important. It helps. I can sell the heck out of the things I like, or the games I've played, but from a business perspective, it doesn't move the needle. My ability to sell things is not dependent on my ability to use the product. Eight SKUs a day, every day, for ten years.

Wednesday, August 13, 2014

Product Pyramid (Tradecraft)

One of my investor friends is a partner in another game store in the Midwest. I've been giving him advice over the last year on how to choose stock. It turns out to be an excellent mental exercise, because although I have a lot of good theory ideas, I haven't always had the opportunity to put them into practice. Sure, I have a store, but I'm set in my ways. With his new store, I'm asked what to stock, how much, and most importantly, why. The why has me thinking, which leads to changes at Black Diamond Games.

One of the bigger changes is the product pyramid. You can get really obsessed with inventory metrics, which I discuss incessantly, but there are important exceptions to metrics. One of these is the product pyramid. A product pyramid has several meanings in retail, but in this case, it refers to a broad pyramid base of slower selling product that's necessary to accelerate the sales at the top of the pyramid. Pathfinder is an excellent example, with three quarter of the sales compromising about 5% of the books (hardcovers). Those three quarters of sales from 5% of the product line couldn't happen without the bottom 95%. Chop the bottom 95% and the entire pyramid collapses.

And the tendency is to chop the base, since it fails to perform under standard inventory metrics. This type of inventory works as a complete system, so you either accept the broad, bottom of the pyramid, stagger along with slow selling top only items, or you drop the line entirely. Knowing which product lines work in this fashion is mostly trial and error. This week the product pyramid strategy was applied to dice.

How much dice should a game store carry? Well, how much money do you have? The answer is as much dice as you can afford. You can't have too many. The broader the selection, the higher the sales rate. That bottom of the pyramid will sell poorly, but customers want selection, demand it really, even if they only ever buy 20% of what's available.

Today we put this into practice one more time by completing our selection of Chessex polyhedral dice. Say it's in honor of D&D 5th Edition if you like, but we now carry every set. Before we were using standard metrics, keeping only the top selling sets. When we first did this, we noticed that sales fell pretty sharply. It took a few years for us to realize why. And a few more years before we rectified the problem (as in we're fixing it now).

The product pyramid doesn't work in every category, but it's another tool in the toolbox to apply to special cases. I wouldn't have thought to apply it in this case if I hadn't been helping out my buddy.

Saturday, August 9, 2014

Failure Opportunities (Tradecraft)

My real job is process management. That means I create policies, procedures and work flows that maximize customer satisfaction, reduce errors, increase efficiency and allow for increased "mind-space" for additional processes to feed back into this system. I'm no expert at it. In fact, I've got a management style that's looser, more egalitarian and less ordered than most, which makes my job a little bit harder. The longer I stay in this business, the more process management will be my focus.

In stock Tuesday
I really hate when our processes break down, when we fail to perform. Hopefully, we've built in enough safeguards to counter a process failure, but sometimes we just can't win. Our job inevitably comes down to having stuff, having customers to sell that stuff to, and having the facility to make that sale. Any break down in that multi faceted process and everything comes to a halt. That's what happened yesterday with the release of the new D&D Next Player's Handbook.

That failure looked like this. Someone sitting in their living room last Sunday afternoon used my stolen business credit card number to buy airline tickets at an online travel site. The $1,300 sale instantly set off alarms at the credit card company. They texted me alarm. I texted back my denial. The sale was declined and a few minutes later, the card canceled, another card promised in a few days. This happens about once a year, but that's another story about the American credit card industry.  Monday morning our D&D order should have auto shipped from Wizards of the Coast with my credit card on file.

The card was obviously declined. Wizards let me know later on Monday. I called early Tuesday morning with a new card. The order was confirmed and it normally would have shipped that day. A Tuesday ship means a Friday delivery for me, so I hedged by buying a bunch of product through our local distributor, just in case.

This exception at Wizards didn't go well, with a process flaw on their end, since my order was now an exception to their process.  The order never actually shipped. Our local distributor order didn't cover all the pre-orders, mostly because I was hedging, knowing I had 40 copies of the book arriving that afternoon. Big mistake. The whole system collapsed after our Fedex order arrived with no books and that uncomfortable phone call to WOTC was made. Failure.

Not only would I lose sales over the weekend, but I had promised people this book, people who had given me money and trusted me. This is an opportunity of sorts. Before I talk about that, let me say I truly am sorry about what happened. I don't want to make light of a broken promise or a process failure in all its complexity. It sucks. I'll do what I can to make it right. I've contacted each of them. I'll pay a price for sure. But here's how failure opportunities work:

It's generally believed that good customer service should be the norm. Not being a screw up, besides what others might tell you, is expected. Nobody talks about how they didn't get their coffee order screwed up today. However, they will tell, on average, about ten people, if their coffee order was screwed up  (mine was messed up last night at the Barnes & Noble cafe in Emeryville). People like to talk about their drama. Everyone does it. So screwing up and not fixing it is an enormous negative hit, essentially anti advertising.

Now, what would it take to fix it? Make me another cup of coffee and you've inconvenienced me further and made the experience less than great. Could you take an extra step to fix the problem? You tell your friends your coffee order was screwed up and they make you a new coffee, and give you a free muffin? That's conversation worthy, although, I'll admit, the corporatization of this process will take the sincerity out of the equation. Manager on register four! Muffin compensation override!

How about an apology song sung by the manager? Just change the words to Happy Birthday. You can't really overdo this. I read a business book about a very successful bicycle shop. They screwed up an order for a kids birthday. The owner took that bike, adorned with streamers and birthday wrappings, and drove it thirty miles to hand deliver it to the customers door. I might have made up the streamers bit, but you get the idea. You're not trying to pacify your customers, you're trying to win them over. Wizards shipped our books Fedex Air to get them in ASAP, which is a personal bicycle delivery of sorts.

Make it better. Fix it for the customer and it's just an extension of your process management. It's an opportunity to show you care. It's an opportunity to spread the word that this business is not just about making a buck. They go the extra mile. It feels good too. If you're concerned about cost, try to think about what that customer is worth to you. I once figured ours spends an average of $600 over their lifetime sales with us. Or put "screw ups" as a line item in your marketing budget. Whatever it takes. Seize that failure opportunity.

And I truly am sorry.

Friday, August 1, 2014

Organized Play (Tradecraft)

There is only one thing absolutely required for any organized play (OP) program, and that's available product. Friday Night Magic, which uses drafting (opening new packs) runs like a top, because there is always product from Wizards of the Coast. Sure, they have the best OP program in the industry, but the bare requirement of available product is never an issue. D&D and Pathfinder have core books always available, even 4th edition Player's Handbooks were in stock at most distributors up until recently. We run 14 events a week for games with ready stock (along with our red headed stepchild, Flames of War). Even Pokemon USA, the shadowy dark lord of hobby gaming, makes sure there's enough product in the pipeline for months after a release.

When product is not in stock, we have a problem. We cannot run events without product, and if the customers have product already, through whatever sources, the promotional element of events ceases to function. We're essentially running events for Amazon at that point. Getting an event on the calendar obviously requires customer interest, but I'll look at the likelihood of available stock and attempt to determine how much pain this event will cause.

Yugioh is an example of pain. Yugioh is a hot potato product, red hot out of the oven and handed off as quickly as possible. Distributors do not sit on Yugioh. It comes out, they sell it to us and it evaporates from their warehouse within a couple days, forever. Yugioh customers are right now driven and won't care about the new release six weeks in the future. As a retailer, I must buy all my Yugioh product up front, everything I want, until the end of time. When we canceled Yugioh events in December, we were sitting on $9,000 of inventory. That's at my cost.

To put the opportunity cost in perspective, a good store will do at least three turns a year. $9,000 buys me $18,000 of standard inventory at MSRP (a lot less if it's Yugioh; the worst margin in gaming). Three turns times $18K is $54,000. I gave up $54,000 a year in gross sales so I could run steady Yugioh tournaments with product rarely, if ever, out of stock. With the profits, that's a new car payment (around $400/month). Imagine how much money I had to be making to say, "No, that's alright, I don't want those keys. Close up the sunroof. I need product to run Yugioh." It was a lot of money.

You know who doesn't have that kind of pull? Every other game company except Wizards of the Coast. If WizKids or Fantasy Flight Games told me I had to stock model star ships 50 deep to run their events, I would be running the numbers, checking the mileage on my car, and politely declining. That's exactly how those two companies have always worked retailer stock. Forget your theoretical opportunity cost. If you don't want to be out of Arkham Horror, stock deeper. That these companies can't actually supply the demand even if we wanted to go deep, says they are not ready for organized play. They may have a great OP guy, but the production dynamics of these companies are not designed for retailer events. It's a shame too, because the demand is there.