Wednesday, September 30, 2015

Price Gouging

Lets talk a moment about "price gouging" and this angry manchild. Price gouging is a loaded term used to describe nefarious economic activities related to essentials for life. If after an earthquake, I charged huge amounts of money for food, clothing and shelter, you may assume I am price gouging.

Price gouging also assumes a level of unfairness. Unfairness means I am charging over the market rate because there is no competition or there is a temporary shortfall in supply.

So are retailers price gouging Battle for Zendikar Fat Packs? Well, unless your very existence requires full art lands, the answer is no. You may wear them as clothing, eat them until you're sick or build a wolf susceptible card house out of them, but they still won't be essential for life.

Are we being unfair? There is no temporary shortage of Battle for Zendikar Fat Packs. The shortage is quite permanent. Competition is also fierce, as opposed to some sort of limitation on competition. The market has determined a fair price for this product. That price is $58, according to Ebay. I don't care much for Ebay, but it's a wonderful example of supply and demand working at its best.

To the best of my knowledge, there will be no more Battle for Zendikar Fat Packs. They are sold out, and thus, by looking at Ebay and that $58 price, highly collectible on release.

So should stores sell them at the $39.99 MSRP? There are a few ways to handle this:

  1. Sell them at MSRP and watch the Magic speculators, friends of this guy, buy them up from you, call you an idiot and sell them on Ebay for $58, making a tidy $18 profit.
  2. Presell them to your loyal customers at MSRP and sell the rest at the market rate ($58).
  3. Sell a small amount at MSRP and hide the rest to go on Ebay at $58. Who will know?
  4. Sell them all at the market rate of $58, because eff you, market conditions.
We went with number two, but there is really no wrong answer.

What I can tell you is the basic economics of this particular situation is a very simple case of supply and demand. If you don't like it, take it up with Supply. That would be Wizards of the Coast. Ask them to print more. Don't you think I would like to sell more?

Or take it up with Demand. That's what this guy is doing. Hey you, Magic player! Don't pay the market price! You're being gouged! Good luck with effecting demand by telling people not to buy a highly desirable product. Better yet, grow up.

Nobody is getting rich here. Magic is not a high margin cash cow, it's actually a low margin endeavor with a lot of risk. Retailers in the game trade could do just about anything else and make more money at it. Yet, they deal with childish behavior like this because they love games. Cut them some slack.

Chip Cards (Tradecraft)

I wrote a couple weeks ago about the liability shift with EMV chip credit cards going into effect October 1st. Here's what I've noticed since then:

  • Extended Protection: Some processors, including Intuit with their Quickbooks POS, won't be ready in time, so they're covering vendor fraud for an additional six months.
  • Large Retailers: Target, Walgreens, (and I've heard) Wal-Mart have implemented EMV card readers. Once a terminal is implemented, cards with chips must use the EMV reader (no more magnetic strip sliding).
  • Small Retailers: My local sandwich shop uses an EMV reader. Some small retailers have the reader, and some work and some don't. 
  • Software: Like with our own implementation, we're still waiting on software for our terminal with EMV integration. The deadline is tomorrow and I don't expect it to work in time.
  • Hardware: Square has a new EMV reader we intended as a backup. Square hasn't shipped yet. 
  • Lack of EMV Cards: Of my eight credit cards, two have chips. Although there's an October 1st deadline for the liability shift, it only applies to EMV cards not run as EMV, so there's not much incentive to immediately replace magnetic strip credit cards with EMV chip cards. Then again, there's not much of a liability shift issue if 60% of consumers still don't have EMV chip cards.
  • Really Damn Slow: EMV processing is painfully slow, which seems to be true everywhere.  It took a couple minutes at my recent Walgreens and about the same time at my neighborhood sandwich shop. I've heard retailers discussing the serious impact this could have during the busy holiday period. The speed and capability of a POS is often cited as equivalent to having an extra employee. Some retailers have talked about adding additional POS systems to cover the speed issue, which is a serious cost impact. Let's hope it speeds up over time. 

Friday, September 18, 2015

Piepocalypse (D&D/Pathfinder Sales)

I posted a graph of our D&D and Pathfinder sales yesterday publicly on Facebook that got a lot of excellent comments. I'll post the slightly extended graph with more back end months along with my initial comments:

My question with D&D 5 was whether it was going to "grow the pie." I wasn't aware at the time that Wizards of the Coast planned to stop making pie. WOTC would be the pie maker for the weight conscious RPG consumer. When that became apparent, I had numerous confectionary predictions of upcoming pie problems. Piepocalypse, if you will. Bottom line for me: It has not grown the pie. There is still pie. Pie opportunities missed for sure. Piepocalypse averted.

So what does this chart mean? It's data showing D&D and Pathfinder sales over a period of time for just my store. It's a tiny slice of the industry. Heck, it's probably around 2-3% of my store sales, so it's a tiny slice of that. As such a tiny slice, it's more thought experiment than groundbreaking data. Still sounds like I'm talking about pie.

You could speculate. I see a decline in Pathfinder sales, but there are reasons for that besides loss of market share. Pathfinder 1.0, as I'll call it, has been around a long time, and although nobody talks about product life cycles, if it were Dungeons & Dragons we would be looking for a new edition. There is no talk of a new edition, in case you were wondering.

Also note that although Pathfinder sales are stronger than D&D sales for us, Pathfinder does it with 279 products on the shelf, while D&D does it with nine. I could shake my fist at Wizards of the Coast for not making more D&D product, but LOOK AT THAT EFFICIENCY! It's the fan boy in me that wants more products. The retailer looks at this and wonders why I need 279 Pathfinder products to achieve similar results. It's about 20 times more efficient over the last six months. But this is bistro math. Meaningless. 

You could predict a steep drop in D&D sales as well. They're not producing new core books, things people buy, but instead they're outsourcing licensed adventure books, things people generally don't buy, at least not in strong numbers. Yet, we're a year into this D&D austerity experiment and we still sell about $1000 a month of the nine products we've got. That's not bad. It's not as good as it could be, I would argue, but it's not 4E bad. I think it could be better with more products. How many is the question.

Saturday, September 12, 2015

Liability Shift (Tradecraft)

Starting in 18 days, there's a shift in whose liable for bad credit cards. Right now, if we accept a card and there's some fraud or other problem related to it, the issuer absorbs it. The US is woefully behind the rest of the civilized world when it comes to credit card technology, because card issuers dug in their heels and decided it was cheaper to pay out fraud claims than implement new technology. That was the past though, and as they watched fraud double over the past seven years, they decided to get off their butts and implement some security.

Unfortunately, they took a perfectly good standard and nerfed it. They took EMV chip cards and half assed the implementation.  EMV stands for Europay, MasterCard and Visa, a standard controlled by a consortium of the six largest card issuers. The EMV card itself isn't half assed, it's cool, smart chip technology. The American deployment of EMV is what's half assed. Let me tell you why.

I need to do a brief primer on computer security. This will take just a moment of your time. I once did a big user authentication security project and learned about the various "factors" of authentication. A good example of single factor authentication is "something you have." For example, your credit card. It's something you have. It's the weakest of security, since anyone who has it can use it. Two factor authentication would be something you have, combined with something you know, like a PIN. There's obviously fraud potential there too, but far less than one factor authentication. For the sake of trivia, three factor authentication would include "something you are," like a fingerprint or retina scan. It's super secure and a reason Apple Pay and similar smart phone technology is kind of exciting; it can be three factor.

EMV chip cards should be two factor authentication PIN cards. The tech is there. However, the card issuers decided that's too complicated for Americans, so instead we get these really high tech chip cards, with no second factor. It's basically no more secure than it is now on the front end. People can still steal your card and use it; in our case it's usually kids with their parents cards. On the plus side, the chip technology prevents counterfeiting and shenanigans on the back end like we get with easy to replicate magnetic strips.

For this modest improvement in security, the issuers have shifted the liability to retailers. As of October 1st, if someone has a EMV chip card and they use a traditional swiper, which almost everyone still has, and there's fraud, it's now on the retailer. Hey, we did our part by issuing chip cards, now you implement the new technology on your end, retailer.

This has come up on retailers far too fast. Plus, it's not like we can just pick a solution off the shelf. Our credit card processors, mostly small businesses, need to provide this new hardware. In our case, we had to switch processors to get it. It's especially complicated because there are many different point of sale systems and each has various hardware and software requirements.

The big credit card companies delayed forever when it was their turn, but now we've got this technology foisted on retailers, who are far less organized and dependent on others for technology, far too quickly. Most retailers I talk to don't even know it's coming. To be completely honest, most don't even understand what I'm talking about.

So yesterday we got our super fancy EMV chip card reader. This was a project of mine, finding a way to beat the deadline. It's not like I was wasting time on this. I'm two weeks from the deadline and it's unlikely I could have done it much faster.

Not only does our new terminal read EMV chip cards, it also does other cool things like Apple Pay, debit cards (our old terminal couldn't do them) and the holy grail of point of sale technology, electronic signature capture. I have plastic buckets full of signature sheets. The terminal is way cooler on the front end than the kludgy way it integrates with our POS, but that's our problem (and a future project).

So are we set for October 1st? Nope. The company that leases us this high tech device is furiously working on the back end software to make those chip cards work. Do you think it will be ready in 18 days? Do you think we'll get a reprieve like the big card issuers? Do you think we'll get instruction on and when to start using EMV cards? Unlikely.

Wednesday, September 9, 2015

Plan B

This is a re-post from our Kickstarter update.

Our lease negotiations, including mezzanine construction, are going slowly, so I've been looking around at other properties. What I've found is a mixed bag, but overall pretty good. I thought I would share that with you.
Finding a larger space, in the 5,000+ square foot range, is harder than a smaller location. These mid-sized locations are fewer and they tend to be rather, how shall I say it,  idiosyncratic in their offerings. I've found churches, banks, dance studios and similar unique use, previous tenants. Some are easy to transition, while others have somewhat permanent structures (like an enormous vault).
On the plus side, larger locations are harder to rent, requiring unique tenants who need more than a standard location but less than what an anchor store would require. There are not many of those businesses. This means rental rates are significantly lower.
For example, my first pick at the moment is 5,100 square feet and the rent would be the same as what we pay now with 3,300. That's a 55% bigger space for free. Granted, utilities and the like would be higher, but it still seems a bargain.
My backup plan to construction is to find a space around 5,000 sqft, have 2,000 sqft of game space (more than doubling our current allocation), 2,500 sqft of retail space (a 25% increase), and 500 sqft of restroom, office, and miscellaneous. 
We're also investigating a coffee bar build out, but that's pure speculation at the moment and requires a lot of variables to line up (low rent, lots of tenant improvement money, etc.). I saw so many identical coffee bars in game stores on my travels this Summer, it seemed less daunting a project. 
Moving would not be cheap. It would cost around $30,000 just to move and easily another $30,000 in improvements. We now know what we need to build out a proper game store, zoned for assembly with the proper restrooms and AC capacity. Most stores don't do this. Basically, constructing in place versus moving is kind of a financial wash. Yet, the math may just work out better depending on if we can get tenant improvement money or free rent.
Location wise, everything on the short list is in Pleasant Hill, a couple of miles from the current store, and easily accessible from the freeway. We seem to be focusing on properties around Diablo Valley College.
Timing wise, it equals out. We would start construction in our current location in January and finish in late March. If we moved, we would be moving into a finished location in ... late March. The business interruption of construction is offset by the business interruption of moving. So it's a wash.
In any case, if you're going to negotiate a lease, you should have alternatives in mind. Plan B is just such an alternative.

Tuesday, September 1, 2015

You Need a Vacation (Tradecraft)

You never really know if your policies and procedures, the real creative job of store owners, will work until you're gone. One of the things I've realized by owning a store is even work can be a form of laziness if you do the wrong work, and strangely enough, time away from the store is critical to your work. I'm not talking about recharging your batteries, which is good, I'm talking about stressing your business to see if it's strong by not being there.

My main job as a business owner (after a decade) is creating policies and procedures. This is not something you can buy or borrow, like a McDonald's franchise handbook or something amazing veteran retailer Jim Crocker wrote. These are hard won nuanced changes to how you run your individual business. The principles are somewhat universal, but the details are all yours. It's how you run your business, which can be as idiosyncratic as you like. It's also how you want your people to treat others, your culture of customer service and how far you'll go to fix problems. You can't declare a culture, you have to formulate it and develop it over time and teach it by example.

Our policies and procedures have come from years of meetings, networking and improvements. There are plenty of totally acceptable things employees do, that I don't like (do not chevron product, for example or no product ever goes directly on the ground). Unfortunately, as the owner, you're always personally tweaking, modifying, straightening, and smoothing, which means you're never quite sure how it will work without you until you're gone.

Besides the policies and procedures, your job is also to clear the way for your employees to be successful. But what happens when you're gone? Does your manager clear the way or does it remain obstructed until you're back? How empowered is your manager to clear obstructions?  Do they have resources like credit cards and cash on hand or will you get a call while you're on the beach because the store is out of toilet paper? Have you communicated these things or do you feel it's easier to just do them yourself? If you just do them yourself, you will always be doing it. Ask a parent.

Lets look at why you want to be gone. Your business will never have much value until it can be run without a dedicated, on site owner. You can't go on vacation. You can't sell it. You can't retire. You can't successfully open another store. You certainly can't leave it to your hapless heirs who will delay their own lives while they run it into the ground. That's fine for most people, but your perspective may change as you get older, when you hit 40, and 50, and 60. If you're going to devote your life to this thing, make sure you have a plan to leave it.

I've read that most small business owners have their business as their only retirement asset by the time they're ready to retire. I've seen how hard it is to save for retirement while owning a business, so I think this is true. Money you could be putting into your retirement fund is just as eagerly needed in your small business, and it always wants more investment. I figure I need to gross a couple million dollars a year to have both a growing business and a strong retirement fund (probably not going to happen). Start working from day one to make your business a strong retirement asset rather than a ball and chain.

After you get back from vacation, before you walk into your store (assuming it's still there and there's no fire damage), stop. View it with fresh eyes. It's something taught to me by the wonderful Heather Barnhorst, who recently passed. Before you rip down old Pokemon posters from the window, make a note to have a new policy on posters in the window. Before you straighten shelves, make sure you have a policy on how often employees should walk the aisles and straighten shelves. Find our whose been chevroning products and stacking them on the floor and punish them (kidding). Take all that tweaking, straightening and smoothing you do, and make sure others are doing it. That's your job, right? My store was in great condition after three weeks, by the way.

What problems arose while you were gone that you normally handle? My biggest problems were in areas that haven't quite transitioned away from me.  Does every invoice from received orders make it to my in box? If they don't, the whole system comes to a screeching halt while I deal with curious distributors who wonder if I've mailed a check or three (answer, I don't know, I delegated mailing them). It doesn't help that one supplier doesn't include paper invoices, another puts them on the inside of the box and another attaches them to the outside of the box. Some don't say "invoice" on them for arcane accounting reasons.

I have a fantastic manager, so on my return, I spent approximately six hours catching up after three weeks. Two of those hours were making sure my insurance wasn't canceled because I forgot to write an account number on our auto insurance check (opening mail and paying bills is still a job only I do). Another two hours was talking about my vacation over lunch. It went so smooth without me I came up with a new project for my managers. Always have a manager trainee on hand. I can't be lying on a beach in Hawaii in my golden years and have my manager give me their two weeks notice when it takes us a year to train up a new one. Then my manager can go on vacation and come back and do this work. That's a project for next year.