Friday, February 12, 2016

Recession Thoughts (Tradecraft)

With the financial markets in turmoil, the talking heads are predicting recession, something that won't be realized for a few months at least, if ever. If you didn't own a store during the last recession, you missed out on a delightful period of confusion. Here are some thoughts on what's likely to occur:

Increased Sales. We're counter-cyclical, so when the world falls apart, people are more cautious with their money, and there's no better value than hobby games. They not only beat video games, hands down, but they're a great value compared to all the fees-for-service we call entertainment nowadays.

Local Economic Cratering. The exception to being counter-cyclical is if your town is dependent on the mill (or Boeing). When the mill closes, or lays off a slew of people, all bets are off. When housing took a nose dive (which won't happen again) we saw entire neighborhoods abandoned in the middle of the night, with local businesses soon to follow.

Watch Employment. As long as your customers have jobs, they will spend money in your store. This is your mantra. Repeat it regularly. It will keep you warm at night. I don't really care how people spin the unemployment numbers, we're as close as this country is going to get to full employment in this era. Watch that number. No, don't do that; repeat the mantra: As long as my customers have jobs, they will spend in my store.

Financial Pull Back. If you have a CapitalOne credit card or you have a shaky community bank, expect some pull back. I had my CapitalOne business card canceled due to "economic conditions." I didn't do anything wrong, they just saw increased risk and decided to cancel my credit card. That hurt my credit and could have left me in a bad position, if it was my only business card (thank you Chase). Imagine that happening before a Magic pre-release. For some stores, it did, as I recall. Community banks are under increased regulatory pressure, so they've already become more difficult to deal with. Expect underwriters to become even more strict.

Flight to Quality. 30 game companies make up 80% of our sales. Expect the other 20% to dry up for a period. Expect Kickstarter to take a kick in the nuts, as it's speculative nature provides no better game quality results than pinning a tail on a donkey. Expect fringe, secondary games to take a hit. We used to carry a dozen indie miniature lines before the recession and twice as many RPG lines. The flight to quality killed sales of those cold, and those segments never recovered. They were not good value. You will want to focus on your 30 game companies, because your customers will have made a similar transition. Watch carefully and consider dropping the money sinks with low turns. You'll feel better cash flow almost immediately. Many small companies, mostly dudes in bathrobes with day jobs, will fail.

Focus on Fundamentals. Watch your bottom line. If you engaged in a ridiculously expensive customer loyalty program (you'll see how expensive it is when sales fall), you're probably stuck with it. The same is true with hiring too many employees; this is where you learn the pain of laying people off and hopefully transfer that memory into your hiring practices. If you're going to start cutting, look at your variable expenses first. Does your Internet speed need to be so high for your POS? Are there shifts that don't need two people all the time? Can you downgrade from a dumpster to a couple trash cans, if orders have slowed? The exception to variable expenses is the fixed expense of rent.

Lease Renegotiation. If we're really in troubling times, and everybody knows it, you have a chance to re-negotiate your lease for a significant savings. It doesn't matter how badly you're doing, if local market conditions are poor, you have a shot at big savings every month. This applies even if you have a long term lease. We've got two months left on our re-negotiated lease. We haven't seen a rent increase in 5 years, but that's about to change.

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