Thursday, January 12, 2017

Report to Stakeholders 2016

This is my second year writing this report, a public document meant for our various stakeholders, modeled after the Steve Jackson Games annual report. I hope it provides our stakeholders as well as the rest of the industry a view into how we do business, which is just one of many viable ways. 

A stakeholder includes employees, event coordinators, shareholders, distributors, publishers and, of course, our customers. This year, it includes private lenders who helped us finance our Game Center. We have four private lenders who lent us thousands of dollars to make the Game Center happen.

We are a single, brick and mortar store with no significant online sales. Online is where we go in the rare occasion we can’t sell something in store. With a highly developed system of clearancing old product, our online sales are something in the neighborhood of less than one half of one percent. 

We intentionally and entirely focus on our single brick and mortar store customers. We have no interest or desire to sell online to any degree, nor are there plans at this point to ever have multiple stores. One great store. That’s the model.

2016 Summary 

Sales for 2016 were flat, +/- half a percent, depending on how the accounting is jiggered. That’s good considering the trials of the year.

2016 was a very difficult year for us. April found us without a lease, still in negotiations for construction and new lease terms. At the time, there was a chance we would have to move, and a smaller chance we might shut down for a short time, if we couldn't come to an agreement. The risk was small, but it was there. I spent the first quarter scouting new locations.

I had been seeking conventional construction funding since January and was unable to secure a loan, so when we signed the lease agreement in April, including the build out, I was financially unprepared to begin right away. Construction was delayed about 10 days while I came up with the first payment of $20,000. I spent the following two months securing the rest of the construction money through private lenders. Although construction was delayed significantly, one reality of funding was I wouldn't have had the money if they had finished on time.

So how did we fund the second half of this $133,000 project? We found private lenders by mentioning our need for funding in a Kickstarter update. It made sense that we were able to find people in the estimated 20% of the 20% of people who used our game center (or supported the project), a really small number. For those wondering, we offered competitive interest rates, promissory notes, amortization tables, and a personal guarantee on each loan. Each loan was slightly different based on other perks we offered or requirements we had to provide. I don't think I would have been able to craft such deals earlier in my career.

It actually went up another $2K since I made this

Construction was scheduled to take 4-6 weeks but instead took an astonishing 6 months. The project scope was just poorly conceived by the project manager, along with some smaller delays. Our sales suffered pretty badly.

The project cost us an additional $15,000 more than planned at the end stage. Things that worked fine at the beginning of the project, often were found broken by the end. To help us make this up, we were given free rent from September through December. These rent concessions were critical in digging us out of a deep hole.

With strong holiday sales, we ended the year broke but happy, with all our “running debt” paid off and our invoices up to date. I had started using credit cards in the fourth quarter to pay distributor invoices, and by January, I had 100,000 new frequent flyer miles (which I've since used for my Summer vacation).

Rather than entering January with a nice bankroll, we now enter it poor but happy with a bunch of great product releases coming soon, along with strong events that come with increased sales. We saw some of this already. After construction completed, we saw a 20% sales increase in November. December was up 12%, making it our best month ever and Q4 our best quarter ever. January is projected to be slightly stronger than last year, with Star Wars Destiny re-releasing, a Magic pre-release and a Pokemon pre-release for the second half of the month.

Winners and Losers 

Sales numbers for this year are suspect, and not worth much, considering the store was in shambles for six months of the year. Some customers kept shopping with us during this time, with the miniature gamers being notable standouts, their department being the only one that went up during construction.

In the beginning of the year we dropped a game we opened with in 2004, Warmachine. The reality of our region is there aren’t enough miniature players beyond Warhammer 40K. There’s a core group that wishes it wasn’t so (as do we). I might bring Warmachine back if we can get a weekly event going, but honestly, the store has functioned much better without the cash flow drain and mediocre sales that have plagued us with this game, and the popular miniature game of the moment.

It’s my understanding that Privateer Press has addressed some of our issues last year, so there’s always a chance it comes back. However, decisions were made. Bridges were burned.

2017 Plans 

With a 7 year lease in place and construction completed, the plan for 2017 is to heal. We still have projects to get the store into better shape. Our board game library is going to be greatly expanded. We have a demo program we plant to develop. However, we are cash poor, and need to better understand our new financial situation with construction loans and the like.

Events are our growth focus. We have space for new and expanded events. Some of these are beginning to blossom. Our board game nights have doubled. We have Magic events six nights a week. The new Star Wars Destiny events are drawing crowds.

We’re working on new concepts like mini cons and board game designer fairies. We’re hoping to see modest sales increases with event attendance and so far we’ve been pleasantly surprised.

For the long term, we plan to settle into this space for our lease term and expand inventory. We’re poor now, but future investment is inventory, inventory, inventory. There are a few things we still need for the store, like a sound system and an upstairs TV monitor, but those are minor items. The primary goal is to build our economic engine, the inventory. We could easily triple it in our existing space.

Finally, the long term plan is also to transition into what I would call a second stage store, complete with full time employees. We’ve ran the store as a scrappy start-up for years, something I credit Michael Parker for designing. As we grow with that model, we sacrifice sales and customer service. In the future, I’ll be looking at full time staff with a full time outlook. There’s nothing wrong with our current staff, there’s just a different outlook when you’re a 40 hour a week, full time employee.

2017 is looking pretty hopeful!

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