The usual play for an established store wishing to expand is to grow inventory. Right now, I could easily justify spending $40,000 on new inventory as a long term strategy. My turn rates tell me I'm missing sales with my lean inventory. It used to be a given that inventory was your economic engine. Build up that engine and you've got far increased earning potential.
Well off stores nowadays see stratospheric turn rates, meaning engines at the rev line, working harder than ever before. My subjective feel for this is a store ten years ago was doing very well with three turns a year. A store doing well nowadays can easily expect six. That's very subjective, but I think it's about right.
This increase in turns, a massive improvement in inventory performance, is an open invitation to mass market, who need high turns with their business model. You can see hobby games now in Target, Wal-Mart, Barnes & Noble, GameStop and even Best Buy, because they make sense. Mass market doesn't respect games, they turn and burn, selling until it doesn't make sense and dumping product on the market. They don't run organized play or hold events, they sell games like commodities, so that's what they've become. Dumping, both by mass market retailers, online retailers and struggling game stores has left retailers with the impression inventory is not a safe harbor. Inventory, the economic engine of a game store, has no value.
If I look around my store, here's what I see: Magic, a third of my sales, being pumped and dumped by Wizards of the Coast and sold online at cost and discounted in the mass market. Board games, another third of my sales, devalued and dumped online as fast as they can come out. Role playing is another twenty percent or so and I've got Wizards selling direct to Amazon and them selling D&D under cost and Paizo with their long term subscription model and online discount store undercutting me, those two games compromising 80% of RPG sales. Finally, I see the only safe harbor, miniature games. We're down to just selling Games Workshop, since Privateer Press and others took us down the devaluation path years ago. We could learn a lot from that miniatures game strategy in chasing brand value and dumping product without it.
So actual games, inventory, the product my business is centered around, is not a safe investment. Sure, I'm getting six turns on inventory, but if you were to ask me what's hot right now? Where are my amazing sales coming from? What are my predictions for the holidays? I have no idea. Good things languish. Mediocre things run up the sales charts. There are more great games than great customers. Sometimes devaluation murders a product in infancy and sometimes it has no effect at all. The acceleration of customer demand feels as if it is temporarily overcoming the mass devaluation of product. That can't end well. The music will stop and there will be quite a few in this industry looking unsuccessfully for a chair.
So I spent $133,000 building a game center, because a solid game store experience is something I can count on, even while the game trade accelerates off a cliff. If I had the skills or the desire, I might consider a coffee shop or cafe model. I read five books on this topic before I decided it wasn't for me. I've thought hard about diversification, both areas that work well within the game trade, like toys, comics, books and the like, but there are certainly no safe harbors there. I've even thought about how to diversify into other areas, like a side business selling off road parts or emergency survival equipment. I might take a lot of money and develop a community outreach program with new staff that goes out into the community to evangelize. A traditional play is also to find a building to buy, assuming that real estate in my local market is stable and affordable. What I am not planning to do anytime soon, but was my plan for many years, is dump a lot of money into inventory, the games that my store exists to sell. I'm not alone in this thinking and that should worry industry professionals.
The tide is turning though, and 2017 has been about that story. So although inventory is no safe harbor, game publishers are beginning to see where this is leading. The larger ones are implementing brand value protection, legally creating price floors to prop up an industry that will suck them down the drain as well, if they don't do something to prevent it. These publishers are increasingly safe harbors. There are fits and starts, as we saw from Black Friday, publishers like Iello throwing up their hands and saying, alright, this weekend our brand value isn't important, but starting on Monday, we will be valuable once again. As if you can turn value off and on like a spigot. My advice for 2018 is find these safe harbor publishers and begin shifting inventory dollars to them from the "a buck is a buck" crowd, no matter how big that company may be or how many butts in seats it provides.