Wednesday, December 26, 2018

Complaining Like a Millionaire

I like to point out all the shortcomings, double dealings, and head scratchers of the game trade, but I do so out of love. I've been tremendously fortunate to be surrounded by fantastic people, both my staff and in the trade. I talk about all the things I would rather do, whether it be open a Subway franchise or live on a sail boat and never wear shoes again. I have a rich fantasy life, made possible by those who literally make it all possible.

The stress of the holidays has made me irritable, short, and difficult to be around. I kid myself, because that's pretty much me throughout 2018. It has been a tough, unpredictable, and worst of all for my store, tight year. In a retail store, money is freedom, and lack of it is being asked to make something from nothing. I haven't missed an opportunity to let those around me know these things. As I see my staff transition, people come and go, I want to both apologize and again stress how thankful I am for those who do so much of the heavy lifting.

I'm driving down to Baja right now, where we'll relax on the beach and become bored with being lazy. I'll do some reading on Native American mythology, as well as read through the 5E remix of Isle of Dread. I've got a big D&D campaign about to start. In a week or two I'll write an annual state of the store post. It will basically say in year 14 we grew a small amount, we had trouble making sense of a chaotic game trade expanding in some areas while bursting in others, and we'll do great things in 2019 with a renewed enthusiasm. I'm too tired and sick for enthusiasm at the moment, but the thankfulness remains.

Sunday, December 23, 2018

People Gotta and Three Ring Circuses (Tradecraft)

What is a successful product? It's about opportunity cost. A successful product is one where you make the most money compared to other product opportunities. This is why GMROI, Gross Margin Return on Investment is a superior tool to turn rate analysis. Given your gold pieces, what inventory you sold to the adventurers brought you the most return?

There is a caveat that says this product enables you to continue what you're doing. Sometimes a product line is slow, but it enables you to continue selling something fast. Right now I would love to drop my Magic singles. Lacking any meaningful tools for performance analysis, it appears to be an area I would normally give the axe. I find it unbelievable the IT leaders in this field can't provide the most basic tools for this analysis. When was that card added to my database? That's enough to begin providing me data. I continue to sell Magic singles because it's a major part of my Magic Industrial Complex. There are singles, sealed packs, card supplies, events, and at the rate of player involvement, even snacks play a major role in the MIC. Cutting Magic singles imperils my ability to continue doing what I'm doing.

I was at a store in Alaska many years ago that sold games, weapons and porn. That store is still there, dominating the landscape. They understand their target market, and apparently there's no worry that weapons and porn turn off a particular segment of their customer base (they are a culturally resilient crowd). It does not imperil their ability to continue doing what they're doing. Meanwhile, there are stores in the Midwest that are regularly harassed for carrying Dungeons & Dragons. Myself? We just received these really cool Frank Frazetta puzzles that I had neglected to inspect very closely. Barbarians on piles of dead bodies is perfectly acceptable in American culture, but there's a bare breast I hadn't noticed. I sighed, said something about art and a different time, and put them on the top shelf of our puzzle section, setting the item not to re-order. That puzzle imperils my ability to continue doing what I'm doing.

Frazetta Jigsaw Puzzle Barbarian ALC Studio ALCRHRZ003
That continuation assumes I have a personal focus. My business partner once compared selling game to widgets, as in "games, women's shoes, it's all the same." For me, that's not true. Well, not entirely. One concern many of us have is losing passion for what we do. I just finished writing a 300 page D&D campaign, so I love that this stuff permeates every part of my life. I have no passion for selling women's shoes. It might personally make me wealthy, but I would dread going to work in the morning. Selling a 13 year old girl a starter box of D&D gets me out of bed in the morning. Explaining which of the six monster books we carry is best for what you're doing puts a twinkle in my eye.  I mention girl, because I love the fact this game, that has been such a big part of my life, is branching out into so many demographics. Plus girls are more likely to ask for directions, while the guys are hesitant to look ignorant. That this puzzle box is next to this paragraph tells you of my plight in this field.

So we worry about the focus of our store. When I had golden handcuffs from selling Yugioh, in which my duel terminal investment required me to put up with a loss of focus and really poor behavior, I was counting the days until we had freedom to ask them to leave. We didn't hesitate when the time came, it was days after we sold the terminals. Likewise, I see the future of retail being one of two things, somehow, laser focusing on your one thing, using every trick in the book, every promotion, every three ring circus trick to eek out a living before Amazon and local government regulates you out of business. That's one option, and I know a group of top retailers doing that thing. It requires boundless passion to continue doing your thing.

The other option is selling women's shoes. You stop focusing on that one thing, stop trying to up your value proposition in this one area, and shift to something else. People gotta eat. People gotta get their hair cut. People gotta get gas. It's the people gottta strategy. You find that thing that's immune to the persistent pounding against value employed by the publishers, distributors and retailers in the game trade and you instead find something else, your women's shoes. Retailers stocked up like mad on Amazon on D&D books this month because Wizards of the Coast cares nothing about brand value protection. Wizard's allowed their partners to dump. Distributors likewise dumped. Retailers are hoping to sell the dumped product in the first quarter. I shake my head and look closer at the people gotta strategy.

The problem with people gotta is it's not continuing to do what you do. Most game store owners can't employ the people gotta strategy because they are not retailers, they are game store owners, a subset of gamer, a value seeking creature that employs short term satisfaction with rampant consumerism. Bless them all. Just as I balk from women's shoes, game store owners would be unenthused and pretty terrible at running a cafe, or whatever other people gotta business they fell into. But most are also incapable of maintaining the three ring circus of the one thing. Most will fail either way. I want to both help them and encourage them to fail faster.

Which perhaps brings up a third strategy, of waiting for the retail apocalypse when the crowded marketplace of 7-10 times the retail space needed, finally gets reduced to a manageable level. But knowing I get little benefit when competitors close, I wouldn't hold my breath for that. I'll continue with the three ring circus, get the occasional thrill of turning on a kid to my favorite game, and fantasize about what people gotta do. Until then, please ignore that puzzle on the top shelf. It's art and it was a different time.

Tuesday, December 11, 2018

Inconsistency of Commodity Experiences

When I look out the window of my store, I'm reminded of a story. I accompanied a friend to buy a new BMW at the dealership across the street. He did a Euro delivery deal and walked away with a date to pick up his new car in Munich. I went with him on that trip and it was a wonderful time and the car was fantastic. My own BMW, a higher end model with lots of problems, was costing me a fortune. I went to that same dealer, met with the same salesman and requested the identical car, with the identical deal. Nope.

The salesman insisted I pay another $700 for a delivery fee that wasn't required on European Delivery. But what about my friends deal? Nope. Can't have it for that price. To give you an idea of how car dealerships work, each dealer gets an allocation of cars each year, say 100, and they need to maximize the profit on each of those vehicles, which is why there's so much haggling and an attempt to get you to pay full price in a market segment where almost nobody pays full price. It's the poster child for dumpster fire retail. European Delivery, offered by a handful of manufacturers, is outside the dealer allocation, so they can sell as many of those cars as they want and it's essentially "free" money. Turning me down for $700 was turning down free money, in my mind at least.

I drove over to another dealer and I swear I've never seen a car dealer so overjoyed to work with me. I handed him a complete deal, with all the details, for an imaginary car in a foreign country and he would make $1,000 for his efforts that day. He would never see me again. I swore I would never step foot in that first dealer and it left a bad taste in my mouth. It's a taste I encounter daily, just by looking through my store window at that same dealership across the street.

Driving through France in my perfectly configured dream car (I ended up really hating it)

What's the relevance of this story? We sold a box of Magic the Gathering: Ultimate Masters to a customer. The clerk was unclear on the price, as it has been like shifting sands with us. This product was in fact, allocated, meaning, in theory at least, we are only getting so many and we needed to maximize profit based on market conditions. Even though the price was clearly stated in our point of sale system, the clerk sold it for 10% off.

Later, his buddy came into the store, and asked for an Ultimate Masters box like his buddy bought, with no sales tax. Pfft. That wasn't going to happen. No sales tax? That sounds like his buddy went to a competitor.  We rang him up and he was rightfully upset his box was 10% more expensive than his friends. He was angry, he swore he would never be back and said some mean things, and I lost a customer. He probably went and told all his friends as well. Nine friends more than likely. Or maybe he'll write a blog post.

Too much ketchup on your burger? Not at McDonalds.

There's two ways to lose a customer, one is treating them poorly through bad customer service. The other way is the irritation and anger that comes from inconsistency of experience. It's why people give in and just go to McDonalds even though the independent burger joint is often better. It's not always better, just often. Often is the enemy of consistent experience, and McDonalds may be kind of mediocre, but it's always mediocre in its consistent mediocrity. In any case, there is often a sliding scale of bulk CCG product, but there is only one game where we have this chaos of allocations and commodity pricing, Magic: The Gathering.

The shifting scale of commodity pricing and allocations adds a level of unprofessionalism to the game trade. It makes us all car dealers, makes everything negotiable in the eyes of customers, and lowers overall customer service. Every retailer thrives for consistency of experience. Wizards of the Coast believes these allocated products are a type of halo product that accentuates the brand, and they incentive their entire retailer marketing scheme so retailers chase these allocated products. The joke is they only care about "butts in seats," with their WPN program, but as retailers, we chase butts in seats in order to get these commoditized products. Everything about that program is designed to devalue the product while spreading the reach of Wizards of the Coast. It's great for them, but a terrible, inconsistent experience for everyone else. The halo has morphed into horns, trampling consistency of experience, and I think it's time to be discarded.

Monday, December 3, 2018

Fickle Store Owner

As a store owner, what really drives me nuts more than anything else, are comments like, "That's ok, I'll just buy it on Amazon," or "Amazon is out, so I'm here." These comments make me a little sick to my stomach and they're the worst thing ever.

Oh wait, that's not it.

As a store owner, what really drives me nuts more than anything else, is not knowing. When I accidentally order an expansion for a game I've never carried and it becomes a best seller. When a $25 map pack for a $50 D&D book outsells the book. When I can't figure out if Amazon is eating a quarter or a half or three quarters of a market segment, or whether it's actually Amazon racing to the bottom, or my friends who own game stores. When a long time customer simply disappears. When a group simply stops playing a game. When nobody comes.

Yeah, that's what drives me nuts more than anything.


Maybe what really drives me nuts is the apathy that develops over time because caring is so painful. Seeking the unknowable is an act of faith, and you can throw yourself off that cliff of faith or you can live in an agnostic world of gray. Deciding not to care is psychologically protecting yourself from heartbreak. It's building a retaining wall against the slow erosion of peace of mind. It's going through the rituals of retail never sure if They will come.

No, it's definitely the first one.

Saturday, November 24, 2018

The Falling Sky (Tradecraft)

There is the perception and certainly some anecdotal evidence that there's a correction taking place in the board game market. Publishers are feeling it and stores are certainly feeling it. It's not that there isn't a huge plethora of great games, because  there is A HUGE PLETHORA OF GREAT GAMES. Oh dear lord are there an awful lot of great board games right now. The games are great, but there are simply too many. Or in economic terms, there is too much supply for the existing customer demand, with the modern caveat of from me, and at full price.

As retailers, we are always on the look out for great games and we are trained to order deeply when we find them. Otherwise, the game is gone in moments and those with the deepest pockets make the most money. Some would say this is the only way to make money selling board games. You buy deep or you go home. So we buy for the duration. How many titles do we buy? We buy the good ones. How many is not a question we normally ask.

There is no simple mechanism for managing inventory for a department, keeping it in its lane. I use and evangelize the retail tool, Open to Buy. I budget for the entire store with Open to Buy. The complexity of budgeting by department is something better handled by software. That's not to say I won't attempt to make such a spreadsheet, only that it's near impossible to get small hobby retailers to use a basic OTB spreadsheet and most are certainly not going to divide up purchasing by department. That's like preaching pivot tables to cave men (note I don't know how to use pivot tables).

That leaves us where we are now, with many retailers deeply overstocked on product that will never be bought at full price. How deep depends on the other thing I like to preach about, performance metrics. I am certainly one of those retailers beset by fantastic games nobody is buying, but my quarterly inventory performance analysis, usually related to turn rate metrics (or sales per square foot or GMROI), means my problem is a Q4 problem, rather than a 2018 problem. A lot of retailers are using Black Friday to exhaust port stuff I haven't seen in my store for many moons, and it's frankly too late. Good for them, but the crisis could be averted by a regular culling of the herd.

My point in all this is we have tools to keep our stores running smoothly in both the buying (Open to Buy) and inventory management (turn rate analysis). Now all you have to do is thread the needle and master the the rare independent game store skill.... selling. Buy smarter, manage better, sell the hell out of that cardboard.

Sunday, November 18, 2018

5 Thoughts on Hiring

I'm pretty sure I've written an article similar to this before, but with the holidays coming, I've been involved in the hiring process of late. For the first time, I've used professional tools to seek candidates outside of our network of customers and fans, notably Zip Recruiter, which I recommend.

In plain talk, it means rather than trying to recruit gamers to be game store employees, I've sought out expertise with hopes of finding some hobby gaming experience. With hobby gaming permeating society as never before, some say at exponential rates, it doesn't take long before you find a regular joe or jane who doesn't consider themselves a gamer, but nevertheless knows a dozen different games.

This is one of those cases where store owners disagree, often strongly. Do you hire the gamer to retail or the retailer to sell games? You can't train for passion, but you can train a muggle to play games and talk competently about them. Some will argue that they still won't have authenticity, but I've given up on that concept, as a good number of men, sadly, will never accept that authenticity in half the population. You'll have to be content with stellar customer service and reasonable product knowledge.

On the other hand, there are many gamers who will never master the social skills and customer service necessary for zero tolerance retail, which is what we have nowadays, with toxic review culture. When stores get one star reviews over the type of greeting a customer gets when they enter the store, it changes my focus. You can't lose with either recruiting method, but at a certain point you tire of trying to turn partisans into ambassadors. A retail centric employee may not know how many spells a first level Wizard gets, but they sure as hell say "Hello" every time you walk in.

So that's my strategy for hiring right now. What I really wanted to write about is advice on how to interact with a potential employer as a candidate. Candidates in our scenario are often inexperienced in the hiring process, because of our bottom of the market pay rate (someone has to be at the bottom of the range, and that would be a game store). Either they're young or perhaps have moved up in the same company over the years. The job interview can seem confrontational, which is somewhat true, since both parties want to see if they can make a strange shaped piece fit a strange shaped hole.

Here's my advice for candidates. For the most part, consider an interview exploration. Do you really want to work for these people? Do they offer a work environment that will let you thrive? With unemployment at a historic low, there should be more give and take than desperation. So here's my list:
  1. Follow the Process. There are those who would tell you to skip to the head of the line by directly contacting the company, tracking down the hiring manager or otherwise not following directions. Or in one case, coming in with your parent. Although having an inside source is a great way to get a job, going around the process is a great way to irritate potential employers and possibly give away what might be a confidential process. Go through the process, be courteous, follow up, and go through the usual ritual. If you're interviewed, I think you're owed a follow up. Applying? Not so much.
  2. It's a Conversation. There's a lot of information exchange, but what we're really trying to do is determine if you can handle a customer facing position and express yourself coherently and succinctly. Even more important, we want to determine if you're the kind of person we want to spend a lot of time with. For some, this might seem like a trap, and the less said the better. Some people talk way too much. There is a middle ground.
  3. Trajectory. We're looking for a job trajectory that leads you to this point. Retail is one of those things a lot of people circle back to when they're unhappy in a new field. What we would rather see is an associate bottle washer promoted to an assistant manager of bottle washing to manager of sanitary containers. In the case of line employees, a job or two in retail directly leading to this point in time is ideal. If we're digging into a resume to find relevant experience, because you've moved on from retail, it's not a deal breaker, but it's not a good sign. It looks like a fall back plan. With wages rising, and college level positions at half the number of college graduates, retail is becoming a place where many people will spend a good part of their lives. I mean that's what we're signaling when we raise minimum wage 10% a year, right?
  4. Research the position. A notable candidate will demonstrate they've learned a little about the industry, how it functions and the role of the store within it. It's a good idea to do some company research that shows you're interested. This will not go unnoticed. Every company has a website or Facebook page nowadays, so spend some time learning about a future employer and their trade. Tradecraft is one of those things some employees will never get and is often not trained. Showing an interest in how the sausage is made, not just where you'll be standing when you turn the handle, impresses business owners.
  5. Be Honest. Be honest about the compensation, scheduling, or other areas that may not work for you. Sometimes there's wiggle room for the right candidate. I'm likewise up front about potential advancement, or lack thereof, and our ability to pay competitive wages and what skills I envision a candidate picking up in the future. Often the opportunity to learn new skills and build a resume is more valuable than the compensation. Often when people want more money in a job, they really just want more challenges and a chance to succeed at something new. Training and learning new skills that help the business are great ways to get past the fact that retail compensation, although rising quickly, will likely lag other opportunities. 
Thanks! And please share if you thought this was helpful or have someone in mind this might benefit.

Thursday, November 8, 2018

Mistakes and Intent

For two hours this week on the day it was announced, I sold the new Ultimate Masters Magic set for a ridiculously low price of $225. There were a few reasons. This set was initially greeted that day with profound indifference. When I queried my staff, they told me it appealed to the grinder crowd, which has nothing to do with gay sex, I'm told, and everything to do with wheeling and dealing Magic cards as commodities. That is certainly not our crowd, as we cater to the more casual player. My sales rep threw up his hands with a big "who knows" when I asked if he thought it would be hot. The biggest reason I low balled it was the release date, December 7th.

Why is that important? Like 90% of game store owners (I took a poll), I use the fiscal calendar year. In the United States, if my inventory value was X on January 1st of this year, I am taxed on the amount over X on December 31st. It's taxable income hidden in inventory. Canada doesn't have this, which is why you can see glorious "museum" stores there with vast inventories. Also, in case you're wondering about changing a fiscal calendar year, small corporations like mine need permission from the federal government. Their response is "get bent, you made your choice."

A Magic release in December, although likely profitable, is not welcome. It will mean holding extra, inactive stock of this product in exchange for strong turning stock that is actively making money. Long story short, the correct amount of Ultimate Masters to buy on December 7th is 24 days worth. When I buy a Magic set, it might last a weekend or it might last three months. So Ultimate Masters was ultimately dangerous, especially at a price point of $336 per box. Blowing it out is a reasonable fiscal decision.

So that night I mangled a flyer to read $225 to attract customers I wouldn't normally have, for a product I didn't want, that I necessarily needed to blow out in 24 days. I posted it in our private Magic forum on Facebook, hoping we might get a few pre orders in the next few weeks. Then the calls began. My manager texted me, asking if I was sure that was the price I wanted. Store owners from 200 miles away called to make sure my head was on straight, because their customers were about to jump in their cars and drive to my store. Then I checked my distributor's website, because remember, Wizards of the Coast just stopped selling direct to game stores. Oh boy. I had made a big mistake.

Our distributor Magic prices are going up significantly starting January 1st, because Wizards of the Coast is reducing our margin significantly without raising the MSRP.  That January 1st price change date assumed there were no other Magic releases for the rest of the year. This surprise release caught everyone by surprise, so those January 1st margins? They went into effect starting in November with Ultimate Masters. Not January, right now. What was going to be a modest profit on this release, was now going to be $10 of gross profit, which is a bit of a disaster. So now what?

I did what any retailer would do, I made a course correction and increased our box prices to $250, which was still $50 less than any online price that evening (putting it at $250). The two people who bought boxes at $225 got to keep their orders intact, of course. I didn't suddenly demand an extra $25 from them. One person who wanted a bunch at $225 but couldn't pay that evening was angry and threatened me, but we eventually came to a resolution that made us both not homicidal. Here's where it got a little dodgy ethically though.

My crazy price had spread far and wide. There was a Reddit post. Reddit is an Internet bulletin board system I'm told. The resulting buzz for $225 per box brought in many customers, who ultimately shrugged and paid $250 a box, because it was still the best deal out there. I sold a couple dozen boxes, where most of my store owner friends sold a couple. The question you should ask: Was this Bait and Switch?

Bait and Switch is where you advertise one low price to get customers in your store, only for them to discover a higher price when they arrive. There's a good article on this here. Retailers make mistakes, and I clearly had made a big mistake with this one. The difference between bait and switch and an honest mistake is intention. Did I intend to advertise for two hours my $225 price so I could raise it when customers called in later?  If so, that's illegal bait and switch. Was it an honest mistake? The same actions, even though they resulted in the same phenomenal sales that would have occurred with illegal and unethical bait and switch, are just a mistake, if it wasn't your intention.

Eyebrows were raised, and what I want to say is good. Eyebrows should have been raised. It's a shady and illegal tactic if done intentionally, and the only way to know for sure is to get into my head. That's worth an eyebrow raise. I also want to say sorry, I made a mistake. I apologize for that. I paid the rent on Ultimate Masters, so I'm glad this happened, but I also acknowledge I burned a lot of social capital to do it. I certainly won't make that mistake twice, if I can help it.

There are some who will be angry and suspicious regardless of what I say, and to them, sorry, I can't help you. For the rest of you, I think this is an interesting parsing of a mistake and what this means ethically and legally. We make so very many mistakes in small business and most of the time they cost vast amounts of capital and time. It's not entirely terrible when one works in your favor. Now I just hope my allocation is big enough to cover my pre-orders. Whee!

Monday, October 29, 2018

5 Reason You Shouldn't Start A Game Store

Here are five reasons you shouldn't start a game store, right now, in California specifically. Some of these apply to other regions, but it's specifically my market. Later I'll write about five reasons you should start a game store in California right now. There are few times when it's clear you absolutely shouldn't start a business, and they tend to involve national catastrophes. Most of the time, there's a little of column A and a little of column B. But for today, here are five reasons you shouldn't start a store in California right now:

1.  Wages. While other regions of the country work with the very low national minimum wage of $7.25 an hour, California's minimum wage is at $10.50 an hour and rising dramatically with no end point in sight. In three years it will be double the national minimum and it will continue to rise by law. This is because we've got a mismatch of education and jobs and we're trying to turn every job into a living wage position. I don't know how traditional retail stores will survive this without double digit growth and robots. Retail stores that use an MSRP system cannot raise prices to make up for higher wages and the only hope is a "rising tide" scenario where all these workers (about 50% of the workforce and climbing) have more money to spend with us. But you know where they'll spend it? Let's look at number two.
2. Rising Inflation. The Western region consumer price index rose at 3.4% last year, over 50% faster than the rest of the country. This means not only are your expenses rising, but the expenses of your customers are on the rise. The game trade addresses inflation by shrinking your margin, which we'll get to, rather than raising prices. With all that wage growth in California, you may wonder about the net result. California income rose 4.5% this year, which only leaves a small 1.1% net if you look at that 3.4% inflation. Wages are rising, inflation is rising, nobody is getting richer, but your store is become more expensive to run.

3. Retail Apocalypse. The report of the retail apocalypse is mostly overblown, however, there is some truth to this as the United States has roughly ten times more retail square footage than other developed countries, with large retailers falling off cliffs regularly at this point. There are simply too many stores, that are too large, selling the same things and scraping by.  The likelihood of a recession nuking as many as half of retailers -- permanently -- is rather high, leaving survivors like us in strip mall ghost towns. There are only so many nail salons and massage parlors to fill in the holes. At least half of retail, right now, are dead stores walking. A recession is coming (it's always coming) and there will be a retail reckoning. Although game stores are counter-cyclical, meaning we'll survive fine, the retail infrastructure is likely not to be the same afterward.

4. Shrinking Margins. The big publishers like Wizards of the Coast and Asmodee reduced retailer margins by several percentage points each. This means you have to sell more product to make the same amount of money. My store needs to sell $7,500 more each month, just to offset Wizards of the Coast's margin shrink. That's an extra 150 D&D Player's Handbooks, or 1,500 copies if you're Amazon, who sells these books at our cost. That's pure fantasy. We're moving towards mass market margins, which means you'll need rapid growth and high sales velocity to stay in business in the future.

This makes it increasingly difficult to start a store with Magic as the cornerstone, and that's probably half or more of new stores. When Magic is no longer the cornerstone, it also means stores will be smaller, with less game space and less marketing power for the rest of the game trade. Those who don't believe game stores are a positive marketing force for their game, may be in for a surprise when they change formats.

5. Massive Instability. Traditional retailers, who rely upon a catalog of games, built over decades, are struggling to survive due to the constant pressure of one-off crowdfunded games. There are ten new board games released each day. While traditional retailers build a business with traditional relationships with publishers, crowdfunded game designers are interested primarily in getting a game directly to the consumer, rather than building a catalog and a brick and mortar company. This instability leads to disintermediation by desperate game publishers, which often harm brick and mortar retailers. Crowdfunding is something we've embraced as retailers, but for the most part it's a disintermediating force. Publishers of all stripes desire to get as many direct sales to consumers as possible. You are the middle man. The middle is friction and cost. Nobody wants to feed the middle, if they don't have to.

Doom and gloom is easy. Retail is about two steps forward and one step back. Anyone can talk about that step back. In the next post I'll talk about the two steps forward, why you should start a game store. In reality, it's a poor business model in a ramshackle industry and you should do anything else if you can. However, if this is really what you want to do, there are good reasons to get in now. Or at least that's the sunshine I'll be selling with my next post.

Friday, October 26, 2018

Your Extended Purgatory (Tradecraft)

I was lamenting about the slog of retail yesterday, because really, most of us would be promoted or fired if we did the same thing for over a decade. One of my store owner friends, who has 24 years in business, commented that maybe, with my 14 years, I'm still in store owner purgatory. Store owner purgatory is when you are not quite profitable enough to do what you want, you have limited wiggle room, and all you can really do is work your way forward out of the hole.

When your perspective is you have done this long enough to be a success, a slog in year 14 is demoralizing. It's your ego telling you you're better than this. Your ego is a dirty liar, so if you can trick it, you've accomplished something. If you take a longer view, like say, if you've been doing this for 24 years, it's a liberating concept that maybe your struggle is only coming to a middle. Your ego can go back to sleep while you vacuum another million square feet of store space.

The real problem as small business owners is we know how to fight, but we don't know how to win. We make good underdogs but terrible overlords. Americans love the underdog and as you can hardly make a mistake if you are small and scrappy. Big and arrogant? You can't walk to the restroom without offending someone. Most of us don't have the answer to "Now what" when it comes to success. This is why small business ownership is always a risk and why when we approach the top, we tend to make one of two big mistakes: disengagement or overextension

I work on my Jeep to avoid gnawing my arm off, typical disengagement.  It means I'm taking my eye off the ball and growth is taking a back seat. I engage in risky construction projects more out of boredom and the need for a new personal challenge, rather than business need, typical overextension. Business eventually becomes boring, but only when you've reached a certain height. Re-define your progress as being somewhere in the middle, and your perspective brightens and your decision making improves. So the lesson here is find your extended purgatory by redefining your struggle as somewhere in the middle.

Wednesday, October 17, 2018

Embracing Your Inner Venkman (Tradecraft)

One of my friends loved to play a fighter in our D&D game. He had a high powered job, owned his own business, had a growing family, was active in the community, but had zero time to learn new editions of D&D, so he played the fighter. Run in and smash monsters. Mostly he wanted to hang out with old friends. He and I both referred to him as the Venkman of D&D players.

The character Peter Venkman from Ghostbusters is a brilliant scientist, but he's also a charlatan. He's highly educated but refuses to play his role, which allows him to think outside the box. He kinda knows his trade, but he's highly skeptical and doesn't take it too seriously. As a metaphor, being the Venkman embraces imposter syndrome and turns it on its head. You know you're smart enough for this game and you know everyone is faking it until they're making it. Eventually you'll master what's going on and rise up to save the day. Much like Peter Venkman.

Imposter syndrome is strong in the game trade. Most of my peers are young, often having started in their 20's or early 30's. Most never owned a business before. Many will tell you their previous game trade experience was working a few years in a game store before owning one, or like me, they had never worked in a game store before. I also can't think of any with business degrees, but most have some interesting experience in their backgrounds.

If you've never owned your own business before, let me tell you the the freedom is both breathtaking and terrifying. It's like parachuting out of a plane with armfuls of silk and being expected to knit a parachute on the way down. Will you make it? Nobody cares one way or the other. Society doesn't have a support network for people dumb enough to jump out of planes. For months I felt like the job police were going to come in and tell me to get back to my real job. As you leap out of the plane, you scream, "I don't belong herrrrrrrrrrrrre!"

Those of us who have succeeded did so by quickly seeking out and mastering best practices, not because we wanted to succeed, but because we didn't know what else to do. I learned how to run a store by running a store, losing a ton of money along the way. During this time, many will tell you about their imposter syndrome. For me, I always fell back on Venkman, referring to myself as the Venkman of game store owners. I'm smart, I'm brash, I can figure this out and save the day, but mostly I'm faking it until I've made it. My investor friends, including the fighter, would use the Venkman metaphor in our annual meetings.

Being a Venkman does mean rising to the challenge, rather than just being cynical and cocky. During my first Christmas season, after a month in business, an older woman scolded me for my pitiful board game product knowledge, as I knew perhaps six board games. The next month I started a private board game night, staying late once a week with friends to learn new games. Within a couple years, I had 100 or so board games I could talk about, having played each of them, and probably four times that number I could fudge. Fudging, reading the back of the box, comparing what you don't know to what you do know, is the key to board game sales. There are ten new board games a day. Nobody knows every game. Nobody needs to.

Being the Venkman also means relying on those around you. I'm probably our third best sales person right now, in year 14, but I've got my Egon and Ray to help me out. An important Venkman trait is to surround yourself with people smarter than you. I've got a Magic judge on staff who can answer any Magic question, a board game guru who can sell $1,500 in board games on a busy December day, a manager who can handle any crisis and solve any problem, and support staff who go out of their way to satisfy customers. With such great staff, it turns out I'm still the Venkman.

Sunday, October 14, 2018

Demographics (Tradecraft)

I would rather talk about sex, religion or politics than demographics. Demographics is about class and race and some rather unsavory conclusions about how people spend money. Many new store owners ask about demographics and I'm reluctant to have that discussion casually, because it's nuanced.

Demographics for a game store are how people spend money right now.  We may want people to spend money in a different way, we may (and should) build a store inclusive to everyone as we seek out new markets, but demographics is about right now. How is money being spent on hobby games right now. Who are these people?

Some store owners and even corporate retailers erroneously believe they should place game stores where there's the most money. Games Workshop did this in my region about ten years ago, placing a store in the highest income zone in my region. I laughed, and they were gone in a couple years. I've charted out my customers by zip code and those high income areas might as well be pastures, for the revenue it brought me. 
High income is not the key to demographics. The wealthiest among us tend not to play hobby games, or at least they don't buy them in local game stores. I used to be one of these people before I started, just making six figures, driving a new BMW and wondering why stores weren't catering to me with my particular tastes. It turned out I was an outlier. I was not the target market, and it took opening my own store to realize that. My high income peers spent their hobby money on skiing, buying cars like mine, and travel. The chart above shows hobbies by income (click on it to blow it up).

On that chart, towards the bottom is playing games. It's a past time for those making around $50K a year. However, I would put hobby games a tad hire than that, being a high brow type of playing games, perhaps $60K-$80K a year. This is my tribe. Any higher or lower and I'm spinning my wheels.

I have no way to track education amongst my customers, but my general feel for hobby gamers is they are fairly well educated, but somewhat underemployed. They are smart people underutilized in the work force. What that tells me as a store owner is I seek out high education levels but only upper middle income. A low level of education and a high income is not my tribe, as games for them are Monopoly and they spend money on their Jeeps and jet skis. Low income and high education better be a college campus or I'm sunk there too. An awful lot of store owners are slogging away in communities like this due to the hollowing out of the middle class.

The graphic below is from the Phoenix area (thanks to Michael Bahr for finding it). If I were planning to put a store in this region (which dear lord doesn't need another one), I would be looking for that third tier of income, the $60K-$90K crowd. I would shun higher and lower income areas and hopefully find a central location along a corridor with third tier customers. I could be entirely wrong about the Phoenix metro area, but that's where I would start.

Of course, I would also want to look at the education level of these Phoenicians, hoping they had college educations and they weren't high paid blue collar workers. Now you can see why this is a touchy subject. 

Gender is really only an issue if you're planning to open near a military base (85% male). Our customer base tends to be 75% male, but there's not a good way to build a store around that, since the population is evenly split by gender. Note that college campuses used to attract more men than women, but now women make up 56% of college campuses, with their number expected to rise slightly over time. Gender is a growing segment of hobby gaming, however, but that's more about store design than choosing a location.

Now lets get on to the elephant in the room, race. The hobby game trade does not appeal equally across racial demographics. It just doesn't. Publishers might dabble with themes and concepts within hobby games, but you can't change cultural norms by trying to make a version of Catan that appeals to a new racial group, although games like Yuigoh have somewhat cracked that. If a group doesn't play hobby games, it's going to be tough to change behavior. We explored that a bit when we visited game stores in Mexico and Guatemala this summer, where machismo meets Not Invented Here.

The vast majority of our customers are Caucasian and Asian. I live in Richmond, California which has some pockets of the right income and high education levels, but racially it's primarily African-American and Hispanic (65%) with a lower income threshold. I enjoy living in Richmond, but I wouldn't put a hobby game store here, so I drive 30 minutes a day to where a game store makes sense. As my neighborhood gentrifies, the local people fret, but I see game store opportunities emerging. Maybe another decade. I'm so conflicted on the topic of gentrification as a capitalist liberal.

Anyway, this my impression of what I'm looking for in a game store demographic. There are entire states in this country where this demographic doesn't exist. It's not there, no matter where you look. When you don't get your demographic, you either get wealthy people who couldn't care less about your existence (cater to their children and sell them toys, there are examples of how this can work), or you get gamers obsessed with value-seeking in a salted earth retail environment. I can't tell you not to build a store on salted earth. People want to put stores in the communities where they live. However, If you have a choice, look for greener pastures (but only a few shades, not too green!).

Friday, October 12, 2018

Find Your Tribe (Tradecraft)

When I first started my store, I applied to the GAMA mentorship program. I got a call about 18 months later asking if I was interested, and considering how far I had gotten in my business, and how I had established my support network, I declined. That has been a major shortcoming of GAMA since I began, and it's not much better now.

Although I never had a mentor, I had people in the trade I networked with and followed -- sometimes too closely. Most are gone now, retired, passed away, or they simply stopped doing the thing. Some newer people looked up to me and sought my advice and now they've far surpassed me in the trade and I seek them out. Some are plugging along doing the same thing without much change or growth, and they're no longer on my radar. It's almost always about finding smart people full of good ideas and a positive perspective, and less about comparing bottom lines.

Besides the obvious need to learn how to run a better store, the biggest reason for finding your tribe is temporal displacement, something most Millennials are familiar with. If you do this long enough, you'll likely find yourself in a time bubble. The world around you will continue at a fast pace. Your friends and family with likely make great strides financially and personally. Meanwhile, you've chosen the Slow Path. Relationships and family, home ownership, plans for retirement all take a back seat to the voracious monster you feed each day.

Running a game store might bring you happiness, but the Slow Path certainly doesn't bring riches or leave a lot of time for many personal accomplishments. If you start comparing yourself to those outside the field, you may experience alienation and disorientation. Depression and suicide is not uncommon in small business. That's where a strong support network comes into play.

Finding your tribe is finding like minded individuals to share your victories and drown your sorrows. As I've said before, only other small business owners are likely to understand the lifestyle of a small business owner (those on the outside get upset when I talk like this). Find that understanding to keep you growing, maintain sanity and support your business. Eventually you're likely to get to the stage where you'll poke your head above the trees and see daylight again.

Monday, October 8, 2018

Do What You Want (Tradecraft)

There's a Mark Twain quote, "Find a job you enjoy doing, and you will never have to work a day in your life." He also said, "All you need in life is ignorance and confidence, and then success is sure." That tells me he would have intuitively understood the game trade.

I talk about numbers and metrics and policies and procedures near endlessly. The thing I don't mention, because it seems like we have an overabundance of it rather than technical rigor, is doing what you want. I didn't say do what you love, because passion is fleeting. It comes and goes. You may be doing this because you love Magic or Dungeons & Dragons, but you may have periods in your life where that passion flags and you think about ending the relationship. D&D 4 almost made me pack it in.

Doing what you want is a bit more low key. It means surrounding yourself with the type of product you want to sell. It means being around the type of customers who make you happy. It means choosing staff who enrich your life and help fulfill your vision. I had an employee I let go simply because he made me miserable. Every day my life was worse because he was in it. And you know what? I didn't want to do it any more, so I fired him and gladly paid his unemployment, simply because he was a black hole of human emotion.

Doing what you want also means taking the degree of risk that makes you happy. If you have trust issues, you may never hire more than an employee or two. That's fine. Own it. You're a one man shop. Maybe you get to go home and have dinner every evening and you don't have PPTQ bastards giving you one star reviews because your prize payout is crappy, because you don't run events.

If you really like systems and processes, you may never be happy until you have a half dozen stores. Everyone will tell you such an enterprise is a disaster, but it really means it would be disastrous for them

When it comes to debt, I'm pretty miserable as we reach the half way point paying off our construction loans. I'm miserable because I like a dynamic environment where I can dodge and weave and have various initiatives in the works, all of which cost some money. I've got a white board with $20,000 worth of capital projects and I could easily add that amount just in inventory value without blinking. No money means I have less space to dodge and weave, even though my decisions will have long term positive effects. For me, slow and steady is maddening, but it might be just the thing for you.

So when you're reading my stuff, or getting advice from other store owners, you really need to weigh what they're saying against what you personally want to do. That's because this is generally a bad investment of time and capital. Your time is more valuable elsewhere, your money worth more invested differently. You will likely defer retirement and work many more years than if you had a conventional career. That means you better damn well enjoy what you're doing now, since you'll be doing it for quite some time while others are lying on their beach (if they don't die of stress related diseases from working for others first). 

Friday, October 5, 2018

Tyranny of the Neurotypical

As an owner, the biggest part of my job is creating processes and procedures. I create these by thinking about how my brain would most efficiently perform a task. My brain is fairly ordinary, often described as neurotypical. However, about 10% of the population have some sort of learning disability.

Disability is a cruel label, as the brains of the learning disabled process information differently. Our education system is designed to specifically teach the neurotypical, leaving behind those who process differently. American education declares 90% is a good enough success rate and drags their heels on the other 10%, because that's inefficient in their processes and procedures. Inefficiency, as we know from business, costs money. Even better, if they can call a portion of that 10% cognitively challenged (stupid), they don't have to do anything at all for that child.

I know about this because my own son has learning disabilities and you would be nowhere in my position as a parent, if you didn't learn a bit about how these things work. Amongst my employees, only one of a huge number has ever expressed they have a learning disability, and only after succeeding at the job. The stigma and potential downside of such a declaration must be enormous.

Before I learned about how my son's brain worked, I assumed some employees were just not very sharp, coming to the easy conclusion, like many schools, they must be kinda stupid. This is not surprising, because it's a struggle the learning disabled deal with daily, thinking they're not very sharp, often being told that by their peers and hints that may be the case by their teachers.

The consternation on my part usually arises because the employee is often really, really good in other areas, but they're unable to do some tasks we consider basic. How can this person be so amazing at X, but so terrible at Y? It's a discussion we have at our weekly management meetings. The answer is we are making neurotypical demands and if we just adjusted a bit, perhaps they would be more successful.

This is all my assumption since we don't really have a program where we're up front about accommodating learning disabilities. We've been focused on making a work place safe and comfortable for female employees and customers. It would also be great if we could be better employers for the 10% of people who could use a accommodation with learning disabilities. The goal as an employer is to play to strengths. Employees can work on weaknesses at home, but you shouldn't be asked to play to your weaknesses at work, if it's possible to avoid them.

Anyway, if you know of resources to address this in the workplace, I would love to get more information on how to delicately bring up this topic in a safe, compassionate and legal method. You know, a neurotypical policy and procedure.

Wednesday, October 3, 2018


Let me tell you about my new wristwatch. No, don't go! Come back!

I accompanied my son's boy scout troop on a camping trip. As this was my first time with them, I went out with a list and bought the gear they were expected to carry. I didn't want to be a burden, and I do love me some gear. A wristwatch was on that list.

I last had a wristwatch ten years ago. I did a little consulting work for a friend, enough to buy a nice watch, and when it broke, I took it in for repair. I never got a call back. At the same time, I enjoyed being free from this bit of technology that had dogged me all my life, staring at me from my wrist. The repair shop didn't call. I didn't call the repair shop. Voila! I no longer owned a wristwatch.

I do have a wristwatch on my wish list. It's a $300, Casio G-shock solar Master of G with a compass, altimeter, barometer, thermometer and sunrise-sunset date. It's a wristwatch that's more Swiss Army Knife, as opposed to the very basic $50 G-Shock I bought for the scouting trip, which is more a single blade pocket knife. The Master of G only reluctantly tells time, as opposed to my basic G-Shock, which has two really cool functions: a) It tells time, and b) It tells time in the dark. The unstated c) is it's classically unpretentious like only a $50 wristwach can be. Respect the G-Shock.

My son is jealous of my basic, $50 G-Shock, as I bought him an even more basic Casio watch at Target for $20. This is a boy with two iPads, an Xbox, and an allowance that's spent entirely digital. A wrist watch is a novelty, an interesting gadget, a link forward to adulthood and a link to the past of a more basic level of technology. His fascination with this tech from the 70's had me thinking about hobby gaming.

Hobby games for most of us older folk has been on a linear historical course, much like wrist watches. I remember when the digital watch was shiny and new, much like I remember how Dungeons & Dragons hit the world by storm. With our linear perspectives, these bits of culture have played one role in our lives.

They've been with us all along, having been initially ridiculed, peaking in popularity, and then falling along the wayside for most people, while we chugged along slinging D&D books through half a dozen iterations. We once kept playing D&D a secret as to not offend religious relatives or bullies looking for easy lunch money. Now the geeks have inherited the Earth and celebrities declare their love for the game on talk shows and publicly display their prowess of Tolkien knowledge.

Discovering hobby gaming had been re-invented, while I was in the hobby, was beyond my comprehension, and of course it did it with a new technology (YouTube). This is a modified Gartner Hype Cycle, where perhaps both digital wristwatches and D&D have been slowly climbing the Slope of Enlightenment to reach a new plateau. Or maybe it's entirely cyclical and we're someplace uncharted. I'm sure there's a fashion industry model that instinctively gets this.

For now I'll be at my desk, planning my Vault of the Drow 5E campaign and trying to figure out how to set the alarm on this damn thing (I'll use YouTube).

Monday, October 1, 2018

Shenanigans to Relevance Ratio

There are 400 or so publishers we represent on our sales floor, of which maybe 30 would make me cry if they suddenly went away. Those 30 publishers are relevant to me. It's not that the other 370 are irrelevant, just that there's always more product I could carry than money available to purchase. If I generate a purchase order from my main distributor this morning (which I need to do), I will see $10,000 of product to buy. My budget is about $2,000 (for the week it's $10,000), so I focus on the more relevant stuff. If you told me I needed to spend $10K right now on inventory, it wouldn't be adding new lines, it would be loosening the tightness on this purchasing. It's that easy.

Those 30 highly relevant publishers have a degree of shenanigans they can pull while still retaining me as a retailer. That degree is determined by my sales levels. A small publisher, with one game that sells a few times a year, is so irrelevant that if a distributor changes the code, I might not even bother looking up the new code. If it's out of stock, I probably won't seek it out elsewhere. My book is in that category for most retailers who carry it, so I regularly mention it's on Amazon, since they know how to sell books properly.

The more money I make off a product, the more shenanigans I'll put up with. But shenanigans is watched closely, as if it's in a debit column of a balance sheet. The more shenanigans, the more sales need to add up to balance it out. You can watch the shenanigans balance sheet and see the inevitable clearance sale in the distance. One misstep and it will snap like a rubber band.

For example, I really like Paizo and just last week dropped all Pathfinder 1.0 in anticipation of 2.0. For many retailers, carrying Pathfinder was in protest, as they watched Pathfinder PDFs sold online, a Paizo online store that discounted game trade product, and a room full of Pathfinder Society players who were using store resources while buying all their game products directly from Paizo. They made enough money to tolerate this ... until they didn't, notably when D&D 5 came out and there was a shift. The shenanigans no longer matched the relevance and the loud thud of retailers nationwide dropping Paizo was deafening, or at least that's what they all said. They did so gleefully because the shenanigans was epic.

Wizards of the Coast is the most interesting in this regards. The relevance of Wizards of the Coast cannot be overstated. It's the only publisher that's actually capable of shaping the retail tier itself. Store owners build stores around Wizards of the Coast. We spent $133,000 on expanding our play space, for Wizards of the Coast events. If Wizards of the Coast stopped publishing Magic, my guess is half the game stores would be instantly out of business, and the other half would be making major shifts, like dropping staff, and not renewing leases in the same location (they would choose to have less game space). Yet the shenanigans level of Wizards of the Coast is breathtaking.

Just to reiterate, they've dropped retailer margin on product twice. They sell Magic and D&D at near wholesale prices on Amazon with no concept of brand value protection. They pick and choose winners, offering products and events to exclusive individual venues. They treat retailers as their marketing arm, judging them and the exclusive product they receive by butts in seats. The ability to continue to survive as a retailer in the game trade is actually dependent on Wizards of the Coast, so it's interesting to see how many debits they can rack up in the shenanigans column before their relevance begins to falter. It's likely if they ever overplay their hand, they won't see it coming.

Some of this shenanigans was practically asked for, even by me. The barrier to entry in the game trade is so very low, the professionalism unexceptional, and Wizards of the Coast is now making it harder to exist as a Magic only store. That's good news for professional retailers! What's not good news is realizing how very relevant they are to us. Last week I looked at Magic sales over the months, single sales especially, which you would think are faltering along with our dying Magic events. I looked at how D&D groups use our event space several nights a week, and whether we could combine more Magic events on one night. I'm balancing my relevance to shenanigans ratio. For now, the relevance is still strong, but the shenanigans is at a level that strategically, I know I can't count on this company in the long term, and that is likely to result in a massive shift not only for me, but most professional retailers who are trying to make this ratio balance.

Every store owner should be looking at what their business would look like without a Wizards of the Coast. They should have cash reserves for when the shenanigans exceeds the relevance. Like I said, most stores will simply be gone, but the other half will adapt. It's the nature of the game trade that diversification within it is without it, meaning real diversification in the trade means not spending more money on new games and play space, but on different wares and a different environment. Give an experienced retailer $50,000 right now, and they're more likely to build a coffee bar than buy new games or expand their space. The relevance is high, while the shenanigans is more predictable.

Friday, September 28, 2018

How Game Stores Work

This is (perhaps) a series of posts about the basics of understanding how a game store works, and as it's fairly typical of retail, how most stores work. I'm going to attempt to keep this at an extremely basic level, covering things most consumers don't understand, and admittedly, some concepts I didn't understand when I started my own store. If you have concepts you're having a hard time wrapping your head around, please leave them in the comments and I may write about those next.

The purpose of the game store is to make money. When I say "money" I mean net profit. Net profit is what's left over after you pay for product (50%), rent (15%), wages (15%) and the rest of store expenses (15%).* If you just did the math, you may have realized there's a missing 5%. That's your net profit. So when you sell a customer a $100 board game, your net profit will end up being about $5. If you've got your business really dialed in, it may be as high as $10. It will never be much higher than that. Retail in general is in the 1-10% range of net profit. Most of the business world tops out at 15%.

Making money is incredibly hard. Some will look at my statement of purpose and become offended, but let me tell you, nobody accidentally makes money in retail. Look at your personal income and expenses now and how hard they are to manage. Now blow them both up by 10 to 20 times while trying to come out with that 5% excess at the end to be profitable (not at the beginning, which is how personal finance works best). You are like a millionaire who has to worry about toilet paper prices. Half the community feels sorry for you for your toilet paper problems while the other half thinks you are wealthy because of your gross income. You will be pinching pennies while being regularly asked for donations.

Money is made in the buying. Stores buy from suppliers or directly from the publisher, receiving a discount from the retail price, also called margin. So a $50 board game might cost a store $27.50, providing the retailer a 45% margin (which also equals a Cost of Goods of 55%).

You buy product based on your cost of goods. This confused me in the beginning, but if I sell $10,000 of product this week, and my costs of goods is 55%, then I have $5,500 to spend on games the next week. In fact, I very much need to spend this money to maintain sales levels and pay expenses. If I spend under this number, I am screwed as my sales will fall and I can't pay my bills. If I spend over this amount, I won't get increased sales, and I won't have money to pay my bills. You need to spend ALL the purchasing budget, no more and no less.

The hobby game store is built around a roughly 45% gross margin on product (which used to be higher). All retail is based on a particular margin with a particular level of sales acceleration (or turns) that provides a traditional gross income to cover traditional expenses. When the margins begin to shrink or the sales begin to slow, stores are forced to modify their traditional model, perhaps with weaker locations with cheaper rent, less staff, or tricks to make it all work, like selling high margin used merchandise. Store owners work harder for less. As you see the retail tier of the hobby game trade begin to falter, you see an increase in hybrid stores designed to counter changing conditions.

The traditional retail model is on shaky ground. Despite having 7-10 times as much commercial real estate as the country needs, rents seem to only go up. Minimum wage in many urban parts of the country are rising 5-10% a year with no end in sight. Energy has gotten more expensive resulting in higher electricity and shipping costs. Prices are inelastic in the game trade, so they cannot be raised to compensate for rising costs. You can only sell more, find a cheaper way to run an operation, or close. This level of crisis is baseline in retail.

Why do publishers need game stores? Publishers believe game stores get their product out to a wider swath of consumers than they could accomplish through their own marketing, which is often weak to nonexistent. They believe game stores create community and build markets, but they almost all sell direct to consumers anyway. They want it both ways.

In the game trade, publishers compete directly against the retailers. Publishers often provide customers discounts, sell early at conventions and offer unique incentives to undercut retailers and capture sales. This use of "multiple channels" has many excuses attached to it, but in general, publishers don't believe they can sit and wait for retail stores to push their products in a crowded marketplace, and they're generally correct. It's their stuff, they can do what they want.

There's a general tension in the partnership between publishers and retailers. Although nearly every relevant publisher is also a competitor, retailers let this slide, providing publishers are competing against them on only a slightly tilted playing field, often while providing some brand value protection (which protects retailers from each other). So although Games Workshop will sell direct only items on their website, they also provide enough brand value protection to make selling their front list product a profitable endeavor.

Companies like Paizo offer PDFs and a discount to subscribers that retailers can't participate in, which results in many retailers deciding not to carry Pathfinder products. Publishers will all compete against retailers, they'll all find minor advantages, but when a minor advantage becomes a huge advantage, most retailers walk. The same is true with product badly devalued online. The marketplace is big enough for retailers to shun devalued product.

The exception is when velocity overcomes margin and a product is just too good to drop. Consumers can buy D&D books on Amazon at distributor costs and Wizards of the Coast is now selling Magic boxes at very low prices. The de-facto MSRP of a Magic box is now $95, leaving a 17% margin for retailers. Is that enough to crush retailers who are Magic centric? Not if they can keep their velocity up (Pro tip: they can't, so don't be Magic centric).

But what about Amazon and the Internet? It depends. The Internet only accounts for around 12% of all sales nationwide, but it might be as high as 50% for hobby game product. There is still a lot of meat on the bone, so to speak, although those with distressed local markets, which is a godawful lot of the country nowadays, will feel Internet price pressures more than higher income, urban markets.

It's possible there may be a ratio of customers to brick and mortar retailers that falls dramatically with Internet price pressures that is felt more keenly by smaller markets with fewer customers. For larger markets it's possible to grow faster than the shrinking ratio. A bit like finding a job, you only need one customer base and what everyone else is doing is not so important.

How much do most store owners make? This is the realm of bistro math, as we don't have much data to go on. In general, most game stores are small. Lets call them $200,000 a year endeavors. A $200K a year store has a working owner who makes a small salary. Lets call it $30K a year. If they have a 5% net income, that's another $10K a year, bringing their income to $40K. This is known as a Buy a Job, and the owner can't get sick, go on vacation, retire or likewise show any value from this bought job after they decide to quit. Their businesses are valued at the liquidation number.

About 5-10% of stores are alpha locations that do over a million dollars a year in sales. The owner might make that same $30K base salary, but their net profit on $1,000,000 is $50K, meaning they make $80K as their income. As an alpha store has usually been in business 10-30 years, that might provide a reasonable lifetime salary range for a long term retailer ($40K-$80K). Neither amount is very much money, considering the skills needed to run such an enterprise, and most store owners in a Buy a Job are usually trapped without the ability to grow or expand to alpha status.

Got questions? Ask below...

* Yes, it's usually something like 55%, 14%, 13%, 13%, but you get the idea.

Sunday, September 23, 2018


Just a quick post to point out that employees don't inherit or otherwise wrestle control of businesses from their owners. Every once in a while I hear talk like this, but no matter how good an employee might be, they will not become an owner unless the owner decides to somehow sell it to them.

Most game store sales are of this variety, usually with the owner disengaging while the employee provides a certain amount of profit for a certain amount of years. If the employee founders, the owner can step back in and take over, per the stipulation of the contract. Most are likely to just shut down at that point, as they clearly have life goals that no longer align with running a store.

I'm not sure it's necessary to explain US contract law or how an LLC or corporation works to maintain control of a business, but that's where you might want to look when you're mentally voting on who should own a store. These exist to protect business owners from each other, the public, employees and anyone else who wants to have their hand in the pie (except the government). On top of these, we have partnership agreements, which add additional protections, like allowing owners a chance to grab shares before a divorced spouse has a chance to become their new partners. No where in our partnership agreement do I see the validity of game room leadership coups.

Also note that most excellent managers have seen how the sausage is made and usually have no desire to own their own store. I've offered such ownership or other attempts at retaining their talent on a couple of occasions. The community may believe they should own it, but not only is it unlikely, the candidate is not interested in the position.

Finally, my job is to create processes and procedures and hire excellent managers and employees so that they are doing most of the heavy lifting and I can do other things, like have vacations, family life, or one day retire. The more successful I become, the more my staff will shine. This is by design.

Wednesday, September 19, 2018

Honesty in the Balance (Tradecraft)

You know what needs to go. I'm referring to the small business with the blind spot on their balance sheet or income statement. Most stores have a blind spot. Maybe it's an employee. Perhaps it's a luxury you think you can't do without. Perhaps you refuse to properly manage inventory because you're afraid of disappointing customers. For successful stores, who have conquered all the big problems, it's often owner compensation.

Some blind spots are a refusal to admit you are defeated. Rent that's far too high is often a sign you're doomed, as it's usually non negotiable. If you've got a bad lease, you may be sunk, spending your time re-arranging the deck chairs in hopes to slow the intake of water on the lower decks. As Dave Wallace lectures, when he attempts to acquire stores, the only deal breaker, the only unfixable thing, is a bad lease. If you're in this situation, you may be trying to wait it out, although it's possible to re-negotiate a lease. Everything is negotiable all the time. If this is you, bring your broken financials to your landlord and lay it out before it's too late. I did this during the recession and got a steep reduction with no increases for the lease term.

Debt is also one of those things you may be trying to wait out. I'm in that situation after a big expansion. As long as you can proceed slowly and it's not getting worse, you're not going further into debt, it's the bed you've made and you've got to lay in it. Debt can be re-negotiated as well though, as in restructuring it to kick the can down the road and smooth it out. It's a logical thing to do if you're against the wall. I did a little of that earlier in the year.

Staff is a hard one because you've invested in people and through no fault of your own, you can't afford them. It may also mean regressing in your personal lifestyle. You may need to work an extra day a week or take a pay cut to get things back in balance. You may need to stop expensing your personal life through your business. This is often the necessary strategy when sales take a steep downturn. The economy is strong in most places, but it won't always be. Rolling up your sleeves is something to consider and plan for, as a contingency. If you have employees, know who can cover what areas, and make sure staff are cross trained.

What I see are elaborate plans to avoid obvious imbalances. Any experienced small business owner in your field can look at your income statement and point out your obvious problems. It doesn't take an expert, an accountant or a broker to point out you're off course. So why is it so hard for many of us to do the same? The good news is when I see a bad income statement, I see profit. I don't see terminal mismanagement, I often see what's known as SDE, or Seller's Discretionary Earnings, all the dumb things you do that I would change to equal profitability. If you think you're in trouble, if you want to sell or restructure, maybe take a look at your SDE, take a deep breath and do the hard work of fixing your business. You go first.

Tuesday, September 18, 2018

Board Game Analysis (Tradecraft)

Welcome to the annual jumping to conclusions event! I hope you're wearing your special jumping shoes, because I have a tiny sample of my sales data that I'm going to tweak into a narrative that provides me meaning and allows me to sleep at night. Ready?

This came from a discussion in which some game store owners will avoid games that rank highly on Amazon. Some will also avoid game exclusives out of principle or laziness, exclusives being games only sold by one supplier. Publishers will claim exclusives provide various benefits, including brand value protection by implementing control over where their product goes. Is this true? We'll take a look.

I'm also noting games that were crowd funded. This will show whether crowd funded games have penetrated my best sellers, as many believe Kickstarter will be the death of the game trade. I think you'll find that's not quite true.

Below are my top 50 sellers over the last twelve months. Past performance is no indication of future results, so if you're a new store owner, staaaaaaaap. Buy new games going forward and avoid the strong temptation to back fill. This is not a buyers guide.

So what do I see?
  • 14 of my top 50 board games (28%) were crowdfunded. Most are at the bottom of the top 50 though. I've managed to back two of those, despite backing eight board game projects in total. Most were terrible. The other 12 top crowd sourced games came through distribution, making their origin more of a footnote for me. These numbers are significant, so I certainly wouldn't want to be shut out of the Kickstarter market. It's clearly part of the ecosystem. However, my ability to pick winners via crowd funding is sorely lacking. Years ago when I tracked every KS board game product, my conclusion was Kickstarter games were no better ranked nor worse ranked on Boardgamegeek. 
  • There's not much difference between Amazon discounts of distributor exclusive games. The distributor exclusive games average a 15% Amazon discount versus 17% for non exclusive.  Those are averages, however. If you look at very deeply discounted games, more than 20%, you see they are 2:1 more likely to be a game that's not exclusive. With exclusivity we usually see a brand value protection strategy, which for brick and mortar stores is quite welcome.
  • Amazon top selling ranks make no difference.  8 of our top 50 games (16%) are on any of Amazon's top 50 lists. The average ranking of both distributor exclusive and non exclusive games is around 1,000. That might be because Amazon has already saturated that market or perhaps we're a little too niche within the game market. I personally don't look at Amazon rankings for games, although I'm intensely curious about how my book ranks (#144 in starting a business, but anything is possible if you create small enough categories).

So what did we learn? Amazon rankings are meaningless. Kickstarter is important for the board game ecosystem, but my ability to pick winners is poor. Distributor exclusives aren't especially brand value protected online, but those without exclusivity tend to be very deeply discounted.
Betrayal at Baldur's GateNoNo64018%-
Betrayal at House on the HillNoNo3631%-
Dead of WinterNoNo40810%Alliance
Cards Against HumanityYesNo100%CAH
Arkham Horror LCG: Core SetNoNo7417%Alliance
Legend of the Five Rings LCGNoNo58421%Alliance
Twilight ImperiumNoNo177827%Alliance
Mansions of MadnessNoNo16150%Alliance
Codenames: Disney FamilyNoNo5536%-
Stuffed FablesNoNo120320%Alliance
Harry Potter Hogwarts BattlesNoNo4736%-
Star Wars: Imperial AssaultNoNo81910%Alliance
Boss MonsterYesNo20923%-
King of TokyoNoNo10020%-
Warhammer: ShadespireNoNo15%-
Pandemic: Legacy Season 2 - BlNoNo38635%Alliance
Dark SoulsYesYes52345%-
Ticket to RideNoNo2214%Alliance
Dominion NoNo1233%-
7 WondersNoNo15810%Alliance
Terraforming MarsNoNo2780%-
Massive DarknessYesNo3,77021%-
Eldritch HorrorNoNo27923%Alliance
Fallout Board Game NoNo33720%Alliance
7 Wonders: DuelNoNo16510%Alliance
Exploding KittensYesNo20%-
Bears vs BabiesYesNo370%-
Rising SunYesNo76925%-
Near and FarYesNo70136%-
This War of MineYesNo26%-
Century: Spice RoadNoNo132324%GTS
Mice and MysticsNoNo53614%Alliance
Sushi Go!YesNo110%-
Axis & Allies Europe 1940NoNo62729%-
Pandemic: Legacy Season 2 - YeNoNo145221%Alliance
Small World Board GameNoNo105917%Alliance
The Grimm ForestYesYes22133%-
Dist. ExclusiveAvg111315%