Tuesday, January 8, 2019

New Year of Value Seeking (Tradecraft)

Wizards of the Coast has deeply screwed game stores with their margin reduction. New distributor prices, distributors being the only way to get their product now, reflects this in the new year. Many Magic centric stores will fail from this move. Of course, we've deeply screwed ourselves by relying on this one company to play such a prominent role in our businesses. Heck, I built my game center with the idea we needed a much larger space for Magic events. The L2 judge was still unhappy with my 121 proposed seats, as it wasn't big enough for large events (that no longer exist). Since construction completed, Magic events have yet to exceed 75 seats and I need an L2 judge like I need a war games coordinator. I fill my space with many other events, so I have no regrets, but if I wasn't diversified I would be in serious trouble.

I've spent the last 14 years not quite oblivious to margin at distributors, but pretty close. There had to be some significant margin differences before this was on my radar, and even WOTC direct sales discounts were often not worth the hassle. Now that I'm more established and I'm not seeing double digit sales growth every year (13% on average but far slower nowadays), the difference in margin between 2018 and 2019 is enough to sink my business outright. That's right, not hurt it a little like minimum wage increases of 9% this year, but rather a huge margin hit on a third of my sales.

That's not something a responsible business owner sits back and just watches happen, nor is it something easy to fix. Our rent and labor both went up 4% last year and that money came from reducing our marketing budget. This margin difference blows those increases out of the water and requires a behavior change. Most game stores (Magic shops) won't even know what happened, they'll just be unable to pay the bills and not be sure why.

There are a couple ways to fix this problem, the first being getting the best price up front.  For Magic I started looking at second tier distributors for better value. The best prices came from Magazine Exchange. My primary, ACD, had second best prices. There was a 5% difference between the lowest distributor and my highest. If you're one of those people who only have one or two accounts, it's really because you're lazy. Get off your butt and fill out a damn form.

Getting the best price is important, but with Magic it's far more important to look at how you sell it. Perform a GMROI, analysis, Gross Margin Return on Investment. Does Magic look soft? Are your events low priced as a loss leader? Are your box sales bottom of the market? Are you discounting at the pack level? Are you buying a bunch of crap singles for event formats nobody plays? Is store credit and single sales hiding your view of your true margin? Tighten up your game.

Singles are really hard to perform an inventory analysis on, but you should at least be getting solid turns equal to your store average. Selling singles poorly is far worse than not selling them at all. We're in this boat, I think. Raise your prices by at least your new margin difference (6%?). The back end problem of margin reduction can be solved with a front end price increase. Let customers complain, you're in business to make money, not to go down with the Magic ship. If Magic sales slow, let them and shore up your business elsewhere.

Next, pivot to safe harbors. This 500 pound gorilla got this big by steady feeding. Diversify away from CCGs and Dungeons & Dragons. Still sell them of course, we're not stupid, but look for alternatives. The new Pathfinder is out this year, and it may be the cleanest shirt on the floor. I don't believe it will ever have that number one position, but it should easily sit at number two. Board games is a thorny area, but there's room for best sellers. We've had good success with the core line from Asmodee (another 500 pounder in the making).

WOTC will measure your existence with butts in seats. If those butts aren't always making you money, stop chasing those meaningless statistics and use your event space for games from companies that won't cause harm. Drop slow attendance Magic events and make sure the D&D crowd isn't taking up a disproportionate amount of event space. D&D kept me afloat last year, so I'm happy with my ... what .. THREE nights a week of events? Jeebus.

Finally, if your lease is up or you're just starting out, understand there's a right size of event space and it's no longer as big as it once was. There are no giant PPTQs and pre-releases can be managed with more events, rather than bigger ones. Shrink your space, give up butts in seats, for an overall more profitable store. This country has 7-10 times the retail square footage as other industrialized countries and that unnecessary extra space applies to game stores too. If you were expecting giant Magic events with Magic being your core product line, I suggest you don't rely on that gorilla to lift you up.

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