Wednesday, October 20, 2021

Crumbling Pyramids

There's a retail inventory concept of the product pyramid. The pyramid is a collection of products, in which a small number of top sellers at the top support a large number of slow sellers at the bottom. The typical approach to inventory management would be to drop all the slow selling product at the bottom. If you do this, you collapse the pyramid, reducing sales of the top sellers. You have impacted your perception of a collection.

Customers want to see tremendous choice, every color of the rainbow on offer, for example, but in reality they only choose primary colors to purchase. I've started ordering better selling dice sets deeper, and there are perhaps a dozen really good sets out of a hundred. Remove the supporting colors and customers are unhappy with the selection, even though their eventual purchase is represented.

An unstated principle of the product pyramid is we need to suffer through the dreck product on the pyramid bottom, because that's the only way to sell dice or puzzles. Cut out the bottom and the top suffers. For example, carrying the full line of Chessex dice makes sense from a product pyramid perspective, or the full line of Ravensburger puzzles. When these two "gold standard" product lines make up the majority of sales in their categories, you play this pyramid game.

This changes, however, when the market becomes flooded with competitors. A decade ago, I could point to three significant companies who made dice. Now there are innumerable companies and I'm solicited weekly by new ones bringing in dice from China. There have been over 100 Kickstarter projects just making dice. My own store went from a primarily Chessex store, with a smattering of Koplow and Crystal Caste, to carrying and supporting dice from eight different companies. Our puzzles went from two companies to six. In the case of dice, the product pyramid is crumbling. In the case of puzzles, not so much, and I'll explain why.

With my much larger dice selection from seven companies, I don't need to support the slow selling bottom of the product pyramid from companies like Chessex. It's true I may not have every color of the rainbow, as it's impossible to monitor my color spectrum when I'm only looking at inventory performance. However, this does give me the opportunity to have a very wide selection without sacrificing performance. The key is this: Customers honestly see no significant difference between a Chessex die made in Germany and one of the other seven brands, made in China.

This is not true for puzzles however. Puzzlers are very much aware of the quality between puzzle manufacturers. There are certainly Wal-Mart shoppers who burn through puzzles and are more price conscious than quality conscious, but that's not our crowd. Our crowd knows the puzzle quality rankings and understands the differences between brands. As much as I would like to replace Ravensburger with our Eurographics or MasterPieces, customers just aren't having it, at least not in the volume of Ravensburger sales. It's too bad that company can't remotely keep up with demand. 

So for the pyramid to crumble, you need to not only have strong competition from competing brands, you need comparable quality in the eyes of the consumer. There are dice brands that attempt to claim superior performance, with sharp edged corners and superior construction, but nobody is buying that nonsense. For the most part, random number generating polyhedrons are more or less equal across brands and manufacturers. I just wish that were the case with jigsaw puzzles.

Monday, September 13, 2021

How to Add 50% More Inventory

Steve Martin has a bit about how to be a millionaire and never pay taxes. It starts: "First, get a million dollars." That's where we begin this post, in mid 2020, with ridiculous amounts of government loan money, the question was how to intelligently increase inventory. The first question is why should we?

Why increase inventory? In the face of a crisis, inventory is safe. Provided the world doesn't come to a crashing end, you can be certain even bad inventory will make you some money. If people have jobs, they will buy games. That's the rule of thumb. 

At liquidation, you can often get your money back, at the very least. Here's an example: Invest $1000 in inventory. If it does very well, say six turns, your $1000 becomes $6000. If it does poorly, you'll probably double your money, and if it was a mistake, it's unlikely you'll sell it for less than $1000. The booming stock market of 2020 would have given you the equivalent of four turns a year. Inventory is safer and you are the Subject Matter Expert when it comes to inventory.

I've had this discussion with investors and they're like, "Great! Let's put a bajillion dollars into inventory!" And I'll say, "Not so fast, it's not that easy to just add a lot of inventory quickly." Adding inventory is normally something you do gradually. But this was anything but normal. We were fighting for our survival. If we had to add inventory quickly, how would we do it?  

Here's how I added 50% more inventory, how I measured performance, and the end result. The caveat is sales are stratospheric right now, so that inventory was fed to a ravenous customer base with a tremendous bankroll in pent up savings. Without that ravenous base, I could have just locked in a bunch of money with a much slower return on investment (still better than the S&P 500).

Go Deep on Market Leaders. Each department has a market leader. You've got your 40K, D&D, Magic, Asmodee. You really can't go wrong with these product lines. These are safe. The first thing I did was made sure I had the full line of each of these leaders (Asmodee less so, since they have a lot of garbage, but you get the picture). I did this as best I could, as shortages became a huge problem pretty quickly. At the moment, I have four restock orders pending at Games Workshop and I recently received a pallet of D&D in anticipation of price hikes and shortages for the holidays. I admit I mostly missed the boat on Pokemon, because it was on clearance in mid 2020 and on fire by the end of that year. I wasn't paying close enough attention.

Add New Lines Carefully. I've made the mistake before when expanding with new, untested lines that were more diversification than expansion. I added 20% more inventory in 2007, mostly toys, and it was a disaster that took a couple years to unwind. In a crisis, diversifying or expanding too far felt wrong. The new lines I added were adjacent to existing product lines, like new Pro Acryl paint, products from Foam Brain and geeky items from Darrington Press. There is the concept of "Flight to Quality" where consumers gravitate towards the familiar and safe. I played flight controller during this crisis and made sure I wasn't suggesting a cruise or a train ride when what they wanted was a comfortable flight. 

Safety Stock. This is a term used to describe stock acquired to avoid anticipated outages, and boy do we have those. Retailers have been building safety stock early enough to essentially be a holiday stock up at the same time. I was getting warnings as early as May that now was the time to stock for the holidays. With a big enough bankroll, I spent time identifying opportunities and bought deep on those items. This didn't happen a lot, but if I had an inkling of problems and quantifiable past demand, I went deep.

Depth of Stock. This is where I took a big chance and spent most of my money. When an item would sell, I would look at its total sales over the past year and divide by my average turn rate (six). That gave me a safe number to stock on the shelves. This was done on a daily basis, rather than all at once, but the stock began to grow quickly. This was a bit seat of the pants, because I didn't actually know if the expansion would grow beyond my bankroll. I tracked inventory values carefully with open to buy and wondered if the strategy would expand beyond my budget and what I would do when it did. It leveled off at a 50% increase.

How Did I Measure This? Within the first six months, inventory performance had not surprisingly decreased by 50%. This was a little disappointing. The advantage of this inventory without strong demand was I at least wasn't missing the opportunity to sell product. When demand finally picked up, our turn rate went from a lackluster four or so to our previous performance of six. And of course, that meant more money, more opportunity, the ability to pay back all those loans, and ... more inventory expansion. We've added another 10% for 2021 and if sales continue, we'll keep growing.

Don't Forget Fixtures. We quickly ran out of room with this big stock up. I knew I potentially had physical room for twice my inventory, but I was unclear on what fixtures we needed for expansion. With COVID protocols, it also meant items were more spread out. We ended up with a very cluttered store, often with items on folding tables. The first step was some cheaper fixtures, my first foray into Ikea shelving for the store. Then as we stabilized, we put in orders for more permanent fixtures. After moving the retail space to install new carpet, we damaged enough fixtures to put in yet another order for shelving. It should look great in another month, but the store has looked pretty full throughout all this. I'm happy to drop $5K on D&D books, but I'm far more reluctant to spend $5K on store fixtures, which is what we did.

Mistakes? A lot of stuff bought early in the pandemic had no traction and was dumped around the time things got back to normal. This was not my deep stock however, but new items in reasonable quantities. Likewise, I haven't had to dump any of my "depth of stock" items. Those have remained strong. I go through our "dusty"inventory weekly and put items in our new online store, and thankfully it hasn't been entire product lines, or deep stock mistakes. 

That's how I increased my inventory by 50%, resulting in a 54% sales increase over 2020 and an 11% increase over a more normal 2019. We're having our best year yet and it's modest compared to my peers who had depth to begin with, strong online sales channels, or were better at divining demand. We know our success is partly due to increased inventory and partly due to outsized demand. We'll never know how much is which. Profits are stratospheric. Now we begin worrying about paying taxes.

Wednesday, August 11, 2021

Last Five Percent Projects

As part of our store improvement, we have a list of projects on an agenda and meet weekly to tackle them. We haven't physically met in over a year, but the process has taken a life of its own. This is a process outlined by veteran retailer, Dave Wallace. As we tackle each item, they're removed from the agenda and new ones are added. Sometimes an item is stubborn and we have difficulty coming up with a solution. I have several personal projects like that right now, and the only solution is to put the project aside until there's a solution present. Fixating on a problem or berating a manager for not having a solution is pointless. I call these the last five percent projects.

If you have an ethic of setting up projects and knocking them down, those last five percent problems will not just go away. Those pesky items will stick around in your head. They are the big fish that got away. Over time, you'll think more about these problems and maybe revisit them later with a solution. For example, technology might not be ready for what you want to do, but in a few years, perhaps it will be. We're there now with in-store kiosks, which have many more options than from when they were on the agenda five years ago.

What you can't do with last five percent projects is insist they be completed. It takes a strong manager or owner to admit they're not ready to tackle one of these problems. Sometimes we get outsiders insisting they be completed, and again there's going to be pushback. If someone wants a last five percent solution, they better show up with the implementation. There's no "handwavium" of just figure it out.

I suppose the most important thing about last five percent projects is they aren't allowed to impede progress in other areas. As Dave Wallace teaches, remove these items from your meeting agenda and stop fixating on them. There is always more to do, more projects in need of completion. I've got about $30,000 of projects on a white board in the store office, and we finally tackled one this month. We had enough money in the bank where we went from crisis survival mode to problem solving mode in about six weeks.  It was nice doing something for the store that wasn't absolutely critical to its survival. We got new carpet and ordered six new fixtures. This is the glamor of retail.

Wednesday, June 9, 2021

I'm Successful, Now What?

 I've been thinking about a trade show presentation based on the Harvard Business Review article on how successful small businesses eventually reach an impasse. They have a variety of roads ahead, including selling, closing, expanding, and my favorite, the Maui Beach House. The MBH is when the owner finds a hobby to use up all that small business energy. Leave the store alone, design your beach house on Maui. This is a type of safe disengagement, at least safer than over leveraging yourself and ending up hungry in the street with your children.

Let's look at disengagement for a moment, to help understand the various stages:

1. Solo Store. You are the master of your domain. You set strategy and tactics. You might never hire staff and you might be happy doing this or it might burn you out. You may not be able to become profitable enough to get past this. Nearly every store starts as a solo store. 

2. Managed Store. You manage your store and hand out roles, so at the very least you don't burn out. You set strategy, and eventually need to give up tactics. You can't tell people what to do and how to do it, at least not if you want them to stay. Most stores mature into a managed store, rather than starting as one. If you're at a higher tier, this is your first fallback. This is where you hone your policy and procedure. This is store ownership for the vast majority of profitable store owners, and some will find anything else to be aberrant. 

3. Remote Managed. "I'm doing the job, just not here." You set the strategy, have no hands on tactical role, and you rely on a manager or two to do your bidding. You may still work long hours, just not in the business. You are in Maui with your laptop, while the kids are surfing. You can easily step back in and manage your store again, as you're intimately familiar with day to day operations. The Remote Managed store does not require as bulletproof policies and procedures as the remote owned store (below), as you're still hands on, just not present. However, it has to be strong enough to work without you physically being there. You can't sell or retire until you shore this up. I've been remotely managing my store for the last year.

4. Remote Owned. "What do you see? You don't see me." You set the strategy, you have no hands on, and you delegate all or most tasks to a manager. You are on the beach in Maui. This is as close to retired as you can get, without selling the business. I've done this for three months at a time. It requires a very good manager, and when that manager leaves, and they eventually do, you'll be rushing back to set up your Rube Goldberg machine once again. You might get lucky with succession, or you might start from scratch if you can't find the right person. The advantage of this model is when it works, you have a valuable business that anyone can run. When it doesn't work, it could be catastrophic if you weren't paying attention. 

Anyway, those are my thoughts so far. I'm sure there's a stage I'm missing. Let me know if you spot it.




Friday, May 28, 2021

5 Reasons My Store Didn't Back the Kickstarter

  1. I didn't know it existed. There are 600 live Kickstarter game projects at this moment. I'm currently backing 29 Kickstarter projects that could be anywhere from a day old to over a year old. 29 is about 5% of what's live right now, but since my 5% represents a year of Kickstarters, it's more like half a percent. I tend to follow the lead of my peers who back more Kickstarter games than I do, so we can at least cry together when they take our money or the game is late. I'm also not an "alpha" board gamer, and that's often where most of my KS money goes.
  2. The publisher didn't offer. We can't just back games like a consumer, we need an appropriate margin. Some publishers have no idea how to structure a game for retailers. Some do the math and realize their project has no way to support that retailer margin. Building in a retailer margin so the game is "marketable" outside of direct sales, requires planning in advance and not all games are going to sell in the volume to make that happen.
  3. The terms weren't good. Perhaps the publisher did offer the game to retailers, but the terms were poor. Perhaps the margin was too low or the buy in was too high. If my turn rate on board games is six per year, and you require I buy 12 copies, I will need to be certain that game is a hit. Since I only back a small percentage of what's out there at any given moment, I can often swing for the fences on the hits, or at least try. With supply chain problems, all games right now are one-shot print runs, so buying a years supply is becoming more common place.
  4.  It was wrong for the store. I get a lot of push from my customers to carry Kickstarter games, but often that customer is an outlier. They may love train games with crayons, but they're the only one. Sometimes I'm the only one, like when I back Italian, spaghetti fantasy RPG books, and then bang the drum to create interest (there was no interest). I back a lot of experimental RPGs because I think they're cool. The game might also be wrong for the local culture, like yet another offensive game in a black box.
  5. I can't afford it. Kickstarter games are a marketing expense. 29 projects might sound like a lot, but this week I received 16 new board game titles and none of them came from Kickstarter. That's one week. Kickstarter games assume: a) I may never get my money back again, so it's a gamble, b) My ROI is irrelevant, because it often makes no sense at all when you run the numbers, and c) I can afford to essentially use staff "pizza money" to fund the games in a financially irrelevant fashion. I call it a marketing expense because it drives people to the store and allows us to stand out against competitors. 
If you're a publisher and want to learn some well accepted guidelines on how to structure a project to work with brick and mortar retailers, join the Game Retailers Who Back Kickstarter Facebook page and read the pinned post.

Thursday, May 20, 2021

Delegation and the Maui Beach House

Since my store closed in March of last year, I've taken on all the office work and data entry. The employees have come back to work, but I've retained my work load. It's a tremendous amount of hours, but they have enough on their plates with COVID era retail. It is work that was originally mine, but was then delegated to anyone on staff at any given moment, often with a newly arrived order in front of them. 

Delegating this work freed up a huge amount of my time, at the expense of accuracy. The work was critical to inventory management and the health of the business, and it was done very, very poorly. Nobody "owned" that job so nobody really cared or understood it. That's entirely my fault, of course. It's really a management level responsibility at the least, despite being a lot of clicky clacky.

The solution to giving that work back begins with tracking my hours. I can't assign hours if I don't know how many there are. What do I do on a weekly basis? I've been reluctant to start this tracking, because I know how this goes. I've done this before, when I gave it away initially. 

Before you give away your work, there's an important pre-requisite that's really obvious, like the key to the whole concept, but a pre-requisite I failed to grasp. You have to have something else to do. The goal is not to make yourself dispensable, that's just a step to bigger things. The best reason to delegate is so you can do "more important" work, otherwise known as work only you can do. If you don't have anything more important to do, don't even bother tracking your hours.

"More important" could mean high level owner tasks, but it could also mean taking a vacation, retiring, or having more time with your family. Maybe you want to play games more often. All good motivations. Really, anything you would rather do is a fine motivation. What you can't do is have nothing to do. You can't delegate and twiddle your thumbs, because I know you, business owner, you are not a thumb twiddler. Idle hands results in weird projects, at least for me.

I've quoted the Harvard Business School study of successful business owners before, and I regularly reference my "beach house on Maui." You get to a point in business where you sell, shut down, expand until you fail, or accept your slow growth level of business existence .. . and plan your beach house on Maui. The beach house on Maui represents outside interests you pursue instead of mucking up your business. Maybe it's coaching kids soccer or painting all those unpainted miniatures. 

This problem came to a head when I was handed a quarter million dollar, thirty year, government loan. Having all the money in the world, in the form of government money, and not having a plan to spend it to expand my business or start a new one, accentuated that I would be building beach houses on Maui. I called it a failure of imagination, but it was just a final acceptance of the fact my business is fine, it doesn't need to expand to any great levels (it did somewhat with this money), and I have no desire to start another business. It was an imagination exercise and I both failed and succeeded. It accelerated a thought process that might have taken another decade. I am done ... for now.

So I'm not going to track my hours yet because I have nothing better to do right now. As I research trucks and travel trailers in my spare time, and work on my online Spanish (yesterday was day 600), I imagine what I'll do with those extra hours. But for now, that work is mine. 




Thursday, May 6, 2021

The Phantom Business and the Placeholder Customer

I recently read an article from someone who declared the hobby game store finally dead. In sixteen years of flogging this dead business model, I've seen many such articles. This is the "standing on the COVID corpses of dead game stores" version. What struck me about this article was the misperception of how stores run their event space.

This customer went to local game stores, used their game space paying some nominal fee, and bought all his games online. He had no idea how this game store could possibly operate under such conditions. He's choosing to ignore the busy register, ringing up sales, or the many customers that come in throughout the week to make purchases, all of them cheaper and easier online.

Put simply, he is not their customer. The nominal fee, social gatherer game, is not how stores survive and prosper. Their value proposition does not align with him. So why is he there and why is he confused? It's because he is the product, not the consumer. His living corpse is being used as a placeholder for actual customers who wish to engage in that stores value proposition, which is community. His role is filler, a cardboard stand in. He's more Facebook user than Amazon consumer. Unfortunately, store owners have a difficult time sifting the wheat from the chaff, so these people sit amongst the real customers, sometimes confused.

Many customers are eagerly awaiting stores to re-open their play space. There is tremendous demand for this not just because it is our core value proposition, but because it's an impossibly good value. Asking a nominal fee or tiny buy-in for access to this core feature doesn't begin to cover costs. And to a mercenary customer only interested in the best price, who takes advantage of this near free feature, it causes legitimate confusion. How do they do this? Why are my peers supporting this? So the game store is once again declared non viable.

The solution to this is to actually charge what that space is worth. I figure its value is at least the cost of a movie ticket, probably approaching $15 an evening. But will stores ever charge that amount for an evening of entertainment? Doubtful, but they should charge something. Do it for your bottom line. Do it to clear up confusion in the market place. Do it because you've seen this business model works without events and how events drag down your store to a micro managed chaos that impedes your progress in life. Or don't do it. The model was viable before. It's viable now.

Monday, March 8, 2021

Scarcity and Profit

 It's a time of unprecedented scarcity in the game trade, combined with some rather unprecedented demand. We are allocated product from most of our major supplies: Wizards of the Coast, Games Workshop, Pokemon, and even Ravensburger, who is insisting we buy cases of their choice of games if we want extended terms. The demand is also unprecedented as we see "investors" buying up Pokemon and driving prices through the roof. We would be making bank on this if Pokemon wasn't shipping in waves and cutting allocations. I have distributors who have zero Pokemon on their shelves. A hundred SKUs and not one Pokemon item on their shelves.

Scarcity is also the way of board games. It has been like this for a while, but it's more pronounced now. I can "feel" demand of scarce product. What sells is what's scarce. Good and scarce is a gold mine. I've never felt it more acutely than right now. For the most part, the bigger the store, the higher the velocity. I try not to get jealous when I see peers with pallets of scarce product, but I know my market and its limitations. It's strong but shallow. We might sell a case of a product and it's gone for months and I just shrug, while that case might be a pallet of product for a larger store. 

Meanwhile, Kickstarter game projects have increased significantly during the pandemic, and we're struggling to find products to back. My impression is even my most loyal alpha customers across the gaming spectrum have tilted their purchasing to Kickstarter over in-store. It's probably 60-40, and they'll often ask me to back a game so they can pre order through me (or just as often back it first, and then ask). Alphas have always been omni channel consumers, but it's odd to see this so pronounced across the spectrum. Scarcity is not just a condition, it is becoming my business model.

Distributors are sometimes good at managing scarcity and sometimes bad. Those who came out of the early pandemic strong have war chests allowing them to corner the market on some product. It's not unusual for me to have a record sales weekend and barely be able to scrape together an order on Monday morning, due to scarcity, whereas I would be ordering ten times that amount in normal times. While a distributor may be the king of the mountain in one area, their fields are fallow in others. Smaller publishers with niche, one off games are often absent from their shelves, and thus absent from mine. So we get a big shipment of a thing, sell it out in a week, and we wait for the next shipment.

I've added new suppliers during this time of scarcity. I recently added the last national distributor I wasn't doing business with. I'm leaning heavily on my Canadian distributor and returning to my toy distributor. I've also opened an account with Penguin-Random House, since even D&D books are becoming scarce. I have to admit I was not prepared and I'm being reactive instead of pro active. I have left a lot of money on the table, but at the same time, I've made a good amount by just breathing and doing my usual routine. I am skeptical of anything that smells of juiced demand, since I've been burned so many times before.

I still have all the money in the world, thanks to government loans, but I generally don't have anyone to spend it with. I've told a couple suppliers to "just send it" without quantities. You have Pokemon? I will take it. How much? All of it. It usually gets me a couple cases that last a week or two. This is what's so striking about "right now." I have all the resources to buy, but the time to buy was three months ago. Some suppliers are treating such product as commodities on their end and raising prices to me. Don't care, send it all.

To summarize, we're not seeing record sales, but we're seeing very efficient sales while running a very efficient shop. We're diversified enough to be able to succeed with just a taste of product, but sad we're not getting boom time sales due to supply. We're not buying new homes with the Pokemon boom, because the supply is so very weak. We are down about 5% from a year ago, a number about to change dramatically as we're nine days away from our shutdown anniversary. 

Running one shift in the store, without gaming, means such a significant cost savings, we're surprisingly profitable. But I can't help be a little jealous of those pallets on my neighbors sidewalk. I also worry about opening in store play more than anticipate it. It's not just the danger, it's the inefficiencies in a time of scarcity. For example, why would I want to run Pokemon events with no Pokemon to sell? 


Thursday, February 4, 2021

Stages of Stocking

 I've watched the game trade nearly double in sales velocity since I started in 2004. It wasn't uncommon to consider a three turn a year game store a success, and now that number seems to hover around six. That means if I had $100,000 in inventory at retail, I was seeing $300K in sales in 2004, and $600K in sales in 2020. Success means efficiency in this example, which equals getting as much money as possible from a minimal investment. You might define success as sitting on a treasure trove of games with one turn a year. No kid, get away from that, THAT'S not for sale!

For me, the difference between a three turn a year store and a six turn a year store is the difference between peanut butter sandwiches and home ownership. This is highly subjective, of course, as we have no solid data, but you'll probably agree the trade has breached mainstream culture in a way that didn't exist 15-20 years ago. You can have a middle class lifestyle with a reasonable, six figure, investment. I wrote a book on that. We are beginning to see more top tier stores, with solid policies and procedures, sell to others, rather than just liquidate. 

When it comes to inventory, this success didn't come with a larger investment.  We saw the same level of inventory out perform throughout the years, with minimal additions, at least until 2020. Rather than expand inventory, capital was thrown at large projects or extracted from the business to regular exercise my return on investment, expected by most business owners. Inventory didn't seem to matter all that much as reinvestment. 

The pandemic killed sales, thanks to the cancellation of public gatherings. In the SF Bay Area, where my store is located, we were technically closed entirely for two months. It's clear now that events were responsible for 15-20% of our sales volume, although at low margins and super high management costs. When we received government loans,  the goal became finding a way to efficiently offset that loss with new inventory people actually wanted. Inventory for inventories sake was not going to do the job. This stuff had to perform and now. 

When I moved stores to a three times larger space, I massively increased inventory and learned some hard lessons. My attempt at diversification away from the trade was a huge failure that took two years to unwind. It was the wrong read on the market, with the wrong inventory at the wrong time. So adding new inventory was going to be a bit more conservative, using what I had learned. There was no time to waste, and I knew we were looking at 18 months at least to return to normal, if there was a normal to return to. 

I wasn't the only one doing this, so it got me thinking about where I and others were on a spectrum of purchasing. I've got this theory of inventory tiers based on store makeup. It's really defined by how successful a store can be within the confines of the three tier game trade. I've got four store models that look at this, with each building on the one before it:

  1. High Efficiency: Inventory is highly efficient, but that efficiency also loses opportunities. More inventory would go to reduce the friction of that high performance with depth of stock. You might take your six turn inventory performance down to four, reducing stock outages with some sales increases. It's a low risk, low reward inventory increase, but it's necessary to progress. This store likely has a direct account or two, like Games Workshop or Asmodee. Perhaps 20% of their product is outside the trade.
  2. Newly Diversified: Having satisfied depth of stock, this store needs to diversify within the game trade to appeal to a larger customer base. This often coincides with capital improvements to attract a broader range of customers. You can't just throw general public appealing inventory into your Gamers Den. This is going to be a medium risk, medium reward increase, as you're likely tapping your existing base and asking them to spend more. It's not as lucrative as a new customer base, but also not as risky. Perhaps 40% of their product is outside the trade, mostly with direct accounts to obtain product available within the trade. 
  3. Beyond Diversified: This store has mastered depth of stock, has diversified as far as they can within the trade, and now needs to seek out new product lines through direct partners. This is a high risk, high reward strategy, as they're appealing to a new customer base, if they can find them. They are probably a Wizards of the Coast Premium store, based on the capital expenditures needed to appeal to the general public. If they're not ready in appearance and service for the new customers, this could be a disaster. This store may also begin to chafe at the allocations and available inventory provided by distribution, even with deeper buys. Perhaps 60% of their product is outside the trade.
  4. Fully Diversified: This store has tapped out all known sources and constantly needs new product from a variety of sources well beyond the game trade. They likely have dozens of active direct accounts, work with toy companies and distributors, and go to publishers first to guarantee supply of product. They back many Kickstarters. This model is medium risk, medium reward as they've already created the customer base expecting to be regularly delighted. They are now capitalizing on tier three risk taking. They are really a more sophisticated tier three store than a new model. Perhaps 80% of their product is outside the trade.
What I personally discovered with an unlimited inventory budget is there wasn't a lot of obvious diversification options left on the table. There wasn't much low hanging fruit. That's because I was probing all along for new opportunities. Although I did some diversification in my buys in 2020, which increased my inventory 55% at one point, most of my buys were in depth of stock. I'm probably a 2.5 in this model.

It was interesting to watch my store transform into what I had seen in many stores before, a larger, more mature store with the depth of stock that represented the appropriate sales velocity. You wouldn't have guessed our sales levels by just looking at us before, but a store owner would know now. That sounds like an admission of guilt.

I did diversify, mostly into puzzles (a whole wall of them), product from the book trade, and toys. We now carry every first and second tier Games Workshop product. But the bulk of my buys were broadening my game trade stock and deepening depth. Depth of stock was simplified by dividing stock by annual turns. That was a blunt hammer, so that large bump in 2020 was fine tuned by the end of 2020. We also spend a few thousand dollars on new store fixtures, as the deluge had us using folding tables for several months, just for a place to put everything. I once said I could double the inventory in my 2,000 square foot showroom, but the true number, it turned out was a 50% increase.

These tiers don't necessarily correlate with sales numbers. You can have a multi million dollar tier one store and a very low performing tier four store. In fact, it would be highly desirable to have a lower number with higher sales, as the infrastructure is lower. If I could have a multi million dollar store with four product line, that would be amazing, but brittle. 

The reason the tiers don't correlate with sales is because there is no acknowledged formula that says, I'll do six turns at tier one, then shift gears to two. It's highly subjective. There used to be a ton of tier four stores with one turn a year, the museum store. Most of those are gone or have reformed. Those of us in the trade know the difference, by the way. Customers love the tier four store, even when it's unprofitable. Store owners can tell if it's a powerhouse or a $#!*house. When it comes to gossip, this is a hot topic.

Anyway, those are my thoughts on inventory after a very interesting year of having all the money in the world and no easy answers on how to spend it.

Wednesday, January 20, 2021

Applying for an IT Job

 Here's how I would apply for an IT job at this stage in my life. I do not want a job again, but here's my general impression of how I would go about it. My guess is the approach isn't effective, but who knows:

Dear Hiring Manager,

My decade of experience in IT and 25 years of managing employees, clearly qualifies me for the position, but I wanted to touch on something you may not have considered. Running a small business for the last 16 years has provided a perspective on IT that I'm sure few of your IT employees possess. You see, I dislike technology.

I am not enamored with technology, nor do I wish to burden your company with a bunch of soon to be useless gadgets and computers. In small business, you quickly learn that IT is a cost center, an expense that you wish was unnecessary, and to the extent you can make it unnecessary, you do that. Clever technology is not so clever when you're troubleshooting a computer on your office floor on a Saturday night, rather than being with your family. What I'm saying is technology needs to be applied intelligently, and most often in IT, it is not. IT experts are often on to their next gig, long before the return on investment fails to materialize.

As your new IT professional with a small business background, you hire a skeptical expert. You hire a technologist who doesn't slap a business case onto a shiny piece of new tech, but starts with the business case. I want to learn about your business and how technology will advance it, improve it, make it better in every way. I am also fully satisfied to let the "trains run on time," and keep your operation in tip top condition without change. I have nothing to prove and I'm not obsessed with the next tech gig or building the resume.

In short, I wish to partner with your organization, make it my own, understand what makes it tick, and when necessary, and only then, bring it the latest technology to propel it forward. For sixteen years, I applied just the right amount to my business, resulting in a modest 10% a year growth rate, while technology took a back seat to people. A good IT opportunity should have a solid business case, with a thoughtful cost-benefit analysis and prompt return on investment. I can't promise to make your IT a profit center (although I've seen that done), but I can make it a less painful center of cost, while focusing on what matters to your company, the people.

I would be happy to discuss this position and your needs in more detail. 

Sincerely,

Ex IT Guy


Getting The EIDL Loan

With some perspective and some mushy memories, I'm better able to describe to the narrative of the EIDL loan process I went through in April of 2020. Having survived the 2008 housing crisis and not getting my house in order until 2010, I made this a massive priority to educate myself on this loan and be first in line. Some people camp out at Best Buy on Black Friday, I have Google alerts for SBA portals and hit refresh a lot. 

I wanted in first, because being the government, they would: a) run out of money, and b) there would probably be a first mover advantage in scrutiny, meaning they may be too overwhelmed to make good judgements or might implement new rules later, after they ran into problems. As it turns out, I have stellar credit and they really wanted to give me money, which was a bit of a problem.

When I was approved for the loan, they offered me an enormous amount, over a quarter million dollars. I was applicant number 10,000 or something. I was early, I understand finance and paperwork, and they had a lot of money. Eventually they would run out of money and limit loans to a smaller, more reasonable amount. Once I was approved, they offered me a villa in Mexico amount of money. I asked them if I could just take a smaller amount. They told me not to worry. I don't know where this will go, and I can just take what I need, like a line of credit. That made me happy. I can manage a line of credit. But that much money? Are bank accounts even insured for that much? 

They are not.

Then they just dumped the whole amount in my bank account. No line of credit. That's when I learned there are SBA contractors just kinda winging it. So wow! All the money I could ever ask for, business wise, for my completely shut down business that may never open again. I was thinking Guanajuato or maybe the outskirts of Oaxaca. With so little faith in the government and the pandemic raging (really just getting started), I had one foot in Mexico while trying to restart the business. 

And then they came back and asked for something I read about but didn't fully understand. They needed a property lien on everything the business owned, but they needed me to file that with the state. That took a day of figuring out, but it let me read about the "hooks" involved in this loan, and to better understand the requirements.

By the simple loan language, I can't pay myself dividends. Really? Ever? It's a 30 year loan. Are businesses with an EIDL loan over their head forbidden to ever realize profit? Oh, well you just can't pay them with the EIDL money. So if my business makes $5K this week and I use it to pay investors while I borrow $5K from the EIDL fund for allowed expenses, everything is fine? Exactly. Just show a paper trail. Then there was the car. I needed a car to do deliveries. Doing the research the EIDL loan was fuzzy about capital expenses. Ask a lawyer and they interpreted that as allowed. You can buy a car. Ask an accountant and it was certainly not allowed. The accountant had a different understanding of capital expenses, probably one more in line with the government, since it's their job. I bought a car anyway and made $57,000 in deliveries.

My final understanding was this: If you pay back the loan, nobody cares. Nobody is going to look at your delivery vehicle and send you to prison (an option), if you pay back your loan. Don't pay back your loan and there will be scrutiny and open books and questions about everything. So the answer is win, don't lose. And if you think the SBA is clear in their writing or understanding of how the law is supposed to work, talk to Congress about that. They've been yelling at the SBA for nearly a year now. And with todays shenanigans for EIDL disaster grants, I'm sure they're just getting started.