Friday, December 31, 2021

Touring Game Stores

I like to visit other game stores, often traveling long distances to see them. It provides me an overall insight into what the industry is doing. Writing about the industry is by nature to generalize, and the more overall breadth of experience I have with stores, the better my analysis.

I am open to suggestions and other ways of doing things, but I don't visit stores looking to take anything. I'm genuinely curious. I get more out of touring stores than visiting a trade show at this point. This is a very expensive way to educate myself, so we like to combine our game store tours with things like national parks and monuments, making it a game store tour vacation of sorts.

I've been to hundreds of stores at this point. I've been doing this long enough to get value from visiting the same store more than once, especially after a move. I visit stores with my 16 year old son, something we've been doing since he was in a stroller. I used to report on aisle widths and whether I could make it through the store with my stroller.

We've visited stores throughout the US, Canada, Mexico, and Guatemala. My son will now give me an executive summary of each store when we get back in the truck. I've been to stores in Europe to a smaller extent: Germany, France and Italy. There are write ups of these store visits on my blog, as well as on my personal Facebook page. Yes, this has been called game store porn.

Let me be the first to say there are a lot of bad stores. The barrier to entry in any local market is essentially the lowest commercial rent rate. You'll see the most "bad" stores, undercapitalized, unprofessional, unwelcoming club houses, in areas with super cheap rent. Visit the Phoenix area and you'll see a grid of commercial building going off into the desert to infinity. Where there are no geographical constraints, there is cheap rent, and there are a lot of bad stores. An SF Bay Area bad store is a middling endeavor in most markets, due to the cost of rent. $18/square foot (annual) is the basement. Where there is construction or malaise, there are bad game stores. However, we focus on the good stores, and that's my advice to the industry. Look at the good ones. There are a lot of them.

There are many variations of stores I could chose to visit. I often take suggestions before I go, but I'll look at reviews and try to hit the store with the most good reviews. A lot of reviews, mostly good, in each market. In some markets there are no apparent good stores, but we'll try to visit at least one anyway; I'm often surprised. Sometimes not (Flagstaff). Unusual stores are also on the list, like an unusual gaming cafe, a video game store we visited yesterday in a basement, and strange hybrids. If you've got a game store-pet store hybrid, I want to see it. Interesting retail that is game store adjacent are on my list too, like the amazing Last Bookstore in Los Angeles, built intentionally as experiential retail in 2005. How many game stores do you know of with a Wikipedia page or that make it into music videos? I was once approached to use my store as a porn set, but I declined.

All stores are reflections of their communities, thus all good stores that reflect this are worth visiting. There is no store that is too small, too weird, or too diverse. If you're profitable, and you're a legitimately good store, I want to see what you're doing. I'm also not interested, nor do I know anything about a stores profitability. So everything is taken with a grain of salt, and longevity sorts out what works from what doesn't. I can say I know what a solidly profitable game store looks like, although I love to see variants.

Communities get the game store they deserve. Deserve is a harsh word, but in this context, it's where demand meets supply. You might want one type of store, but your community will let you know what they need with their money. "Build it, and they will come" requires you to adjust your store to the needs of the community. You can't astroturf a store. I went to one new franchise store on my most recent tour that had an amazing miniature and paint selection, just like most stores of that franchise. But they had few miniatures customers. That niche was filled before they got there. They are a board game store, but it has taken them a couple years to realize this. Do they continue to flog their miniatures and hope to attract new customers or do they dump miniatures and become the board game store the community wants (deserves)? Time will tell. I'm just there to observe. This is where asking about how long they've been there is important.

Here is how I visit a store:

Let's talk about my attitude. I park outside and take a photo of the store front, trying to get the best angle. I like to put stores in their best light. This isn't getting published anywhere, but I would like to write up something that store owner would be proud of. This is an important element of how I visit stores. I have no desire to put down stores and would prefer not to visit, if I know a store is bad. If a store is bad, and there's nothing to be gained from the trip, I'll generally visit, but not write it up, or put it on my personal page and mark it friends only. I'm not trying to "get" anyone. This is someones life work. Remember that every time you give a business a review.

I try to avoid disruption. After I go inside with my son, I wait until the staff member at the front counter is available, or if it's nuts, I'll stand in line. I introduce myself and hand them a business card. Often the card can turn the mood one way or another, but it's almost always positive. Game store staff are inundated with sales people and useless individuals handing them business cards. If you've never been visited by another store owner, this might be confusing for you. I have just a moment to explain myself to set the mood. 

I ask the staff for a business card and they almost always have something to give me, even if it's not a business card. A customer loyalty card with the address will do. I've got a mini flyer from one this week. If you're a store owner, please have business cards on hand for your staff. I used to take cards to keep track of where I've been, so I can write up my impressions later, but now I write up a quick synopsis in the truck, which irritates my son who has to wait. Back in the truck, we tape the business card into my mileage book, something we started with the new business truck. 
I give out a business card different from my store cards, with my name and information, created specifically for giving out to other store owners and for trade shows. I'm going to publicly talk about your store and I'm letting you know my name and cell number. I'll stand by what I write. Literally call me out if I'm a jackass.

Ahh the truck. In case you're wondering, yes, there is a business related expense to these trips. Until recently, there were "unreimbursed business expenses" you could claim on your personal taxes, and my trips would fall into that category. That's gone now, and with investors, I don't write off game tour expenses. I do get to claim the business use percentage for the truck though, which is especially important this first year of truck ownership (one day I'll write about Section 179, when I'm confident I understand it fully). The truck is a 2022 Ford F350 Lariat, known as Owl. Bear, my travel trailer, comes in 2023. I've also referred to the truck as the Iron Pig, and this damn truck, as in this damn truck won't fit in the parking garage.

After the transfer of archaic paper cards, I ask permission to wander and take photos. I almost always get permission. Maybe one in twenty will tell me I need to ask the manager or owner, which I will do. Nobody has ever told me not to take photos, although I was asked in advance not to visit a store once, by a friend who wasn't ready. I used to be squeamish about taking photos with people in them, but not anymore. People will occasionally tell me they don't want to be in the shot, or assume they're in the way (they're not). This is not photography class, I take up to 25 photos very quickly. I photograph stuff I find interesting or amusing (because nobody is paying me to do this).

I don't need special treatment. Some stores will give me the tour, which is not necessary. However, it does allow them to set their own narrative and learn more about me. If you're afraid of the dude with the business card, talk to him. I show up unannounced, even when the owner is a friend, so I don't expect anything special. I don't need to hang out or get lunch, although we had a wonderful impromptu lunch recently with a store owner friend. 

If I get a store tour, it's an opportunity to compare notes and shape my narrative. In one store this week, we saw a tremendous amount of independent miniatures and paint with a thriving miniatures community. I mentioned how my store can't support that product and the owner offered to hook me up with communities in my area who play regionally. Neat! Neat, but not necessary.

I always buy my son Rocco something in every store, usually spending $15-20. This rewards him for his patience (and now research), but it also gives me a ton of useful insight into how they operate from a customer perspective. This also makes me an unusual customer, rather than just some industry weirdo taking photos. I can learn a lot about the store from this interaction. Rocco is also learning what it means to have a quality store, whether he follows in my foot steps or not (hopefully not).

That's what I do! I'm not the only one who does this. I know industry groups that go out to willing stores as an analysis mob. My store has been mobbed in this fashion and I got some useful feedback. I am not a secret shopper, but throw some money at me, and I'll be happy to visit your store and write up something more analytical than funny signs and goofy photos. Although I would prefer you just buy my book.

2,346 miles on this most recent trip, more than half of the odometer reading

Monday, December 13, 2021

Identity Crisis

In graduate school I had a job driving cars between Oakland and Los Angeles. These were "breakdown switches" at a rental car company, often requiring troubleshooting on the road. I complained to one of my teachers at the time, "This job makes me feel so disoriented." His instant response? "Well, don't get oriented." He was a wise man who passed last year.

Over the last two years, many of us have become disoriented. For me, it's an identity crisis of sorts. I've been running Dungeons & Dragons games weekly for twenty years. I suppose you can call me a dungeon master. It's a big part of who I am, running this game for a group of people, or in the case of lockdown, groups plural. Yes, I could have run games online, but the joy I find in this activity is not found there I've discovered. It's like sex, with a condom, using someone else's genitalia. It's too disconnected to appeal to me. My first in person game since COVID starts in one month.

I've also gone from an on site store owner, derping around in the back, to a remote owner. This has been a dramatic shift, those who now work from home can understand. It's disorienting, with some guilt involved for those left behind, but I feel I've been working towards this for years. I could have done it years ago, and probably wouldn't have done it for many more years, if COVID hadn't happened. It was a boot out the door of sorts, with a slow realization that I really don't need to go back. This shift, in the eyes of some of my peers, is a final exit. What are you doing still writing about this stuff? Aren't you done? I'm not done. There are also the socialists out there concerned I'm prospering off the backs of the workers. True, but not any more than any store owner, really.

This has kicked my (semi) retirement plan into gear years earlier than I was expecting. I plan to buy a travel trailer and spend six months a year traveling, mostly in Mexico. I bought the massive truck to pull it in October. I've passed 800 days with my Duolingo Spanish, which makes me a better prepared tourist than most, but hardly fluent. This whole plan is a bit at odds with my dungeon mastering, and certainly a challenge with remote store management. I also have a 16 year old, and part of this plan, still a few years away from full completion, is launching him into his life, whatever that may be, without it feeling like a betrayal or abandonment. 

If I had to give advice, it's take it one day at a time. Take crises as potential opportunities. Examine your values to see where you belong. A lot of people seeking a remote life elsewhere lack the ties to their community. Sometimes it takes nearly losing those ties to understand they exist. 

There's a lot of fear when you court change, when you embrace disorientation. Most people won't be able to make the jump. However, if the next ledge presents itself, I say take the leap. If you're feeling disoriented, don't get oriented.

Friday, December 10, 2021

Why Magic Singles Are Good For Game Stores

There are two sides to every story. Why would you possibly want to spend your life sorting worthless cardboard? There are some good reasons:

Market Differentiation. You have a unique product selection, unlike any of your competitors. Amazon doesn't have your singles. The giant store down the street doesn't have your singles. Your single collection changes all the time, a clear draw to competitive Magic players. A store collection is a unique, dynamic product offering that takes time and energy that makes no sense, the larger the player.

Global Market. Getting an Amazon FBA account set up, or working or an online store shipping, is a major undertaking. Selling singles from your small store on TCGPlayer is super easy. Your little shop, undercapitalized with just you, can be a player with singles online. It's also a catalog where your customers can view first and buy in store. As this gets more involved, you can even buy singles centric point of sales systems to help you manage.

The American Dream. The amount of money you will make selling singles is directly related to your time and knowledge acquired related to this project. It's a massive time sink, but you'll be rewarded. If you're young and without a family, you can devote extreme amounts of time making singles a major source of your income, while your friends are busy developing their careers in other ways. The difference will be how your efforts directly result in income. You can do this with almost no capitalization, meaning you are building something from nothing.

Forced Reinvestment. While your competitor might be squandering their profits on truck parts and trips to Mexico, you are being forced to re-invest in your business. When you put it out there you buy Magic singles, you must buy all the time. It's not unusual to see a small store in a very short period of time with a singles inventory value that rivals many larger stores entire inventory value. So far, singles appear to only go up in value. As long as people play Magic or are interested in collecting, this trend will continue. Eventually, we'll see generational shifts and values will decline, but we haven't seen a hint of that after almost 30 years. If people are playing Magic, they're buying singles.

Margin Equalizer. Sealed Magic product has an awful margin, there's just too much of it printed. Market margins for sealed are around 35%, while you can get higher margins selling singles. When I sold singles, it seemed we were getting around a 45-50% margin, which makes up for the poor sealed product margin. Magic singles rounds out the bad margin of sealed product, providing a margin that a store can not just survive on, but prosper.

Community Draw. People tend to buy where they play, and they play where they can find the product they need. Magic players, especially competitive ones, need singles. If you're a tournament oriented shop, you must have Magic singles. You probably have the interest and the staff knowledge, so engage. 

Narrower Focus. Because your money is tied up in singles, you will likely not have to deal with the nonsense that comes with certain parts of this trade, like the churn and burn board game market, or the idiosyncratic RPG market. You probably won't need to worry too much about why there's another Space Marine codex after just three years. Your forced reinvestment into singles will take up a lot of your inventory dollars, and let it. Diversification is fine for large stores, but smaller stores need to focus to survive. If you grow larger, you can play in other sandboxes, but for now, focus on CCGs, singles, supplies, snacks and seats. It's a valid model for the undercapitalized.

Fungible Assets. Cards are cards. You can avoid costly buys by trading cards. You can trade to your hearts content, without creating an expensive paper trail of cash transactions. As I've mentioned, my singles weren't even insured as inventory, but as "fine art." How much are your 1,000,000 commons worth at the end of the year? Something? Nothing? You decide. They're worth what people are will pay for them, and nobody has asked to look in a long time. I'm not saying break the law, but I am saying there's some slippery ways you can horse trade that you can't do with standard inventory.

Give Your Finger to the Man. Distributor margins got you down? Publishers raising your costs without raising MSRP? Wizards of the Coast demanding monthly reports? Naw dog, you're in the secondary market now. You keep that primary market nonsense far from me. You buy from customers. You support the community and the community supports you. Power to the people.

Building the Perfect System. The true card wizards have a system of buying, sorting, pricing, tracking and selling cards. Their system includes training and delegation so that others can do the same. This is their secret sauce. You also have the opportunity to craft a singles system, bodge together good ideas, and come up with a plan that works best for your needs. Get a bunch of experienced retailers in a room, and they'll be talking about their sauce, comparing spices. It's not one size fits all, and you can't just install a system. That's job security. A system is hand crafted, bespoke. If you like the idea of making something from nothing and crafting systems to optimize your empire, selling Magic singles is going to be a dream come true.

Monday, December 6, 2021

Oh... Jigsaw Puzzles

How I want your cut up pretty pictures that take no effort to sell to work for me. It's a picture. In a box. Do you like the picture? Is the difficulty level hard enough for you? Excellent! Oh my god what a simple thing to sell, rather than thousands of boxes of things that need explanation.

Oh, you're a puzzler. You require puzzles of a particular quality, preferably a highly ranked one? I have Neuschwanstein Castle, but it's not from the brand you prefer? Here, let me buy another shelf to house all of those. Eventually I'll get this right.

The bottom line of any inventory, is you want performance. Things must sell quickly. Puzzles are high hanging fruit. Puzzles are what you buy when you feel like you have all the games fit to sell. There are exceptions. If you sell a lot of toys, cater to a "muggle" clientele, or your store is in a touristy or super transient area, you may discover puzzles work great. Maybe you have snowbound customers that don't really like games. 

For the rest of us, puzzles are a final destination of dollars. Puzzle sell slowly, require depth and breadth of stock, and right now, you can't get the right ones. Puzzles sell like less popular dice, requiring a pyramid of junk to get average turns on Neuschwanstein Castle. Let's take a look:

Brand is everything for the puzzler. Ravensburger is the dominant player in puzzles. If you can't get Ravensburger, I would argue you're chewing around the edges, trying to make puzzles work without the dominant player. It's like selling role playing games without Dungeons & Dragons. In fact, I would argue if you aren't already selling puzzles, you wait until Ravensburger can fulfill orders in a reasonable fashion. 

There are brands that a puzzle selling store owner will rush in to tell me are sure things. I've listened to them. They're wrong. A sure thing in one region of the country, is "some weird brand" in another. Ravensburger is the only sure thing. Ravensburger may dominate, but there is plenty of room for small players. We have tried many of those brands on advice of others, and I can tell you some of them even work in other stores nearby, but not ours. 

Puzzle size is important. The undisputed champion of puzzle sizes is 1,000 pieces. There's a Bell Curve, with 1,000 pieces at the top and everything else falling away on each side. 500 pieces are generally catering to children and the nearly blind (I'm moving into that category). 2,000 pieces are challenging but not unreasonable. There will always be that knucklehead who insists on a bajillion piece puzzles, and if you buy it, you will sell it in a year or two or five. I once offered a 64,000 piece giant puzzle to anyone who could walk down the street with it held over their head. If I were buying puzzles fresh, I would buy every 1,000 piece puzzle and then some on each side of that.

The puzzle rush is over. If you had heard people were going nuts with puzzles during lockdown, you were right, but as things return to normal (which varies in each region), puzzle sales have flattened out. I'm not saying don't buy puzzles, but when we talk about inventory metrics, you are likely to be disappointed with puzzles, unless you have extenuating circumstances in your favor. 

Finally, puzzles is a long game. You build up clientele over many years. You don't treat puzzles seasonally, even though they sell seasonally. You stock well year round. You listen to your customers and bring in the brands they want. You use your metrics and drop the ones that don't work. 

Fun fact, unlike games, nobody will buy a puzzle they don't want at any price. Liquidating puzzles is death. I stole the idea of putting them in blind bags. Mystery puzzles sold at cost will move puzzles. But nobody will buy that puzzle on clearance, if they know what it is. You can safely avoid puzzles, or at least save them for last, where they reside in my sales reports.

Wednesday, December 1, 2021

Why Magic Singles Are Bad For Game Stores

A lot of game stores make their money from Magic singles. They're undeniably a major part of the game store ecosystem. They aren't without their trade offs and problems. I've sold Magic singles in store for about as long as I've not sold Magic singles. I don't sell them any longer. I don't think we were particularly good at selling them, mostly because we were perpetually under capitalized. Here's my list of why they're a problem:

Required Knowledge: The product and trade knowledge required to properly sell singles is dramatic. I don't believe there is any other store trade where required knowledge is so extensive. It can be all consuming. If you come to the trade as an experienced Magic player, you likely think you have skills to run a store, solely on your Magic knowledge. 

If you aren't a Magic player, you will have a hard time not only learning the meta of the game, but you'll need to keep up with new information on a continual basis. Even quarterly set knowledge is not enough. You'll need to be plugged in daily. 

This is also a problem because you may like Magic now, but you probably won't forever. After 17 years, I've seen all of our judges and knowledgable employees get burned out with Magic. I would not want my business tied to my enthusiasm over a product. That's exactly what happens in this trade.

Time Investment: Besides keeping up on product knowledge, there is considerable time in buying, sorting, re-pricing, and engaging with Magic singles customers, many of whom are not looking to spend a lot of money. There are a ton of low value purchasers, many of whom come to your store to talk with you about Magic. This is their entertainment, but if this isn't your primary trade, it's not a good use of your time. They will reward you with their money for sure, but this is a rabbit hole that you are stuck in. There are a lot of more useful things you could be doing with your time.

Eventually this time cost is delegated to employees, who you now pay by the hour to buy, sort, organize, and price cards, as well as jabber with Magic players. In high wage states, this becomes even more untenable. $15+ an hour is a lot of money to shuffle cardboard. The same activities might be happening a mile away over the border, at $7.25/hour, and the singles market is mostly online, where you could be paying up to 15% for the opportunity to sell.

Capital Investment: It's hard to dabble in Magic singles. The cliche is the store owner who starts their store with a binder and folding tables, but that binder could be a significant capital investment in this trade. I stopped selling singles, but if I got back into it, I would want to ear mark tens of thousands of dollars to build a collection. $50K sounds like a reasonable start. There are a lot of easier ways to invest $50K. Attempting to bootstrap Magic singles is very difficult, and unlike product that can be bought from supplier, you'll likely seed your start up by opening a lot of booster cases with low resale margins.

Cash Flow Nightmare. Magic singles will mess up your cash flow, if you aren't well capitalized. Don't be surprised when you have a great sales day, only to discover there are no deposits because you had to buy a collection or replenish your cash on hand. You can't really control when this will happen. You can't buy singles this week and not next week because you don't have money for payroll. You can't buy product and promise to send a check when you get around to it (that happened around here). During the pandemic, we sold all our singles during lockdown and as organized play died, stores that did a lot of singles business were forced to decide if they wanted to continue to buy a product that nobody, temporarily, wanted. When we dropped singles, our cash flow went from a nightmare to a dream.

Potential Theft and Fraud: Magic singles are essentially a cash business. In the infamous Gaming Goat deposition, we have the claim that Magic singles, seven million of them, have no value: "It doesn't have a value. It's cardboard." We need to work on these quotes. Along with "No, I am your father," it may be the most mis quoted phrase amongst my trade peers.

Hopefully you understand that Magic singles are valuable inventory, easy to price, and taxable as inventory and compensation when applicable. You can't pay people in singles and expect that not to be taxable income. My guess is a lot of stores don't declare their singles as part of their inventory and some probably pay their sorters in product.

Singles are easy for employees to steal and self deal, for store owners to use to evade taxes, and they're likely not properly insured. I once discovered an employee was living under a gaming table, sleeping in the store. He made his food money by stealing singles from the case and selling them back to us. It was like supporting a child that wasn't mine. It's also common for employees to be customers, and when your Magic buyer is also a Magic seller, you need to make sure a third party is monitoring sales. Putting limits on the number of each card you'll keep on hand is a good start.

Do you 100% trust your employees to handle your Magic singles? Can you or should you trust them 100%? If your knowledge is lacking or your enthusiasm waning, you will have to trust your employees to handle this part of your business without much ability for oversight. I am aware when standard product is sold, missing, or otherwise being mishandled. I can feel it in The Force. I had no idea what was happening with my singles. 

Insurance is another issue. When we had a lot of Magic singles, we had them insured as "fine art," They weren't considered part of inventory like other product, despite their obvious value. How often do you think I adjusted the value of my "fine art" policy rider? 

The solution is specialized tools for selling Magic singles, which begins to dominate the focus of your business. You'll end up choosing a point of sale system based on its ability to track singles and integrate with online marketplaces. This seems a lot like the tail wagging the dog, especially if singles don't dominate your sales.

Margin Justification: Sealed product margins are crap. Since we don't have an MSRP any longer, not that this mattered, I'm basing this on market prices. Magic is a commodity good, it's no better at my store than the store in the next state over. Customers shop entirely on price. Sealed Magic margins are 30-35%, in a trade that regularly gets 40-45%. Stores make up for this with singles.

Singles make Magic profitable. When I sold them, we tended to get a 50% margin, at least with what we bought and sold, ignoring the ocean of crap that would only sell in bulk. It does work, if you do the work and make the investment. Singles make up for the sins of sealed commodity Magic.  If you sell sealed Magic and don't sell singles, it's kind of a suckers game. You're not losing money, but you're relying on volume to justify the low margin. You might get stratospheric turn rates, if you're careful. But as you try to be the local Magic store by keeping older sets in stock, you'll find your turns begin to decline sharply, as you keep slow selling product in reserve. I'm doing this right now.

Perhaps you hold the line at a higher margin, knowing you'll sell a lot less of it. I've tried both approaches for years at a time, and market pricing Magic seems to work best. It also makes up for the fact I don't sell singles. High prices and no singles would mean Magic customers only come to us because we're a good play venue. Don't forget the second part of the game store cliche, a bunch of folding tables.

Singles are integral to propping up this de-valued product and the meta is carefully managed to maintain long term values. This feeds back into requiring the store owner to once again have a high level of Magic knowledge, with huge time investments, and plenty of capital on hand, preferably rolls of cash in a safe on site. This is not a situation you can manage remotely. It's not the kind of business you can easily sell or retire from, unless you can find another Magic expert like you've become. Magic singles are golden handcuffs, tying you to not only Wizards of the Coast, but to your store counter for life.

Anyway, one mans opinion.

You can make a ton of money selling Magic singles and I love it as a game. 

Thursday, November 18, 2021

The Scalper

It finally happened to me, in a three star review I was called a scalper for selling Pokemon for more than the MSRP. Let's take a look at this:

1. How dare you. Is the term scalper not offensive? Have sports teams not changed their names for less offensive references? Maybe come up with a different term that doesn't involve a Native American stereotype. I'm not offended, but it's curious.

2. Scalper is a specific term with a legal meaning. Alright, so it's in the lexicon. Scalping is legally defined, in some jurisdictions (not mine), as buying tickets at a low price and selling them for a higher price. There are laws specifically regulating this ticket selling practice, down to how many feet from a sports venue you can sell tickets. Note that I do not sell tickets.

There is the incorrect assumption that buying product low and selling high, over the suggested price, which they refer to as "scalping," is somehow illegal. I kid you not. There are times when someone calling you a scalper thinks they are accusing you of a crime. Just to be clear, buying low and selling high is known as commerce. There is no law or practice that limits the price we can sell goods or services, except for very specific circumstances. There is nobody to report us to, no repercussions from manufacturers, and honestly no long term hate from most customers who understand what's happening.

3. The collectible mindset. Collectible infers that the cards go up in value. You are familiar with buying low and selling high, because you expect to buy low from me and sell high to others, or at least hold those high value cards over time and peer at them through plastic. It becomes infuriating for collectors when retailers sell high. We are eating into your margin, your future value. I tell people to just wait for prices to come down, but they have strong FOMO, Fear of Missing Out. Since in their mind, values only go up.

Anyway, I buy role playing books, and if my books suddenly spiked 50% in value, I would wait for them to come down in price. I will buy the book later, or I'll buy a used copy, or a PDF. That's my suggestion, just wait. But Pokemon players look at me like I must be insane. That's because they don't believe that product can ever go down in value, only up, and it's going up all the time! The collectors mind set is this product is an "investment," while I buy a book until I don't need it, and then dump it. I am not a collector, I am a player. We need fewer collectors and more players.

4. This whole house of cards. It should be mentioned that for a lot of stores, higher than market prices on Pokemon, which normally has the worst margin in the game trade, are keeping their stores open, driving expansion, and leading to profit margins never experienced before. When I look at my accounting, it just seems wrong. The margins are all off. If it makes you feel any better, the ecosystem survived and prospered over the last year thanks to Pokemon. More game stores are popping up every day. I know, you don't feel any better.

5. How much should we sell Pokemon for? It's simple supply and demand, with some market guidance. This year, it wasn't unusual to see our Pokemon supply last one week, while still selling well above the MSRP.  There were no re-supplies coming for a lot of this product. What I would like to see is product last several months until the next set. The fact it sold out in one week means I sold it for too little, based on my stated desire for a longer shelf time. Again, it's my decision to adjust the sales velocity using price as the mechanism.

I try to keep Pokemon at a reasonable market price, using TCGPlayer as my guide. At the same time, there's nothing keeping me from deciding I want this product to last three months, or a year, or forever, because I think it's pretty, and coming up with an astronomical price to make it last. I've had a suit of armor for sale for 17 years because I think it's cool. If I sold it, I would just buy another one, so the price is high.

6. Think of the children! We have held some product back for our events, which are mostly attended by kids, but my best advice for kids right now is play electronically until this market cools down. My son has switched from Pokemon to collecting stuffies and Hot Wheels. Prices will eventually drop. Which is happening right about ... now. 

7. Prices are dropping. The music stopped and retailers are sitting on a lot of Fusion Strike. Boxes sit at $117 (with an MSRP of $145, as a reminder, the price of all booster boxes when not being devalued or demand spiked). Chilling Reign, which we have a ton of, is at $98. Other retailers are trying to offload cases and pallets of overstock. Is this the end of the boom? Probably, maybe, I don't know. We're still selling a ton of product at a lower price, so demand remains while supply has improved.

Monday, November 15, 2021

Buy Once, Cry Once

I'm a "Buy Once, Cry Once" kind of guy. That means I like quality stuff and have learned to "invest" to smooth my way through life and hopefully have an extended lifespan where I don’t have to buy stuff a second time. It usually means less stuff of higher quality, because I’m not rich. One of the areas in which I've invested has been quality store fixtures.

When I started my business, I was told to expect several years out of my store fixtures. What I found was I could have a premium looking store, with better quality fixtures, for about 50% more money. I went ahead and bought the premium fixtures, mostly because I had more money than sense, thanks to a home equity boom, and have (mostly) continued to buy them throughout the years as I’ve expanded. Can I recommend that? 

It's almost impossible to square a reasonable ROI out of any store build out, let alone one where you start adding premium features. I would tell a new store owner to pick ONE premium feature, if they showed me their business plan (I don’t want to see your business plan). You can have good fixtures or the chocolate fountain, but not both! The SBA will tell you half of businesses fail within five years, which I think is where you should position your ROI. Buying premium fixtures is a vote for success, a belief those extra thousands of dollars will take you into year six. A six year ROI shows high confidence, low financial aptitude.  

Have those fixtures been worth the money? As I’ve expanded, I’ve messed around with cheap fixtures. What I found is they wore out as predicted, at around three years. Worse, as they wore out, some became dangerous, with shelves that would collapse. I had a kids section that towards the end, was probably not safe for children. I cried twice when it came to those fixtures, because they all had to be replaced with quality ones. 

Those garbage fixtures weighed on my mind, and they needed replacing when I had the least amount of money. This occurred during my Dark Night of Profitability, several years where I wished I would just fail already, if I wasn’t going to succeed. Bankruptcy seemed like a sweet release. Eventually I had some holiday money and all those garbage fixtures went over to the local thrift store. Watch your kids carefully over there.

In year 17, I’ve replaced only one of my high end fixtures completely, after driving screws into it from every conceivable angle to keep it alive. It was my Frankenstein monster fixture. Let me tell you how we destroy good fixtures: The problem with my fixtures, high end gondolas from Newood, is we love hanging things on the endcaps. These are the slatwall ends of each fixture, where we hang small items on hooks. 

If you aren’t paying attention, you’ll walk by, snag your clothes on a hook, and rip that hook out of the wood, damaging the gondola. This won’t happen every time, obviously, but over the years, like a monkey at a typewriter, someone will eventually rip out a number of hooks in high traffic areas. New staff can't possibly imagine this happen, but the veterans know, if it can happen, it will happen. The major maintenance expense of the fancy gondolas is replacing these endcaps, and we’ve done perhaps ten in 17 years. But the gondolas look new and they’re safe.

Which brings us back to ROI. As I watch new stores struggle with untested store fixtures, I’m brought back to the troubles I’ve brought myself with deviating from quality. Yet, I had a very long ROI, and maybe they’ll spend year six on vacation on a beach, while I was working, beaming proudly in my fancy fixtured store. Whose the winner at retail? Money is rarely the measure. 

We all define success differently. I’m planning to work from a beach in 2023. I’ll be 55 years old and I could be called back from that beach at any moment. I could be on the beach now, but letting go is a struggle. Others couldn’t imagine being anyplace but their sales floor, or doing community outreach, or any other customer facing service position. Most store owners would quit first, because the job is the people. I’m sure some of those people would consider my dream a sell out, and for stores just getting by, there are probably a number of asterisks next to my name. *“Yeah, but he…” If I were to give a seminar on how to run a store remotely, which nobody would attend (maybe I should give it remotely?), it would start with all the things to make your store self reliant. We would start with not having to worry about a child being crushed under your cheap fixtures. 

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.