Monday, April 24, 2017

Ptolemaic Retailing (Tradecraft)

Everyone is trying to get the best deal, be they retailers, distributors or consumers. In the game trade, we go through this twisted psychology of denial where we pretend Amazon doesn't exist, since our trade is so fundamentally devalued. It's clear something like half the market, half the people in our area playing games, are buying online. It's such a dominant force, it's amazing we have conflicts with other brick and mortar store owners.

A retailer, not a "game store owner" would look at this and pivot. Pivoting means selling something not devalued. There are plenty of areas of commerce where the manufacturer takes responsibility for their product value. They don't allow it to be dragged through the mud for short term gain.

If I want to buy a Smittybilt bumper for my Jeep, it's a free for all and the market has no bottom. Smittybilt gives zero effs and retailers will race to the bottom with ridiculously low prices on Amazon, along with every off road shop in America. If I want to buy an AEV bumper, I must choose from several approved retailers, all of whom will charge me exactly the same price, and it won't be cheap. AEV can do this because they protect their reputation and their brand value. People complain, they claim AEV is overpriced, but customers enjoy a quality, prestigious product with superior engineering, because the company has the extra cash to do their job. The off road equipment market is mature enough to have both types of manufacturers.

The game trade has very little brand value protection. Just about everyone allows their product to be sold online for less, especially the 500 pound gorilla, Wizards of the Coast. It's a choice they make. Consumers have identified the Amazon price with the MSRP, claiming retailers charging over this price are "gouging." 

Getting back to retailers, what we have is a constant mental crisis as we wrap our heads around the equations necessary to make it all make sense. The game trade is what I call Ptolemaic Retailing. Ptolemy was an astronomer who created this incredibly complex, convoluted theory of how the Sun rotated around the Earth. His math was complex, but entirely correct in describing what he saw. However, the underlying reality of what was actually happening was entirely wrong. Ptolemaic Retailing is attempting to stuff our complex set of wrong observations and assumptions into a business model that works from sheer force of will. 

We guilt customers. We entice them to shop with us with Things Not Retail. We have arguments and worries about authenticity and reputation and even issues of love. We squabble amongst ourselves for the crumbs that fall under the table. We build exotic edifices to the pursuit of ancillary reasoning. We're told the game trade penetrating mass market is good for us, as sales of affected games evaporate. It's madness and it wears you down, let me tell you. A retailer, a dyed in the wool retailer (to paraphrase Jean-Baptiste Emanuel Zorg ), would look at the trade, a sea of Smittybilts, and look for the AEVs in the rough. Perhaps it's specific product lines. Perhaps it's moving on to a different line of business altogether.


Friday, April 7, 2017

Magic Formula vs. Pump & Dump

There is a magic formula to board game sales. It assumes you do everything right as a retailer. It goes something like this. You become the primary source on what's good in board games. That means playing these games before most of the public, attending shows, reading forums and knowing, not just hearing, that a board game is solid before release. This is the traditional role of game store taste maker. You will figure out first hand what is good and you will provide that to your customers.

Next, you go deep. You have properly capitalized your game store because you're a damn professional. You don't buy one and wait and see if it sells. You buy fifty or a hundred. You're not going to stock it and hope people notice it. No, you will demo this game. You will own this experience and sell it with you and your employees with the enthusiasm that comes with being a true believer. You know it's good because you did the work to gain the knowledge. This will result in selling all those copies. Maybe not right away, and that's OK, because we're not buying in hopes of clearing inventory by the bill due date. No, we're in this game for the long haul. Just in time is for chumps. One and done is for chumps. Wait and see? Yes, for chumps.

The problem with this model is the pump and dump. Not only are you being pro active in your choice of games, but online retailers are also out there, possibly standing next to you, with dollar signs in their eyes. They have deep pockets, often enough to achieve discount levels undreamed of by retailers. They will buy deep too, just like you. That's where their work ends, however. They'll discount that game on release and sell it deep, way deeper than dozens of game stores combined could manage. That's the pump.

Next comes the dump. Once sales begin to slow and they need to regain that capital, they dump that game hard. The market price plummets (or spirals) and it's now a game of hot potato. Stores not using the magic formula watch sales dry up. I might order six copies and when the dump occurs, I might sit on two for an extra few months or even a year. Those using the magic formula? Oh man, are they in trouble. They've got twenty five or fifty or more of this hot game. They've done everything right. They're model retailers. They're also screwed.

The pump and dump online folks are clear cutting the forest. Rather than evergreens, we have rotten stumps. The publisher suffers. The other retailers suffer. The distributors? They feel it as a weakened ecosystem, but there are known suppliers to the pump and dumpers. When we talk pump and dump, we're talking a deliberate strategy involving new games. We know many retailers accidentally over order. We know online retailers are stuck with large quantities of end of life stock. That's not what we're talking about. I'm talking about pump and dump as a business model. It's legal. It's also reprehensible.

Now lets look at a retailer like myself. I sell hundreds of thousands of dollars of board games a year. I'm a prime candidate for the magic formula. Will I drink the potion? Hell, no. The risk is too high. The opportunity costs are far more expensive than other, easier to deploy options. The formula is beautiful in that it requires me to be a model retailer. It requires I do so many things right. By it's nature I'm growing the hobby! The problem is the handful of pump and dumpers who ruin it for everyone else. It's going to be up to publishers to decide they want a future, some evergreens rather than rotten stumps.

Wednesday, March 29, 2017

Retail Apocalypse (Tradecraft)

There is much talk about the demise of retail. We have Sears, JC Penneys, Macy's, Radio Shack, K Mart, GameStop and many other big chains closing shop this year. It has been described as an apocalypse, with over 3,500 stores closing. But what's it all about and what does it have to do with specialty retailers?

The first thing to know when assessing the victims of the Apocalypse is the number of stores starting out. According to the National Retail Federation, there are 3.8 million stores. This bloodbath of end times stores therefore accounts for .09% of retailers. So why the hyperbole and rush to declare retail dead?

Business reporters are only interested in publicly traded stocks. Unless the entirety of retail were to be feeling some sort of stress, they'll focus instead on companies with well known stock tickers. Nobody cares about my store because you can't make a buck buying from selling bits of it. You can't predict the future by reading my annual report. My CEO compensation is definitely not worthy of a social justice meme. So no, this is not a condemnation of retail and I don't even think it's condemnation of the venerable shopping mall. It's a failure of UVP.

UVP is Unique Value Proposition. These stores lack one. In fact, they're so far away from a UVP, the concept of UVP isn't even used in the conversation. Unique is instead changed to Useful. They need to have a useful Value Proposition (uVP), with a small "u." While their online competitors battle it out for Unique, they struggle for relevance, for Usefulness. These legacy stores are unable to come up with a uVP, and are simply waiting to die. They are so big, so entrenched in the 20th Century, they actually take a long time to expire, like a dying star going supernova. The only question is whether they'll become white dwarfs or black holes.

The main reason they're not useful is they've failed to change with the times, something specialty retailers are especially good at. Millennial customers, in particular, are about experiences rather than acquisition of goods.  Specialty retail has embraced concepts like Third Place Theory to take the experience economy into account. Barnes & Nobles is known for Third Place too, with their in-store coffee shops, but with a 30,000 square foot store footprint, there is no way to use specialty store tactics with big box real estate. If Barnes & Nobles was 5,000 square feet, sure, but they're doomed with 30K and a business model that can't adapt fast enough.

So no, retail is not dead. Business reporters like to report to their investor community, meaning we (the public) are not the target audience for apocalyptic visions of the future. As specialty retailers we need to stay nimble, stay useful, but aim for unique.


Sunday, March 19, 2017

Competition (Tradecraft)

Here's the thing about competition, a well run, well rounded store is shielded from direct competition. You can't generally steal customers. It doesn't work that way. If you could steal customers, game store owners would have endless online debates about their favorite Zippo lighter style rather than preferred brand of point of sale machine. The tool would be fire. Just burn down your competitors store and voila! Instant customer base. Instead, we see this figurative burning down, petty back and forth bickering and low ball giveaway events, between small stores.

This is because a poorly run, narrowly focused store is entirely vulnerable to having customers stolen. Customers will be taken and their store will die. If all they sell is Magic, their tool chest consist of a calendar and price. That's not even a tool belt, more like a pair of hammers in your back pocket.

So the same customer base runs back and forth between stores as each store owner races to the bottom with customer appreciation events for unappreciative customers. Here's a tip, run customer appreciation events after customers have shown loyalty to your store, rather than trying to constantly bribe them. What a clown show.

I know all about this because we experienced the clown show first hand. I had competitors open to steal my customers because of their superior pair of hammers. However, because we were well rounded, and sold many other things, we shrugged and waited for them to implode. When they imploded, the competitive Magic community came back (which were really perhaps half the people who bought Magic). You can't build a game store with a pair of hammers.

If you're looking for a solution to this problem, it's pretty clear. Your construction skills are weak. It's not about pounding with your hammer. A solidly built, diversified game store is built to weather the storm of the ups and downs of the game trade, as games and customers ebb and flow. If the need to succeed at any one game or the need to cater to any one community is enough to sink your store, you are a slave. Your stated goal to run a small business and be independent is a lie. Put down the hammers and start building value for yourself and your customers.




Thursday, March 16, 2017

A Path To A Middle Class Income In Five Years

I've been writing the book since the last blog post. As you might expect, it's a lot of work. It is not a bunch of blog posts turned into a book, although the core of it is a re-written and expanded section on how to start a game store, complete with numbers and examples.

A bunch of meat is then hung off those bones, such as marketing, selling online, third place theory and the cafe model, and similar themes you've probably read here before, completely re-written. A blog post is a nugget of ideas, but it's rarely a starting point for writing a book chapter. In fact, it has messed up my writing style quite a bit. Lets just say I'm brief.

The book is essentially two parts, a how-to book on opening a successful game store, and a narrative portion of my personal experiences doing so. This is stuff I only share with close friends and fellow store owners. According to my buddy who has written a personal finance book, the book could have the sub title: A path to a middle class income in five years. That's kind of sexy in a mass market way. You've got a path towards a real, sustainable future in this book, and you've got a narrative that hopefully makes you think twice before starting. Or maybe I'm just crazy and you'll see that on display.

The narrative parts are the behind the scenes of starting a small business, the fear and loathing, the sense of freedom, the crazy things that happen along the way. If you already own a store or are just curious about starting a small business, this narrative part is likely the appeal of the book. I honestly can't read a book on starting a business without falling asleep. The narrative portion should cure your insomnia. When I ask people outside of the trade, they want to hear more about this stuff.

I've been posting teasers on Facebook. Here are some of the sections I've written. Most have been re-written after posting, but I'll post the draft versions for now. I've completed most of the how-to and I'm about a third of the way through the narrative. Then it will likely get thrown in a blender and re-written to some degree. That's my guess. I hope to finish by the end of April so we can have a book by the end of the year. Gameplaywright is my publisher on this. They're a small publishing house in the game trade.
















Thursday, February 23, 2017

Growth and Books and Miniature Games

I'm on vacation, so of course I'm writing a blog post. Here are a few updates on what's going on:

Post Construction Growth
We spent $133K to build our two story game center with the hopes this would increase sales, grow the business, and solidify Black Diamond Games as a regional gaming hub. The ROI on this project meant we needed modest growth of around 5% to cover our costs within a five year window, our loan period. That didn't seem like a big ask. When I approached lenders, this 5% number is what I pitched, and since cash flow could already cover our loan payments, risk was minimized.

What we've had since construction completed is a sales increase of around 16% (February has been phenomenal, by the way). That's pretty good, considering our average growth was around 10%. That extra 6% is right on target for our ROI.

Expanding the game center has allowed us to run many more events, thanks to a legion of volunteers and our employee organizers. Magic went from one night a week to five nights a week. Board game nights are now twice a week with lots of activity. New events are being added all the time and existing events are growing, with some nights already packed like before.

We're poor, having paid off over $20K of cost overruns in December, but we're healthy and looking forward to the next challenge.


Writing the Book
I've got a publisher for the book I discussed writing. The book will have a dual focus. One aspect of the book will be a how-to of opening a profitable, hobby game store making a reasonable amount of money -- my way, as you've read about it here. The second focus of the book is a running commentary on all the mistakes, problems and surprises of starting and running my own store over the past 13 years. I made a ton of mistakes, almost lost my marriage and my house, and in the end survived, even managing to leverage an international bank over a barrel to get my way. Business taught me that.

There is a "do what I say" aspect to the book, combined with a "not as I do" element. The goal is to write a book my peers would want to read while also writing a book a prospective business owner would find useful. I personally can't read a business start up book. The letters don't even register as words any more and my brain shuts down.  Usually these two types of books are two very different things, but we'll try to combine them. Together they may even form a cohesive whole that's of interest beyond the game trade.


Miniature Games
We came to the difficult realization last year that we're not a miniatures store. We dropped Privateer Press (mostly) and stopped bringing in the miniatures game flavor of the month that inevitably brought heartache and a clearance sale. But have we really stopped selling miniatures?

Talking with other store owners, their concept of miniature games is a much expanded category. My category is narrow, comprising of unpainted models with rulesets. That leaves out a lot of pre-painted miniature games, not to mention things like Reaper Bones and D&D/Pathfinder miniatures.  I ran the reports and here's a pie chart, because everyone loves pie:



So when I look at this, I see what I see in every other game category. A strong market leader (40K) with half the pie, a strong secondary game encroaching on a quarter of sales (X-Wing) and everybody else. So maybe we are still a miniatures store.

Thursday, February 16, 2017

Tariffs and You

With a proposed 20% import tariff, I was wondering about the game trade exposure and specifically my store. Only six of my top 30 best selling game companies manufacture exclusively in the US. As with everything nowadays, a lot of companies have mixed content, like boards printed in the US and pieces manufactured in China. All that could change with a stiff tariff.

* Battlefoam confirmed all their products are made in the US

My guess is there's an economy of scale advantage when manufacturing large quantities in the US for the US market. The good news is some of the top game companies are in this top six, especially Wizards of the Coast and Pokemon. Around a third of my sales are products manufactured in the US. For some game stores it's much higher, considering how Magic (Wizards of the Coast) dominates.  If prices do rise dramatically, it may mean a shut out for the smaller manufacturers who can't afford US production, meaning a consolidation and thinning of the herd. This makes a lot of assumptions, so maybe some publishers can comment on that.

If prices do go up and manufacturing continues abroad, the likely scenario for retailers is higher prices and more market erosion, with sales moving online. A $50 board game is expensive enough. Make it $60 and a portion of our customer bases will break off in search of cheaper options. Perhaps publishers will respond with more economical games, either lower quality parts or less content.

This tariff is all speculation, since this is being debated at great length. It's also unclear if a "pass through" tax reduction would follow. That would help someone like me, as I make a good portion of my income on my S-Corp profits, but most small retailers make their income via their salaries. That is, if they make any income at all. So like all things proposed with corporate taxes, the more money you earn, the more the proposed legislation helps you. Personally, I like a steady, even playing field without the massive disruption these schemes entail.