Saturday, November 30, 2013

Tale of Three Game Stores

Having owned a game store for nine years, there have been three distinct phases of my business. The first was our initial store, which we had for three years until we moved to a bigger location. The second stage was three years of this bigger store, with solid growth. The third stage involves the boom times, which has clearly pushed growth well beyond where it would have been normally. The chart below shows what I think is a considerable jump between stage two and three.

When planning for the future, the questions are: a) How long will stage three last? b) When it ends, will it be flat, a slight dip down to normal growth rates, or a sharp correction back to stage two levels? We don't know the answer to these questions, so what we do is assume the worst and plan for the best.

In our case, we make sure we are making decisions that allow us to live in stage two. At the same time, we take profits from stage three to re-invest in the business, hoping that when it does end in whatever form that may be, we've used the windfall to springboard the business forward, rather than returning to "normal."So we pay off debt, upgrade infrastructure, and work on expansion.

The danger is not having context, or having context and losing focus. If you've got a three year old game store, the boom time is so normal that you can't conceive of anything else. I realized this with the housing crash. I bought my first house in the 90's, lived through a bubble and a perverted finance market and came out on the other end realizing that everything I knew about housing was wrong. My knowledge was bubble knowledge and all my assumptions were off. That's the danger for the game trade right now.

In fact, when you talk about the game trade and bubbles, people will ask which bubble?  Besides CCGs, the board game market is seeing a massive increase in new titles, especially in Europe. Is there a board game bubble?

Kickstarter is another potential bubble, with a lot of energy continuing to flow through the medium, but with some noticeable cracks. That "trough of disillusionment" is starting to show itself, where there is active fraud from both supporters and creators, along with simple fatigue with getting mediocre products at future dates with current cash on hand. As a store owner, I've learned I can completely ignore everything in the Kickstarter sphere with no ill effects. The Gartner "slope of productivity" is likely to rescue Kickstarter even if the trough threatens to kill it. It will emerge with purpose even if it seriously stumbles.

Heck, you could even discuss a distribution bubble. Especially on the West Coast, there seems to be an awfully large number of distributors chasing diminishing returns. Worse, if the bubbles sink a large number of unprepared game stores, namely those post-recession stores that have no concept of "normal," the distribution tier could be in for a train wreck. If I was in distribution, I would be analyzing my exposure.

For now, I assume I'm in a bubble (the worst case scenario for me) and plan for a bright future when it's over.

Sunday, November 17, 2013

Sandbox and Magic (Gaming)

I've run a sandbox game for the past couple years, a Pathfinder game of exploration of a long forgotten island. Pathfinder and D&D have high levels of magic, which means sandbox games tend to excel at low levels but run into difficulty at high levels as characters easily overcome physical challenges with spells.

My game limits certain types of magic as a conceit to the sandbox format. For example, teleportation magic has been nerfed thanks to a dispute amongst the gods. You can only teleport between standing stones you control, located on ley line conjunctions. Teleportation doesn't come into effect in this game until 9th level, so even if you don't do this, it leaves a lot of low to mid level play available.

My conceit limits teleportation to areas you control and encourages acquisition of nodes along this network. It also means once you've explored an area, you're not constantly hiking back and forth.

Flying is another sandbox foil. If characters can do an overland recon of your sandbox, there's not much reason to hike through it and explore. You can accept this, or like I've done, create flying hazards. First, my island is foggy and always overcast, like the real world island it's modeled after. Second, there are nasty flying predators that consider air space their territory, usually griffons and rocs, but there are a few dragons. Starting at 5th level, overland flight is going to be limited to the wizard, and the wizard doesn't need that kind of trouble.

So just a couple tweaks, really, to keep the sandbox alive. They're coming up on 12th level and it mostly works. Magic still overcomes challenges that were once skill checks, but it just means the nature of challenges need to change, but that has always been a feature of this game. Here are some capabilities characters gain by level:

Level 1
Animals: Calm, Charm, Hide From, and Speak With Animals. Even the smallest animals become NPCs. Think about what they know and how they know it and their limits of understanding.
Healing: They have minor healing and suppression, but could be beset by disease, poison and other ailments. The Heal and Knowledge: Nature skills can be used to good effect to prevent and treat these problems. The Serpent Skull adventure path, book one, is a good resource. Use Environment to full effect.
Mobility: Druids can Pass Without Trace, but the others can't. Wizards can cast Mount but for a limited time. One or two characters better have Survival for tracking. A Ranger's favored terrain is likely to be very helpful, depending on the variety of environments.
Food & Water: It can be purified and extended, but not created. The Survival skill will be key at low levels.
Elements: Druids have Endure Elements against the heat or cold, but it's resource intensive at low level. Extreme temperatures should require Survival rolls to avoid the environment killing them.
Communication: PCs need to hike back and forth to deliver messages.

Level 3
Animals: Hold Animal
Healing: Delay Poison helps, but herbs (Knowledge: Nature, Heal) can still be useful. Lesser Restoration solves many symptoms. The environment will remain a threat until 5th level.
Mobility: Wizards can cast Communal Mount for a good amount of time, so assume everyone is mounted. Levitate comes into play. Druids got Trackless Step at 2nd and now have Woodland Stride. Spider Climb can get past obstacles.
Food & Water: This will remain an issue, but their Survival ranks will continue to rise, making it easier. At 5th level Create Food and Water makes this irrelevant.
Elements: Communal Endure Elements makes weather temperature issues moot. You'll probably just stop checking for this. Rope Trick will eventually provide shelter for the night, but for now is limited to a few hours, like when animals attack.
Communications: Animal Messenger delivers messages as fast as the small animal can travel. Whispering Wind is good for a few miles.

Level 5
Animals: Dominate Animal: nasty predators are now their best friends. Speak with Plants means even those can be a resource or tell a story.
Healing: Poison (for druids) and Disease are banished.
Mobility:Fly is in play. Communal Spider Climb. Lily Pad Stride and Water Walk means they can even walk on water. Phantom Steed improved on Mount. Water Breathing for underwater encounters.
Food & Water: Create Food and Water in play, so I ignore it at this point.
Elements: Campfire Wall plays a role in protecting camps from attack. Rope Trick is up to 5 hours now. Survival, as a skill, is beginning to shine.

 Level 7
Animals: -
Healing: Clerics get Neutralize Poison. Restoration.
Mobility: Phantom Chariot, Communal Phantom Steed. Ride the Waves and Communal Water Walk for full aquatic mobility. Air Walk for clerics and druids. Dimension Door.
Food & Water: -
Elements: Secure Shelter means they get a time out at night.

Level 9
Animals: Commune with Nature to check out what's ahead.
Healing -
Mobility: Teleport, Plane Shift, Communal Air Walk, Tree Stride, Overland Flight.
Food & Water: -
Communications: Dream

After 9th level, most sandbox challenges are no longer about wilderness survival or overland travel. These things happen, but it's now about the destination.

Monday, November 11, 2013

How Much is Enough? (Tradecraft)

When stocking shelves with product, how much do you need? There used to be this concept of a "full line" game store, where a store would carry everything from every line they had. This was pre-Internet and I see the appeal, but it's not a reasonable expectation in a modern store with modern inventory management that demands high turns. It's inefficient.

Anybody can keep buying stuff until the shelves are full. Keeping metrics strong, at around 3-5 turns a year, is how we stay profitable and alive. If you don't do this, your inventory will be rich, and you will be poor, and in extreme examples, your busting at the seams inventory will sink you as you can't pay the bills.

The term I use is "full spectrum," as in we carry a wide variety of brands, best of breeds, with a wide selection, sometimes full line, across the store. My exception to full spectrum is I like to carry the full line of the leader in each department. For example, I carry the full line of Pathfinder, I used to carry the full line of Warhammer 40K, including bits, and there are key board games that I carry everything that has that word in the title: Munchkin, Catan, Carcassonne, and many others that make up our 1,000 or so board games, which itself is about 10%, or what I consider the "best of breed" that our customers buy (it's different for every store).  Not having everything available for Magic is kind of dumb as well; even a slow selling Magic item outsells 90% of my stock.

There is also a retailer rule of seven to consider. The thinking here is if you have less than seven of a particular type of item, say your Shadowrun collection, you don't have a coherent, psychological assortment. You just have some random things. This generally means you need to step up and create a product presence, rather than a simple, shotgun approach. If you're starting out with a new line, you need to take a risk that includes at least seven items. If you have a perpetual selection of less than seven of a mediocre seller, drop it.

When it comes to games like miniatures, the rule of seven doesn't come close to being a reasonable standard, and you need a much wider assortment of product. Companies like Privateer Press and Games Workshop have core lists that they think represent best sellers and best flavor models from their lines. I recommend stocking core as a minimum, supplemented going forward with new releases. You might try seven as a conversation starter, but don't even go there unless you've got money in reserve for core (or have a plan, like if there is interest, we'll go deep after the holidays).

When you decide to go full line, you're deciding you want to be "top of mind" in your customers perception of your store and their game. When your customers think, say, Pathfinder, you want them to think of you first. You want them to know that if they walk into your store, you will have what they want, or will at least most likely have that item.

Being top of mind with a hot product will lead to extremely strong sales, including many impulse purchases. Full line will mean there will be hot performers and there will be duds that are dragged along by their betters. In the case of Pathfinder, the hardcover books represent less than 5% of the product line, but account for 75% of sales. I've learned this is how the line works for most. However, you won't get those high sales if you don't stock the slower 95% of the line. If you begin to run metrics on the slow stuff and cull the herd, you'll lose top of mind.

The reality is most product lines are going to be an assortment because most product lines are not strong enough to get you that top of mind effect. So for me, top of mind is special immunity from prosecution. These lines get a free pass from ruthless inventory metrics, such as turn rates and sales per square foot.

What you'll sometimes see in my store is a drastic fall from grace, like when Warhammer 40K lost its top of mind status, its special immunity from prosecution and one day had to perform like everything else. The game had soured because of price increases and competition and online sales bit hard into "full price, full line" selection. When our regulars either stopped coming or came with models they didn't buy from us, a change was in order. Huge swaths of the line were dumped overnight as they couldn't comply with performance metrics. Boxes that had been immune were found not to have sold for a year or more. You can also tell you have a structural problem and not a demand problem when you see discounted product fly off the shelves. People wanted 40K, they just didn't want to pay full price.

Some products don't need the full line but benefit greatly from a wide selection. These are usually lines without particular titles, like paint, food, fantasy miniatures and dice. Most people are looking for a dwarf with a hammer, not Darnit Deepdamage, model REM03030. Most people have a favorite drink, but have a couple others they'll consider. Dice too are about coming to find a red set or perhaps red and blue. Having a wide, yet not complete selection is important. Cull the herd too much and there's a perception of a lack of variety, and sales fall hard. Like full line, you may have to put up with some slower sellers for some moderate top of mind.

When it comes to commodity items, consider no more than three price points. We used to have a glue problem. We used to carry seven cyaonocrylic glue lines. There was P3 glue and Citadel glue in thick and thin, and GF9 glue and Zap a Gap glue and Army Painter glue and Testors glue. This makes little sense, especially when you run the metrics and discover only a couple of these glues, which are essentially all the same, sell well. There will be the glue enthusiast who has to have a particular nozzle style, but most people just want some damn glue. Save money by limiting your selection of commodity items. If you really have that customer that comes in and must have a particular brand, hey it's the game trade, stock one bottle. But generally, cheap, standard and premium pricing is a good start, or if you have metrics, your best three sellers. Then learn how to upsell them.

Finally, if you've got an established store and are looking to increase inventory, STOP. Rather than back filling with older lines, consider using your money to bring in new product going forward. The game trade is front list driven, rather than back list, meaning most of our sales are coming from new things. Old things are better off as things you have that were once new, as opposed to things you think people may want that you don't offer. If you're going to go full line, or wide selection, by all means back fill. Overall though, new releases are what sells like mad in the game trade. Half of what we bring into the store is one copy that sells and isn't re-ordered, so back filling is dangerous without a strategy.

Thursday, November 7, 2013

Nine Years In

We celebrate our 9th anniversary on Sunday, with a big party, lots of games and our usual, amazing, tri-tip sandwiches. We're doing well this year, with sales up 7%, despite many of our top games seemingly in a transition year. We've hired two new, excellent staff members, Taylor and Alexis. We've expanded our operations to include a convention person and because of this, went to more of them this year. In general, I would describe my attitude about year nine as "pleased."

Last year was a more exciting, bombastic year, with the BDG van, Black Knight 2000 pinball machine and the really big accomplishment of paying off all our debt in a giant chunk. This year was more of a nuts and bolts, bolstering the business year. I believe the request from the investors for this year was more business value and "less pimp value."

So with maximizing shareholder value and reducing pimp value in mind, we installed intelligent, Nest thermostats to attempt to better manage our dual zone climate and save money (although the Nests are pretty pimp). Did it work? I know it does, but I can't put a number on it, since electric bills are so dependent on outside weather, which is unpredictable. It does prevent some of the dumb things that occasionally happen, like half the store blowing cold while the other blows hot. It understands that we want FNM to be nice and cool at around 6pm, and it's smart enough to start working towards that temperature in advance. It also brought up the fact that we don't have the capacity to really keep the place cool when the outside temperature tops 100. We've tried to fix that with fans, but really, all bets are off in triple digits.

We spent three months on network infrastructure, after an attempt to save a few bucks with AT&T Uverse went horribly wrong. The business is dependent on Internet for everything, so you can imagine what happened when I switched to an intermittent service at the beginning of the holiday season last December. I gave myself two weeks for it to settle down before our critical sales period, but it took three months before we could rip it out and install the excellent service from Sonic, along with several more months of getting out of the breached AT&T contract. "You suck, I'm not paying" is a valid business argument, especially backed with a complaint to the public utilities commission.

Once the Internet was stable, we upended the rest of our IT infrastructure with new, professional grade, cash wrap fixtures and an entirely new, Mac based, point of sale system. Lightspeed was installed over the Summer and included two weeks of the most stress I've experienced in the business, as we had to shoehorn our old database into this new system, while training everyone how to use both the POS and a Mac. I had switched to the Mac earlier in the year, so that was a test run to see if it was something great or the questionable Mac of my youth. It's certainly great. Several months later and we're just now seeing the dividends begin to pay out from the change over. Special orders, especially, are smooth and efficient.

Finally, there is the expansion. I never should have started talking about it until it was farther along, but we do have news, which I only report because I'm asked so very often. We commissioned a feasibility study over the Summer to get an idea of whether such a build out was even worth doing. We were surprised at the results, mostly because they included things we weren't expecting but also didn't include deal breakers we were expecting. Sometimes you go down a path just so you can be officially told "no," and that didn't happen. The feasibility study suggested it just might be feasible. If I'm vague about this, it's because I need to be since there are so many stakeholders in this and it's such a delicate project.

The feasibility study was step one. Step two began a couple weeks ago with a formal layout, including the complex structural issues in our building. There is a number we're looking for, a seating capacity for the game center that I won't reveal now, but the goal was to get to that number. If that can be done without breaking the bank, then the project could move forward. If not, it isn't going to be feasible. That's step two. How many steps are there? At least five. However, we are now beginning to plan internally as to how we'll use it, rather than if we'll have it. For us, that little binary mental switch is usually all the difference between success and failure.

Monday, November 4, 2013

How to Order (Tradecraft)

This is a topic discussed right now in the game store forums, plus something of interest to my friends opening new game stores. How do you do it? I've covered this before and have written and talked about Open to Buy at trade shows. Here's an overview of what I do.

Do I have any money? For me, it's not a question of do I have cash in the bank, because I buy everything on terms or using a credit card. If you have COD and no terms, by all means arrange them. The question for me then is do I have money in the budget? Budgeting for purchases is tracked separately from your store budget with Open to Buy, a process large retailers use to track their inventory budgets.

You must spend this budget or your sales will fall and if you start using this money for operations, you can end up in the dreaded inventory death spiral. That's when you can't pay the rent, so you borrow money from your inventory budget (usually you don't have one), which lowers sales, which means you can't pay the rent next month, so you borrow more purchasing money and eventually you've had a liquidation sale without intending it.

Here's a simple version of Open to Buy to get you started:

Starting Budget: $ 1,000.00

27-Feb $ 358.15 $ 208.59 $ 1,208.59 $ 201.00 $ 1,007.59
28-Feb $ 543.69 $ 255.59 $ 1,275.96 $ 1,193.30 $ 82.66
1-Mar $ 334.35 $ 194.12 $ 286.49 $ - $ 286.49
2-Mar $ 690.33 $ 415.53 $ 722.79 $ 500.00 $ 222.79
3-Mar $ 597.10 $ 339.16 $ 578.91 $ 901.44 $ (322.53)
4-Mar $ 453.38 $ 246.19 $ (64.03) $ 94.61 $ (158.64)
5-Mar $ 391.26 $ 212.69 $ 64.68 $ - $ 64.68

Above is a clean example, but below I've included my Open to Buy from the first week of January, warts and all. It's a spreadsheet I've used for 9 years. Like the one above, the important information is the COGS (Cost of Goods Sold), Purchases, and Balance. Available tells me how much I've spent or how much I've gone over budget.

There are some other columns with notes and room for adjustment as well. For example, on January 1st, rather than keep my negative budget of $5406, I accepted it as an inventory increase going forward. Likewise, I can use columns to budget, if necessary. I track other things on here too, like COGS percent, usually with an explanation. On the far right are things like "Need" which is kind of a moving target on whether I hit my sales goals. At the bottom of this spreadsheet, I've got half a dozen charts showing sales per month, per quarter and per year, cost of goods per year, and other random tracking of this data with 9 years of thought gone into it.

I then have to decide what to buy and from whom. The first priority is special orders. Our point of sale system tracks special orders for us, but in the past we've used a spreadsheet. I've seen some stores use a special order book, or (shudder) a spiral notebook with scribbles. Every time I open my pending order requests, I look to see what's available. In this example, only one item is in stock today, so I'll have to make an extra effort to order it from that supplier.

Next I'm going to generate some purchase orders. There are several ways, based on lowest cost supplier or primary supplier, and of course there are direct items you have to get from the source. Today, I've placed an order for Magic with Wizards of the Coast, a Games Workshop restock with them, and a primary order with my main distributor, ACD.

I also need to handle my special order (Creeping Infection 2 base from Secret Weapon Miniatures) with my specialty miniature distributor, E-figures. This week I'll likely get calls from my classic games people (Wood Expressions) and possibly a puzzle company or two, as I asked them to call to get my holiday orders rolling. Did I budget for that? Mmm, no, but the credit card I'll be using will have a due date of 12/26, meaning I'll pay for it with holiday cash.

The top section of the screen above is prompting me to create a PO based on my special orders, which in this case would only include Efig, since that's the only special order item available today. The other items are pre-orders for future product. Below that section is the ability to generate a PO based on default supplier, which is the raw report I run to make the bulk of my order.

The date used to generate that report is the item record in our system with the re-order information. You can see from the item record to the right that we try to keep 12 white sleeves in stock at all times. When that number gets below 12, we order up. So there are 8 available right now, with 4 coming on the order I placed today.

Every item in our system, tens of thousands of items, has this re-order information. It's constantly tweaked based on demand of the product and budget. This is critical business intelligence and for a couple weeks this Summer we flew blind without it, creating chaos, over budget spending, order guesswork, and a loss of sales. We also lost our sales history which meant I had no idea what to drop when budgeting for new product.

Open to Buy is a zero sum game, so if we order something new, it means something old has to be eliminated by not re-ordering it or reducing its stock level. That might be by permanently changing the item to not re-order, temporarily letting it go and bringing it back later (there are hundreds of items like that from our primary at the moment), or simply going lean for a while and not ordering up when it tells me to.

From this data, the system can generate a purchase order of things that may or may not be available at the distributor. I then have the option of emailing it off to my sales rep, a lazy way that gives him control of my spending that day, or I can go on their online system and spend hours selecting items they have and removing items they don't from my PO.

In this case, I'm ordering 177 items from ACD today and NOT ordering 975 for whatever reason, that number shown in the Actions screen above. Eventually I'll go through those 975 items and order from another distributor, decide the items are gone forever and set the reorder to zero, order them later when my budget says I can, or just let it ride. It's a pool of data to draw upon, rather than a laser focused tool.

Only 15% of the items my system told me to order were actually ordered. That's from a combination of purchasing decision making, distributor availability, available budget, and the strength or weakness of my data. I could not, for example, just generate a PO and send it off blindly. That happened once with an employee and it created a mini disaster as all the considerations of a purchase were thrown out the window.

I'll repeat this process for every supplier I use today, budget permitting, including a secondary to pick up items that the primary doesn't have, with free freight being a priority. The game trade offers free freight at thresholds of around $350 and I hate to spend money on shipping. For our specialty distributors, like puzzles, I'll often wait for a trade show special for a free or reduced freight deal (which is why we don't do special orders on those items).