Friday, December 29, 2017

Holiday Lessons from an Impoverished Retailer (Tradecraft)

I went into the holidays lean. When I say lean, it means the $10,000 I should have spent on board games was tied up in Iconic Masters. It also meant that with construction debt, I had a small appetite for risk when it came to stocking up. We had a Just in Time (JIT) holiday season and there were a few tactics I found helpful.

It wouldn't be uncommon for me to go into temporary holiday debt of up to $20,000 of solid product, primarily board games. Not this year. This year was lean, and there were lessons learned that I think could translate to other retailers, especially new ones.

The Dumping
We dumped a lot of overstock, especially on Black Friday. However, we later discovered we were getting requests for this dumped product throughout the holiday season. When we left one on the shelf, we found we were re-ordering this supposedly dead stock, often multiple times. What this reinforced was trying to corner the market on scarce product was skewing my sense of what product was working and what wasn't. Bringing in six of a product and having only one sell after a month is a disaster, as opposed to bringing in one of that same game and having to re order it once, which, is not great, but not terrible. Not everyone is tied into what's hot on release and not everyone can shop the sale.

Living with scarcity may be how we handle 2018. I really don't care if we run out, to be honest. With 10 new board games a day, something else will be along shortly. This is especially true with the reprint. Reprints sunk a lot of retailers this year, as in once the bloom is off that flower after the initial print run, a lot of caution is in order on the reprint. We got burned on so many games like this. People would ask for Terraforming Mars twice a day when it was out of print, but when it was in print? It sold fine, but not great, which is no help when you have a dozen copies on the shelf. We had a lot of these 6-12 games on the shelf in November, so we dumped them, some too early.

Breadth of Suppliers
We have many supplier accounts, all with solid terms or credit card options. This costs nothing for a store to arrange, yet many small stores seem to spend an inordinate amount of time worrying if they should have a second or third supplier. Sign up with everyone. When we couldn't get a game from our usual suppliers, we called Lion Rampant in Canada. They push the envelope on the term tertiary supplier, being someone I call for a particular children's game or a special order of card supplies. Having many options allowed me to fill in holes. There was no way I was going to set up new accounts in December.

What I didn't do this year is chase alternate warehouses. I shopped my local warehouses only to keep supply arrival predictable and orders orderly. We did well into six figures in sales this month, which meant roughly $55K in games, divided by 20 shipping days, equalling daily orders of around $2,750 with roughly $400 of games at wholesale per box. I mention this math because it meant seven big boxes arrived every day that needed to be processed by stressed out staff. Having some small order arrive from a podunk warehouse a week after we placed it, maybe even after Christmas, is a waste of time. If we couldn't get the game from an alternate supplier, we ignored it. We also ignored the flavor of the month, as in What Do You Meme? as it just didn't percolate up to Cards Against Humanity levels of desirability versus ass pain.

The Chase Card
Like customers buying a lot of junk to find that one card, we avoided the trap of putting in orders for the sake of one missing game. For example, I really wanted Codenames back in stock for the holidays, but Lion Rampant, the only supplier who had it, required a large order for the Codenames order to make sense. I could order a bunch of junk or a LOT of Codenames. I chose to put the order in late and get it after Christmas rather than buy overstock. In the past, I might cite customer service as the reason for making a foolish order, but not this year and I don't regret it.

The Daily Order
Ignoring alternate warehouses and chasing lost product meant I could methodically order every day like clockwork. Usually that meant putting the order in the night before to guarantee my order was picked and shipped on time. This is what I learned years ago smart retailers do during the holiday season, and believe me, suppliers appreciate it. We had some problems on the Black Friday restock, but all my December orders shipped on time without delay from every supplier. During the day I would create additional orders, which suppliers were free to add to the existing order or send separately whenever, but orders became a constant steady stream of those seven or so daily boxes.

Staff Picks
We created a sheet with staff picks of games we enjoyed in 2017. We used to sell a huge amount of games from the San Francisco Chronicle, but they stopped their holiday board game article a couple years ago. The Chronicle article was pretty terrible, but people would buy whatever was on that list. We replaced it with our own top picks. It doesn't drive people to the store like the Chronicle article, obviously, but it's a landing point for people who want to buy board game gifts, but don't know what to get. When you walk into the store, right in front of you, where our new release table would normally go, is a table of recommended games with a flyer for you to enjoy.

Games on the staff pick list were ones staff could actively sell (except me, because I slacked and hadn't played any of them), and were likely to be evergreen products. That meant we could go a little (but not a lot) deeper on these titles without feeling stuck with them later. Oh man, did we ever get stuck with Chronicle games. I recall games we would put on clearance on December 26th with notations never to order this piece of garbage again. But it was in the newspaper, so it must be true, right?

New Releases
As a side note, if you're a publisher putting out new releases close to Christmas, know that I hate your face. We do not have time or energy to give your product the attention it deserves, nor do we have the mental capacity to handle special orders, especially if your staff are going on vacation and we have to deal with Rudy, the overworked fill in guy, who is doing us a favor.  We enshrine new releases throughout the year, putting them on throne-like tables and showering them with marketing kindness. When you release a game in December, it goes into Gen Pop, and I can't vouch for what happens to it out there.

That's it!
We did well. Our sales are up modestly from last December. We're paying off a big chunk of debt this week and I may have money for my vacation. We hit a major sales milestone this year, pushing us well into seven figures. Mission accomplished. Overstock avoided. Open to Buy in balance.

Saturday, December 23, 2017

Crime and Commerce (Tradecraft)

One of the unusual expenses this holiday season has been security. We've had a number of car break ins, an armed robbery at our local Goodwill store and a violent vagrant who told one staff member he needed their blood to summon a demon. This week I did something I said I would never do, I installed video cameras on the parking lot. The parking lot was not my responsibility, until it was. Nobody else was going to do anything.

Our new camera arrived around 2pm yesterday, while at around 11am, an employee's car was broken into. The police don't even come out for such events, they're so common. I felt the situation around the store was so perilous this month, that it wasn't fair for the employee to be caught up in the nonsense. We ended up paying for their broken window. Since then, police patrols have noticeably increased, otherwise I would be too embarrassed to even mention this.

As an aside, I'm willing to do a lot to keep the business afloat. There are contingency plans on top of contingency plans. But when I feel I need to be armed at work to feel safe? I'm out. And I can't imagine asking other people to take that risk if I won't.  So safety is an Achilles Heel of sorts for my retail store.

There is desperation out there, enough so that breaking into a car full of junk with the off chance of finding some loose change is well worth the risk of a night in a warm jail. Other store owners report such desperation throughout the country. One of my friends stood at the door with a taser today while the police arrived to break up a brawl in his parking lot. People are on edge and I'm told once I get out of my California wonderland, the US can be characterized by a land of meth and misery. Yikes!

Happy holidays! I do hope that everyone who needs help this season gets what they need. Our minor contribution this year was a donation to the California Fire Foundation and a very generous Toys for Tots donation in our name by one of our investors. We do what we can. It's not nearly enough.

My point of writing this was a reminder that when those in power threaten to pull safety nets from society, what they're asking is for the lower and middle classes to absorb the wreckage of an ailing society. These problems don't happen in gated burblaves. One of the selfish reasons we have such safety nets is so we can sell and consume in relative peace and quiet while others get their lives back on track, since roughly 90% of people using social programs are just passing through. Let's hope 2018 is all about doing everything possible to make that happen.

Wednesday, December 20, 2017

Tacos and the Wizard (Tradecraft)

Stick to the plan. That was my mantra the first year in business. I had a solid business plan for a solid retail store. It was planned to be better than the other stores, with better service, friendlier, cleaner and better inventory that I thought everyone would want (I was so wrong on the inventory). When you're struggling, which includes everyone in their first year, it's easy to want to deviate from the plan. If the plan is good, tweak your operation, but avoid deviation. That's the theme of the Make More Tacos post by Seth Godin today, which could easily sum up a solid retail operation:
  • Keep the place clean
  • Hire friendly staff
  • Make better tacos
  • Offer a fun, connected, even memorable experience

Of course you can fail for reasons out of your control, like a bad location or an economic downturn, but for the most part, a strong retail establishment has these taco making ingredients. It would be easy to want to jump to "next tier" thinking, like opening a coffee shop, or diversifying into something unrelated, or opening an online store; questioning the plan. However, it really comes down to cleanliness, friendly staff, solid product options, and that Third Place theory of a fun and memorable experience.

If you're looking at this blog from the outside, you must wonder sometimes what's the big deal? It's a store. There have been merchants selling stuff for thousands of years. Is there anything new under the sun when it comes to retail? You could argue setting up a reasonably good store, as has been done for those thousands of years, is 90% of what it takes to be successful. That's probably true. It's just that other 10% is the difference between success and failure with the Internet pounding at the door. Imagine being the only game store in town, but half of your potential customers have discovered a wizard who will magically make their games appear at their front door. The other 10% of what we talk about is how you combat the wizard, honing those taco making skills.

Monday, December 18, 2017

All My Fault (Tradecraft)

Iconic Masters released a little over a month ago, much to the consternation of retailers. Now that I've paid that invoice (the check is in the mail), I'm more comfortable talking about it. The problem was mostly about timing, since most of our fiscal years are calendar years and our inventories need to be back to baseline by December 31st. Taking on $20,000 of product that needs to be sold through in six weeks is pretty damn tough. Seeing it sold online at cost by panicked retailers and introduced to mass market also didn't help. But you know what? It's all my fault.

I was reading the book Comic Shop last night. There's a section on alternate covers and the various incentives needed to acquire these alternates, like buying 500 books to get one alternate. There was a lot of hemming and hawing about this, but what struck me was a quote by Chuck Rozanski of Mile High Comics: "Here's a very simple thing: if you don't like variants, don't buy them." Chuck then goes on to use even more colorful language to describe complainers: "If you don't like them, just shut up. It's not your business. I make money off of them, so shut the fuck up. It's that simple. If you don't like them, don't sell them. This is America, Goaddam it."

Every new product in the market is an opportunity and what you do with that opportunity is up to you. Don't want near monthly Magic: The Gathering sets, as we're expecting in 2018? Don't buy them.  But how did this happen?

As a retailer, Magic became boring. It became a turn key product in which I could order more or less exactly what I needed of a new product based on past performance. Although my employees are well versed on each set, as an owner and buyer, it required no work or product knowledge to get the latest widget in stock at the right quantity. As Wizards of the Coast switches things up, Magic is suddenly a lot less boring. I've got to do my due diligence, understand demand and timing and the important question of supply. Problems like the November Surprise of Iconic Masters is all on me. It was a surprise because I was lulled into complacency. I wasn't paying attention.

So my inventory is finally balanced, two weeks before the end of the year. I still have far more Iconic Masters than I would like, a 55 day supply by my estimates. And it definitely meant I went lean on important inventory this holiday season. But it's hard to blame someone else for a botched opportunity. I need to shut the fuck up and either get my ordering right or bow out. I think this will leave a mark on a lot of retailers, a painful bruise, a helpful reminder. There are also those bowing out after the holidays, and I think that's also a valid choice.

Friday, December 15, 2017

Head and the Heart (Tradecraft)

Most of what I do running my business can be divided into head and heart activities, including managing inventory. I mention inventory because I'm thinking about my GAMA Trade Show presentation in March and it basically comes down to these two factors.

Head is running numbers, turn rate analysis, sales per square foot analysis and the like. If this hammer is the only tool in your toolbox, you can optimize your store out of existence. You can't run a store in your head, and if you could there would be one chain of stores in existence, all of commerce reduced to a mathematical formula. That's because there's heart.

When I say heart, it's not quite accurate, but it sounds good. Heart is really human psychology. Understanding human psychology is the second half of inventory management. And when I say "understanding," I mean vaguely having a feel. Your store has a perception in the mind of customers. That perception can be only vaguely influenced by marketing, because the heart can't be fooled that easily.

When a customer visits your store, their heart, their psychological view of your business, is imprinted upon them. Small things, like whether their butt was brushed in the aisles by a passing customer or whether the aroma was pleasing, can have a massive effect on their perception. Your store could be too small, so you make it bigger, but then it becomes too big and they wish it were smaller. It's so difficult that Americans don't even appreciate the winners of this game. They like underdogs and you are seriously screwed if you're perceived as being the bully, so everyone looks for someone they can punch at upwards. I can badmouth Amazon all day long, but I risk everything if I talk smack about that small shop across town.

When it comes to the heart and managing inventory, we work with concepts like "top of mind," as in when people think of their game, what business is at the top? This top of mind often has little to do with the head job of running numbers. For example, we have the product pyramid, in which 20% of dice make up 80% of sales, but if you drop the bottom 80%, sales plummet to insignificant numbers. You've lost top of mind. So you carry all the dice. But there is no product pyramid in board games or card sleeves, mostly, sometimes, often. I mean is there? Obtaining "top of mind" is not something you can quantify, so your mind topping may vary. You'll have to adjust constantly, and there is your job security.

So which product lines are about top of mind and which are about running the numbers? There is no right answer and I could come up with a philosophy in my store that doesn't work with another store I own across town. My guess is a master retailer sees with both their head and their heart all the time. They see through the eyes of the customer and grock what's important and what's not, what numbers can be crunched and when to let out slack for the sake of perception, an attempt to speak to the heart.

Monday, December 11, 2017

Nobody (Tradecraft)

Nobody will run my business as well as me.

This is a true statement for every business owner, but how relevant is it? Are you willing to spend your life behind the counter to provide the best experience possible when a very good experience is attainable by someone else?

I think it comes down to two possibilities. You either want to work in the business, on the front lines, on a day to day basis, or you don't know how to get good results from other people. The first option is a perfectly valid choice. I know several veteran retailers who I greatly respect who want to be on the front lines daily. I personally spent nine years doing this before I just had to step away. If I had nobody capable to take my place, my best option would have been to close my business.

The other choice, that you're personally unable to get good results from other people, can be fixed. It requires trust. It requires allowing people to make mistakes in your temple of perfection. People will let you down. They will not only fail at their job, but they will betray you. You will inevitably befriend them and you'll get a knife in the back or best case scenario, they'll walk away one day.

This is not cynicism, this is what it means to be an employer in a small business. You have to tolerate the inevitable back stab and you have to train your people for their next job as you train them for their current job. You have to be a mentor, because the other option is being a bad employer.

As I write in my upcoming book, I feel like The Doctor from Doctor Who, with a steady stream of young companions to remind me of my humanity, which after 900 years (or 13 years in retail), is a receding memory. The companion eventually leaves, to be replaced by another young companion, while I grow older and more distant. Sometimes the companion has the better solution or reminds the wise doctor of his original intent and purpose. It's good to have a young companion, even if they break your heart when they leave.

Speaking of growing older and older, how you run your business, every process and procedure, is determined by whether you believe other people can run it as well as you. If it's all about you, there's little work to be done here. When you're gone, things just don't get done. But you're never gone. How many stores can only buy Magic singles when the owner is around? My managers can all buy singles. I'm not allowed.

If you want to retire one day or start a second business or even a second store, (or you know, die) you have to build your business with the intention others will run it. This is another area where not everyone is willing or able to do that work. There is something lost in the pudding when a gourmet chef franchises his restaurant. But how important is it that the pudding be perfect? Can it be pretty good? Is it possible that if you work on your recipe for other to follow and hire the best people, the pudding might actually be better? I mean, have you had coleslaw from Kentucky Fried Chicken? That stuff is awesome. If Chef Gary has lost the spark to make the pudding, my guess is the next chef might actually do it better than him.

My point is if you want to declare nobody will run my business better than me, know that you're either making a perfectly valid personal choice to do it all yourself, or you need to admit you don't know any other way, a position of ignorance that can be remedied. You're not all that important. None of us are. Your business will never be perfect.

The problem with the low barrier to entry with game stores is we fetishise a well run operation as something more than a business. Good stores are not magical, they just have good policies and procedures implemented by skilled owners. When we reject the game store fetish and accept this technical explanation, we can proceed to build more of them.

Wednesday, November 29, 2017

The Long Play (Tradecraft)

Although quite a few game stores are struggling for survival right now, the successful ones are planning for the future. I commented online recently that the ironic thing about game retailers and the future, is planning for that next "Unique Value Proposition" often has little to do with games. This should worry publishers.

The usual play for an established store wishing to expand is to grow inventory. Right now, I could easily justify spending $40,000 on new inventory as a long term strategy. My turn rates tell me I'm missing sales with my lean inventory. It used to be a given that inventory was your economic engine. Build up that engine and you've got far increased earning potential.

Well off stores nowadays see stratospheric turn rates, meaning engines at the rev line, working harder than ever before. My subjective feel for this is a store ten years ago was doing very well with three turns a year. A store doing well nowadays can easily expect six. That's very subjective, but I think it's about right. 

This increase in turns, a massive improvement in inventory performance, is an open invitation to mass market, who need high turns with their business model. You can see hobby games now in Target, Wal-Mart, Barnes & Noble, GameStop and even Best Buy, because they make sense. Mass market doesn't respect games, they turn and burn, selling until it doesn't make sense and dumping product on the market. They don't run organized play or hold events, they sell games like commodities, so that's what they've become. Dumping, both by mass market retailers, online retailers and struggling game stores has left retailers with the impression inventory is not a safe harbor. Inventory, the economic engine of a game store, has no value.

If I look around my store, here's what I see: Magic, a third of my sales, being pumped and dumped by Wizards of the Coast and sold online at cost and discounted in the mass market. Board games, another third of my sales, devalued and dumped online as fast as they can come out. Role playing is another twenty percent or so and I've got Wizards selling direct to Amazon and them selling D&D under cost and Paizo with their long term subscription model and online discount store undercutting me, those two games compromising 80% of RPG sales. Finally, I see the only safe harbor, miniature games.  We're down to just selling Games Workshop, since Privateer Press and others took us down the devaluation path years ago. We could learn a lot from that miniatures game strategy in chasing brand value and dumping product without it.

So actual games, inventory, the product my business is centered around, is not a safe investment. Sure, I'm getting six turns on inventory, but if you were to ask me what's hot right now? Where are my amazing sales coming from? What are my predictions for the holidays? I have no idea. Good things languish. Mediocre things run up the sales charts. There are more great games than great customers. Sometimes devaluation murders a product in infancy and sometimes it has no effect at all. The acceleration of customer demand feels as if it is temporarily overcoming the mass devaluation of product. That can't end well. The music will stop and there will be quite a few in this industry looking unsuccessfully for a chair.

So I spent $133,000 building a game center, because a solid game store experience is something I can count on, even while the game trade accelerates off a cliff. If I had the skills or the desire, I might consider a coffee shop or cafe model. I read five books on this topic before I decided it wasn't for me. I've thought hard about diversification, both areas that work well within the game trade, like toys, comics, books and the like, but there are certainly no safe harbors there. I've even thought about how to diversify into other areas, like a side business selling off road parts or emergency survival equipment. I might take a lot of money and develop a community outreach program with new staff that goes out into the community to evangelize. A traditional play is also to find a building to buy, assuming that real estate in my local market is stable and affordable. What I am not planning to do anytime soon, but was my plan for many years, is dump a lot of money into inventory, the games that my store exists to sell. I'm not alone in this thinking and that should worry industry professionals.

The tide is turning though, and 2017 has been about that story. So although inventory is no safe harbor, game publishers are beginning to see where this is leading. The larger ones are implementing brand value protection, legally creating price floors to prop up an industry that will suck them down the drain as well, if they don't do something to prevent it. These publishers are increasingly safe harbors. There are fits and starts, as we saw from Black Friday, publishers like Iello throwing up their hands and saying, alright, this weekend our brand value isn't important, but starting on Monday, we will be valuable once again. As if you can turn value off and on like a spigot. My advice for 2018 is find these safe harbor publishers and begin shifting inventory dollars to them from the "a buck is a buck" crowd, no matter how big that company may be or how many butts in seats it provides.

Saturday, November 18, 2017

Bad Decisions (Tradecraft)

Game store owners, like regular people, can get into bad situations and make what look like bad decisions. If as an individual, you simply run out of cash and run out of options to feed your family this week, a payday loan is not a terrible idea. You do what you can to survive and hopefully learn how to avoid the mistake in the future. If you're getting a payday loan every pay day, something is terribly wrong, and the sting hasn't taught you anything. The same is true with store owners.

As someone who has had to survive hard times in the game trade, followed by adopting strong policies during good times, and then seeing lean times once again, there are short term strategies that only make sense when I have no other option. I may blow out product because the bill is simply due and I don't have a cash cushion to sit on it long term, which is the better play. I know I need a cushion, so I see my actions are not optimal for the long term. I endeavor to improve.

The problem in the game trade is there are too many store owners who are grossly undercapitalized, forced to make short term decisions that hurt not only their prospects, but the long term prospects of the trade. They don't just use their online sales as an exhaust port for unsold product, they need to blow out product and collect revenue, any revenue, upon product release. Anything that generates cash for their 7 day terms or even COD terms, is a win if it gets them to their next FNM, which they also treat like a cash cow. These are the payday loan customers who are there every pay day, unable to feed their store and without other options. Most will never have the capital to do otherwise.

Of course I'm talking about Magic, the cash cow of the game trade, as there's nothing else quite as liquid as cases of Magic cards. For the vast majority of the country, it's unlikely the bar will be raised to limit the number of undercapitalized stores. Here in the SF Bay Area, obtaining a commercial lease in even a reasonable area, requires a multi year commitment and demonstrated capital. But in most of the country, there's plenty of commercial, month to month real estate that can be leased with a handshake. So anybody can start a game store with ease, usually with some folding tables and Magic boxes. If you want to raise the bar, you have to regulate livestock.

That cash cow needs to have its value protected. How that's done is none of my business, and it's not legal or helpful for me to suggest how. I just think it should be noted that her udders are sore and inflamed from being milked at an increasing rate of speed. Her legs are wobbly from not getting enough rest between milkings. Worst of all, the kids have lost a taste for her milk. There's no longer anticipation, no longer curiosity as they guzzle down glass after glass, while being handed another glass before the first is even finished. Treat the cow with some respect and most of these problems go away.

As Much Rope As You Need (Tradecraft)

I could have called this post, "Boned," as a description for retailers sitting on a stockpile of Iconic Masters. Boned assumes their predicament was something that happened "to" them as opposed to poor judgment and bad circumstances. Perhaps there is a mix, but in general, I think Wizards of the Coast offered them as much rope as they needed to hang themselves, and they chose to swing at a length above the ground of their own choosing.

The problem with Iconic Masters is about timing, mostly. Mid November is not a traditional time for a significant Magic release. It's a dead season before the rush of the holidays. Generally things released during this season languish, either to be sold during December or never sold at all. It's a risky release time. So it's not surprising many retailers are reporting terrible sales during this slow lead up.

The second problem is the cost in relation to the season. My initial order of Iconic Masters was $20,000 of product on one invoice. I wrangled that down to about $12K. The problem is the end of the year is six weeks away. For a hot set or a set with a predictable sales cycle during a predictable time of the year, I'm likely to take 3-4 weeks to sell through an order and pay back that invoice. If I'm a little late on my predictions, and I've got some overstock, that's fine. However, with six weeks left in the year, what I don't sell is likely to become inventory overage, taxable as income on December 31st. There is strong incentive to dump this product for this reason alone.

Strong incentive may be an understatement, as this product is being dumpster fired (using this as a verb now) like no set I've ever seen. There are the usual suspects, but everyday stores also see the writing on the wall. At any other time of the year, the wise retailer would settle in and ride out a 3-6 month cycle of what's admittedly a very good product. But six weeks before end of the year? The risk is too high. Shove it out the airlock.

Did I mention Wal Mart has a Masters set for the first time? Oh yes. They have Iconic Masters as well as future product with the usual street date violations. The market is flooded with this product. Rather than banging the gong on Iconic Masters, Wizards has moved on, hyping the next Magic release, and making it easier for customers to just skip this one and jump on the next bandwagon.

Retailers can smell the blood in the water. They've made ground pronouncements of how they've had enough, which really just means they're reducing their upcoming orders of Magic downwards, something they should have already been doing, if demand indicates it. Distributors are going to be in a world of hurt when bills for this set are due and those retailers looking for the holidays to save them from a tough year will find their grandma money savior will go to pay the Iconic Masters.

The market has hit rock bottom folks. This is what bottom looks like. It's a shame too, because this is a very good product, despite the YouTube low lifes attempting to bad mouth it for personal gain. This is not enough to put anyone big out of business or topple a distributor, but it's a tipping point, a move from a bull Magic market to a bear market. For stores, diversification is the answer, but it was the solution to a problem that's too far gone for most.

Wednesday, November 15, 2017

Measurement and Reward (Tradecraft)

The game trade retail tier is a perfect expression of measurement and reward. When you begin to measure something and reward behavior,  you skew behavior in that direction. For example, if I give a bonus to employees for upselling product, they will absolutely upsell to every customer, whether they need it or not. My goal is to sell more things, but the reality is customers are driven away by the hard sales tactic. Upsells work in some situations, but not this one. So how are retailers measured and rewarded?

Wizards of the Coast measures butts in seats and rewards stores with status and limited product. If you look at game stores failing right now, the number two reason I've seen is the lamentations that players have done this or that. Players have moved to the store across town. Players don't like Standard right now. Players don't like the new tournament format. Oh dear, players have abandoned us!

Rewarding butts in seats has turned retailers into tournament organizers. They are not graded on their sales performance. They are not held to account for dumping $145 booster boxes for a dollar over cost. It's butts in seats, so butts in seats is how many game store owners measure success. Most don't know how to retail. Most would be offended, calling me a sell out, if I told them what they needed to do to effectively retail.

Distributors measure gross. The more you buy from a game distributor, the better the discount on games. It doesn't matter what you do with that product, just so long as you bulk up to the next discount tier. This leads to dumping, of course. If I'm $1,000 from hitting my next discount tier, why not buy that $1,000 of product and flip it online at cost? Distributors measure throughput and what we get in the game trade is tremendous throughput. Then we wonder why we have rampant product devaluation. It also ties into the number one reason stores close, undercapitalization.

Why invest in inventory that's worth ten cents on the dollar if you close tomorrow? You don't need dump trucks full of soy beans in your office to be a commodity trader, you just need to know they exist out there. I see store owners trying to sell their stores with acres full of tables and a few shelves of mostly card boxes. Pass.

Being a well diversified store, one which is a proper steward of game trade products, one that introduces and demos games to new customers, that protects brand value, that invests in inventory as a long term strategy, is not rewarded by the current game trade model. You measure throughput and butts in seats and you get throughput and butts in seats. Then retailers fail in droves, confused as to why their business model failed to perform when that's what they were being incentivized to do.

Thursday, November 9, 2017

The Stinky Gamer (Tradecraft)

Welcome to my high horse, where I survey the land around me so that I may pronounce my judgment.

Game stores have an odor problem. They smell and the problem is often blamed on gamers themselves and their poor hygiene. While there are such olfactory offending characters in our stores, the real problem is the game store itself.

Game stores are not meant to be assembly areas and most are not zoned or built for a large number of individuals with their body heat and natural odors. I'm on my high horse because I just spent six figures and six months bringing our store up to code, an unreasonable expectation to be sure, since I don't even own my own building.

So game store owners spend time masking odors, purifying air and otherwise embracing toxic chemicals to hide the stench, rather than doing the work to fix the problem. Now, if I were consulting for a prospective game store owner, would I be budgeting in a $10,000 HVAC upgrade and a bathroom remodel for typical assembly requirements? Heck no. At least not at first. However, those whose business model includes tables for hundreds of people, not dozens, would be wise to include such upgrades on their wish list.

This of course just adds to the impossible requirements of running a small business like this, the fact that nobody at the bottom could possibly afford such upgrades while everyone in the middle will have such expectations forced upon them. It's another example where it's good to be small and good to be big, but the middle has the expectations without the resources.

Our project board, so we know what to buy during the rare times we have money

Wednesday, November 1, 2017

They Want Too Much

Customers demand everything. They want price, selection, strong customer service and the new thing, experience. They want unique, "third place" experiences that provide them mental stimulation and a sense of community. These are a lot of wants, especially in a commoditized market.

The population also demands high wages. They want $15 an hour minimum wage. They want a Guaranteed Minimum Income (GMI). Conservative and liberal alike will shrug when a small business fails because of these demands. Meanwhile, job seekers languish, underemployed with job mismatches where worker skills are not the correct skill set for the hundreds of thousands of jobs that go unfilled.

Despite the higher wages, there are few workers to be had, what would normally be a sign that the pay is too low, but we've been forced to raise the pay. Where are the workers? For my store, almost every new employee requires significant training, and almost none of them match our job descriptions. The applications are notoriously slim pickings, and it's true for most stores around the country.

So everyone wants everything, nobody wants to do the job of providing it, retail increasingly moves online, and and we complain bitterly about big box retail treating us badly. Sounds like conservative talking points, but it's my experience in the trenches. Is this an impossible situation? Nope, don't despair, here's where the opportunity comes in.

Small business owners fill these gaps, delivering the impossible. The problem I have, as an established store owner, is I can't hire people to make miracles. I can either make miracles myself, or I can throw my hands up and declare miracles are phony. There is no amount of reasonable money that will let me hire a miracle worker. I cannot provide what people want under current market conditions. Can't do it. That right there is an opportunity for small business.

My inability to hire miracle workers is my competitors opportunity to make it rain. If you are delighted, entertained, awed by a local small business, I can almost guarantee you there's a business owner making miracles, because you can't hire saints and prophets, you have to become one.

This is both a competitive advantage and job security for small business, as well as a reminder to us middling businesses that you better bring the mojo. And if you continue to go to Toys R Us and Wal Mart and Target and complain bitterly about your mediocre, bargain basement experience, please remember you're asking the impossible. Maybe a small business will arise to provide that miraculous experience you crave. Maybe the prophet is you.

Thursday, October 26, 2017

The Dream

I had a dream I volunteered to inventory a hardware store. The hardware store was my original metaphor for starting my business, a simpler life with concrete things, bought and sold by people who needed them. A far cry from the IT world where I rarely understood the businesses I helped support.

I borrowed the metaphor from an old boss, who told me over lunch one day his desire to open a hardware store. When I met with him before I opened my game store, he thought I was crazy when I told him my plan. "What about the hardware store?" I asked. He told me some dreams are meant to stay dreams.

The owner of the dream hardware store laughed and handed me a clipboard with nearly infinite sheets of thin, onion paper. Each sheet had lists of weird product categories and random codes. I stared at the top, the department being the only word that made any sense: Paint. The item description had words, but the meaning was lost on me.

I walked around the store, it might have been 100,000 square feet or a million, as I never stopped walking. There were no signs. There was paint here and there, and paint cans on top shelves of other departments, but never did I find the actual "Paint" department, nor the first item on the list. I walked and I walked.

I began to despair. I agreed to do this thing. Clearly this would take a year or longer with one person, and knowing retail, the data would be worthless far sooner than that, probably by the end of the day. It was like inventorying drops of water in a swift moving river. What had I gotten myself into? What was I trying to accomplish?

It was a familiar sense of hubris. Most game store owners have no idea what they're getting into until they actually do it. Also, it's not like you get to a point where you have it all figured out, like the mythical hardware store of simplicity. I can look at every element of that dream and break it down into something I'm grappling with after 13 years in this business.

There are multiple dangers of owning a small business. One danger is you'll fail, which can be a merciful experience if it happens soon, but after the first few volatile years, the chance of failure doesn't ever lower. Ever. If you dream of a failing hardware store, you might insulate yourself with an enormous cash cushion to get through the night undisturbed.

The most dangerous thing in small business is you succeed, just enough to keep going, but not enough to be worthy of your devoted life. You may have been young and not doing anything worthwhile when you opened, but what could have you done? What could you be doing now?

The lucky few will be successful, but their dreams will be haunted by giant hardware stores and infinite inventory sheets. Store owners will say, if you can make it doing this, you can make it anywhere. But where exactly? Also, there is no doubt in my mind there's a hard working hardware store guru, who knows the location of every paint can in the enormous store they work in, who dreams of opening a game store. As my old boss told me, some dreams are meant to stay dreams.

Am I a game store owner dreaming I work in a hardware store
or a hardware store owner dreaming I work in a game store?

Monday, October 23, 2017

Stickiness (Tradecraft)

The board game market has a stickiness problem. Games are being produced at a fast, many would say unsustainable, pace. Traditional publishers are competing against the Game of the Moment via Kickstarter, their traditional business model going up against the unsustainable passion of Makers rather than the long term strategy of a competing company. Many have or will join this Game of the Moment model, rather than being left behind, and there are some solid marketing reasons to do so. Perhaps the gatekeepers no longer represent the majority of market demand. There is not enough product security, value in the supply chain, to gain traction and it's hurting everyone.

Retailers are in the middle, with games arriving on their shelves with no guarantee they'll ever be back. Unlike the traditional publisher, the Kickstarter publisher is fine with a "one and done" model and are far more concerned about getting stuck with the "hot potato" of unsold product more than their desire to establish a long term presence in the hobby game channel. Getting everything I'll ever want of a product on release is not an unusual strategy.

With their reprint, the Kickstarter publisher is willing to sell to deep discounters online, just for the inventory security. After all, who cares about product devaluation of a one shot product? They're about the passion, getting the product into the hands of players, and having the income security to do it again. They don't have time to see their inventory sit at a warehouse where some distributor may pay them one day. They're ready to move on to the next project, or just be done and pay back their home equity line of credit.

Retailers would like there to be some stickiness to games. A solid business model would include extensive support of new games with a guaranteed supply chain. The "demo table" exemplifies this, where retailers become tastemakers, teach new games to new customers, and in return obtain stratospheric sales levels. It's the American Dream of planning, putting in the effort, and reaping the reward.

Unfortunately, it's hard to find such games as most aren't sticky enough in the supply chain. The new ones tend to be "one and done" and restocks are not guaranteed at all. Often when they arrive, the online retailers have gobbled up vast amounts of supply to dump at deep discounts. Even if you do get your strong restock, you're competing with the online giants in a devalued marketplace. Product has died on the vine and no effort to push that great game to an eager customer will overcome a 40% discount online.

So the status quo, one which my store is certainly guilty of, but trying to break from, is what they used to describe in the RPG trade as the periodical model. You don't hear about the periodical model so much anymore because RPGs have, for the most part, died a horrible death in the game trade. Retailers don't talk about RPGs. What's there to talk about? I love RPGs, sell a good amount of RPGs, but I have to constantly remind myself the scale of the other departments, how we sell six times more board games and six times more CCGs. RPGs are a shell of its former glory.

Oh sure, there have never been more fantastic RPGs produced than right now, but the game trade has mostly turned its back on them, especially when there's so much more money in board games. So board games are dabbling with the periodical model, where my store gets in the game of the week, we promote it as best we can for a product we may never see again after Thursday, and then next week we do it again. There is little to no stickiness. The end result of going down the periodical model path is there will continue to be great games via alternative distribution methods, just like RPGs, but stores will stick with known quantities and just dabble with indie hits. We'll have a special indie board game distributor we'll order from once a month, if there's extra cash in the budget (or not). There are signs we're heading in this direction already as we talk about protecting brand value and a flight to quality.

I will attempt to restock the best sellers in my one and done model and maybe one or two will gain traction. However, if it's being devalued online, if supply has evaporated, if the publisher decides to raise the price 40% after the first print run, I shrug and move on. Next week we'll have an entirely new game to pimp. The last thing I want to do in this model is expend energy on any one title.

I am only penalized for treating board game as anything but a commodity item, like soybeans. It's the periodical model. I could run with this model until the board game segment is a smoldering crater in  the game trade. We'll start selling a four volume set of paperbacks describing what went wrong, picked up by nostalgic customers who once played board games but no longer have wood for sheep.

This is not a long term retail strategy for the game trade, this path of least resistance. It's certainly not what I want to do or where I'm spending my energy right now. It's not what publishers need from us, as we're the traditional marketing arm of the traditional board game publishers. But I'm not sure tradition matters so much anymore.

Our job is to be that Third Place, a venue for new discoveries and experiences. Schilling the board game of the week to exhausted board gamers will eventually dampen their enthusiasm, just like selling a 5th Edition of D&D after just recently talking up a 4th Edition that I swear was a solid replacement for a Third and a Half edition, that had to upgrade because of something something, the Ranger. You want to sell entertainment, but you don't want to feel like an entertainer, some half wit carnival barker, doing it.

So I struggle to gain traction without a sticky product category where I can plant my flag. Publishers struggle as well. Customers are not immune to the struggle, with this embarrassment of riches, where I don't even look at bringing in a new game unless it scores an "8" or a couple thousand "Wants" on Board Game Geek. Don't get me wrong, I am a huge seller of board games, but we've definitely hit our limit, the store peaked in this category. We just need some stickiness, some brand value protection, to make our stand.

Sunday, October 22, 2017

Cost of Goods: The Closed Loop (Tradecraft)

This article is about the closed loop system known as Cost of Goods Sold. Anyone who's not a buyer for a game store is not likely to understand the importance of this data, which often gets sloppy when entered into point of sale systems by harried game store staff. This is written with my staff in mind, but it might be useful for everyone who works at a game store. Feel free to share, of course.

Cost of Goods Sold is the term used to track inventory value as it goes through your store. As the name states, it's the cost of the goods the store pays from its suppliers, with the difference between the Cost of Goods and the price you sell it for being the gross profit. It's gross because it doesn't include the many expenses, like your paycheck, that reduce the slightly less than half of gross profit down to about a 5-10% net profit. For example, a $100 board game might have a cost of goods of $54 and after all the expenses of the business are taken out, may only have a net profit of $5-10. If the store is lucky.

Product is not only the lifeblood of the business, but too little inventory can lead to a catastrophic death spiral, while too much inventory can lead to an enormous end of year tax bill or outright business failure, as all the money is tied up in inventory. No new money is poured into an inventory budget, so for new product to come into the store, old ones have to be sold to produce a purchasing budget surplus. Even if your store is doing great, you might be putting older product on sale just to create this necessary surplus. There is no input without output.

Let's take a look at the full cycle of Cost of Goods, to better understand its importance. This will include looking at adding items to the system, receiving new product, and finally, Open to Buy, which which is what your store buyer is using to determine how much money is available to spend on more product. I'm using my POS system (Lightspeed Onsite) in the examples, because that's what I've got, but it worked the same way when I had Microsoft RMS and I'm guessing it's not much different for other full featured systems. 

The first time a store encounters cost of goods is on a product invoice. 

The Unit Price here is the Cost of Goods. It doesn't include things like shipping, COD costs or other "not product" cost of good expenses.

This unit price gets entered into the POS system Purchase Order, hopefully accurately. As stores tend to order product from a variety of distributors, it's important the actual price for this particular order gets entered properly onto the Purchase Order correctly, since it cascades throughout the system.

Purchase Order where the cost is grabbed from the product record, but can be overwritten if necessary

Most POS systems have a place for the Cost of Goods on the product record. It's important that the record is accurately updated and bad data isn't allowed onto the Purchase Order.  If the Cost is not entered correctly, that incorrect data cascades through the POS all the way to the purchasing budget, which we'll get to in a moment. 

Product record, where the cost is copied over to the Purchase Order when a PO is auto generated
At this point, most game store clerks stop worrying about Cost of Goods (Cost), and if they entered everything correctly on the produce record and the purchase order, everything is in good shape. But where does the data go from there?

The Cost of Goods is collected from end of day reports that track sales, noting the cost paid for each item sold. This report takes that hopefully accurate Cost of Goods number and provides it to the buyer.

This Cost of Goods number is then entered into an Open to Buy spreadsheet or hopefully some similar tracking mechanism. To be honest, most buyers don't have an Open to Buy tracker, but let's assume they're using something to track Cost of Goods so they know how much they have to spend.

The Open to Buy spreadsheet (or whatever) tells the buyer they now have $2,027.32 to add to their purchasing budget to buy product. If that number is off,  the buyer may not spend enough and is now under budget and losing sales. If the buyer spends too much, they are over budget, and not only will profitability suffer, but the business will incur taxes on the difference between the previous year's inventory value and the current year (it's good to check the difference and adjust at least quarterly). 

Open to Buy: Available = Previous Available + Cost of Goods - Purchases

So how accurate is all this? Not very. The true Cost of Goods, the only one that really matters, is in the accounting system. Last year our Cost of Goods in the POS was 53%, while Cost of Goods in the accounting system was 56%. Some of that 3% difference are Cost of Goods that are not inventory, like shipping and finance charges, things you definitely don't want polluting your POS system. That's maybe 1% of the variance. Most of that slop is bad POS bookkeeping. The most important thing for me is making sure my purchasing budget is balanced at the end of the year to avoid excess taxes.

Monday, October 16, 2017

Selling Your Store (Tradecraft)

I have neither bought nor sold a (whole) game store before, so let me give you some advice on how I think it's done. Right? It's the Internet. You decide which orifice I'm speaking from. There are many stores closing right now and sometimes owners ask me how to value their businesses for sale. The truth of selling a store is somewhere around 70-80% won't sell, they'll just close and liquidate at pennies on the dollar. If you can't show value, this liquidation route is where you'll spend your time, and as you probably didn't value your time highly in the first place, you'll likely scoff at that pennies on the dollar and spend months selling it off yourself for twenty cents on the dollar. Let's work on a better outcome by understanding what work needs to be done.

The same value creation necessary to run a successful store is the same work it takes to create a sellable store. High value businesses don't sell often, because they don't need to. They can be run from a beach or passed on to family. Stores without that value are worth a tiny fraction of their furniture, fixtures, equipment and inventory.

Although I don't have direct experience selling, I run my business with the intent of one day selling, retiring, or otherwise spending time on that metaphorical beach, which might include starting another business. Creating value worth buying is not a thing you do when it's time to sell, it's a think you bake into your business from the beginning.  Selling a business comes down to three fundamentals: profitability, dispensability, and diversity, along with the end preparation for the sale, which I'm not going to cover here (buy the Nolo book).

Profitability is the tough one, since most business owners don't want to give up a clearly profitable business. I doubt many profitable store owners would use the word "clearly" though. With thin margins and high variability between years, many game stores are "sometimes" profitable. Profitability is also something solo owners avoid, since profit is taxable. I would like to see tax returns showing profitability, but there is the helpful term Seller's Discretionary Income (SDI), that can tease out profit where there is none, according to your tax forms.

Small business owners like their deductions, with books on how to take hundreds of them. This reduction in profitability lowers taxes, but also prevents you from getting a bank loan or selling to others. However, another experienced retailer can tease out the SDI, showing potential profit where there was none before. That cell phone expense, owners health insurance, "necessary" business travel to Essen, an inflated advertising budget, leased car, and your over market salary are all profit to a frugal buyer. The difference between showing profit and not showing profit is the difference between liquidation and selling at a multiple of your net income. If you can't show profitability with your tax forms, you sure better become familiar with calculating SDI.

Dispensability is how dependent the business is on you, the owner. If you've single handedly built this business from scratch, have all the processes and procedures perfectly nailed down in your head, and have personal relationships with all your customers, memorizing what they buy, how they buy and why they buy, you have failed in small business. You might be an amazing owner, but if you're hit by a bus on the way to work today, your business is done, your family in trouble. All the value has been smooshed on the pavement. You are indispensable, which is what you want to be, how we've trained you to be as a society, when you work for others. Indispensability is a trap in small business.

Being dispensable is a process like any other. It's layering processes and procedures and training staff to run the business in your place, as well as you. When I first hired people, I would come back after the weekend and the store would be a mess, tasks only I do would be undone and I would spend a couple hours every Monday morning fixing things. After developing better processes and procedures, I could leave for a trade show for a week without the place burning down, return the next week and fix things. Now I can leave for up to a month before my processes break down, mostly my owner processes that I now need to create (and maybe later, delegate). Next year I'll leave for six weeks, outside the country where some of my current processes and procedures will cease to work, so I'll be working hard over the next six months to streamline and improve processes so I can work (or not work) anywhere in the world.

The goal of dispensability is not to have a turn key business, the 4 Hour Work Week approach. The goal is to hire and train people in processes and procedures just as complex and service oriented as when you ran your store like a champ, maybe even better! There's a dispensability trap where you start turning your back on service because it's too complex to create into processes for others. To some extent this is necessary as you grow and delegate, and you will leave money on the table and opportunity for competitors, but the heavy streamlining approach in most business books is not suitable for a hobby game store. It's a persnickety business, a perfect expression of hobbyists within a ten minute drive time, which might be vastly different from a store just across town. Flexible policies and procedures and workers empowered to serve customers even when it goes against your P&P is key to running such a unique business.

In an ideal dispensability scenario, there is a process for outgoing management to train up new managers, or creation of a middle management level if you're big enough, so when key people decide to leave (or they get hit by a bus), you're not rushing back to rebuild your business. However, this is more a goal for keeping your business, rather than selling. If you've got management in place, and you're on a beach, that's good enough to show dispensability.

Diversity is the flexibility or brittleness of your business model. In a service business, you might not have a sellable business if a large chunk of your sales was one client. If making auto parts for Chrysler was 70% of your business, I would be wary of buying your business no matter how profitable you were. Where Chrysler goes, your business goes, and I don't speak Mandarin.

Likewise, if 70% of your business is selling Magic the Gathering (MTG), you're likely to only find a buyer that's equally evangelical as you about MTG. The more diverse your business, the more value it has to an outside buyer. As I run my business, I get nervous if I can't drop a department. I would ask myself, if MTG were to drop off the planet today, would my business survive? The answer two years ago was a definite yes. The answer today, with a heavy debt load from expansion, is a resounding no.

Anyway, those are my thoughts on selling. After you decide to sell, there's a huge amount of work to find a buyer and probably about as much work in selling your business, with legal documents and legwork as there was in opening in the first place. As most store owners are demoralized, burnt out, broke and otherwise at the end of their ropes during this stage of their business, it's no wonder they can't get this last part right and simply liquidate.

Wednesday, October 4, 2017

Not In Need of Saving (Tradecraft)

It's the boom times when we ask the hard questions. If times were tough, complaints and introspection would just be complaining, so you keep quiet and put your nose to the grindstone. Revolution comes from the middle class, according to Marx, because they are the ones with the free time to explore such things. So we've got a lot of talk right now, because the game trade is booming.

The game trade has doubled in size in just a few years, if you believe ICV2 results (which you should seriously question). According to ICV2, the hobby game  trade has grown from $700M in 2014 to $1.4 billion in 2017. That's an astonishing growth rate.

Many brick and mortar hobby game stores are enjoying this success, as they should since they helped tremendously in creating it. It's not all a bed of roses. What I thought would happen is starting to happen, where large stores are better positioned to handle the consolidation in the industry, while there remains a steady stream of doomed, under capitalized clubhouses willing to risk their savings on poorly planned retail stores. There is an insanely low bar to entry in the game trade, so anyone can do it with almost no money. There are a lot more low end clubhouses than top tier stores, although you can find top tier stores in most regions of the country.

If your local retail environment is a sad shell of its former self, if it's been devalued by bottom feeders or your unemployment rate is stratospheric and you're not enjoying what's a solid economy for many, you probably see a lot more doomed clubhouse stores than you see top end stores. If you were to make a value judgment on game stores, it might not be very positive. You probably see distressed stores catering to a distressed market. However, as with the parable of the blind man and the elephant, your perception is incomplete.

The blind man walks up to the elephant and feels around, and the first thing he touches forms his perception of the creature. He walks up and touches a tiny tail and slips in piles of elephant shit. He thinks elephants are frightening tentacled, smelly creatures. The blind man is not wrong, it's just his information is incomplete. For many local markets, you wouldn't be wrong thinking game stores are the ass end of an elephant.

Who can blame you for thinking nothing good can come from the excrement you're experiencing? There certainly isn't much community being created, product champions evolving or new games being marketed in such a dismal, excremental place, right? You're not wrong.

However, if you open your eye, you'll discover great hobby game stores out there to be explored. I've taken amazing road trips across this country and if I do the research ahead of time, there are always great stores in every state I've visited. All game stores are great, due to my planning, and I might make the same mistake in reverse, thinking there are no ass end of an elephant game stores. I regularly visit clean, well lit stores with strong events, game demos, and a community of customers who spread the word and help build the hobby.

I know there are online folks who will believe their digital community has spontaneously arisen through gamer immaculate conception and that they drive the game trade forward, but everyone in the industry, those who pay their mortgages with game trade money, know it's simply not the case. They play a role, but meat space is where the critical work gets done.

Publishers put their money where their mouths reside, supporting brick and mortar game stores as an important marketing function of their business, referring to Internet only sellers as "free riders," as in they're not doing the necessary work to propel the market forward. Price protection schemes to protect publisher brand value comes out of these discussions, providing safe channels for the brick and mortar while punishing free riders. Price protection is not popular with free riders or their very noisy, insanely entitled customers, so we're seeing push back. I get that, but open your eyes folks. It's not an either or situation. You also might want to grab a shovel while you're at it.

Sunday, October 1, 2017

Working the Float (Tradecraft)

I paced the sales floor on Friday, a major release day for Magic. I was hoping it would result in a figurative pay day on what was also a literal pay day. So far, most of the the sales were paid with credit cards. I was looking for more cash as I was expecting the bank to call at any moment to tell me we were short with our payroll run. A midday deposit was on my mind. I had already raided our small cash reserves. A customer came in to sell Magic cards to my assistant manager and I had to go back to the office to hide my irritation. Cash out is not what I wanted.

Is this what failing looks like? I ask that sometime. As a veteran store owner, I know exactly the steps of failing. I've written about it in my Defcon article. I spend a lot of time avoiding taking that next step down the ladder, to the point of unnecessary risks and gambles, like working the float between bills and income on a payday. Working the float should be somewhere in my mission statement.

On the bright side, we had just passed a million dollars of sales over the last four quarters for the first time. A million dollars. I'm going to write it out, because this is new and exciting for me: $1,000,000.00. Our sales are up 16% for the year, which is a big accomplishment as we start year fourteen. Margins are good as we only sell in-store and our gross profits are strong. Net? Umm, let me tell you more gross things.

We're reaping the reward of expansion. Some departments are expanding rapidly, with RPGs and miniature games up in the 40% range. Our bid departments, areas where other stores are seeing a decline, board games and CCGs, are static, which is still a win for us. This is due to doubling our play space, doubling our events. My predictions of a modest sales increase from expansion were correct, and even a little understated, which I was hoping would be the case.

Friends asked if I was going to write a blog post about the million dollars. Ha! No way, people don't want to hear that. But then I thought I would put it in context with what comes along with the million dollars of sales. Much more stress. More hassle. Pacing and working the float. Work the float.

We are in the first year of an expansion. When you expand, you budget for the expansion. You plan ahead for unanticipated expenses. You acquire financing. If you're lucky, the expansion goes according to schedule, or maybe it went long by ten percent or so. Our six week expansion took six months, long enough that we were compensated for what were clearly some mistakes. I'm so grateful our customers supported us during this period, especially our miniatures players, the only department not to sink, despite not having room for them to play. One retailer suggested I have six months of cash reserve before doing such an expansion. If I had six months of cash reserves, I would retire. Or buy a building or five.

Right now we are lucky to be in business, to be entirely truthful, and even with free rent for a quarter, which in our case would buy you a new car, we were still severely over budget, due not only to construction but sales losses over that period. You survive or you don't in that situation and use all the resources at hand. Hopefully you have a line you won't cross where you won't borrow or hemorrhage cash any further. We're not losing money, we're just staying afloat. We're at the line, which can be characterized by turning down people who still want to loan us money, because the problem is not cash, it's cash flow.

I can write this on October 1st, because we've survived the first year after construction. We're still here! We're in the fourth quarter, where the money resides. We will work hard this quarter and pay off chunks of debt. We'll emerge in January like a colorful butterfly from a disgusting, debt ridden cocoon. Well, that's a bit overstated. We'll come out of this year slightly stronger, growing stronger each year for the next four years.

All of my personal financial hopes and dreams reside within the business as it stands right now. It's  underneath construction debt. For now I work the float. As we move forward, it's like removing the dust from a mirror, uncovering hidden potential.

Friday, September 15, 2017

The Magic (Tradecraft)

Back in my day... we bought booster packs or a starter deck. There was one deck, and you didn't need another one once you had your one. You had started. We had no idea what a booster "box" contained, how many packs or what it cost. Heck, boosters could have came in bags for all we knew. Booster bags.

There was also no World Wide Web, no Ebay and no "net decking" to tell you what to build. There were no well known Magic tournaments either. You played with your friends around a kitchen table, although tables were beginning to show up in game stores too. We lived in caves, subsisting on melted snow, dreaming of a time when we could spend hours a day arguing about nothing on the Internet (in a more pleasing graphic rich format). My lawn was just starting to bloom, so no need to ask folks to get off it. The year was 1994.

I mention this because I sell a ridiculous amount of Magic: The Gathering at my store and I had no idea how I was selling it until I recently ran the numbers. Sure, we sell singles. Even back in my day we would buy some out of the case. I was especially fond of French versions and I recall building a really cool French vampire deck so I could beat up my friends. We had been playing games like Dungeons & Dragons for years, but as young adults, we didn't have the huge blocks of time to devote to that game any longer. Magic filled that gap and kept us together as a group.

 At the store, we've only recently started getting more serious about singles, even selling them online , but I never expected them to be our best seller. My number one selling product in the store is used cards. I'm still trying to wrap my head around that.

Magic boxes are close behind, and if you ignore the few points of online sales of singles, boxes are the actual best seller. Our store strategy has always been to appeal to casual players. But what does it say when singles and box sales outstrip packs and casual products? I'm not sure if it means we've lost our casualness or if casual players are now more inclined to dip into the singles collection or gamble on boxes.

Many, if not most game stores focus on single sales. I reluctantly followed suit, getting nervous every time my staff made a big buy. Then I ran the numbers. A solid turn rate, how many times a year I sell through inventory, is perhaps 4-5 for things like board games and RPGs. I ran the numbers for our singles collection. Then I ran the numbers again. That can't be right. 50. 50 turns a year. That's like taking our entire Magic singles library, and selling them to a dude (or dudette) nearly once a week. In reality there are cards that fly through our collection, selling as soon as they're received, while other cards have never sold at all. Our recent foray into online sales saw those leave us, with a nice sales bump.  But 50 turns... It's why we have backpack dealers and stores buying point of sale machines that handle Magic singles first and everything else second.

If I sound kind of ignorant as a store owner, that's because I've resisted the pull of Magic and especially singles. We are strongly diversified, enough so that Magic could fall off the planet and we would still be here (the game trade might implode though). The mercenary nature of a lot of players has made me reluctant to engage 100% with this subculture, and that's what it is, a full fledged subculture. It's an independent subculture where judges report to the mother ship, not me, and players see Magic product as a commodity, available instantly from the lowest bidder. It's a pretty sandy foundation on which to build a business.

Magic singles are the Bitcoin of the game trade. My landlord will take neither in payment for the rent, yet I'm supposed to believe a surplus of either makes me wealthy. As of a few years ago, I've handed Magic over to my expert employees to manage, following the money rather than my 1994 concept of how things should be. I've been happy with the results as they've doubled our Magic sales from just a few years ago. It's nothing like Magic-centric stores, but it's a wonder to watch.

I've also been happy to see the Magic community come together and support the store. Our expansion project, at least the money to get it started, was done with Magic money. When it was finally built, I approached the community with arms open. This is yours. You built this. As many events as you can maintain, we'll run those events. And they've managed it four nights a week. It has come a long way from those days around the kitchen table with my friends.

Thursday, September 14, 2017

Faith in Humanity

Before owning a store, there was such a thing as having "faith in humanity." Most people were generally good and kind and well meaning. Owning a store showed how easy it it was for supposedly good people to become so-called "bad people," to steal and lie when the opportunity presented itself. The line is perilously thin between honest and dishonest. It's not some colossal battle of wills between an angel and devil on each shoulder. It's just opportunity.

If you haven't owned a store, there's no way I'll convince you this is true. There's no way I'll budge your faith. I accept that. If you do own a store, you know what I'm talking about. The familiar knife in the back. The smiling regular who spends a fortune in your store who you still discover steals on the side. The employee you took into your home who robbed you blind. The guy, now this story is totally true, who you catch walking out of your store with two hundred dollar army boxes under each arm, who blames you because his in-store D&D group is now down a player because you banned him.

When owning a store, there is no longer faith in humanity. Faith is belief and you now have demonstrable proof. The vast majority of people will make the wrong choice if given the opportunity. It's about 90%, 10% who will always steal and 80% when given the opportunity. How you engage with this fact determines how you'll view people going forward and whether you'll be happy or not. You will give up your Faith for a philosophy of trust, but verify. It's easy to become bitter when coming to grips with daily betrayal. If you want to own a store, know this loss of faith, this change in philosophy, will be a psychological price far higher than your initial investment.

Tuesday, September 12, 2017

Is It Beachworthy?

I love my staff and my customers and my hobby, but the beating heart of my business is the processes and procedures that keep it running. The ultimate goal is for me to be able to sit on a beach and have my business run smoothly. The beach is a metaphor, because if you know anything about me, I would go nuts lying on an actual beach.

The beach represents my ability to run a second business, to go on vacation, to retire, to increase my operational prowess without being laden down by poor processes and procedures. It's being able to do all processes of my business at a time of my choosing and have smooth running procedures back home that don't create exceptions in the system.

The value of my business, it's worth to other people, will fundamentally be about its beachworthiness. If the business only operates with me in it, like so many game stores, the value of the business is what you could get in a weekend fire sale. If it requires me to periodically fight fires or uncover a missing invoice because they're hidden in a box, the value of my business is severely diminished. If it's profitable while I'm on the beach, we go from fire sale to a business valuation that looks like a healthy retirement portfolio.

Getting my business beachworthy, unfortunately, requires my business partners, notably distributors and publishers, to have beachworthy processes and procedures. As my business grows, I tend to discard partners who are not beachworthy, or elements of their business that are not compatible with my very basic goals of reclining on a beach. So let's take a look at where my partners tend to fall short:

Invoicing. Is your invoicing, your fundamental process for getting paid, consistent with industry standards or are you behind or ahead of the curve? Both being behind, such as randomly tossing invoices in boxes, or being ahead, such as electronic invoices only, are painful exceptions for your beachworthy partners. 

Ask your finance people if they believe customers are paying on time and I'll bet you they'll say no. So maybe try an experiment. Maybe put your invoices in a flap outside of the first box. If you do that already, perhaps print invoices on pink paper so it stands out. If you're invoices are electronic only, compare your dating to before you became so sophisticated and see if perhaps you should go back. Can a minimum wage game store employee with six weeks of training spot and process your invoices or are they getting lost?

Sales. How does your customer, sitting on the beach, learn about new products to buy from you? Are you still sending paper? Did you get a request to forward that to the beach or is it sitting in a stack of old Uline catalogs? Are you relying on calling beachgoers to speak with them about things? Have you noticed how they avoid your calls? 

Beachworthy businesses have no time for these interruptions. Whatever it is they're doing, they're doing at their own pace, at their own chosen time. Find consistent ways to inform them of new releases. Follow up on the hits that are important for them to know, as a value add, rather than bombarding them with paid marketing messages from companies they have no interest in. 

Pre orders should be funneled to a website where that information is visible, changeable (to a particular date) with clear indications of shipment times. If you don't have this, the beachworthy business will be forced to move to someone who does. The more beachworthy, the more likelihood of switching. Beachworthy businesses have all the money, by the way.

Clear Processes. Beachworthy businesses have staff with assigned tasks. One of the biggest mistakes of a game supplier is expecting crossover. They envision the game store as a one person operation, rather than a bundle of processes and procedures spread across a large staff. If the person running events is asked to place orders, or the order person is asked to perform event related activities, you've crossed the streams of the beachworthy business and it's likely what you're asking won't reliably happen in that business. Know what you're asking and who you need to handle the task. 

Finally, be aware of who is beachworthy and who is not and find ways to add value to their businesses while they are on the beach. A strong partner will remind the beach goer of events, products, and even upcoming seasonal issues. They might be more flexible when the customer is close to the free freight requirements. This might sound like doing their job for them, but it's easy to lose focus when you're not physically present in your stores every day. There is likely a program worth developing for such stores, which are also likely to be your biggest accounts.

This may sound like special favors for big accounts, but all stores can become more beachworthy with better processes and procedures from distributors and publishers. Beachworthy is another word for valuable, after all, and removing your exceptions and idiosyncrasies from their operation directly contributes to that value.

Tuesday, September 5, 2017

Good Luck and Tight Lines

There's not enough capital.

Publishers underprint their products. They would like to print more, but they have limited resources and for the mid level publishers, perhaps too large a portfolio.

Like tired fish swimming up a narrow stream, there can only be so much product in the distribution channel. The channel itself is a bottleneck that restricts available fish. As fish enter the distribution stream, I need to decide on my catch of the day. How deeply do I want salmon? Will my supply of carp last through it's inevitable demand?

I could curse the river, and it's narrowness and how it tends to twist and turn giving advantage to some fish over others. If it were only wider, I curse. And maybe deeper. But the real problem is my own. Despite the shortcomings of the stream, the number of fish far outstrips my meager ability to catch what I need. If I only had another line, perhaps I could satisfy all the demand. My problem is I am also undercapitalized, so I have to pick winners and losers among an embarrassment of riches, and hope for the best.

The customer in my shop care nothing about concepts like capitalization, they just want their fish. Some even want exotic saltwater fish that don't enter the stream, but occasionally I'll be tricky and find a way to get those as well, direct from the deep sea fisherman. The most loyal customers will buy from me, if I have the fish they want, but will declare they're heading out to sea to find a catch of their own, if I can't provide.

I sadly nod and wish them well on their journeys. "Good luck and tight lines," I tell them. I want them to be satisfied with their catch, but I know eventually, if I send them out to sea enough times, they'll get a taste of that salt air and they'll stop buying fish from me. The secret to my trade is turning people into occasional fish buyers faster than I turn them into fishermen.

Sunday, August 20, 2017

Passion and Business (Tradecraft)

If game store owners could run their businesses on passion, good intentions, and love of games alone, we most certainly would. Believe me, many of us have tried. Outspoken game store owners are told they're destroying the hobby when they encourage others to run their store by the numbers, profitably. They're told this by other store owners mostly, future ex store owners to be sure, because passion doesn't cut it alone. 

If you want to see passion alone, read the Designers & Dragons series and you'll see the pattern that passionate game designers with no business sense are doomed to the pages of an obscure series like this one, relegated to wistful conversations about gamer childhoods. The winners, those that survived to make it to today, were able to match their passion with business acumen. It's no different with running a game store. 

The margin of error is too slim for passion alone and as you expand, the complexity of running a store is well beyond the capabilities of the average person's ability to manage their personal finances. New tools and techniques are needed and you will not receive them from your distributor or publishers, who are intent that you buy-buy-buy constantly, with carefully constructed finance systems that insulate them from the enormous churn of failing stores, estimated to be as high as 25% a year. Of course we have no real data nor even a definition of "store," to show how backwards we are.

The desire to reduce this churn is why some of us give talks on business management at trade shows, in hopes to reduce the churn. Although the number of such stores attending trade show seminars is certainly growing, it's probably a bit like preaching to the choir, perhaps the top 10% or so of store owners attending. Those are just people receptive to advice. Most of the advice I give falls on deaf ears, because it doesn't match the idealized nature of a game store in the future owners mind. "But if I don't have a lot of money, I can still do this, right?" Well, no. You can't. Money would be a barrier to entry in most fields, but not this one. They proceed anyway and join the 25%.

So you don't become a professional retailer because you lost your passion, you do it because you want to survive and prosper at a level beyond "buy a job" status. Perhaps you want to own a home one day or get married or have children or just take vacations. In this trade, that often makes you a sell out, a money grubber, or the worst accusation of all in a hobby that runs on geek credibility, an imposter. And you'll likely suffer from imposter syndrome for a good long time, probably until you get crusty and stop caring about the opinions of others. May you acquire crust with great alacrity.