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Tuesday, May 17, 2016

Building For Tomorrow: Finding New Things to Sell

Desert Sky Games and Comics is fundamentally in the entertainment business.  It's a small specialty retail store, true, but value is added in several channels:

  • Curation.  I am expected to sell things that do not suck.
  • Third Place.  I provide organized play to promote community.
  • "Pawnshop Effect" (My term for it).  Get cash in a pinch by selling me things.
  • Expertise.  My staff is knowledgeable about most things we sell.
  • Sense of Wonder.  I gather things you'll enjoy seeing, even if you don't buy.

The last item on that checklist is just as important as the others.  It informs various models that are commonly seen in the comic and hobby game industry today.  From hole-in-the-wall nooks that try to have at least one or two really sweet cards in the case to shock-and-awe megastores that astound and delight visitors by having everything from that old series or collection, having really awesome things around is a great way to get a customer interested.  This also opens up the business plan for potentially all sorts of different merchandise, as long as it's fundamentally entertainment and we can add some value.

I do commonly refrain that I am "not running a museum here," and that sometimes can run at cross purposes to the Sense of Wonder principle.  What that really serves is as a reality check.  For example, I am a die-hard fan of Robotech, the anime television series from 1986.  But most Robotech merchandise doesn't sell these days.  The show's remnant audience are 40 years old and older, and have only marginal interest in licensed knick-knacks and mantel bait.  Nevertheless, I allow DSG to have a Robotech collector figure on the shelf (it's Rick Hunter's VF-1J Veritech fighter, transformable, if you're awesome enough to know what the hell I'm talking about) and I don't much care whether or when it sells.  I like having it there and one day someone is going to walk in that door who enjoyed Robotech as much as I did and they are going to have a delightful nostalgia moment checking it out.  And even if they don't buy it, they're going to end up buying other things down the road because they like the store now that they have had that experience.  I cannot, however, stock an entire rack full of Robotech figures.  It would badly underperform compared to a shelf full of, say, polyhedral dice.

There are so many product lines I would love to bring in for one reason or another.  There are still more product lines I've been asked for that I really do not want to bring in.  Economic factors play into both scenarios, yes, because I'm not running a museum here.  But often the tipping point comes down to whether I think I can make that key first impression on a customer.  What does that product communicate.  What are its optics.  Can I evoke that Sense of Wonder?

Let's look at a few options I've batted around, shall we?

Eurocore board games are something we've had once in a while and that is at least unquestionably a part of this industry, if a grotesquely unhealthy part economically.  The gamer cohort most interested in this content is narrowing by the year, and these games are the hardest sells at retail, are among the most frequently Kickstarted, and tend to have the greatest price gulf between in-store and online.  It pains me that I can't at least throw a bunch of money at this subcategory and just have it.  Stores like The Sentry Box have the correct business framework for it.  They need to be content to wait indefinitely to get their price.  The positive side is that the optics, while overwhelming to a mainstream visitor, are the peak of virtue signaling to any Eurocore enthusiast.
Likelihood for DSG: As it stands, low.  Under the current boutique business model, these are economically unfeasible.  Turn rates are the scoreboard that counts for me right now and Eurocore board games are posting up a big donut there.  But in a future where DSG gets to be The Sentry Box Southwest, there's a fair-to-decent chance we carry them -- a lot of them.

Sports cards would appear to be an obvious inclusion, given that DSG has perfect sourcing on new product.  This category is fraught with peril, however.  Publishers are even less concerned about market devaluation than in the board game world, so margins narrow down quickly even on hot merch.  Sports memorabilia is extremely sensitive to macroeconomic conditions; when liquidity is tight, nobody is buying ornaments, and that signed LeBron jersey on the wall is the first thing that the household sells off to make ends meet.  Authentication is always a hazard and a cost with any piece of value.  Worst, however, is the failure of conveyance.  The current generation of sports card collectors will be the last.    Young people don't care about sports cards and never will.  It just hasn't ever been a part of their world.  That means the sense of wonder won't ever be there for them, and cannot overcome the downward-trending economic indicators.
Likelihood for DSG: Low.  Sports and media memorabilia in general may appear down the road, especially when we have room, as it dovetails a bit into comics and pop culture.  If we bring in sports cards in any meaningful way, it will mean we've already done all the other better things.

Vintage toys look to be in our wheelhouse and we even had a few at our original opening, some Kenner Star Wars Power of the Force 2 series stuff.  There is a devoted store called Toy Anxiety in town that covers this category, but it's all the way up in Paradise Valley.  Gotham City Comics and Coffee also has made inroads here, and they're right in our backyard.  What's the market really like for these?  I don't honestly know and that plus the space issue is what stays my hand.  There is potentially a lot of cleaning, repair, and reconditioning in this subcategory's process agenda, and no small amount of foraging through crap to find saleable goods.  So this is not quite the obvious add it may have appeared.  I do carry new collectible toys and figures from Diamond, because toys are strong on the sense of wonder and nostalgia richter scale.
Likelihood for DSG: Moderate.  I give it no worse than 50/50 on a 2018-2019 time-frame.  It's extremely consistent with things we already do, and if we got the right product knowledge into our staff roster, we could do well on the secondary market.  I'd love to grab some old Transformers or GoBots.  So would everybody, I'm sure.

Chess/Cribbage/Backgammon/etc or "Classic games" is a category that any serious game store worth its salt needs to carry.  Even ultra-modern video game retailers like Wii Play Games in Las Vegas still carry chess sets.  There isn't much turn rate on them and there isn't much margin because Amazon of course, but they are some of the most valuable retail ornaments a game store can have.  The sense of wonder is sky-high because it "proves" the store is a definitive game retailer.
Likelihood for DSG: It's a pity I have no space for ornaments.  This is an opening-day add once we get a new location locked in.  Or as soon after that as feasible.  Looking at 2016.

Anime is a decades-old market now with a deep content base.  However, there is a lot wrong with it.  Rampant piracy has made anime and manga alike virtually valueless at retail.  The ability to summon sense of wonder with it is limited.  Its target audience is younger teenaged boys who have no money, raging hormones, and no (legal) access to, uh, adult content.  There is also a concern with anime and manga due to the disturbing frequency of underaged characters appearing and engaging in adult activities and conduct.  It's probably possible to do something in this space and I know there are comic shops that are making it work, but there are just too many ways this could be bad for DSG.  A shame, considering I just said earlier in this article how much I enjoy classic anime like Robotech.
Likelihood for DSG: Not any time soon.

Disc golf and other kinesthetic toys like yo-yos and paintball guns represent an opportunity, but the reality is I don't have a lot of product knowledge and there's no room in any case.  Supposedly it's possible to source this stuff reasonably well, and a secondary market actually exists.  There are some stores in the trade like The Game Closet in Waco, Texas that deal in this market.  Rainy Day Games in the suburbs of Portland, Oregon even sells kites.  I like that.
Likelihood for DSG: We're talking 2019 or later.

Coffee and the other restaurant-track improvements represent a tremendous investment of capital and labor, for a return that is honestly anyone's guess.  So far the concessions or "retail food" approach of having a coffee bar with service and an array of simple fresh food options seems the most promising for the business structure of a small retailer like DSG.  Margins are sustainable and the capital expenditure is on a realistic amortization horizon.  Moving deeper into the restaurant world, especially for alcoholic beverage service, presents a deadlier traverse.  The labor equation is simply staggering and there are insurance and infrastructure costs that cannot be hand-waved away or worked around.  Ultimately a business has to turn something, and the game-store element would impede the turning of tables or bar stools at optimal velocity such as restaurants depend upon.  Notable stores in the trade have tried the deeper approach, such as Backstage Hobbies and Games, only to find it not worth the cost.  Cafe Mox in Seattle does nicely as a restaurant companion to Card Kingdom, but their capital situation is, to put it charitably, unusual.  DSG did our diligence on the alcohol factor in our original business plan and there was just no feasible way to do it.
Likelihood for DSG: Maybe for "retail food" from the coffee focus on out, unlikely we'd go deeper than that and even more unlikely we'll move into alcohol sales.  The coffee bar could theoretically happen any time we're ready to drop fifty grand into it to do it right, but of course we'll resolve our location scenario first.

Coins are a collectible I have always loved.  They have the narrowest margins in all of commerce, narrower even than new video game consoles, but that's okay because the merchandise is literally already money.  So literally that a store can't accept credit cards for coin purchases under most interchange agreements because technically that's a cash advance.  To carry coins and not just be a WE BUY GOLD pawnshop and trigger a ton of government requirements, I would need to emphasize the numismatic inventory rather than the bullion.  That means having a few glass showcases full of quality coins, and a rack of accessories and storage merch.  I don't have the room right this moment but it could be done with our Magic inventory about to migrate to a digital catalog system.  The sense of wonder for rare and valuable shiny gold and silver objects is obvious.
Likelihood for DSG: Questionable but possible.  There are a number of triggering scenarios that would make me add these practically overnight, mostly involving the economy taking a sharp dive.

Stamps, meanwhile, have a hobby trajectory that makes baseball cards look future-facing, what with electronic communication nearly obsoleting letter mail.  It's also a dangerous slope toward general Americana, which does overlap into media memorabilia and sports memorabilia, but also slides in the other direction into kitsch and even antiques.  There are markets for that.  By the time a store in this industry reaches those distant provinces, it has probably wandered too far.  I have enough sweet old ladies buying comic boards for their quilting without inviting them to fight their way past tables of playtesting grinders to get to my aisle of French Bronze and Pompeian Gold 19th-century jewelry boxes.
Likelihood for DSG: All signs point to "no."  However, we do still ship a lot of product via eBay.  One amusing arbitrage in the stamp collecting world is that as you acquire collection lots and estate lots, you end up using the non-valuable stamps... as common postage.  Not seeing much of a down side to keeping at least one fishing pole at the edge of this pond, wedged into the side of a shoreline rock.

Learning toys such as puzzles and the Melissa & Doug building sets are something that people are used to seeing at Barnes & Noble et al., and sometimes appear at the higher-end game stores in the trade.  It is apparently a category that heavily favors stores that can maintain a continuous mainstream footprint, such as mall stores, and that have the economics to maximize holiday season traffic.  There are a bunch of ways for DSG to get into this, but it's in line behind several more promising candidates from this list.
Likelihood for DSG: By 2019 or 2020 we may be in this space.

Yu-Gi-Oh! Singles are something we are frequently asked to bring in.  However, this category is a dumpster fire, and most people don't actually want to buy them, they just want to get some money for the junk singles they've long since torn up in careless handling.  Any time the store gets its weekly message "u guys sell ygo" I am tempted to reply, "We do not buy Yu-Gi-Oh cards.  Thanks and have a great day!"  That was going to be his next question anyway.  Why not just skip to the end of the novel.  We all know the butler did it.
Likelihood for DSG: No plans to move in this direction.

Movies and music on solid media would appear at first glance to be a product category that has gone the way of the buggy whip.  Digital consumption is just so easy and runs the gamut from only moderately expensive (iTunes) to free-with-strings-attached (Amazon, Google Play) to absolutely free, kind of (Pirate torrents).  However, upon research, this is an unexpectedly healthy category due to forgiving economics, and the sense of wonder is fairly easy to achieve as virtually everybody can think of a movie or album that stirs memories.  There's a lot of "pawnshop effect" involved here, though, and we'd want to be careful with the optics not to turn into a full-bore thrift store.
Likelihood for DSG: We are probably one great acquisition opportunity away.
LEGO is nostalgia to the next level, and on top of that it sells better today than it ever has.  Distribution is locked down tighter than a liquor store in Provo, though.  The buy-in for full coverage and real margins is five figures left of the decimal, their stockist requirements are stringent, and you have to apply for access and wait your turn.  We can do this; we spend that much or more every week on product restocks.  Ordering light for a few weeks would make the buy-in transparent to our normal economics.  But it's still a tall order given the amount of uncertainty built in to the process.  The secondary market for LEGO is deeply established.  The nostalgia tug is strong.  This is a product line optimally positioned to appear once we have a new location open and through its sea trials.
Likelihood for DSG: All signs point to "yes," but in 2017 or later.

Hobby modeling, and by this I mean other than "for the general purpose of miniature wargaming."  The modeling hobby goes a lot deeper than that.  There are historical miniatures, though this is a fading market like baseball cards.  There are model cars and planes and such for ornamental purposes; mantelbait.  Then you get into the action side of the category: remote-control vehicles of every stripe, model rocketry, even electric trains which are the nut high no matter what you guys say and no I'm not old why do you ask.  Trains are awesome.  It's amazing just how much overlap there is between the comic and hobby game trade and stuff like this.  It would give me a great excuse to bring in like fifteen grand worth of paint.  Best of all, the sense of wonder is really easy to evoke with moving models.
Likelihood for DSG: Not soon, but I would love to be in this market eventually.  It's probably just like our market, with everything sold online at a nickel over cost.  Maybe I'll just buy myself some electric trains and have done with it.  Wait, I already have those.  I think I'll go play with my electric trains now.  If you'll excuse me.

Electronics, such as iPhones and iPads, Fitbits, Pebbles, and so on, represent a very forward-facing and future-friendly business outlook.  However, the mainstream market knows this and there is extremely strict brand control and very little meat on the bone for a small independent dealer, at least for new merchandise.  We've dabbled in used iDevices and done just fine, but nobody is readily looking for us to sell them, so it would be something that we did on good opportunity if we delved further into that realm.  Concurrent with video games there starts to open a door to used computer gear generally, especially Macintosh where some residual value is the norm.  As with stamps and vintage toys, as discussed above, I would worry about turning into something of a junk shop.  The outbound path from selling used computers is a pretty deep rabbit hole.
Likelihood for DSG: (Shrug emoticon)

Arcade games and pinball were a part of DSG since the beginning, and our last equipment finally moved out of the store in March 2016 as we struggled to eke every last square foot of efficiency out of our badly outgrown current location.  Metrics for the category overall indicated a stratified earning pattern based on what software we were able to put into place and in what combination.  There was little benefit to a deployment of a few units beyond the third or fourth.  However, once unit count got up toward ten, revenues increased markedly.  This is because a group of that much arcade gear in one place becomes an attraction in itself, and has great optics, evoking nostalgia and a strong sense of wonder.  People are then drawn to the location for just that and we have the opportunity to get them excited about other things we offer as well.
Likelihood for DSG: Count on it.  The DSG Vintage Arcade will be back when we have the floor for it.  We have a deep reserve of expertise in this category and a truly embarrassing hoard of hardware.  The category even has overlap and resonance with console video games.

Nothing, and by this I mean even narrowing down what we already have, potentially down to just Magic: the Gathering.  If I have one product left to sell, it will be that.  This is not a direction I am interested in going, but in doing my business diligence I have to consider the possibility of any option that might one day reach the table.  There is a wise saying in business: Winners focus, losers spray.  As much as I like all this different stuff, what if we are not as good at any of it as a business that focuses exclusively on one category and just utterly masters it, covering it to the last degree.  Wouldn't we consistently lose market traction to them?  Of course this means they forfeit some of DSG's key advantages, such as logistics, sourcing volume, and product line overlap efficiency.  Our competitive agenda might be the retail equivalent of repeated groin kicks and nothing else.  For now I think it's within our capabilities to keep exploring new ground, once we have enough floor to give our discoveries a chance to attract an audience.
Likelihood for DSG: If we're ever Just a Magic Store, and I mean in a more literal sense and not just the pejorative of a gamer upset that a 900-pound gorilla of a TCG dominates the industry, then we will shed our way to just Magic if and only if we have decided to monetize until the clock runs out.  Businesses do exist to make money, after all.  This course of action is not being realistically considered for the foreseeable, as it would entail forfeiting the value added from all our product knowledge in the other categories we're already doing substantial business in.

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