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Tuesday, September 27, 2016

Hunkering Down

We got as low as 54 stores in the Phoenix metro after Around the Board, San Tan Toys & Games, and Odyssey Games closed their doors, and then Amazing Discoveries opened a second location and three more stores announced openings in the months ahead: Baxter's, Games U, and Untitled Food Hybrid Game Store.  I think this might be a good time for me to riff on my thought process when facing the onslaught of aggressive competition.

As you've read on this blog before, I've owned stores or otherwise worked in this industry since 1998.  Some of my stores were successful, some less so.  With my current store, I had to withstand both planned and unplanned partner separations, in each case prompting equity divestiture.  DSG isn't up against the most vicious competition I've ever faced, but it's definitely facing the highest volume of competition I've ever seen.
Readers from outside Arizona might be surprised to know that, for as much Magic: the Gathering business as I do (and it is a lot), DSG is not considered a competitive Magic store in the Phoenix area anymore.  This is by choice.  I still host competitive prestige events that get raves, and they should, that expertise comes from my time as a Level 3 judge working at Pro Tours, Nationals, Grand Prix events, and so on, and I have been fortunate to work with excellent judges locally as well.  But I have opted as a business move not to focus my daily events on hardcore grinders, and almost every new store that has come along since 2014 or so does focus on those players.  This has created a dispersal effect.  Competitive players have many options where before they had few, so they go to the store paying out the highest EV, or the store closest to their home, or a store where their friends play that is an acceptable mix of EV and location, etc.  That is only sometimes DSG.  I still get two dozen or more players for Standard nights, and my FNM total floats in the 45 to 55 range, but that's a steep drop from the 100+ players DSG used to draw in two years ago.

My business reply to all the new stores seeking to poach a piece of the action has been to retail effectively.  Some degree of diversification, if you can execute it, provides the safest haven for hunkering down.  Oh, you're going to dump Magic boxes?  I sell more non-Magic product every month than your total sales, have fun leaving money on the table like that while I just switch gears.  My Magic inventory is already built up nicely; it will still be worth as much or more when you're exhausted on the rocks and people come back to me.  Oh, you're going to run free tournaments?  Because what I just heard you say was that all the casual players at my store won't have to have their night ruined by the regional try-hards anymore.  Thank you for guaranteeing my casual player base will flourish.  And for giving me enough room to let the X-Wing players have another night, or the Warmachine players, or the Netrunner players.  Oh, you're going to run escalation leagues for every miniatures system under the sun to corner that market?  Enjoy.  I concede the entire Malifaux player base to you.  I'll stick to metrics in that category, and in the meanwhile I'll be over here selling Batman books.  Everywhere you can competently service a market segment, that gives you that much more resilience against pressure in other market segments.

Because as much as diversification is the big-picture best move, what we're really talking about is how to keep hold of a Magic customer base when it's the lowest-hanging fruit out there.  It hangs so low you have to brush the dirt off those grapes before you eat 'em.  And even though Magic isn't necessary for me to survive, it's still the largest single product line I move by units and dollars.  And you can't have wholesale access to Magic without running a bunch of events.  That makes most upstart stores focus on organized play to the exclusion of solid retailing.  They're following the incentives they are given by Wizards of the Coast, so I can hardly blame them.  But tunnel-vision on event success can be a trap.

For one thing, events are supposed to be promotional and feed sales.  If I am achieving sales, whatever event attendance we have is just fine; in fact, lower becomes somewhat better because it's more comfortable and relaxing for those who do participate.  In 2012-2013, Girard and I used to grit our teeth when players would buy their cards at another store and then compete at ours, earning us little (or nothing, at breakeven EV).  Now, I have people buying cards from me to go play at other stores.  While I would prefer to dominate both aspects of that equation, I would rather be on this side than the other side.  This side is economically sustainable.

To get to a sustainable place with Magic despite an increasingly divided player base, I focused on growing the singles inventory to a respectable level, then keeping pricing down.  This way the stores tying steak around their necks so the dog will play with them are unable to "make it up in singles" as effectively.  I'm scoring those sales, and I did it by finding the right index and positioning aggressively beneath it.  TCG Market Price was hated when it first arrived on the scene, but I understood what it was trying to accomplish, to do for cards what Pricecharting does for video games.  I hitched my wagon to TCG Market instead of Mid.  Lo and behold, what should happen a few months ago?  TCGPlayer themselves have deprecated the Mid pricing, relabeling it "Listed Median" in tacit acknowledgment of how often it was used for pump-and-dump schemes, and now TCGPlayer pushes Market as the par price for cards, and the public has accepted it.  DSG was in on the ground floor.

I now have pricing at a point where it's not even a question, thanks to the migration to Crystal Commerce.  Players understand where the prices are coming from and there is a kind of default acceptance that I can honestly say was better than I expected.  I usually batch update cards worth $20 or more to 95% of TCG Market (or whatever bootleg feed of Market that Crystal Commerce uses), then cards $3-$20 to 90% of TCG Market, and cards below $3 to 85% of TCG Market.  (I set my TCG Direct pricing up slightly from this.)  This makes my prices highly competitive across the board but especially so on the cheapest cards, which are now often at or under TCG Low.  This also lines up well with buys, most of which are stacks of cheap cards.  This pricing model has made it feasible to open massive amounts of new product, ensuring that DSG doesn't run out of hot Standard uncommons, as is reportedly common at local shops.  Starting with Shadows Over Innistrad, the only non-rare I've had difficulty keeping in stock has been Lightning Axe, and only briefly.

So, great pricing and deep inventory.  That's how I've competed without needing to fight for event attendance.  It's telling how habit-focused the competitive community is, because a substantial portion of them still don't know this.  If you talk to ten grinders at random around town, eight of them will tell you DSG singles are expensive and I don't have stock.  (True as recently as 2014.)  Of those eight, four know it's not true, they just don't want you tapping into their supply.  The two who tell it straight will be DSG regulars.

There is a portion of the competitive player base that is more vocal than its numbers truly reflect, that dislikes me personally.  My refusal to sell product at a loss, my refusal to run events at a loss, my unapologetic transparency regarding why I will not (because it's not sustainable) and my absolutely intolerable support for casual Magic and, ye gads, for other games, has offended these players deeply.  For many of them, Magic is their escape, their means of validation.  Believe it or not, I can respect that.  I've been there and that mindset makes perfect sense when it fits that situation.  But it's business poison for me to entreat with that.  The haters are not interested in being won over.  At root they know DSG is simply not for them.  I am not going to put on a charade for them.  I am 42, they are mostly millennials, I will not become their drinking buddy.  I will not tell them everything they want to hear, the Henry Rollins Store Owner Plan.  There's nothing wrong with doing those things if that's your business plan, plenty of bartenders put their kids through college performing a role for their regular customers.  But I don't see that as a viable plan for DSG, and it becomes fragile at scale.  I deliver the goods, reliably, consistently, with a friendly staff and a great location.  Just focusing on those fundamental basics yields excellent results and happy customers.

The experts say that 95% of martial arts is just kicks and punches.  In other words, training on fundamentals to the point where they are muscle memory and you have the freedom to spend your thinking on tactics, getting into the opposing fighter's mind and winning before the punch or kick is even thrown.  In retail, fundamentals get the job done.  It's why I am still here and still advancing despite headwinds from every direction: Partner buyouts, product line weaknesses, online devaluation, high overhead, and a never-ending treadmill of new stores opening to jump on the market bandwagon.  I think if I ever sell out from the hobby game trade, I'll move into a business that's easier and less competitive.  Perhaps fast food.

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