Tuesday, October 18, 2016

How My Secret Weapon Works

I have a friend.  Ever the humble person, he didn't want the spotlight from this article, so rather than just anonymizing as I originally did, I'm identifying him only as Friend.  He is a fellow retailer and a tremendously successful one, whom I have known since we grew up together.

The reason I refer to Friend as my secret weapon is that he is the kind of friend we all need, and have so few of: a friend that has that insight, shares it with us, and asks us the tough questions.  He tells me how it is, without sugar-coating anything, and makes sure I know good and true when I have made a wrong decision and what impact it is having.  And he dispenses with the bullsh*t and seemingly easily sees right to the heart of any problem.  He does this with unwavering integrity, so it is easy for me to trust his judgment.

During the earliest time of the store, when my business partners and I were much more at odds (and there were many more of them), Friend was in my corner showing me the open shots and teaching me how to hit those openings like a professional.  I owe him big time.

Here is an amalgamation of my most recent conversations with Friend.  Fictitious, not drawn from any specific discussion but a representation of how they go:

F: So how was your last month?

M: Profitable, yours?

F: Pretty good, could have been better, you know how it is.  I saw your Facebook video for that board game sale, you getting some good traffic off that?

M: Yeah, it seems like it doesn't clear nearly fast enough for my liking, but I have to remember just how much of that stuff I had when I started the end-of-summer sale.

F: End of summer!  It's late October!

M: Yeah if I had realized, I would have put more stuff on sale sooner.  It's taking forever.  A lot of it is moving but yeah.

F: So why don't you just run it all out?

M: Lack of space, lack of time, same old problems.

F: How can you not have space, where were the games before?

M: Well I do use that space, I separate out the yellow tag stuff, if you don't do that you create shopping confusion.  But even as I do this, more stuff keeps coming in.

F: What?  Why are you ordering more??  Aren't you clearing the category?

M: Most of it, yeah.  But pre-orders have such a long lead time, I'm still receiving stuff I put in numbers for back in March.

F: What about just blowing it out on eBay?

M: I do a lot of that.  Some stuff is too heavy to make any money by the time you ship it.  Some stuff I'm not allowed to sell online.

F: What, that's crazy, what stuff can't you sell online?

M: Anything Warhammer, anything from the Asmodee group of companies, they're basically like a European version of Hasbro.

F: But you're clearing it, what do you care if you break their rules?

M: They still make stuff I can sell.  Asmodee controls the Star Wars license, so that includes X-Wing, and they make the most popular brand of card sleeves.  Warhammer I still plan to carry, just not fifty grand worth of it on the shelves.  So I can't really burn those bridges.

F: Sounds like you're in a spot.  Stuff that doesn't sell is weighing you down and you can't just blow it out or you'll lose access to stuff that does sell.

M: Exactly.  I can clear some at conventions but we're done with those until next year.  And that leaves the clearance rack.  I get decent traffic off those ads but it's still slow going to get through the volume of it all.  And I have a metric ton of organized play cards and figures and stuff that has market value but I'm not allowed to sell at all.  Can't run enough events to give it away fast enough.

F: You can't just have a friend sell that stuff?

M: It's possible.  The publishers do police it and it's not something I'm eager to test.  I kind of rely on keeping trust, I'm in a small industry and people all get to know one another.

F: Well if they enforce it then yeah you can't be doing that.  Look, what are the stakes here.  If it all disappeared tomorrow and you got wholesale back for it, not a dime more, how much money would that be?

M: Back pocket math... maybe forty grand?  Maybe thirty, I've sold a lot lately.

F: Thirty grand!

M: Right?

F: Thirty thousand dollars in your pocket!

M: Heck of a Christmas.  I imagine a lot of it would cover some store costs and go to the war chest.  But like bare minimum I would be personally getting paid at least ten K.

F: Well, a couple of things.  First, did you overbuy?

M: I definitely did for Warhammer.  That game still has a solid following but I got in way too deep.  Took my eye off the ball.  For the board game stuff, I had better sales at the time, my buying numbers felt right.

F: Alright.  I think you overbought there too, because you kept talking about having no room and you didn't get a move accomplished because of buying out another partner this year and then you couldn't land that lease on Arizona Avenue.  So I think you should have been on smaller numbers and let yourself sell out of things more often.  This also affected your labor load.  You kept saying payroll was high, payroll was high.  You bought yourself work, to pay your staff to do.  And with your limited space you should be focusing, not broadening.  When you get a bigger place you can have all the things.  Not until then.

M: Customer shows up and you don't have it, a lot of times you just lost them to Amazon pretty resoundingly.  Having the goods is still the gold standard.

F: That's the second thing.  You have whole product lines that are just eaten up by Amazon.  Even when you price-matched you couldn't get the sales volume up high enough to feel the improvement.  What do you sell that Amazon doesn't crush?

M: Magic and video games.  Pokemon too.  Three minis games have been solid, Warhammer and HeroClix and X-Wing.  Comics has other problems but it's okay in this regard.

F: That's what you need to carry.  Ditch everything else.

M: I'm kind of on that road at this point.  I wish I had started the process sooner.

F: You've been banging your head against this wall for years now.  I hear you say it again and again.  Prices this, Amazon that.  What's your payroll every month right now?

M: Eleven grand, give or take, after taxes and all.

F: I bet you cost yourself an FTE or two PTEs being so deep in product that wasn't moving.  That's like a grand a month.  This year alone you're down another ten grand as of this month.  Add to your thirty and now you are down forty grand.

M: More than that, because I've floated credit cards and such to get through dry spells.  Interest is in there.

F: For the love of God, man!  Are you going for fifty??

M: Bless me, Father, for I have sinned.

F: Can you take yourself off the payroll yet?

M: No.  I'm closer than I have been, the current staff are running good, but too much store is still unbuilt.  About half a wall of Magic cards are still not listed in the inventory, we're only a fraction of the way done with that.

F: So you can't go get your law license yet either.

M: Nope, still can't.

F: No time to get yourself back into your profession.  For a field where the worst jobs around pay you six grand a month.  So this year alone you're down sixty grand not being a lawyer.  So you're down a total of $110 grand.  That's enough to pay your student loan off and all your credit cards in one shot.

M: I'd take half of that salary if I could just have a normal schedule and see my kids.

F: You still writing?

M: I write all the marketing material for the store, and I write the blog.

F: Okay, so you're getting paid to write, kind of.  Are you doing the writing you most want to be doing?

M: Not even close.

F: If you were off the payroll and the store could distribute your current paycheck to you in profits, would you let the staff run the store and just write?

M: Pretty much.  My pure admin work isn't super taxing on time.  I used to be able to do it on the side when I worked full-time at the state.

F: That's all you would show up for, is your admin work?

M: I'm sure I would find it hard to stay away, I'd go in and tinker, but based on what some of my peers are doing who have that kind of process mastery in their stores, I'd be in the way if I did much more than backstage projects and special events.  Or using my tech skills for special jobs, repairing video games and doing mods and such.  Profitable stuff that just needs dedicated space and time, the two things I don't have enough of right now.

F: And you would be able to write the rest of the time?  Or even get your law license and maybe percolate on that for a while?

M: Yeah.

F: How many racks of board games are you planning to keep?

M: It's down to about two and a half.  Three if I spread things out so they aren't cramped.

F: And how many racks of minis or whatever?

M: We're reducing from fifteen down to about five.

F: So like eight racks of product.

M: Eight racks.

F: Would you trade all eight of them for $110 grand?

M: In a heartbeat.

F: So why don't you?

M: Hah!  You have a buyer lined up for me?  I'll pack the boxes tomorrow.

F: I mean why don't you clear every last item that you aren't keeping, that is in a safe category.  I know those racks probably aren't six figures even if they all sold to empty for full price, right?

M: They're a good bit of the way there, but no, not that much.

F: But don't you see?  You get more than just the value of the products.  You get to reduce total payroll costs because you aren't buying yourself as much work.  You get to free up time to focus on better products which means the money you are spending turns faster and more profitably.  Within four months I bet you're back at the same revenue level and with a higher net income by far.

M: There are a couple of things holding me off from that.

F: Things worth a hundred thousand dollars?

M: Well, maybe.  The holidays is the one time of the year people actually come looking for board games the most.  I've spent a lot of marketing and clientele development and contact trying to cultivate a customer base that will do that.  They will come looking and I need to be ready to make the sale.  Last year I had my price-matching going and that was the one time period where the volume was high enough to make it more profitable overall.  The other thing is that I need to clear product in order of least popular to most popular.  You have to have the most popular stuff be the last stuff you have.  Because while the less popular stuff, the games that weren't big hits, are on sale, you can be turning the popular stuff at normal price.  And also if you don't have the most popular stuff at all, people won't come back.

F: I thought you said Codenames was a hit, your video showed that game on sale.

M: That's just a loss leader.  I want people to come in.

F: Fair enough, I do that too.

M: Yeah, once people make it into the store and shop the rack, they usually find stuff they like.  It's a shame I had to put those titles on closeout to get that sale but at least I eventually got it.

F: No dumpster fires this time?

M: There will be dumpster fires.  There will be large donations of unsold goods at market valuation, right around December 29th.

F: And after the holidays that stuff is gone?

M: There are some high-profile new releases landing, if any become hits it will make retail sense to keep them.  There's a collectible game called Star Wars Destiny that I'm watching very closely.  And a Final Fantasy card game that has already almost sold out on pre-orders.

F: How close do you have to get to being out of those categories before people stop coming in looking for the stuff in those categories?

M: Oh man.  I wonder how close I am to that now.  Almost all the expected survivors are "system" games.  Stuff with monthly expansions or add-on modules.  I can carry them and still have an audience even if I don't have the mainstream titles.  Question becomes, am I going to lose too many sales not having no-brainer mainstream titles like Catan and Ticket to Ride and Munchkin?  I'm concerned that I might.

F: You're still spreading out, weakening your focus, putting money into stuff that isn't your best stuff. Why are you not spending that money on Magic.  Or video games.

M: I'm running out of good answers to that question lately.

F: You said comics had other problems.  What about clearing comics?

M: Easier said than done.  It takes time to get into them and time to get out of them.  But I think comics will get healthy again.  They just had a bad quarter, the content wasn't that great.

F: Do you need comics?

M: No.

F: So why have them?

M: When they are punching their weight class, it's dependable revenue week in and week out with solid margins, not a swingy roller-coaster of revenue and traffic like Magic has.  And it gives me one of my best connections to mainstream visitors, because everybody knows what comics are, and it overlaps into almost everything I do.

F: Are they labor hogs?

M: Oh yes.

F: Well, I hope they improve pretty soon, then.

M: So do I.  We've got top men working on it right now.

F: Who?

M: Top men.

F: Well good luck with your sale, buddy.  I think you know what you have to do.  I know why you keep trying to take every chance to make something work.  But if I were in your shoes I would just turtle up and focus on what you know works best.  You could keep your location, renew your lease, be able to stay in one of the best shopping plazas in the entire east Valley, and you said it yourself, moving is death, it gives away the game store's biggest asset, continuity.  You're better off staying put and that means changing your business model to suit your situation, not changing your situation in hopes you won't be forced to fix your business model.

M: Can you just once be wrong?

F: I try not to be, it cuts into profits.

And now all of you reading from home know why Friend is my secret weapon.

I've been tremendously busy doing... things... but I expect to be back next week as usual with some pithy observations about the industry around me and my struggle to find a sustainable place in it.  Thank you and have a great week!

1 comment:

  1. I love reading your blog, Bahr. Keep up the good work with DSG! I agree with your friend that the currently location is actually pretty good. I gotta disagree though, especially as a working attorney, that the worst legal jobs pay 6k a month. I have plenty of peers working for much less than that. The market is just flooded right now!