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Tuesday, July 18, 2017

Hiroshi Yamauchi Was Right

I've written at length on how board games have been something of a trickster category at DSG (both locations).  There is observable demand for the product, but there is sharp downward price pressure, and combined with the glut of product being released (10 new games per day in 2016, over 3,600 new SKUs all told) we see a cycle of release-hype-forgotten-clearance.  Moreover, Amazon Prime Now to your door in two hours is a reality here, there are too many stores in this metro, there are already two deeply established board game stores in the area, only one of which is near one of my two locations, and the Pacific Southwest overall is pretty unfriendly to brick-and-mortar retail in a general sort of way.

I've painted that bleak picture over and over here on The Backstage Pass because board games are at the center of our industry's optics and public impression.  Never mind that most stores have subsisted on the cash flow from trading card games -- and this year's softness in that category has been something of a bloodbath, with more to come.  Moreover, as a player, board games are what I get to spend the most time with, perhaps second to video games now that my children and I have enjoyed playing Ori, Bastion, and Rock Band this summer.

However, I believe Hiroshi Yamauchi's approach holds true.  As chronicled by David Sheff in his excellent book "Game Over," Yamauchi, president of Nintendo of Japan, delegated to his son-in-law Minoru Arakawa the task of launching the Famicom in the United States.  The console would become known to us as the Nintendo Entertainment System.  And Nintendo sought to implement control over manufacturing, to prevent the glut of bad software that had caused the 1983 video game industry crash, and control over security, to prevent what had happened in Asia when cheap Taiwanese knock-offs of Famicom cartridges proliferated and led to margin erosion for everyone.  In essence, ensuring great content and keeping bad actors out of the production and distribution channel would be Nintendo's two-pronged strategy for the NES in North America.  Yamauchi would build the infrastructure for it and Arakawa would manage American distribution and keep client vendors in line.  How did they do?  The NES had a peak market share of 97%.  Seems okay.

Applying Yamauchi's principles to the comic and hobby game industry, we are already seeing that whatever else is going on in a category, if the content is great and there are enough ground rules being enforced in the market to ward off the worst of the worst, good things can happen.

My stores are Magic shops.  There is no denying that.  About 70% of my revenue is Magic or Magic-related, such as sleeves and binders.  And in the face of continued soft performance across other categories, I began a contraction in 2016 that persisted until very recently.  The biggest move was that I took a merciless scythe (heh) to board games, clearancing out anything that did not sell a unit in a 90-day span, or the equivalent of four turns per year.  I generated some cash from the winnowing, and I made some room in my hopelessly undersized Gilbert store.  This move was not without drawbacks.  I definitely saw some customer traffic reduction.  I saw more requests for in-print stuff that I did not have in stock.  But I wrote those issues off as the price of no longer being a forward-positioned player in the category.  Basically, I expected to remain stocked on a few select publishers' current games, brand-protected outfits like Asmodee, Mayfair, WizKids, and like such, and the rest just were not viable for me.

Since that time, we have seen some publisher moves.  AEG implemented a MAP policy.  CMON implemented distribution control.  IELLO set up early releases for brick-and-mortar retailers.  We saw ongoing refinements of existing brand protection policies from the likes of Asmodee and especially Games Workshop.

These changes have mostly had time to go into effect, though the bigger part of the Asmodee consolidation is still a few weeks ahead.  And now?  A surprising amount of board games are selling out off my shelves, even when I start deep on quantity, or reload to quantity.  Former deadwood titles like Star Wars Rebellion, Smash Up, and Mystic Vale are hitting turns at MSRP.  All three are excellent games that had had their vitality undermined by deep discounters and dumpers.  Dark Souls, Dice Forge, and The Godfather: Corelone's Empire have been big hits that sold well right out of the gate, and validated the confidence retailers placed in them.  And I started a used board game program that has been successful well beyond my expectations.

What is happening here?  I think we are seeing that Hiroshi Yamauchi was right.  Control content and keep the deadbeats away from your products, and a publisher can enjoy the rewards when a healthy ecosystem emerges.  Titles last longer at the front of the marketplace and have more opportunity to jump to evergreen or at least deciduous status.  Dumpers generally can't dump, and thus can't yank the floor out from under the brand value.  Distributors don't have to clear floor as aggressively or as severely, and retailers are able to get a little healthier, such as it is for this industry.

Despite everything board games have going against them in my neck of the woods, I now have not one but two stores where board games are in a rapid growth cycle and garnering tremendously positive customer reactions.  The category went from out-of-the-top-10 to currently 7th place in a rolling 30 days before today, which amounts to 5th place if you consolidate the Magic-related categories.  Those top the chart, after which follow miniatures, video games, and comics.  Will they pass comics in July?  I don't know, Marvel Legacy is on the horizon, but maybe.  Will they pass video games?  No.  Video games and miniatures are catching up to Magic rather more quickly than I would have expected at this point a year ago.

Yamauchi's principles can apply to any product really.  It is the nature of commerce that someone will try to find a way to undercut someone else on price.  I have a wife and children to support, so I am surely as rapacious as the next guy when it comes to filling that grocery cart.  But those are commodities.  Entertainment products are a luxury, a discretionary expense.  The price of such a thing is an arbitrary amount.  It has some internal skeleton based on physical production costs for the parts and box and so on, freight, then of course paying the designers and artists who brought the game to life, and the administration that pilots the entire apparatus.  But the price tag can really be whatever the publisher wants, that they think a consumer will find agreeable.  How does a publisher cultivate such a feeling of desire and goodwill in the consumer public?  By means of building a brand and identifying that brand with the quality of products sold under its sigil.

After all that work to build, bolster, and promote brands, it is a delight to see more and more entities across each tier of the industry engaged in the process of defending them.

Tuesday, July 11, 2017

FATCQ: Fast Answers to Customer Questions Volume 5: Twitter Rules

It has been four months since the last time I did one of these, so let's let 'er rip with a new assortment of customer questions where I answer under some challenging creative constraint.

In this series of articles, I endeavor to answer any customer question, as long as it is not disingenuous and does not request confidential information.  Feel free to ask questions for future installments right here on this web zone.  These are questions I field from all over: in-store, online, here on the blog, on social media, and so on.

For today's challenge, I will limit all answers to no more than 140 characters, as though I were doing this on Twitter (which I barely use)!  Moreover, I will use normal written English and not SMS phrasing and spelling.

Q: How was business in June?
A: Worse than April or May. Better than most months in 2015 or 2016. Better than any month in 2014 or earlier. Natural growth.

Q: What was the best-selling product in June? Commander Anthology or Nicol Bolas Archenemy?
A: Warhammer 40K 8th Edition.

Q: Yeah, but after that.  Commander or Archenemy?
A: The Star Wars Destiny Awakenings booster reprint.

Q: Yeah, but after that.
A: Used board games. Commander and Archenemy have both done well though. Arch has sold more units, Commander more total dollars.

Q: Are things going to get better with the Asmodee-Alliance consolidation?
A: In my opinion, mostly yes. I'll miss using my other sources for that but health within the category industrywide is important.

Q: Why aren't you price-competitive?
A: We mostly are! For TCG singles, video games, and used board games we're below market and for Warhammer we're at MAP.

Q: But there is other stuff you could be selling cheaper.
A: Someone always has it for cheaper. Rather than sell at unsustainable levels we focus on selection and reliability in those areas.

Q: Your store isn't that pretty or comfortable though.
A: Neither of the locations are right now, and I apologize for that. The move will change many things.

Q: You've been promising for a while now that the move will cure many ills.
A: Indeed I have.

Q: What if the move doesn't work out?
A: The south 202 crescent is my turf. I'm not leaving. If DSG has to make our south Chandler/Gilbert store a branch instead, we will do that.

Q: But returning board games en masse, adding minis playspace, all those grandiose plans...?
A: We can do a lot in a new location that isn't tied purely to footage. Part of Gilbert space problem is room shape and door location.

Q: So you're still going to do everything you want to do?
A: "Everything," we'll see. But we'll do a lot. Magic and minis are positioned well for us now so I'll look to expand board and video games.

Q: What is the best new board game?
A: Dice Forge. Huge hit from day one and you can tell right away it's a winner.

Q: What is the next best new board game?
A: It's anyone's guess, but IELLO's Mountains of Madness looks promising.

Q: What about comics?  Things were looking pretty dire for a while there.
A: Comics are quiet but steady right now, not setting any records but we hope the trend we're seeing amounts to a recovery.

Q: What product are you looking forward to the most in 2017?
A: For the store, the next Destiny booster set. For Magic, Commander 2017. For my own enjoyment, the Xbox One X.

Q: Not Ori and the Will of the Wisps?
A: We don't know whether that will release this year. But it is surely the #1 product I want to buy, and it's not close.

Q: Are you an Xbox fanboy?
A: I don't hate PS4 if that's what you mean. I'll pick one up eventually, it has some titles I really want to play. Same with the Switch.

Q: I call shenanigans.  Name three Playstation 4 games you are planning to play.
A: Journey, The Last of Us (Remastered), and Street Fighter V. Not exactly new releases, I know.

Q: Wait, you haven't played SF5? Didn't you major in Street Fighter in college?
A: I just haven't had the time. I have derped around with it at the store. I really like it, and I also liked the SF4 series.

Q: I'm 16 years old, on summer break from high school, can I have a job?
A: We don't meet the criteria in Town of Gilbert to utilize underaged employees, sorry.

Q: I'm 18 years old, on summer break before college, can I have a job?
A: You're welcome to respond if we put out a recruitment offer, but work at DSG is not entry level, so you'll need to impress us.

Q: Can I pre-order a Super Nintendo Classic Mini from you?
A: I wish I could accommodate you. We're not going to have any access to it in distribution.

Q: Can I pre-order [vintage video game] from you?
A: We'll gladly waitlist it for you; you can wishlist it on our website. But if it's out of print, we won't have it until someone trades it in.

Q: Do you think MTG Standard format is in a good place right now?
A: Doesn't matter what I think, it matters what players think. But I think it's better than most in the community believe.

Q: Do you think MTG Commander format is in a good place right now?
A: They really need to ban Sol Ring and Sensei's Divining Top, but otherwise yes I do.

Q: Are you tired of being in the Magic card business?
A: Yes, but I am still excited about future product. I'm bearish on many things due to the move going so slowly.

Q: What does your extended family think of your profession?
A: They want me to sell the store and practice law. I want to write for a living. Neither pays the bills right now as dependably as DSG can.

Q: Would you sell the store?
A: For the right number, of course I would.

Q: Would you sell just your Magic business?
A: Sure, but to whom? Nobody who needs my stock has the money, and nobody who has the money needs my stock.

Q: What do you think are the biggest question marks in your business aside from the move?
A: Crystal Commerce, the continued softness of the Magic market despite great content, and the cost of labor.

Q: If you could do any one part of DSG over from the beginning, what would it be?
A: I can't give the real answer, so let's just say I would have sought a lease that assumed much less optimistic performance.

...and that's all the time we have today!  Hope you enjoyed, and join us next Tuesday for what I'm sure will be frivolity and exuberance.

Monday, July 3, 2017

Business Components Today

I already run four stores, really.  Or three-and-a-half if you want to be a little more granular in terms of magnitude.  Four permanent facilities and a portable kit, plus two more facilities on the horizon.  DSG has seen the greatest success when I am able to keep its business components integrated for economy of scale but separate enough administratively to track metrics and to insulate each; they can thus share success without sharing as much risk.  This is at the heart of why businesses seek to grow and scale up.

My four stores might more appropriately be referred to as "Business Components."  I have heard them called "modules," though in my mental framework a module is something one level lower that can cross between components.  Administration is a module.  (That's my job.)  Marketing is a module, and unfortunately to some extent that is also, still, my job.  We're not quite at scale to have dedicated marketing staff.  One day, and not long from now.  Organized Play can be a module, but for now is still separate at the physical stores.

The DSG business components are:

  1. Gilbert store (commercial storefront)
  2. Tempe store (commercial storefront)
  3. Mesa store (pending commercial storefront)
  4. Payson store (pending commercial storefront)
  5. Online store (warehouse fulfillment)
  6. Offsite store (portable storefront)
  7. Administrative office (my house)

The Gilbert store, at 2531 S. Gilbert Rd, will soon become the Chandler retail store, located at... nope!  Still can't reveal that yet.  But we expected to be able to reveal it in July and that's still the plan.  Finalizing our lease is taking longer than expected.  The Gilbert store as it exists right now is our original location from 2012 and is responsible for most of our business volume.  Chris Huish is the Gilbert store manager.

The Tempe store, at 1523 E. Apache Blvd, is, in the words of Zohar from Vandal Hearts, "just as you see it."  Formerly Tempe Comics and now our most centrally-located DSG facility, the Tempe store is posting huge year-over-year sales gains now that our trial and error has led us to orient the store with a laser focus on TCGs and comics.  Jake Wachtler is the Tempe store manager.

The Mesa store is still months away from opening, as it is prioritized entirely after the move from Gilbert to Chandler.  It might get pushed into 2018.  But I've already created the business component for it and set up its internal admin.  We already have a sales tax license in Mesa because of vending at Zapcon and last year's Game On Expo via the offsite store module.  We have fixtures to spare and enough inventory to split.  The primary obstacle to this store being open already is the lack of ownership time, attention, and labor available to devote to it, with myself and Griffin and our silent partners all quite busy with existing work and the Chandler move.

The Payson store is at least a year away from opening, perhaps longer.  But like with Mesa, I have created the business module on our books.  It's only a first step, but a significant one.

The online store is the only module aside from the Gilbert store that has existed since the beginning of DSG, and we'd have been better off if I had separated it better from the start.  Online ops are mostly TCGPlayer transactions at this point, with a side helping of eBay.  The online store shares most of its inventory with the Gilbert store, for which it's only a portion of inventory.  The small remainder is solely for eBay listings.  Tanner Gaede is the online store manager.

The offsite store, or "Remote Ops" as we call it in slang, is a portable store location in itself, now with dedicated fixtures and equipment.  We have used it for the past four years at Phoenix Comicon, but we are not planning to renew for 2018 after the fiasco of this year's show.  This makes pulling the plug on the Remote Ops module a realistic option; it justified most of its resources when we had one big show every year to work, and with the move this summer we aren't going to be taking part in Game On Expo either.  Phoenix Comicon was less useful to us each year, and by 2017 most people who saw our booth already knew who we were.  Accordingly, we're out on comic convention appearances from now on.  However, our pop-shop appearances with the offsite store at local festivals and events have been successful, and our appearance at Zapcon 2017 in late April exceeded expectations.  With Chandler and Mesa on deck, I think it makes the most sense to put this business component on ice for the most part.  We have some smaller appearances on the itinerary, and we can worry about doing bigger things in 2018 and beyond.  Our Comics/Media Manager, Dustin Chapman, doubles time as the offsite store manager.

Finally, there is my administrative office and erstwhile storage facility for far too much of the store's gear, and that's my own home in Chandler.  Since I am the statutory agent for the DSG LLC, I also receive governmental mail for the business at home, which is something that has always bothered me.  It's like, come on, you jerks.  Leave me one place I can have some separation.  But I understand why it is done.  An absentee owner or an owner who did not want his employees getting the business's financials or sensitive documents would need them sent somewhere other than the store's mailbox.  And not all businesses are at such scale that they justify a corporate office, even a small one.  Especially not in today's era of cloud computing where just about anywhere can serve as a corporate office.

Late last year I embarked on an ambitious plan to expand to seven store locations.  As it happened, two of the added locations didn't work out, one did, and the rest are still yet to be seen.  But if I look at how I'm running the business today, I don't really need to have notches on my belt to be happy about the way the enterprise has grown.  It helps me sleep a little better at night knowing that it is unusual for all of my business components to be underperforming simultaneously.  That has smoothed out the course of business and our flexibility and resilience.

If your store is starting to get a little out of hand and you find yourself struggling to keep track of it all, consider whether what you really need to do is separate the business components that can, and possibly should, operate under their own horsepower.