Tuesday, December 19, 2017

The Excluded and the Excluders

I thought we were seeing the start of the holiday shopping ramp-up over the past couple of weeks.  Nope!  Still idling along at basically average numbers.  Which are good if I've got average invoices to pay, and less good if I have much larger holiday inventory invoices to pay.  Take a guess.

On further sifting of the numbers, the slow build we were seeing after the start-of-month dip was just general transactions, primarily in categories we already dominate and are hobby-based and not mainstream.  Magic cards, Pokemon cards, video games, the middle range of board games.  Not Warhammer.  More on that in a moment; that issue became the second half of this post.

But in terms of the mainstream merch we carry: Comics, POPs and action figures, mainstream-buzzing board games, apparel, and so on?  Black Friday weekend was great for these, and they have been utterly asleep since then.  Like, really asleep.

What we're seeing is this.  People just shop on Amazon now for the holidays.  Gifts, etc.  It's over.  That's just how it works now.  Nothing can be as easy as tapping your phone and the thing appears on your doorstep magically a short time later.  But once it's too late to be sure you'll have shipping in time to give that present, then that's when people will shop local.  Not until then.  I could be proven wrong later this week, I'm sure, but I bet I won't be.  I saw this last year but chalked the malaise up to Trump-based anxiety and depression.  Business as usual until the last minute, then BLAM some huge days and then the calendar gut-punched us with a Saturday Christmas Eve and the entire season amounted to a disappointment.  I saw it to some extent in 2015 but it was less of a dip from the usual pattern of sales because, probably, our usual wasn't as good then as it is now.  Now I realize it wasn't Trump, and it wasn't whatever else.  It was that small business are no longer part of the holiday picture.  The rest of the year we can make hay and our sun shines.  But right now we are, as Neal Morse put it, on the outside looking in.

There will eventually be an inversion due to this where small local businesses will have better pricing on this sort of merch, because Amazon will have something like 70%-80% market reach in entertainment goods, and will be at liberty to price up.  Everyone associates Amazon with low prices so it will take time before that price memory becomes replaced by the discovery that it's not always the best deal.

Even now, Amazon is already awful if you want a game that's sold out in distribution but stores still have.  As of this writing, board games like Fallout, Game of Thrones Catan, Ex Libris, and Photosynthesis are way above MSRP and/or are back-ordered on Amazon, but they are on many store shelves (like ours) at MSRP today, a comparative bargain.  Since much of Amazon fulfillment is done by affiliate retailers, their well will run dry first, and stores like mine will be the ones that Have The Goods (still the gold standard) deeper into the season.  But like I said, it will take a while before people really notice this, and before it pervades across all games.  Right now instead of shopping their FLGS, an awful lot of people are shopping via iDevice while waiting for a bus.  They never come in so they never realize we actually have what they want and at a competitive price.  We're left to preach to the already-converted.  Paradoxically, the procrastinators who are almost the last ones to visit will be rewarded because the hotness will be in stock for them.  Only the latest of the Eleventh Hour Crew will see us truly sold out.

So, Warhammer.  Warhammer is doing so poorly for us since the move that I may have no choice but to discontinue it outright.  We ended our standing discount on Warhammer when we moved, on the rationale that the discount was unsustainable in the first place and we only offered it to make up for the Gilbert facility being so small and cramped for minis gameplay.  With the gigantic, palatial game room we have now, there are no more apologies.  Top stores in town already collect MSRP on Warhammer with smaller spaces.  Knowing we'd see some drop in sales from ending the discount, we ripped the band-aid and were prepared for some impact, and figured we'd grow from there.

Unfortunately that's not what happened.  Instead of being painful but bearable, the reduction in Warhammer sales was ridiculous.  Warhammer had consistently been our 2nd through 4th place category all year long at DSG Gilbert.  Some combination of Magic categories always led, and once or twice a big month for some other category poked into the top tier.  But month in and month out, Warhammer got the job done.  We moved on September 29th.  In October, Warhammer was in 11th place for sales.  In November, Warhammer was in 10th place, but if you back out the sales from our Black Friday deep liquidation of Age of Sigmar, it was in 15th place, barely outpacing apparel and the Dragon Ball Super TCG.  So far in December, Warhammer is out of the top 15 and in an area where the data can be too grainy to draw reasonable conclusions.  That, my friends, is what you call sales falling off a cliff.

We did not think our Warhammer player base was that price-sensitive.  I'm still not positive it is.  A lot of the guys who hang around and use the game room and haven't been spending, have armies that do not yet have 8th edition new releases.  Some others are enjoying our game room but buying from other sources, either online discounters like Frontline or whichever other store(s) in town still discount their minis, which I'm not going to waste time investigating because it doesn't actually matter which one(s) it is.

"So nurp nurp put the discount back!", some may retort.  No.  At less than full margin, which is a short margin already because Games Workshop does not grant us keystone, Warhammer is not worth carrying.  I've had years to suss this out, it's pretty conclusory at this point.  Warhammer takes up an inordinate amount of space and labor in logistics and support, relative to the revenue it generates.  We are better off putting those resources into something else.  Compared to TCGs it's an absolute joke, I can seat 8 to 12 players in the space that one Warhammer table takes up, and I can fit cards worth the value of our entire Warhammer aisle into a single white cardboard storage bin and have room left over.  And that's not even counting that a card player doesn't splay their duffels and totes across a bunch of nearby regular tables or the aisle floor while they play.

And again, it's possible we're just seeing a sales gap from only a few armies getting meaningful product releases during the last three months.  Warhammer holds value well, and the miniatures hobby is a healthy pursuit, and Games Workshop is mostly great at supporting its retail partners, and these things help the balance so that if we're at MSRP, Warhammer is fairly safe to carry.  At the very least, the risk becomes negligible on a basic-stock-plus-special-orders basis, and bringing in the new releases on an open-to-buy budget basis can be maintained indefinitely.  We have sought to do better: to carry the line in depth and provide luxurious amenities.

I'm not fully decided on what to do about this.  Blowing it all up and starting over, including disallowing Warhammer play in the game room until that happens, seems like overkill.  But shedding the line down to minimum has to happen.  Right now Warhammer isn't pulling its weight.  For whatever combination of reasons.  And it needs to get fixed.  The economics of Warhammer are different enough from TCGs and video games that a one-size-fits-all venue monetization model isn't quite feasible for us yet, so the pay-to-play game space is also not yet a starter.  We'll see what happens.

I don't want to have my last article before Christmas be nothing but a bunch of Debbie Downer content, so I'll say this: Our crew is running strong, our video game category continues to improve by leaps and bounds, we're in a gigantically favorable tax position going into the end of the year,  and event attendance is through the roof.  I don't know whether every store in earshot is also seeing high player counts or whether it's just us.  But I'll take it.  Butts in seats does not equal net revenue, but stores like ours that can offer the goods players want and develop that community are seeing the right metrics follow.  That's up to us, to welcome those arrivals and find them a reason to become part of our player community.  The doors are open.

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