Tuesday, December 2, 2014

Why Does Anyone Open a Game Store?

Greetings, everyone.

Today's mailbag question comes from J.J. in Morenci, AZ, who asks if I would discuss the reasons why people open game/comic stores in the first place.  Great question, J.J.!

Obviously, I possess no portal into the mind of another person, but some store owners are open and happy to expound upon why they opened their stores, and I am happy to speak to my own motives, so we do have some information we can hang our hats on.  Beyond that, my musings here can only be speculation, though I suggest that I offer well-founded, educated guesses based on over 15 years of industry experience.

One thing I hear over and over from store owners is that they opened their stores because they expected the game trade to be more lucrative than it really is.  Longtime industry veteran Glenn Godard commonly quips, "Do you know how to make a million dollars in the game trade?  Start with two million."  As usual, Glenn's wisdom is on the mark.  My first foray into the market came with this reasoning in my "basket-o-hopedreams" as well: I believed myself capable of flipping any number of Magic: the Gathering cards, and saw the built-in profit from that as easy money.  Thus I opened the Wizard's Tower Gaming Center in Mesa, Arizona in 1998, which lasted almost five months.

The expectation of easy money went away as a game store rationale for a while, and rightfully so, but it has come back up in recent years as Magic: the Gathering has erupted in a half-decade (so far) boom cycle during which it has been hard for a store to do wrong.  There are shops that do little or nothing but Magic, and any time there is a less-than-stellar release (I'm looking at you, Born of the Gods) these stores suffer and sometimes fail.  Ultimately, when the money seems this easy, too many would-be competitors crowd into a market with too little audience, mostly fail to grow their own player base, and once a few die off, the remainder can stabilize.

Broken of the illusion that the game trade represented easy money, over the years I found ways to make the trade pay a modest but dependable ROI, mainly by selling collections on consignment via eBay.  I realized after a few years of gradual process optimization that if the landscape was right for a store to open, I could give it another go.  In late 2011, the venerable Atomic Comics chain of stores abruptly closed.  A combination of misfortune, insurance problems, tax problems, and other factors forced the Malve family to cease operations.  Having been on the receiving end of that equation, I was immediately sympathetic.  However, ever the capitalist jackal, I saw that Atomic's demise left the half-million-plus citizens of Chandler and Gilbert with zero game stores.  Clearly, the landscape I was waiting for had unfolded in front of me, and so clear a coast might never be sighted again in my lifetime.

In addition to competitive criteria, I sought a scenario in which I could construct a store that would serve as a robust tax shelter while slowly aggregating value.  If our holdings growth kept only modestly ahead of expenses, depreciation would keep our net figure near or just below zero.  We didn't have to dominate the market; we just had to survive sustainably.  In this way, slowly and over years, the ownership group could gain asset value without significant annual tax liability.  We then had the option either to keep the store open, reaping those tax benefits perpetually, or sell the enterprise off in one fell swoop with the tax hit already baked into the valuation.  It's anyone's guess how this story will end.  There is a number someone can offer that will make us walk away from the table with the chips we've got now.  We have fielded some bona fide offers, but thus far nobody has reached our decision threshold.  It's available.  DSGCW is absolutely for sale, right now, today, as you read this.  But not for salvage value, which is what most buyers are seeking to pay.

There are non-financial reasons to open a game store, but I left those for last because usually they foretell a financial ruin for the store.  For many years, gamers would open a game store on the understandable but mistaken notion that doing so would allow them to play games for a living.  As Ross Edwards wrote, they sought to "extend their living room to the public."  The rude awakening is that small business retail is not easy.  In terms of structure and logistics, we're not selling games at all; we're selling widgets.  (In other words, in a business context, our product doesn't matter.)  You have to be willing to master small retail as such in order to succeed with a game store.  Yes, it's true that you get to be around cool products all the time and things you're passionate about, and I don't deny that I get a rise out of big new releases and shiny new games and accessories.  But there is most assuredly still real work to do.  Just ask any of my staff members after they finish cleaning the restrooms.  I'm sure they could offer some choice words of wisdom on the topic.  There just isn't an awful lot of free time left after operations, administration, and everything else is taken care of.  Playing games becomes something of a rare indulgence.

Is there a "right" reason to open a game store?  There is, I think, a combination of factors that make doing so feasible.  I say feasible and not advisable, because honestly, it's never advisable.  If you're smart enough to succeed in the game trade, you're capable of making more money doing something else, as Gary Ray sagely noted.  I think the combination is: You're already used to self-employment or mentally suited to the entrepreneurial grind; you have a spouse with a good job; your competitive landscape is favorable; you have enough capital (and most folks think they do, but do not); you are an expert at some core aspect of the game trade so you can leverage that knowledge; you are able to locate a favorable occupancy situation; and you have an exit strategy.  If all of those things are at least mostly true, maybe the game trade is for you.  Or, at least, the game trade is less bad for you than it would be for most people.  Good luck!

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