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Tuesday, August 25, 2015

Enemies to the Bitter End

Enjoy this double-plus-length article; I’ll be on my “summer vacation” next week due to scheduling and prior obligations.  I’ll return with a new article on Tuesday, September 8th! - Mike

Game and comic stores are “competitors,” and players, especially younger players, tend to adopt the rivalry posture with aplomb.  It’s natural for a player to take pride in his or her waterin’ hole, the same as any non-gamer might be loyal to his favorite corner pub.  The friction can get out of hand, however, if a store owner isn’t careful to rein it in.  DSG has had to issue bans in the past due to gross misconduct during such a dust-up, and that’s unfortunate.

In truth, game and comic store owners can often be far greater allies than rivals. Call it the effect of the shared ordeal, the enemy of my enemy being my friend, or whatever you like.  Entropy, massive shifts in the economy or consumer spending, and vast changes in the entertainment hobby present far greater threats to a comic or game store than the competitor across town.  If DSG and Store X had a drag-out battle for business over the summer and Store X failed, a fat lot of good it would do me if the Magic bubble “popped” within a few months afterward.  The biggest fish in a dry wash... is dead.

Think it could never happen?  Let me tell you about a little game called EverQuest, and its bigger, hungrier younger brother birthed soon afterward, the World of Warcraft.  There is a list as long as my arm of stores that failed, in my metro area alone, as players emigrated en masse from the tabletop hobby and spent their weeks, months, and years raiding the Timesink Caverns for purple loots instead.  The emergence of MMORPGs, in fact, had such a seismic effect on market demand for our products that it marks a fairly clean dividing point in local history between the “old guard” stores and the modern ones.  Only two local game stores that I know of crossed that chasm and lived to tell the tale: Imperial Outpost Games in Glendale and The Game Depot in Tempe.  All About Books and Comics in Phoenix and Greg’s Comics in Mesa also survived, but exited the game trade.

There exist private Delphi forums and Facebook groups for game and comic retailers.  Most participants are extremely gracious and willing to help newcomers.  There is even such a group oriented directly toward helping new owners get their stores off the ground.  Store owners network and mingle at Gen Con, various comic cons, Origins, the GAMA Trade Show, the various distributor open houses, PAX, and so on, and are often fast friends.  If there is genuine hatred between store owners generally, the majority of such people have a strange way of showing it.

Psychology accounts for some of the camaraderie that exists, but there is a strong business case for being on friendly terms with competitors as well.  Three factors inform this: customer service; cautionary example; and improvement, whether iterative or structural.

The customer service angle is obvious enough: If we don’t have the thing, we send the customer to the store that does have the thing, because the end result of that is a happy customer.  We didn’t get the sale, but we created a positive experience and the customer will associate our business with honesty, helpfulness, and a pleasant result.  I will do this every time if I don’t have the thing.  It’s not even a question.  The store that had the thing comes off even better in the deal, which is further testimony to the immense competitive benefit of "having the goods."

I put cautionary example ahead of improvement because in business, in order to thrive, one must first survive.  Knowing and understanding the competition and their methods informs business decisions to mitigate risk and avoid loss.  In the community, stores will often spitball ideas and ask whether anyone else has tried that idea yet.  Stores that lost money on it will offer warnings; stores that did well with it will recommend trying it.  The experimenting store can consider what it knows about the other stores (it worked at a comic shop and not at a pure game store, for example) and decide how closely the known results might apply to their store.  

In a more macabre sense, any time a store fails, other store owners consider the sum total of everything they know about that store: They were too small or too big, they discounted too aggressively, they catered to this player group or that, they were located too near campus or too far from a freeway or what have you.  And all those factors earn warning marks in our minds, and we’ll be apprehensive if we catch ourselves considering those same business strategies.  A strategy that earns warning marks again and again and appears common among many failed stores becomes a non-starter for those of us still in the trade.  Forget it, that never works!  Of course, being contrary-minded entrepreneurs, often with traces of autism, we sometimes find irresistible the urge to make the “unworkable” idea succeed.  This obstinacy is one reason why we never have any money.

There is then, of course improvement.  Iterative improvement, where we try to refine our business workflows every day and develop best practices, and structural improvement, where we make big, bold moves to change the equation and add a revenue vector, eliminate a cost sink, manufacture a competitive advantage, or shore up a competitive weakness.  In the former case, virtually any game or comic store has something it can teach us, even if it’s as subtle as the placement of a countertop dice display to be slightly more approachable.  In the latter case, either a store’s best attribute teaches us something structural, or a store is among the rarefied few that stand astride the trade like a colossus, operating at the next level of magnitude and showing the rest of us what we honestly never even thought was possible even a few short years ago.

So now it’s time to deliver the payload of this article.  It’s time to expose the seamy underbelly of my industry here, limited to the Phoenix metro area (apologies to Dusty, Justin, and Josh.)  I will now dish out all the dirt, the brutal raw and unvarnished truth about my competitors.

Or, to put it another way, here is what each of them have taught me.  So far.

Ready?

All About Books & ComicsPhoenix
The Valley's original comic book store, this place has been open since James Carter failed to rescue the Iranian hostages.  It's still there but is pure comics now, no games, no guff.  Their business is sufficiently advanced that when their lease was up, they successfully paid for a full store move via Kickstarter earlier this year.  Their inventory supposedly contains multiple millions of comic books, and they ship worldwide.  What does this store teach me?  A lot.  Mostly it teaches me how far the comic category can go... if someone out there is doing more with it than they are, that store has got to be something really special.  I hear tell of Graham Cracker Comics in Chicago being comparable.

Arizona Collectors Marketplace (includes Pop Culture Paradise Phoenix and Recycle Comics Toys Games and More), Phoenix
This store, or more accurately this agglomeration of stores, is a wonderful thing to behold.  It taught me not only that the flea market structure is still a thing, but also that nostalgia’s tug can be very powerful when harnessed effectively.  I have only visited once and I’m surprised I got out of there after only a single-digit number of purchases.

Ash Avenue Comics & Books, Tempe
This store taught me that hyper-niche focus works, and that I should never undervalue area demographics in making that work.  This hipster-friendly, new-urbanist, ultra-indie store wouldn’t look a bit out of place in San Francisco or Seattle.

Bad Moons Gaming/Chameleon Collectibles and Games, Apache Junction
Open since 2009, this store is now under new ownership, including a gentleman who cut his industry teeth as a valued member of my senior staff.  There is plenty to learn here, but the enduring lesson that keeps coming up is the tremendous value in finding the location where a community exists and a store does not, and opening there.  Under the previous ownership, Bad Moons quietly made its hay and was at liberty to ignore the competitive chaos in the crowded Tempe/Mesa and Glendale markets of 2010-2012.  Every time I see a store open within the orbit of one that already exists, I see an opportunity wasted and a disadvantage unnecessarily created.

Critical Threat Comics, Tempe
Supplanting a previous iteration of Pop Culture Paradise and located within walking distance of Arizona State University’s main campus, this store just celebrated its grand opening in the midst of the fall semester’s arrival of some forty thousand students.  There is a phrase for this, and that phrase is “Captive Audience.”  Future store owners: Do as PCP/CTC has done and be where an audience is.

Crusader’s Retreat, Phoenix
This store has served me well as a way-station for Netrunner games against friends on the opposite side of town.  Diverse, utilitarian, and welcoming, Crusader's does some game materials production on location, which is a recurring source of interest for me.  They also serve as a data point supporting close proximity to a freeway, any freeway, regardless of whether you’d expect a game store to be in that plaza.

Desert Sky Games and Comics, Gilbert
This is my store, obviously.  It teaches me something new every day.  Some lessons it has taught me are greater than others.  One big thing it has taught me is that it will take an extremely special situation to get me to consider ever working in government again.

Drawn To Comics, Glendale
Downtown Glendale’s own comics boutique, Drawn To has taught me just how much untapped potential exists that I have yet to harness from comic-focused events.  Their organization and execution of massive signings, meet-and-greets, and other social marketing is on the next level.

Dreadnought Comics, Glendale
This comic book store's merchandising "killer app" is so imaginative, a written description doesn’t do justice to it.  You have to see it in person.  They found a way to make shopping for comics new and different, all through a unique (to my knowledge) and gorgeously executed store fixture deployment.  Among the most valuable and most fundamental lessons any store can teach, Dreadnought proves that there is always another amazing idea out there that nobody has done yet.

Empire Games, Mesa
The epicenter of miniatures in the Valley, Empire serves as a living example of what a miniatures-focused store can be at scale.  Originally a virtual appendage of Games Workshop, Empire has developed into a hotspot for X-Wing as well.  Across the parking lot is a Wal-Mart, yet Empire survives and thrives.  It also speaks to the benefit of a store owning its own building.

The Game Boutique, Youngtown
The first store on the list (alphabetically) from this year’s rookie class, the Game Boutique has a level of social media outreach that you’d expect to see from a store three times its size and five times its tenure.  I’m still learning to flex those muscles and they’ve basically mastered it out of the gate.

The Game Depot, Tempe
Ronald Reagan was President of the United States when the Game Depot first opened its doors near ASU.  Three locations later, it has momentum, expertise, inventory depth, and a fanatically loyal community.  There is so much Game Depot does that supposedly can’t work or never works, and yet it works for them, and it’s been working for them, and it’s going to continue working for them, because they do it better than other stores.  They don’t buy or deal in TCG singles, they ignore comics, they eschew collectible toys and other merchandise at the fringe, focusing instead on mastering the full spectrum of tabletop games, at list, full stop.  So.  If I want to have that kind of longevity and success, the blueprint is right there, 18 miles northwest of DSG.  I’m free to follow it as much as I dare.  Where I deviate from their proven playbook, I assume the risk with my eyes open.

Games Workshop, Scottsdale
This store taught me that if you want to open in Scottsdale, bring capital.  Also, that it’s possible to run a store with a single employee who is not an owner.  It takes quite a bit of corporate back-end support, planning, and integration, but it can be done.

The Gaming Zone, Tempe
This is quietly Arizona’s best store for collectible and rare video games, and only a few in the tabletop game community know that they have Friday Night Magic on the schedule right next to Smash Brothers and Street Fighter tournaments.  This store teaches me with every visit that the rabbit hole of console game collecting and fandom runs extremely deep, farther than most of us realize.  The tabletop game and comic store trade tends to look down its nose at “vidya games,” but we may be the ones missing out.

Gotham City Comics and Coffee, Mesa
Take a 100-year-old building and renovate it into a comic boutique, and what do you get?  The store that got my imagination spinning again in 2011 when I was on the fence about re-entering the trade.  This store touches a lot of categories and isn’t tremendously deep in most of them, but it has taught me that a beautiful buildout and just enough attention to the iconic nerd pursuits can be a winning formula.

Greg’s Comics, Mesa
Another of the few stores in town that existed before I was old enough to drive, Greg’s Comics (owned by Howard, naturally) has at various points in time sold action figures, Magic: the Gathering, and even trading cards and stickers, but comic books remain the bottom line now and always.  The comic analogue to Prime Time Cards and Games later down this list, Greg’s Comics succeeds by doing exactly one thing and doing it to perfection: providing comic subscription box services at a generous discount, and advertising precisely that.  Howard wastes nothing: He once joked that he was renaming the store “Great Comics” so he would only have to buy two giant metal letters to update the marquee.  That was in 1991.

Hobby Destination, Chandler
There’s an entire branch of the hobby trade that’s more concerned with modeling, crafts, remote control vehicles, and like such.  This store focuses there, but also runs Magic: the Gathering events.  One of my own employees is a frequent customer of theirs for modeling.  This store taught me that even when I think I have a handle on a category in this industry, there’s often a yarn of overlap that leads into vast untapped territory.

Howie’s Game Shack, Mesa
Howie’s is a supra-regional chain of network PC game “arcades” that focus on first-person shooters, MMORPGs, Minecraft, and similar.  Their Mesa Riverview location ran Magic: the Gathering tournaments for a time, and I attended a few booster drafts there during the planning stages of DSG.  Breathtakingly clean and sharp, their buildout is both functional and inviting.  They have a special sponsorship deal in place with Monster beverages.  Each of these aspects is instructive to me and has me pondering how I can tap into that unfulfilled potential at DSG.

Imperial Outpost Games, Glendale
The third-longest-tenured store on this list, IOG teaches an elbow-drop of a lesson every single day: You don’t actually need Magic: the Gathering to succeed.  They outgross DSG and they do it without DSG’s biggest product line, which goes to show how well-executed the rest of their categorical coverage is.  Beloved by its player community and firing on all cylinders, Imperial Outpost is a west Valley institution and probably the best overall game store in Arizona.

Jesse James Comics, Glendale
Comic-centered, Jesse James has my attention because they’re making inroads into volume sales the way Dave and Adam’s Card World or Star City Games do for TCGs.  I am informed secondhand that Jesse James serves as a de facto comic distributor for businesses that, for whatever reason, are unable to deal with Diamond directly.  I’m not sure that sort of thing is in the cards (ha ha) for DSG, but I definitely want to learn how it works and what’s possible that way.

Manawerx/Rookies to Legends, Glendale
There’s a fairly convoluted history behind this store, but all you have to know today is that it’s a good store owned by a good guy and being managed by another good guy.  It’s adjacent to Imperial Outpost and sells exactly the things IOG does not: currently Magic: the Gathering and concessions, but previously sports memorabilia and sometimes other items as well.  For a while Rookies looked like it was going to win the own-a-building upgrade path, but it didn’t work out.  I follow this store with interest because its leadership is so consistently able to reverse setbacks and return to forward movement.

Mesa Comics, Mesa
Everyone knows this store and mine have a history, but I learn from Mesa Comics regardless, even today.  I maintain that it is the best-named store in Arizona, as I’ll discuss in an upcoming article.  In ten letters, it communicates where they are and what they sell.  It also establishes the blueprint for a location start with minimal expenditure of resources.  When DSG has its permanent hub up and running and it’s time to grow some spokes, those satellite stores may bear a strong resemblance to Mesa Comics.

Phoenix Gaming Lounge, Phoenix
Another member of this past year’s rookie class, this store opened in the Encanto Park neighborhood right near Phoenix College.  If it had opened a few months sooner, I was working at the state capitol right down the street and might have been a regular visitor.  Among other things, PGL taught me that the principle of locating where there is no existing competition is so powerfully correct that it even works when the area is “old wood” and you wouldn’t think a gamer community could arise there.

Play or Draw Cards and Games, Avondale
When a twenty-year-pro player decides to dive into the trade, this store is the result.  They’ve done so much right that a blurb can hardly cover it all.  They opened big enough to avoid the space constraints that plague DSG today.  They had the owner’s massive personal collection of singles on the shelf from day one to establish credibility.  They struck exactly the right tone with competitive players, serving the legitimate climbers while discouraging the more parasitic scrappers.  While they carry many games, they committed heavily to Magic: the Gathering right from the start and have not taken their foot off that particular gas pedal.  And they located in what was, at the time, far and away the best spot in the metro for a new store to open.

Prime Time Cards and Games, Gilbert
The vestigial spark of the erstwhile Gamers Inn, Prime Time is to trading card games what Greg’s Comics is to comics.  Targeting an audience of young, price-sensitive Yu-Gi-Oh and Magic players,  Prime Time teaches me that it’s absolutely possible to serve the scavengers of an ecosystem as long as your resource base is directed at revenue conversion and not wasted on unnecessary amenities.  The functional efficiency of this business puts higher-scale stores to shame.

Samurai Comics, Phoenix Central, Phoenix West, and Mesa 
The only regional chain currently active in the trade here in the Valley, Samurai has a proven comic-focused model that reaches far enough into games to claim the low- and medium-hanging fruit.  The owner still works every day coordinating operations.  Discussing with him how he has it lined up and organized has given me great insight into where my purview will develop.  I also observed Samurai's excellent deployment at Phoenix Comicon and hope to build toward that for DSG.

Showtime Collectables, Tempe
The sports cards analogue of Greg’s Comics and Prime Time.  Showtime existed before the MMORPG break, but its involvement in the game side of the trade was purely in a collectible sense at the time, with zero organized play.  Fast forward a decade and a half and they have their room full of tables like anyone else, and they cater fearlessly to audiences that have full-spectrum stores apprehensive, such as Yu-Gi-Oh, Dragonball Z, and lately Force of Will.  Utilitarian merchandising on the sports card side wouldn’t fly in a boutique but has great appeal to the “treasure hunting” customer demographic.  In my customer mindset, I like it.  I don’t think I could configure DSG that way and have it work.  And it’s still valuable for me to understand what they’re doing and why.

Silver Star Comics, Tempe
I’ve only visited once to this store tucked away in a corner by the Tempe Dollar Cinemas.  The staff member on duty was friendly.  The store has a comics focus mostly to the exclusion of games.  For now I have mostly questions about this store, so what it will teach me is still yet to be learned.  For one thing, I’m damned curious how you run Friday Night Magic when competing directly with movie theater parking and guests at the nearby Vinci Torio’s Italian restaurant.  Which, by the way, is exquisite.

Toy Anxiety, Paradise Valley
You know all those $300 statues that Diamond sells to comic stores?  Lifelike replicas of Iron Man, Harley Quinn, Daenerys Targaryen, or Monthly Manga Girl? And remember all those action figures and toys of yesteryear that your mom threw away, as moms always do? Optimus Prime, Snake Eyes, Spawn, the Millennium Falcon, or the Galaxy Explorer?  Yeah, this store is nothing but all that stuff.  No games, no comics, and yet somehow it is absolutely a part of our trade; in theory I'd carry any product they carry, they're just doing it now and doing it at scale.  Like The Gaming Zone and Hobby Destination, this store taught me that there are huge categories at the verges of our trade that go far deeper than we realize.

True Believer Comics, Gilbert
The final entry in this list from this past year’s rookie class taught me never to underestimate the power of “all dogs allowed.” :)

If I didn’t include a particular store, I apologize.  It didn’t show up for me in any of the Wizards Event Locator, Diamond Comic Shop Locator, or WizKids Event System, and if I already knew about it some other way, I just lost it in the shuffle.   Maybe what that store taught me was not to depend on the locators? That knowledge has value too.

Ten years ago, half or more of that list would have been different stores; twenty years ago, the list would be almost entirely different.  Retail is transitory, so those that survive Year One have defied the odds, and those that survive Year Ten are practically miracle workers.  If pay enough attention to all of them and glean what knowledge I can, Desert Sky Games and Comics might hopefully still be on this list for years to come.

Tuesday, August 18, 2015

DSG Vintage Arcade Post-Mortem (For Now)

This is a somewhat sad article for me to write, but I know it's for the greater future.  Unfortunately, the DSG Vintage Arcade is, for now, effectively gone.  Reduced to a single classic vertical multi Ms. Pac-Man upright, a vestigial icon of what used to be, and which will remain in operation for as long as we're in business.  The greater dream of incorporating a genuine vintage arcade in the DSG business structure has, unfortunately, been relegated to the woodshed.  Space constraints are merciless, and the raw math has every square foot competing with every other as DSG continues to develop at a blistering pace.

In today's article, I'm going to recount how we got to this point, including showing some photos, and then we'll take a look forward to what the future holds for this business segment.

As some of you may know, I am an arcade video game and pinball enthusiast.  I use the word "enthusiast" in understatement here; one might as well call ordained priests "Jesus enthusiasts."  I love arcade games.  I utterly love them.  Ever since my first game of Pac-Man at the ripe old age of six years, in 1980, at the 7-11 store on Baseline and Price in Tempe, Arizona, I have been completely in the tank for arcade games.  Their combination of instant approachability and a challenging but rewarding learning curve had me hooked from the start.  And they rewarded literally: the better you became, the longer you could play on a single quarter.

Even when the Great Video Game Crash of 1983 hit, I was undeterred.  I gobbled up consoles and cartridges from the bargain bins and obliterated them in relentless play.  I took my allowance to the local pizza joint every chance I got and dumped those tokens into Gauntlet, 720 Degrees, Black Tiger, VS Super Mario Bros, Xybots, S.T.U.N. Runner, Mercs, and Cyberball, the internecine generation of arcade games between the golden age and the Fighter Era.

Oh, the Fighter Era.  That was when arcade games became a permanent thing in my life's journey.  Just as progressive metal music had started to eclipse video games atop my priorities list during my high school years at Brophy, during the tail end of my junior year, Street Fighter II: The World Warrior arrived at Golfland and seemingly everywhere else, and I couldn't get enough quarters to feed it.  I practiced the Shoryuken over and over, ad infinitum.  Champion Edition followed and I was there.  Mortal Kombat was so huge it even made governments take notice.  And all the while, the 16-bit and 32-bit console generations were delivering superb experiences to players at home.

Around the Street Fighter Alpha era, hardcore fighting fans started to build "Superguns," or adapters allowing them to plug JAMMA (Japanese standard architecture) arcade motherboards into television outputs and handheld controllers, and it became possible for us to play the real arcade fighters at home.  I bought a cheap and dirty imported Supergun, and I needed more.  In spring 1999, when I was partnered with Arizona Gamer, I bought a full upright Street Fighter II on eBay.  That launched me into a five-year binge of collecting, fixing, and operating arcade games.  Around 2003-2004 I sold off what I had at the time to avoid having to keep moving it from one rental dwelling to the next.

Here were two of my early units, a Vampire Savior 2 cabinet running SF2 Champion Edition (the VS2 board must have been in my Supergun at the time) and an X-Men vs Street Fighter in a converted Pit Fighter cabinet.  These are shown in spring 2000 in the back room at Gamers Cardz in north Phoenix.


That XvSF later got sold to a friend of mine, who then sold it back to me when I opened DSG.  I upgraded it to a Marvel vs Capcom 2, and then moved the MvC2 motherboard into a better cabinet.  That unit is now in my den at home.  Fifteen years of lineage continuity; not bad.  Lineage is a big deal with arcade game collecting, especially with so many converted in the field.  A perfect restoration would have units reverted to their original game as manufactured, and for "kit" games meant as conversions only, installations in reproduction cabinets.

Here were three units that were mine at the time (the candy cabinets) and one that was not (the Gauntlet), shown in summer 2000 at Gamer's Edge in Chandler.


The one and only Ray Powers bought them from me, took them home, had them in his kids' playroom for a decade, then sold them back to me when I opened DSG.  One of the candy twins had failed on him and been replaced with a 3Koam Z-Back cabinet, which I brought to DSG in the form of a Street Fighter II: Champion Edition machine, and then later Street Fighter Alpha 2.  Here it is in the foreground with DSG's opening-day arcade line-up!


Yes, that's a Star Wars, Ray's Gauntlet, a TRON, that same XvSF, and more.  Our initial vintage arcade line-up was pretty good if I do say so myself.  I was completely thrilled in early 2012 to be able to rebuild the arcade dream and make it an authentic value-add and an aspect of DSG that would set us apart from the competition.  And for a while, it did that.

After opening day I completed repairs on the Neo Geo candy cab that Ray sold me, and then added a Mortal Kombat II and 4 to the line-up.  A series of other games cycled in and out at a rapid pace.  Donkey Kong Jr and Mario Bros, SNK vs Capcom, a Nintendo Red Tent, Zaxxon, Black Tiger, and Rampage World Tour, among others.


DSG even had an exclusive!  Thanks to some archaeology by one of the business partners, we got hold of one of the only Ms. Pac Plus motherboards in existence.  We had a marquee custom printed for it and used a restored Ms. Pac cabinet as the shell.  Check it out, the only working copy of this game ever operated in public:


We still have the innards and marquee from the Ms. Pac Plus, but refitted that cabinet to a multi-Pac and sold it to a customer.

Late in the summer of 2013, we hit a jackpot of sorts.  A non-working Dance Dance Revolution SuperNOVA became available locally for far less than market value.  That same business partner and I knew we could fix the problems the owner described, so we picked it up.  It turned out to be an original first-run dedicated (not converted) unit, one of about 250 ever built by exclusive distributor Betson Vending using internals supplied by Sony and Konami.  The core system was a heavily modified Japanese Playstation 2.  The VGA monitor was dead and we replaced it, and voila:


Unfortunately, he and I were the only ones happy about it.  The other business partners hated it and its earnings after the honeymoon period weren't enough to defend the space it took up.  I really wish we had been able to store this thing for the future.  I grudgingly went along with the narrow majority preference to liquidate it instead.  A few eBay buyers bit and then flaked out; running out of time to decapitalize the item for tax purposes, we donated it to the Boys and Girls Club down the road.  Considering they got it from us for nothing, maybe they'll let us buy it back for a nominal fee at some point, if it's still intact.  It's absolutely gorgeous gear, it worked bang-perfect, and as an arcade game manufactured in 2006 (practically yesterday where this industry is concerned), it had an operational life expectancy as long as you like.

Over the course of early 2014, the arcade wasn't popular around DSG.  I wasn't working there full time and our then-manager didn't like it.  It still earned money, especially when we brought in a restored High Speed for DSG's first pinball machine.  As long as cash came in, the business prerogative kept at least some of the arcade on location.  However, space constraints had already effectively killed it; we just didn't realize it yet.

See, during the window of time when the DSG Vintage Arcade had around a dozen units operating, it was a draw all by itself.  People came just to see that, and we had a chance to get them interested in our other offerings.  Yes, it also earned money from existing customers, players waiting between tournament rounds or what have you.  But it also gave mainstream visitors a touchstone, a comfort point.  Something they understood and recognized.  Increasingly throughout 2014, comics took over the latter role, and as the arcade dwindled, it became an afterthought.  If you're not running at critical mass, it's just not an attraction.  The Pinball Hall of Fame in Las Vegas takes in over a million dollars in quarters annually using a line-up of restoration gear a lot like ours.  We'd be happy with a fragment of that, but we need to provide enough of a draw to move the needle in a market where "barcades" and weekend spots like Mesa's awesome Starfighters Arcade are the emerging factors.

The business partners and I understood the arcade could not succeed for as long as DSG's other business was physically crowding it out.  The economic benefit of a rack of retail against an arcade cabinet in that same square footage was no longer a question: Retail wins.  We were already starting to constrain organized play space, giving a haircut to the top end of our capacity that we never used and reducing our effective seating from 146 players to 108 -- and really only 72 when not running three games per table.  Around this time we began our long planning process toward our next location.  And it was agreed, the arcade would migrate to the homes of the equipment owners until such time as it could come back to life as an attraction on its own again.  We had to focus on making every square foot count, on monetizing our space as efficiently as possible.

I traded the red Z-Back to my business partner for a Tempest, which had been a longtime grail for me ever since it appeared in the Rush "Subdivisions" music video.  With my Donkey Kong vertical multi, the initial Bahrcade took shape in my living room:


Meanwhile, my business partner made a large buy of pinball gear from a container shipment and has spent the entire year 2015 so far gradually restoring the machines, week by week, piece by piece.  We have some amazing titles in store, both comic-relevant (Teenage Mutant Ninja Turtles), sci-fi relevant (Star Wars), rarities within the pinball world (Whodunit and No Good Gofers), and all-time greats (We're going to keep these a surprise for now).  We are bursting at the seams with excitement that we will eventually be able to bring all these and more to our customer public.

The final DSG Vintage Arcade line-up before it was reduced to the single Ms. Pac-Man included three other units: Street Fighter Alpha 2, High Speed pinball, and Star Wars Episode I pinball.  Episode I was one of two tables built on the Pinball 2000 architecture and is a genuine pleasure to play, an unexpectedly good game considering the poor quality of the movie license it wears.  Alpha 2 is in my home, while the two pins went back to the other guy's place for now.  The front corner where the arcade lived out its final days is being converted this week to retail rack and fixture.

At home, now located in my den, the Bahrcade today features a nostalgia row of hardware from DSG's now bygone era and a couple of pieces that are my own.  Clockwise from the east: Asteroids Deluxe, Tempest, Donkey Kong multi vertical, Radikal Bikers, Nintendo Playchoice with multi-NES Everdrive cartridge, Street Fighter II: Champion Edition pinball, Vectrex multicart, and not shown but added to the den since this photo was taken, my fighter cabinet with SF Alpha 2 and MvC2 motherboards in it.  I sold the TRON to a collector who made me a cash offer I couldn't refuse.



It will be at least the summer of 2016 before DSG is able to open a new location, and there will be overlap while the existing store still operates during its remaining lease.  The new location is being scouted and will be selected knowing that we intend to bring back all the glory of our vintage arcade many times over and we will need room to facilitate that.  I know I am setting a high expectation, but I also know how much amazing gear we have squirreled away right now, so I am confident of our ability to deliver on that promise.

If you're on the Video Arcade Preservation Society's KLOV (Killer List of Video Games) message board, you can find me there from time to time under the moniker Mike Valmike.  (My pseudonym is a Les Miserables reference.)  You can find the above-referenced DSG partner there as well under the handle MJMMX.  For privacy he prefers not to publish his real name online.  The Arizona collecting community on the KLOV board is really quite friendly, sociable, and helpful, and we are always happy to welcome another collector to the fold.  I guess you might say we're all... enthusiasts.

Monday, August 10, 2015

Three Years Down, One Very Big Year Ahead

Though we had been conducting online operations for some months before that day, on Friday, August 10, 2012, Desert Sky Games (not yet "and Comics") opened its doors to the public at 2531 South Gilbert Road, Suites 106 and 107, in the Town of Gilbert, Arizona.



As you've seen in this blog, I have been in the hobby game trade since 1998 in various roles, but I had been on an extended hiatus since finishing law school in 2006 and focusing on my work with the Arizona Department of Health Services and on my developing family.  Planning for DSG started in August 2011 when the venerable Atomic Comics chain abruptly closed all four of its Valley locations without warning.  Upon learning that their closure was not sales-related, and seeing that Magic: the Gathering and board games were on an absolute tear nationwide, some friends and I decided it was time for us to re-enter the trade.  The entirety of the fraternal-twin suburbs Chandler and Gilbert, with a combined population well over 500,000 people, had zero game stores within their mutual bounds.  The coast would never be clearer.

The original plan was to open a high-end board game and MTG lounge where people would play in a premium environment.  It was what we in the development group personally preferred, and seeing places like Cafe Mox, Enchanted Grounds, and Black Diamond Games told us that it was probably viable.  In retrospect, this was a mistake; though many players say they will pay for a premium experience, few actually do.  That's okay.  We had to adapt and we did.  We have since moved to the hybrid model including comics, and continued building out support of the full spectrum of games.  A significant part of our success today comes from players of games other than Magic who know we will run organized play for their game using the official sanctioned materials.  Many stores don't or won't.  If it isn't Magic, many stores don't want to spend any time on it.  So, rather than focusing exclusively on high spenders, we focus on the welcoming aspect, on making the store approachable and comfortable without having people feel like they're in an expensive restaurant.  We don't want to be a gamer pit either, but rather a mid-range "Mario" of tabletop entertainment.

So, throughout late 2011, while players cracked Innistrad booster packs, we scoped out all manner of suite frontage around town, including Atomic Comics's old suite at the Chandler Fashion Center mall.  Unfortunately, landlord Macerich Westcor had higher ambitions in terms of the revenue from that space, and it was breakpoint rent to boot, so we let that opportunity pass.  In retrospect, although I don't know how we'd have survived from then to now in that space, I would utterly love to have it today.

Ultimately what appeared to be the best combination of factors came to us from De Rito Partners and the location we're in today.  There were plenty of mistakes in that process but mostly we came out of it solid.  We have 2400 square feet, and it was a vast expanse in 2012 but is far too small now.  The lease ramps, but averages ~$11/sf for the length of it.  Of course this means we paid no rent for the first six months and we're at ~$17 plus triple-net now, a total near ~$25/sf.  Yee-owch.  But it got us into a building where we have fantastic street presence, good neighbors (even the massage joint), excellent geographic coordinates, and an area demographic that's still so good it seems like the numbers have to be fudged.  Nope, they're real.



It was the building we needed in order to make DSG a reality and make it fly.  Now, as we enter the stretch run of 2015, we have the luxury of deciding on a new long-term landing destination.  This autumn, while we engage in what promises to be our best holiday season ever, we'll also be setting up our next lease.  Due to permit hell and buildout time-frames and the like, this process will take us at least through our fourth anniversary or thereabouts, so about a year.  We will then be in the final year of our current lease, and we can open up the new location and overlap for a while before winding up business at our current digs.

We've actually been working on moving for a while now.  We had a few-strings-attached lease opt-out clause that matured in March and we could have left right then and had it work.  There was an unused Blockbuster Video building a mile away that had come out of receivership.  It was 5000 square feet for about the same rent we're paying now.  A deal among deals.  We contacted them to offer tenancy but Verizon beat us to the punch with their LOI.  (Though they still have not opened.)  Because the space was so ideal -- it was even built out just the way we would have wanted it -- we had all our eggs in that one basket and did not look elsewhere.  This is also partly unavoidable.  If you're looking for commercial property, they expect you to be able to commit if they meet the terms you solicit.  If you flake out on them, they won't take your calls the next time you want to make a move, and you'd better believe these landlords tend to own multiple plazas.  Tire-kickers are not welcome in the world of commercial real estate, which is why often you work with a broker.

It was disappointing to miss out on the Blockbuster Video location, but the prospects and opportunities abound and are almost too many to keep up with, despite our very narrow set of need criteria.  We've looked at 4,000-square-foot mall space; we've looked at 8,000-square-foot rehab retail plaza frontage, and we've even looked at a staggering 25,000-square-foot mixed-use warehouse in a nearby industrial park.  The rent on that behemoth is actually only about double what we pay now, which if it weren't for the high buildout cost, would make "going huge" the obvious winning play.  But each of the spaces we've prospected is promising in its own specific way.  And depending which way we go, the next evolution of DSG will be partly adapted to that usage.

It's too soon for me to say what the outcome will be, but when it does happen, I can't wait to share it.  The bottom-line goal is to make Desert Sky Games and Comics the best store it can be for those of you who call it your tabletop game or comic collecting home-away-from-home.  The non-negotiables that the new space absolutely needs to have are a much greater space for gameplay, and a location that's not far from where we are today and remains within easy reach of the freeway.  Beyond that, all options are on the table.

All options, as long as they involve the store being bigger.

In the meantime, thank you all in advance for your continuing patience with our use of the constrained current space we have.  I promise to do everything in my power to fill it to the rim with the Brim of awesome games and comics and fun organized play.

You have given us three awesome years.  I can't wait to see how great the fourth is going to be!

Tuesday, August 4, 2015

What Is My Store Really Worth?

The most rudimentary research will reveal that the valuation of businesses is an inexact thing.  With such a wide variation in methodology, of course, comes the problem that any result you reach is probably complete bollocks.  I’m sure I'll make no friends among MBA enrollment counselors with that statement.

Since nobody can agree on how to value a business, we’re left to reduce our analysis to the fundamental elements: A good or service in the capitalistic sense is worth only what a buyer with money in hand is willing to pay for it.  Of course, you can find an even wider spread of value that way — virtually any amount is potentially “in play” and you never know what maniac buyer might vastly overpay or what distressed seller might accept a pittance — but at least those values are by definition accurate.  If someone paid $N for a business, for at least one crystalline moment in time, damned if that business was not “worth” precisely $N.

In practice, one can iterate from there.  Upon repeated sales, most necessarily comparison sales due to the unlikelihood that one business would change hands repeatedly over a short duration, we can discard the outlying highball and lowball transactions, and a more realistic spread emerges for each business similarly situated to the type and scale under analysis.  Sandwich shops are worth $84k or so, brew pubs $500k, international airlines $24 billion.  There's some variance, of course, but you get the idea.

The value shown there doesn’t derive directly from the balance sheet of the business, of course.  In the hideously unlikely case that, say, the Los Angeles Lakers were mired in debt, they would still be worth multiple billions of dollars.  This starts with comps, since Steve Ballmer paid two billion for the lesser Clippers only a year ago this month.  But beyond that, the capability of any NBA or NFL team (or whatever sport you like) for generating cash flow, their branding and IP, their "team history" as an exploitable, all add up to a profit potential that is going to be well in excess of the assets on the positive side of their ledger even if the team is swimming in liquidity.  

How is the business worth more than it's, well, worth?  Some amount of that is back-of-the-napkin math that I've heard referred to as “soft value” — goodwill, customer footfall, brand awareness, and like such.  While soft value is absolutely a real thing even though it’s intangible, “hard value” is a much safer basis for valuation for the simple reason that, aside from virtual elements such as IP, it’s all “actual stuff.”  You have it.  You could put it in your truck and haul it off, were you so inclined.  Or, to be more blunt, put “goodwill” in one hand and defecate in the other, and see which hand fills up first.  In business, you don't have what you can't count.  I guess that makes brand awareness somewhat better than outright "goodwill," since metrics actually exist to measure its reach.

In one of the Facebook closed groups for game and comic store owners, there was a discussion that looked at valuation of businesses in our industry from a new angle.  It is a real eye-opener, and absolutely made me take a step back and look at my operation in a critical fashion.  The discussion question was: 

“If someone wanted to clone your store right across the street from you, how much would it cost them to do that?”

The first blush at this question goes to the aforementioned balance sheet.  What would a new buildout cost, then inventory on the shelves, staff labor during all that, administration, legal, permit hell, time elapsed, and so forth.  You can come up with a number.  

The point of the question, of course, wasn't to get us to do math.  It was supposed to turn our focus to the nature of our soft value, and how well developed it really is.  (Again, soft value is absolutely real.)  The question prompted us to contemplate whether we brought something to the business that can’t be duplicated by sheer brute force of money, by a newcomer arriving with a gigantic open wallet.

But I liked the question much more as a cold, cutthroat intellectual and economic exercise, because I prefer not to rely on soft value.  To be certain: I’m prouder than I can express with how amazing my store’s community is.  And I do try to improve DSG's soft value every day.  I just don’t think it’s fair to my customers to hang such an anchor around their necks.  It seems like a very short pathway from there to a state of mind where I would start believing that the community “owes me” a living.  The community does not, of course.  I have to find new ways every day to make my customers happy, to improve the value proposition DSG offers, however minuscule the increment.  If I do well, customers voluntarily engage in business with me, to mutual benefit, without having some nebulous altruistic “duty" imposed upon them.  At the end of the day, as I've said before, I have to pay that landlord in dollars of money, not "brand awareness."

So, I looked instead at the question as a function of the degree to which brute force, i.e. capital to burn, could overwhelm all the soft value and bring a newcomer store, a clone of mine across the street or even right next door, up to parity with me.

DSG’s buildout was $60k at first and another ~$40k over time.  So there’s a starting base of $100k.  Right at this moment, my inventory stands at about $160k in bottom-dollar, scrounge-it-up, max-discount-tier replacement cost.  There would be about $40k in labor and materials costs to assemble, deploy, and organize, including administrative, legal, compliance, and so on.  So, the low end of what gets the newcomer to where I am is only $300k, which seems like a lot (and reflects awesome growth) but isn’t that much for an industrial conqueror determined to have its way.  In “real business” money, $300k is a lark.

So if someone came to my plaza with that $300k in hand and had perhaps another $50k to burn on operational expenses and to fund their mistake lessons as they got their sea legs, they could clone me and then catch up to me. They could do it with impressive speed.

Once the newcomer achieved that, it would be war.  

A knock-down drag-out fight between equals would ensue.  The attrition would be catastrophic.  Both stores would spend six figures to the left of the decimal over the course of years chipping away at one another and fighting over a customer base that would quickly weary of the rivalry and bleed out of the hobby or migrate to other stores around town.  It would be a brutal, excruciating, expensive fight.

And that fight would never happen.

Why?

While I'd put my ownership group's ingenuity and my staff's congeniality up against anyone, any military leader will tell you, you don't enter a fight with an equal force. You enter a fight with an overwhelming force. You bring a focused hammer, designed to crush your enemy with as low cost to your own assets as possible. When you play Axis & Allies, a key learning moment is realizing you don't want your opponent's best units to get to take a second shot in a combat phase. You bring as much redundant firepower into the fight as necessary to ensure that it's a one-round blowout, attacking or defending, no matter how many infantry you have to proliferate to ensure that your key territories threaten single-round resolution to any comers. 

So it is with brute force.  The smart arrival would not bring $350k, intending to clone me up and operate at parity and compete.

The smart arrival, the business intending to crush me and take over, would bring $700k.

And they'd obliterate me.

They’d build a store at the next level of magnitude and outclass me from the moment they first opened the doors.  It would not be a fight, but an execution.

But… and you knew there would be a “but,” didn’t you?  The miracle of understanding strategy, both on my part and theirs, assures that they will never bring $700k and obliterate me.  That outcome, like the $350k fight, also would never happen.

“But Bahr,” you might ask, “You just explained why that strategy would work.  Why wouldn’t they do it?”

Because it’s not cost-effective.  It’s a strategy that would crush me, but it’s not the best option.  The winning strategy gets me to hand over the keys for $400k and walk away without a fight.  They get the same result, the same outcome, and it costs them three hundred thousand dollars less.  They’d save almost half of the budget it would have cost them to pry me out of the picture by force.

That $400k figure is not imaginary.  It is at least as real as those valuation numbers back at the top of the article.  It’s the most recent number my business partners and I agreed would be enough to get us to snap sell.  I’d have to confer with them again to ratify any offer, but with reasonable confidence I think we’d accept.  I can’t say that number would necessarily be the same in six months or a year, especially if DSG keeps growing, but that’s what it is today.  A new arrival with $400k cash money in hand and a serious intention to enter my market from an ironclad, established position would find himself or herself able to do precisely that.

And that is why warring entities parley.

In answer to the discussion question, my understanding of the foregoing is part of the unique value I bring to the business.  I bring a realistic and unflinching acceptance of the most exacting competitive arithmetic the business could conceivably face.  And in the face of that analysis, I conclude that my business, at least right now and today, is worth at least $400,000.  There we go.

In answer to the follow-up question, what would I do after cashing that big check and winding up the books?  I would first take my family on vacation.  Next, I would write the story of DSG until the point at which it no longer included me.  After that, many options on the table.  Probably some combination of opening a vintage arcade, perhaps even as a non-profit like the Pinball Hall of Fame, and writing prolifically.  I would explore my options for returning to the regular daily use of my law degree in some manner.  And for as long as DSG prospered under its new ownership, I would not return to the hobby trade, at least not in the retailer role, and at least not in my immediate area.  After all, unlike the savvy entrepreneurs opening Magic: the Gathering clubhouses every other mile, I try to avoid diving headfirst into a market that is already well-served to the point of saturation.