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Tuesday, September 15, 2015

The Darren Threshold

August was a slower month than July for DSG, as we knew it would be, and there was really never any notion that it might turn out otherwise.  But something very interesting happened in August 2015 that has amazing long-term implications for the business.

The month featured sort of two new Magic: the Gathering releases: From the Vault: Angels and Duel Decks Zendikar vs. Eldrazi.  Neither of those moved enough units to make the album rock charts; Angels because we weren't given that option, thanks to a fixed allotment of 30 copies, and ZvE because the late-year Thing vs Thing deck release generally meets moderate demand at most.  We moved plenty of Magic Origins, of course, and our usual constant flow of singles provided ongoing revenue.

So it's safe to say DSG made some money selling MTG in August.  The interesting thing was what happened elsewhere, and what it meant.  We reached the Darren Threshold.

Stay with me here.  Telling you what happened won't make sense until I tell you how it happened.

Comics continued to grow for us, with our boxholder count approaching 100, and it's a tight hundred: our Comics and Media Specialist actively curates the boxes and has very, very few of them in a no-show status.  His communication is systematic and effective, and even without taking credit card auto-taps, the consequence of potentially missing out on great books has been enough to keep our subscribers eager to come in and pick up.  In the cases where he has had to close boxes, he has invariably found high-demand books that he could easily reallocate to the waiting lists of other boxholders. (Secret Wars #2, anyone?  or early Darth Vader issues?  Yeah.)  When you have almost 100 people and most of them come in and spend every week on their hobby, that creates a modest but respectable bread-and-butter revenue stream.

Role-playing games also continued to grow for us, in particular the tabletop experience product lines, such as dungeon tiles, flip-mats, miniatures, and so on.  Dice are off the charts: the more dice we add to the floor, the more dice sell in a virtuous cycle.  The board games based on RPG systems turned.  And we're finally seeing our RPG night attract multiple groups, and the Pathfinder Society carved out some Saturday time.  There were multiple new X-Wing releases, a new wave for Imperial Assault, steady releases for the Living Card Games, and some action in the worlds of Dice Masters, HeroClix, and Pokemon.  We successfully ran organized play for all of these games and saw a lot of smiling faces.

We visited two local pop culture conventions, one somewhat underattended and one very well attended.  In both cases we got some exposure and made a few bucks to frost the cake.  In both cases we saw new arrivals at the store as a result.  New faces, new blood.  Across every category this causes an increase in sales velocity.

All of this got us to the Darren Threshold.  We're coining that phrase to indicate the point at which a game store earns enough money to stay in business without having to sell any Magic: the Gathering.

That was not a typographical error.  That is what DSG did in August.  Oh, we have to make a few assumptions, such as that we wouldn't have needed double staff coverage on weeknights if there weren't MTG events underway; one employee on duty would suffice.  And the store credit mix and COGS would be a bit different from what it was with MTG sales taking place.  But if it came down to it, if DSG never sold another Magic card, DSG would live on regardless.  And for a store that had approaching 90% revenue dependence on MTG in the early going, that's a sea change.

So, who is Darren anyway?  Darren Johnson is the owner and proprietor of Imperial Outpost Games (IOG) in Glendale.

I mentioned IOG a few weeks ago in my article about competing stores.  I absolutely meant it when I said IOG is probably Arizona's best overall game store.  And as I remarked in that article, IOG outearns DSG even though Darren doesn't carry Magic: the Gathering.

IOG has carried MTG in the past, when the business situation warranted it.  But now there's a store next door, Manawerx/Rookies to Legends, that began as a sports memorabilia dealer and morphed from there into a MTG-centered store, so IOG just skips the entire product line.  Booster packs, singles, accessories... nothing.  Darren contents himself with carrying the vast expanse of tabletop games otherwise, from every other line and series, and well-maintained, and with a friendly staff gatekeeping it all.  At the end of the day, it proves that a store in the hobby game trade does not need to wear the golden handcuffs from Renton.

Now that DSG has snapped off those golden handcuffs, it's a heady and liberating feeling.  Don't worry, we're not going to be dropping MTG anytime soon.  Magic was the reason the store opened to begin with, and it is still our single biggest product.  The owners love and play Magic, the staff loves and plays Magic.  And just because we're not tied at the throat to Magic anymore, that doesn't mean we stopped wanting to be involved in that market.

We're actually not even sure yet how much change we will make as a result of reaching the Darren Threshold.  What we know is that the entire feeling, the entire tenor of the relationship between our store and the game has changed.  Instead of depending on Magic, we become a partner with it, benefiting in positive resonance.  As Vin Diesel's stockbroker said in Boiler Room, "I don't need your business; I value your business."  We actually get to have Magic at the keg party because we invited him, not just because he's the landlord's nephew and we can't really say no.

We can kind of do whatever we want with Magic now.  We can try new and interesting things without worrying about tampering with the life support system mid-orbit.  And wow, is that awesome.

Some thoughts that come right to mind.

Promoting the brand in the form of higher buylist prices.  We actually went ahead and did this over the weekend.  It's too soon to know if it is working, but all signs point to "yes."  Previously, our staff priced cards for buys on a case-by-case basis only loosely from Star City's prices, which have strong validity but we had to adjust every time because their averages run a bit too high for our market on both buys and sells.  We've been away from TCGPlayer pricing because of how easily manipulated it is, making it an unreliable value index.  The most valid and reliable index we've found right now is MTGPrice, because it aggregates from a group of megastores, from Amazon, and from eBay.  This does introduce some of TCGPlayer's price influence, but it's not enough for manipulation to have a pronounced effect.  MTGPrice publishes a "Fair Trade Price" that runs 6% to 8% higher than TCG Mid in most cases.  We're working on a simple adjustment from that so we can move sell prices to that index but still be at or below TCG Mid in essentially all cases.  And, we'll have the bonus of being immune to the sweep of MTGFinance(Tm)-driven spike scams.  But in the meantime MTGPrice also publishes a "Best Buylist Price," as well as a buylist spread, for every card.  Given that we can control through our own buylist which cards we want the most to meet demand, we felt comfortable offering the Best Buylist Price on mint condition cards thus designated.  If it's on the list, we're offering the highest legit published buy prices anywhere.  Even the grinders realize the implications of that, and our buying activity surged in the aftermath of the announcement.

Democratizing access to organized play.  This is probably the way we'll move, though it will require us to have more physical space, so this plan can't be implemented in full as of yet.  Some of the most successful Friday Night Magic events on the continent are held at stores where the admission fee is free, or is free with purchase of N booster packs, and then prizing is nominal.  Attendance figures grow huge, and the resulting player community tends to become more inclusive for competitive and casual players alike.  With so little at stake but fun, and the bulk of the EV already won, even the hardcorest grinder can take the time to step a developing player through the subtleties of a critical end-of-turn permission war or a dicey limited combat.  No more of the wannabe-pros barely acknowledging their opponent, pressing 2-0 without ever removing their earbuds.  Everyone tries to get better and have a good time, and they save the cutthroat for Saturday's PPTQ.

Pushing premium on organized play.  The inverse of the above, if by some misfortune we end up utterly hidebound to our current building for the duration and can't open, move, or expand until 2017.  Since we're not really a grinder store anymore, this would probably involve putting some money into creature comforts in the facility and then making adjustments to tournament pricing and payouts to cater to casual "steak dining."  A business can make money targeting an upscale clientele, but everybody knows there's more money overall selling Corollas than Ferraris, so if you're going to sell Ferraris, you had better have a damned nice dealership.  Selling Corollas is more what I'm suited to do, but one must adapt to the landscape as needed.

Letting the singles stock accumulate.  Usually when high-end cards show up, we've had them in the case for maybe a week and then what doesn't sell is off to eBay.  The same for format staples where we already had more than two playsets in stock.  When DSG has depended on MTG revenue to survive, that meant maintaining a constant churn.  Cash out, cash in.  Not running a museum here.  Now that we're unlikely to feel a pinch if things sit a little longer, we can let the selection get a little deeper and the coverage a bit more comprehensive.  If I only had room for a couple more showcases so we could merchandise the singles better, let more people see more of them at a time.

Supporting more older sealed product.  DSG carries all Magic boosters back to Innistrad and the 2012 Core Set.  The need for turn rate that affects our singles depth is the same limiting factor preventing us from having booster boxes of e.g. Tempest, Urza's Destiny, Darksteel, or what have you, on the shelves. (Moving as far back as the translucent-booster era, such as Legends and Arabian Nights, seems inadvisable for all but the most gargantuan of MTG retailers.)  DSG can easily afford to bring in a booster box of Tempest; we spend far more every week on new releases of games you probably never heard of and might not even sell until the clearance rack, though I do try to avoid whiffing that badly on pre-orders.  The reason DSG doesn't bring in that Tempest box is because it would take many months to sell through it.  The average player doesn't surf packs of expensive boosters, especially when the EV differential is enough to make it a gamble.  But if Magic revenue isn't make-or-break for DSG, we have the luxury of carrying such indulgences.  We can run the "antiquarian bookstore" model, like The Sentry Box does.

On the flip side, there are things we don't have to do moving forward.

We don't have to tolerate unsociable hypercompetitive players.  The guys that make things less fun for our customer community.  There is overlap from there into the more parsimonious of EV grinders.  If you're the guy who everyone hates to play, and who has nothing to offer the staff but a litany of complaints, we probably weren't your store anyway (anymore, if we ever were in the past).  But we're most definitely not your store now.  I'm sure you've found or will find a store that is more willing to facilitate the MTG experience you seek.  Our door is always open to concerns and issues brought to us in good faith, of course, but that isn't what I'm talking about here.  Due to our code of conduct, we've already handed out a number of store bans to such people, but now we can do it without ever having to speculate on whether the problem player was worth more in revenue than the hypothetical players that individual might have been driving away.  The grace period is shorter and the benefit of the doubt narrower.  Our friendlier player cohort benefits.

We don't have to dump product.  We've fallen into temptation too; we've used eBay as a cash-flow tool in the run-up to big releases when pre-orders have come in more shallow than expected.  In-store as well, there have been times in DSG's history when we didn't have the liberty to let nature take its course, and had to sell a thing now.  But there are an entire category of stores that just keep doing this, in many cases intentionally.  It will have to be a very special situation before DSG will flip boxes for a pittance, ever again.  In fact, the most plausible reason we'd do it again would be a positive reason: we're into the new set in pallet quantity.  If that set is shaping up to underwhelm, rather than cutting orders back, we'd hedge.

We don't have to be yanked around by internet price aggregators.  There is irony in this as our forthcoming move to the Microsoft RMS point-of-sale system is expected to be our jumping-on point to pegging our singles sell prices to an online average, likely some adjustment from MTGPrice, as mentioned above.  We've been actively working to shed an image DSG built up over time as an expensive store.  In fact, if you look at DSG's singles pricing these days, it's pretty much at TCG Mid anyway on any cards where the price isn't influenced by MTGFinance(Tm) monkey business.  We've simplified the pricing tiers for bulk cards, but aside from that, you'd pay us the same $27 today for an Ugin, the Spirit Dragon that you'd spend on TCG.  Once we're attached to an index we're comfortable with and have RMS pulling the data right and proper, and players see the price levels we'll be offering, we're confident they will want to be dealing with us for the lion's share of their singles needs.  And now we can do it without hitching our wagon to bad exposure to speculative spikes and stock-shorting dumps.

So many possibilities, and so much frustration we get to cast aside.  Truly, this state of affairs is a welcome gift, worthy of the Darren name.  Now that we've climbed to the Darren Threshold, it's up to us to ascend further.  It's up to us to find ways to make DSG better still, so that this newfound influx of non-MTG collectors and players feel fully welcome and adopt our humble store as their Third Place, their fun destination, their hobby home.  And if we could continue to grow a heathy and happy Magic community at the same time, so much the better.

1 comment:

  1. The Darren threshold is a stroke of naming genius. For someone who has lived near iog for years, I knew exactly what kinds of things were implied by the name. Ive seen stores come and go but the outpost still remains.