Friday, December 30, 2016

Not Quite There Yet

January 1st, 2017 was set to be the date that three other Valley stores raised the Desert Sky Games and Comics coat of arms on their flags and the clock started ticking on three additional locations to come.  Alas, this will not happen quite yet, nor quite like that.

The expansion/merger is still underway, but we ran into a few wrinkles.  Not all business deals unfold exactly as planned.  As such, we're going to need a little more time to bring this to fruition.  Stay tuned throughout Q1 2017 as we nail down the specifics and finally, ultimately, go live with the changeover in whatever its final form shall be.

Product Mix
As I wrote and wrote again right here on the Backstage Pass, I don't think comics are working for DSG right now, in particular at DSG Gilbert.  However, we have a use case that they might still be meeting metrics at the Tempe location, which is currently doing business as Tempe Comics.  While it is still likely that comics are entering a sunset cycle, I consider it a worthy effort to continue to serve that customer base while it is still feasible for us to do so.  We're going to leave this door open for the time being, while the phase-out of comics in main stock at Gilbert gets underway (we've got all trade paperbacks at 50% off right now, for example).

False Start
One of the stores that was set to be absorbed into the new DSG was Tempe's Critical Threat Comics, right in the heart of the ASU campus.  Jessica and Jeremy built a rich and vivid community at the "See-Tee-See," and unfortunately the passing of the baton amongst all involved simply didn't work out.  CTC has closed, and DSG "Prime" did not quite have deep pockets to an extent that could have floated it home, though not for lack of interest in doing so.  This is one of those things that will be chalked up in retrospect as missed opportunity due to timing.  Had a bunch of things played out differently, there would have been a DSG behind the Chuck Box starting Sunday.

Schrodinger's Suite
DSG's lease option in Chandler doesn't extend forever, and part of the problem with losing CTC was that we had allocated resources to supercharge CTC's bottom line in advance of the handover, and when that didn't work out, we ended up neither having a comprehensive recoupment, nor a profit output.  We needed one or the other under our calculus to ramp into a buildout for our west Chandler opportunity.  This isn't off the table yet, it just got a lot more difficult.  We're exploring a number of options for continuing this part of the expansion plan.  It may miss its projected time-frame.

Springs Forward
The good news is that we are under no such constraints with our Superstition Springs Center location plan.  They have quite a few vacancies, the rent they offered us is good, and the critical resource in that case is more of ownership attention than anything else.  Our original announcement slotted East Mesa into the late spring or early summer of 2017 because we expected to be stuck in permit hell and/or construction prep for the Chandler location, and didn't want to find ourselves idle.  Essentially once we've addressed other parts of the merger, we should be free to build this location.  Still happening, we're just leaving it loose to move around the calendar as circumstances dictate.  If some competitor beats us to the punch, oh well.

Highway 87 Beckons
We announced a moonshot for opening in Payson in early 2018, and we're just going to leave that plan the way it is for now.  My folks live near Payson and I'm there pretty regularly.  It will not be especially expensive or difficult for me to make that location happen, because travel won't present the same cost or logistical hassle to me that it would for a competitor having to do it as a remote project.  Our primary limiting factor right now remains as it was a month ago: We don't currently have someone on deck to operate the place.  Nobody is going to commute from the Valley to Rim Country.  Someone's going to have to live there, either on a career opportunity or because they are already local to the area.

(A)bort (R)etry (F)ail
Business deals sometimes don't work out.  While it would not be anyone's preference, it is possible that the expansion plan ends up terminating out, and the involved existing stores go on with the status quo ante.  By comparison to some of the gargantuan business acquisitions and mergers you hear about in the news, our little project is tiny, a footnote, a rounding error.  This experience has been a huge education to me in the sheer scope of massive business entity transactions.

So, that's a roundup of where the expansion is right now.  DSG Tempe and DSG Ironwood each can exist, but how this is all going to unfold is still pending ongoing developments.  So, again, stay tuned.  The expansion/merger will not complete on time as expected on January 1st, but we are still moving forward with it.

Saturday, December 24, 2016

My Festivus Airing of Grievances

I hope you all are having a pleasant Festivus (or other holiday). My regular Tuesday post will come later in the week for reasons that will become clear. As such I thought this would be a good opportunity for some bonus content. Core to the Festivus celebration is the Airing of Grievances around the Festivus Pole. Without further ado, here we go!

I'm dismayed at the continued market devaluation of product and the direction it has forced me to move to keep my business solvent, as I have written at length here on this blog before. In keeping with my studies of Objectivist principles and concepts, I have stopped merely hoping for the trend to reverse and/or following social pathways to bolster that value, and instead accepted the prevailing wind and done my best to sail with it.

In essence either a manufacturer establishes vertical brand reinforcement or they don't. Because so few do, my business has become more and more of a pawnshop now. I don't think a pawnshop is an evil thing, but it's not the business I sought to get into, as I wrote here earlier this year. It limits a lot of what I can do logistically and impedes my ability to surprise and delight my customers with cutting-edge software and infrastructure as the store was originally envisioned by myself and Girard back in 2011-2012. He and I had planned to build the Apple Store of tabletop and it's just not remotely feasible with the economics of the game trade today.

Our software situation is so frustrating that Girard threw in the towel last month and closed his store. I respect the sentiment, though I am not in a position to need to close at this point.

The ambitious expansion/merger announced here at the end of November ran into some snags, such as one of the inbound stores, Critical Threat Comics in Tempe, unexpectedly closing forever. Thus, the business plan is in flux and we're still working to nail down the particulars and see if we are even well-situated to proceed at all, and if so, to what extent. This is among the issues I will likely address in the next blog post. I accept that doing what is right for the business trumps emotional or personal considerations, such as what I wanted to do. Fortunately, part of the expansion plan coincides with what I was needing to do for my lease situation in Gilbert anyway.

I don't mind having to come forward and announce that the whole deal isn't going to come to pass as planned; not all business deals work out, that's life. However in the course of making this move, I got to see a lot of hate bubble to the surface that had not been as evident before. That's lousy. That's part of why the tabletop community in Arizona, from Magic to other subcommunities, is as unhealthy as it is. I've done what I can to set the right examples, deal fairly with people at arm's length, and in general to say what I'm doing and do what I've said. Not everybody wants to live that way.

Dovetailing onto #2. Not everyone has to be a dealer. The positive side of Amazon and eBay and Craigslist is that it has made it possible for goods and services to circulate more efficiently than ever before. Remember when you had to take out a classified ad in the newspaper? (Millennials: you'll want to look those words up on mobile Wikipedia.) But the negative side is that everyone wants to be a reseller now. Only a fraction of the community actually buys things to consume, use, and enjoy. Everyone else has resale or speculation on their minds. These bubbles have risen and popped before but nobody cares, they figure it won't happen to them, and meanwhile they drip poison into the well for everyone else.

We have become a world of things, not people and experiences and happiness. I can't point the finger because I enjoy things sometimes too. But if there's one positive I can take out of having to deal with sharps wasting my time every day with their competing business interests, it's that I will achieve the maximum Expected Value out of all my personal purchases and possessions if I buy what I actually want for myself, and keep it. As Tyler Durden taught, we work hundreds of hours to buy things we don't need, and our things end up owning us. I think I enjoy my games a lot more when I buy them expecting my bookshelf to be the end of the ownership chain. Consistently my happiest customers are those who sell to me infrequently. Not necessarily "never," because everyone sometimes has stuff to trade in. But where it's a rare occasion. Those people are doing it right.

Dovetailing onto #3. Not everyone has to open a store! We had 12 store closures in metro Phoenix in 2016, and yet we are somehow ahead by a net plus two stores since then. I'm updating the Mega Article this week to take that into account (and to include some deep background that some helpful folks sent me regarding the stores currently on the article). Having said that, it's a slowdown compared to the booming explosion of stores in 2015.

I see a new store in the area, especially one run by a neophyte, and I have no fear for my own viability, because I know they will go through the same trial-and-error learning process I did in years past, and they don't really affect my ability to reach customers anyway. But their arrival absorbs up a lot of low-hanging fruit that we incumbents have worked hard to harvest. If the game trade were an MMORPG, they'd be kill stealing.

So if you're a newcomer wondering why you sometimes get a frosty vibe from the established stores, that's why. It's not that we aren't willing to have you in the community and be good neighbors, and it's not that we think you're actually going to put us under (as I've written in the past, it is very, very difficult to do that, unless the existing store is already in rough shape). It's that you crashed the wedding party without an invitation and you went right out to the dance floor and started hitting on our daughters.

Loot crates and their imitators. Come on, people. They're leftovers and closeout product sweetened up with a designed exclusive here or there. You're being suckered. Don't be a sucker.

[End of list]

I've been on a lot of down notes lately here on the Backstage Pass, basically ever since the big up-note of the expansion/merger from a month ago. And I don't want to set the tone that it's always doom and gloom because the reality is that it's not. So after airing five grievances above, I think it's only fair that I air five times five things that are good and make being a part of the game trade wonderful. 

  1. My employees are absolutely outstanding and have cultivated a deeply positive store culture. 
  2. Every day people come to my business to get away from the grind and enjoy themselves, and I love the fact that they get to have fun because of DSG being here. 
  3. I have people who started off as customers and have genuinely become friends at this point, more people looking out for me than I ever realized or expected, and I value them tremendously. 
  4. It feels great to be back in the video game business for good. Everything from experiencing some of the newer stuff for the first time, to some of the great buys I have been getting on rare or older or unusual gear, to the upside potential of repairs, video mods, and like such. I love it. 
  5. I get phenomenal support from my distributor reps at GTS and Alliance. 
  6. There are professional retailers in the industry doing strong things with their stores and businesses and they have given freely of themselves and their guidance to show me their ways. 
  7. There are professional publishers in the industry who fully recognize the landscape we retailers face and tailor their product vectors to ensure that the stores who promote their games in good faith are in a position to compete and thrive. 
  8. There are neighbor stores and owners right here in my metro that are excellent establishments and excellent people, whom I am proud to know and to whom I am proud to make referrals. 
  9. Supply issues notwithstanding, it's nice to have products so nuclear hot that they sell out at full price the moment they hit the shelves. Final Fantasy TCG, Star Wars Destiny, Pokemon 20th special sets, and so on. 
  10. Accessory manufacturers are getting better. They are figuring out what we need and want almost before we need and want it. There has been at least one new accessory every month or so that as soon as I saw the solicitation, I knew it would be an evergreen product for us. 
  11. Miniatures, the category that caused me headaches earlier this year, turned sharply positive and started punching its weight this month. Our store's miniatures community has been increasing in quality at a noticeable rate. 
  12. Magic: the Gathering content is at an all-time quality high. 
  13. More young players are enjoying the Pokemon TCG than I have ever seen. 
  14. FFG is on a hot streak for general content quality between Destiny, the current Netrunner cycle, and games like Mansions of Madness 2.0 and New Angeles. 
  15. Even as I prepare to move away from it, the comics category continues to churn revenue. It didn't hit the metrics I needed, but it is still a draw, day in and day out. 
  16. Christmas sales got good. It took until the week before, but they got there. 
  17. Every now and then, not often, but once in a while, I make a buy in good faith on what I believe to be a fair payout, and then upon digging into it I discover jackpot value. Sometimes I have to work for it a little further, whether repairs or what have you, but still. Just gotta keep making solid buys and let the law of large numbers send those my way. 
  18. I love when I see our players putting a lot of time into modeling and painting up an army and it comes out looking terrific. The entire process from seeing them painting away an afternoon to seeing the troops and vehicles spread across a table is really healthy, they made that game an expression of themselves, and you can see the payoff in their smiles. 
  19. I love it when one of the long-time players from the trenches prevails and wins a qualifier, especially when they have to win through the hardest-bitten grinders to do it. Score one for the good guys. 
  20. I have close allies in the trade who have helped me in my hour of need or opportunity and I look forward to a chance to make good on that for them. 
  21. It is a genuine blessing to have a livelihood where I am able to leave on a moment's notice in case something serious comes up or I am otherwise needed all of a sudden. 
  22. I have a ten-minute commute, if that. Not a negligible thing as the brutal downtown commute was a significant part of what made me want to leave government service. 
  23. I am getting the best support ever from my family as I prepare to undergo the process of getting back into the legal industry in 2017-2018. 
  24. I am having the best time ever seeing my kids enjoy the fruits of my labors. 
  25. Every day I get a great photo of Jeff Goldblum in my Facebook feed. 

 Have a wonderful holiday weekend, everyone!

Monday, December 19, 2016

More Regarding Our Move Away from Comics

I knew some of the regular readers here would take interest in my announcement last week that Desert Sky Games is getting out of the comics business.  I did not expect the greater comics media to take notice of our move, as observed by this article and this other article from Comics Beat, as well as a mention in Bleeding Cool that I found bewildering given that it appears they reached out for information or comment to everybody except me.  I am rather central to DSG's policy decisions -- rumor has it they are entirely my doing -- and I am not that difficult to reach.  I guess I must not understand journalism.

Given the commentary from the articles, on social media, and in-store, there are a few topics that I think would be well served by some additional attention here.

It is easy to assume that since DSG only carried comics from 2013 to 2016, we merely dabbled in the category and did not commit to it fully.  The underlying assumption is that comics did not fail for us, we failed comics by not going the distance.

Let me dispose of the first part of that right away.  Comics did not fail us.  They are, even now in the doldrums, producing substantial gross revenue.  I believe the trend line has turned negative on us in this market specifically and under current conditions specifically, but as I have said before, I do not think the end is nigh for comics overall.  DSG made a lot of money on comics in three years.  A great deal went right.  What we're seeing now is a downturn in which too many misses on content, rising costs of business, and a glut of product have left our hybrid store poorly positioned to continue in the category.  It is possible to be making money on a product line and still have it be the correct move to exit that product line.  Dollar for dollar, we are better off allocating those resources to Magic: the Gathering, for example.

It is fair to state that the most successful comic businesses are those that commit to comics and basically nothing else.  When you look at the laundry list of the top dogs, they are either comics-first (by a lot) or comics-only.  Mile High Comics.  Midtown Comics.  Graham Cracker Comics.  Here in Arizona, we have Samurai Comics and Jesse James Comics.  Products in the greater game trade are either an afterthought or absent entirely from those stores.  With consolidation comes economy of scale, and with that comes a greater ability to ride out downturns.

The comics category punishes dabblers.  No comic collector will take a store seriously and consider opening a subscription pull box if they do not see essentially all relevant new releases on that wall every week.  A store does not need to explore the farthest reaches of the indie wilderness, but the top books from Marvel, DC, and Image must be present, along with anything else that's hot Right Now and a smattering of other recognizable titles.  DSG regularly stocked virtually every Marvel and DC product, and the frontlists from many indie publishers.  We did not have the breadth of Jesse or the depth of Samurai, but by and large we had the goods.  Make no mistake, with comics, we were in it to win it.  Our comic clientele deserved no less than that level of professionalism and focus.

Diamond Comic Distributors
A common refrain in the comic trade is how difficult it is dealing with Diamond, the exclusive wholesale supplier for essentially all comic product.  I recognize the scale Diamond works at and I know some of the inefficiencies they have are simply not curable.  Diamond accepts damage reports, overship and undership reports, and so forth, and usually takes corrective action, though it takes extra time, labor, and attention to report the problem and then to babysit incoming orders to make sure the problem got taken care of.  Multiply that by the total number of problems and it becomes evident why many comic stores just write off such losses in the margins.  And yet again, this is another huge part of carrying the comics category where massive, scaled, laser-focused stores and chains have a substantial economic advantage over small hybrid stores and store groupings like DSG.  On the game side of the trade, there's a lot of talk lately that tiny stores and massive stores (or chains) are positioned to survive in a way that midrange "Mario" stores are not.  It appears this may be true in comic retail as well.

In the wake of the massive Hastings bankruptcy, Diamond reportedly tightened credit terms across its account base.  I can only repeat this as hearsay as our account has not seen any changes or adjustments in as long as I can remember.

Diamond is not enough of an obstacle by itself to make a store want to get out of comics.  They do enough right for the category to function, and enough wrong to make it treacherous for those who are not adept.  They are a company run by humans, and humans are fallible.  Diamond is in many respects like a bull.  It's going to do largely what it wants, and you can predict some of that based on how bulls tend to behave.  A bull is indifferent to your personal needs or preferences.  It's up to you not to get gored or trampled by the bull if it wanders your way.  If you can "manage" the bull well enough, it may produce good results with your cows.

Marvel's Social Justice Agenda
I have heard Marvel's current content called this, and in truth I believe it is a misdiagnosis as the cause of the downturn in Marvel sales.  The raw demographic trends are numbers that do not lie.  The Millennial generation is one-third nonwhite.  Its successor, Generation Z, is expected to be even more nonwhite as its numbers and statistics solidify.  Gender norms have liberalized to an unprecedented degree in western culture today, even in more conservative demographic areas, compared to even only a decade or two ago.  The vast ocean of potential readership growth is a diverse one, and to engage that audience, stories must depict a world in which a diverse society exists -- including protagonists and antagonists.

Setting and character identity is not the problem.  Story is the problem, and more specifically story delivery is the problem.  A certain amount of writing hackery is accepted in comics due to ever-tightening deadlines forcing writers to do some reaching at times they might otherwise have reworked a plot point.  But overall the writers understand story structure, at least once they reach employment with the House of Mouse.  They know what story beats go where to make a formula work.  Thus, even a slipshod plot is going to be engaging if delivered coherently.  And that is where Marvel is off its game right now.  Working so many event sequences, crossover sequences, and subsets into the line-up, a line-up that keeps getting reboots and new #1 issues, makes a reader's or collector's attempt to follow what the hell is going on into an exercise in futility.  At this rate just start calling each reboot Season 2017 Episode 01 or something.

DC's Relentless Ratchet
Meanwhile DC is trying to entertain us at such breakneck pace I wonder when we'll ever have time to slow down and find out what happened in the story.  The two-week issue cadence has simply been too much for our boxholders.  I can see the business case for it.  The incremental production delta is probably extremely small for two issues in a month versus one.  It allows an effective monthly cover price of $5.98 without DC having to come right out and say it.  The incremental receiving and resale delta is significant, it's about the same as simply doubling the title count.  More work for us, for less gross and net per tree corpse sold.  I'm not sure we all recognized from the get-go that the negative effects would fall almost entirely on the retail tier, but that is how it went.

Story still trumps all.  Ultimately, if the content had held up, we all would have shut our mouths and sold dem books.  Star Wars and Darth Vader pushed a lot of content in 2015 and the reader public was like Billy Idol, it just wanted more, more, more.  We're treadmill-weary of DC Rebirth and the two-week issue cadence because the stories aren't resonating enough to pack an emotional punch.

Rising Costs of Business
This was the last straw, essentially, given the high labor load for comics as a category and Arizona's 20% increase in minimum wage due to take effect at the end of the month.  The minimum wage increases another 20% over two years.  I do not believe that a hybrid store can pay $12-$14 per hour for employees to work on comics, the end.  (Keep in mind about half that much again is eaten up in payroll taxes and administrative costs and fees on top of the hourly salary we pay.)

I think a cost per hour in the teens of dollars for labor is beyond what the product characteristics and value equation can support.  I think the evidence is on my side, with comic stores in $15/hour minimum wage localities forced to resort to digital panhandling to survive.  Maybe later in the I-hope-it-does future where a higher minimum wage has lifted recreational spending across the table.  But not now, and not for a while, and while I usually think long-term, I work in the now and the near while.

I fully expected a higher minimum wage to arrive, as I've written before on this blog.  I expected it to be the edict of a President Hillary, not the result of an Arizona voter initiative, but here we are.  My staff generally is diligent and industrious and is well worth paying above the minimum, but now that baseline has shot up a substantial amount.  It's a reality of the money not being there, or if it is there, taking so much from the bottom line that continuing to operate represents a poor investment, a poor use of capital.

I have been hedging everywhere I can toward lightening the labor load and reducing the service mix of DSG, such as with the installation of a kiosk and mirrored web store for TCG singles shopping, and moving away from the board game category where so much content depends on being hand-sold.  Comics requires not only meticulous and extensive ingestion of incoming orders, but also meticulous and extensive monitoring of subscriptions and customer accounts.  My media manager, Dustin, is an expert's own expert at doing this because of his experience managing a ledger of student accounts as an college academic counselor.  You might say DSG had the best possible personnel in place to make this work and it still gradually metastasized to the point where it simply required too much labor relative to its net sales.

Tree Corpse Media Won't "Die"
Comic books as an art form and the intellectual property based on comic stories are not going away.  They are too significant a part of our culture and the humanities of our times.  They will be studied for centuries.  They have existed since cuneiform and hieroglyphics.  Comics aren't going to "die."

Four-dollar (ish) limited prints of artwork on pressed barkskin to the tune of twenty pages?  That "comic magazine" will "die" in that it will probably diminish in every meaningful market respect.  It's gross indulgence.  I don't have a problem with gross indulgence, I'm a guy who modified his Nintendo 64 so it would output a 240p RGB signal directly from the VDAC chip through a THS7314 amplification chip onto a SCART adapter connected to a PVM medical monitor, because the resulting image looks more authentic.  But it absolutely is gross indulgence, and let's not kid ourselves, that's where we are with comic magazines.  In scathing self-reflection we must concede that we're really not that different from the hipster buying artisanal dog treats at this point.

Trade paperbacks?  Don't make me laugh.  If Amazon and Barnes & Noble don't get those sales offering them at roughly our cost, Kindle and iBooks and whatever other electronic delivery platforms will.  Heck, I have TPBs via iBooks.  And I own a comic book store.  Just as I think jukeboxes are cool as hell but I no longer use physical media to play music, we will find that obsolescence will eventually do its thing, and that the comic magazine will hold on as an artifact, but ultimately become a market afterthought.  Just as non-comic magazines have.  And books.

But comics won't die.  I can buy a 33rpm vinyl LP full of music right now, today, from a respectable variety of sources local and virtual, despite the product being, again, gross indulgence, obsolete and unnecessary.  It's a heritage art form now.  And as it is such, so also as such are comics unto us.

Tuesday, December 13, 2016

Discontinuing Comics After Three Years

It seems like only three months ago that I set forth the case for comics at a game store.  Little did I realize before the year was out that I would be exiting the category.
I wrote before that the main reasons to stay in the category were money now, the bounceback effect, and the attraction of crossover.  This stood against the negatives of immediate cost, space load, labor load, Diamond frustration, and the simple reality of dead tree media being on its way out.

Right around the end of September, the bottom fell out on comic sales.  The category has been in free fall ever since, but with regular weekly revenue and the ordinary seasonal downturn, the weakness of the category didn't become clear until I ran a bunch of numbers earlier this month.  If I were a superstitious man, I might point to the article as having "jinxed it," but as I don't believe in such hokum, I chalk it up to a coincidence of timing.

I do a lot of doomsaying here on the Backstage Pass, and that's not really where I want to go with this.  We all know comics has a sunset on the horizon.  We also don't think it's happening right now.  (If it is, you all can thank me for being the harbinger.)  I have stated before that I think it's likely a few years out.  However, the Pacific Southwest has proven to be what I am calling an "economically hypersensitive" consumer market.  We can't see canaries in coal mines from out here, because we are the canaries.  So if the earliest furtive tremors of the end of dead-tree media comics as we know them are in fact shaking, I absolutely believe they may be shaking here.

What is more likely is that the current comics downturn, the existence of which there is much less disagreement about within the industry, is sufficiently harsh for a store in my position that it turns too many of the factors negative at the same time, and triggers a core dump.  Comic stores operating at greater scale can weather the downturn.  Comic stores in less economically sensitive areas can weather it.  Comic stores with deeper subscriber box rosters can weather it.  Comic stores that auto-tap credit cards are probably better off to weather it.  My stores are none of those things.

We've been closing about a dozen subscriber boxes a week lately.  The shine of the DC Rebirth apple wore off, and nothing Marvel is doing right now matters.  I'm in a trackless suburban waste where we can't create our own hits, so nothing indie matters once you pass The Walking Dead.  Gamestop got their special deal on Kotobukiya/ARTFX+ so they can sell some of the best statues and figures at basically our cost from Diamond, to anyone who walks in the door, and that has ground sales of those items to a halt here.  We saw interest in Funko POPs drop again, despite carrying literally more than we ever have before.  There are probably things we are doing wrong in terms of merchandising and promoting the product.  For hand-selling and direct promotion, though, comics have been getting more love than anything else, and our comic staff has been diligent and industrious.  In the absence of a more concrete idea what we may be doing wrong, I have to assume we're busy firing Nerf bullets here, and they aren't punching through the target's armor.

The labor load issue isn't the biggest factor against comics right now, but it's about to become that on January 1st, due to a scheduled 20% increase in the local minimum wage and the anticipated even higher amounts that I will be paying because merit raises will remain at least proportionately in place.  About 10% of DSG Gilbert's payroll is a directly attributable increment servicing the comics category alone.  And that doesn't count the gargantuan amount of comic work that simply doesn't get done, mostly having to do with back issue curation and merchandising.  None of that counts the ordinary work of the staffer on duty ringing up a comic sale.  That sale could have been anything and would not have been significantly different.  With the other 90% of DSG's payroll about to increase by 20% in cost, that pretty much wipes out the available budget for the comics increment.  I think in a situation without the minimum wage increase, I might fight to keep comics alive at DSG.

The space load issue used to be a big factor against comics, and stopped being that.  Even now with closing one of the newly-acquired stores because its financial fundamentals were too far gone and its lease wasn't tenable, I still have gained enough space that it more than mitigates the every-square-inch-counts reality at DSG Gilbert.  I think in a situation where I had acquired more inexpensive space sooner, I might fight to keep comics alive at DSG.

The effective margin on my comics category has been among the worst in the store since at least the changeover to Crystal Commerce in June.  The best it got was 30% just as the summer ended.  For November is was in the negatives, actually cash-flow negative.  In the meanwhile the TCG singles category has become healthier and healthier and is sustainable and pushing volume.  Video games is lower on volume but makes TCG singles look like comics by comparison.  The opportunity cost of a dollar invested is kind of absurd unless I use it for TCGs or video games.  I can get miniatures, accessories, or some modicum of board games to round out the offering, but comics is about the worst option.  I think in a situation where I didn't have such far better opportunity spends available to me, I might fight to keep comics alive at DSG.

Ultimately it became a question of whether to keep comics alive at DSG, rather than me simply asserting that there were greater problems rotting the $1.2bn comics trade from its core.  God help us if I'm actually right about that.  But let's suppose I am not, and that the case for comics simply no longer favors them in my specific region and deployment.  You can safely disregard what I have done and keep on truckin' those funnybooks wherever your store is located.  I want to see my peers do well, to be healthy and prosperous.  I truly do.

I am sad to see comics go, and I am sad to be closing my University location as a result, as comics were all it really had left and it was impossible to sustain with the existing lease.  The first comic store I ever visited was at ASU, and it was beyond my wildest childhood dreams that I might own a comic store right in the heart of Sun Devil Country.  I guess I only got to have that for three weeks.  It was still pretty great, even for that brief time.

I move forward now once again as Desert Sky Games.  I won't use the old logo in the future as it did not translate well when not colored in, and reads "deh-ZERT-skee."  But at least my marquee sign, which in that original logo says only "Desert Sky Games," will now go back to being wholly and unambiguously true.

Tuesday, December 6, 2016

You're Welcome (Amended for Magic: the Gathering Retailers)

I see what's happening here
You're face-to-face with business, and it's strange
You don't even know how you feel
It's adorable!
Well, it's nice to see retailers never change

Open your eyes, let's begin
Yes, it's really me, it's Magic: breathe it in!
I know it's a lot: the rules look hard
When you're staring at a trading card!

What can I say except You're Welcome
For card sorting that'll take eternity
Hey, it's okay, it's okay, You're Welcome
I'm just an ordinary TCG

Hey! What has two thumbs that pulled up the trade
When customers burned out on role play?
This game! 

When the sales got cold
Who paid your rent from down below
You're lookin' at him, yo

Oh, then I sent players in your doors
You're Welcome!
To crack the packs for EV scores

Also I harnessed their wills
You're Welcome!
To fill your seats but not your tills!

So what can I say except You're Welcome!
For Trop Islands and Underground Seas
There's cash or there's trade, it's okay You're Welcome!
Ha, but can you turn enough to pay a lease?
You're Welcome! You're Welcome!

Well, come to think of it
Kid, honestly I can go on and on
I can explain every industry going-on
The dumping, the spikes, the crashes, yeah
Just Magic Finance there kicking your asses

I opened a store
Just me and my spouse
We run FNM and now we're a clubhouse!

What is the lesson
What is it WOTC said?
Who needs net income when you can burn overhead!

And the resellers dumping at cost?
We got full wholesale, there's nothing we've lost
Can't keep it up?
Can't make better sales happen?
Pay 'em to play so they don't have to spend to be tappin'!

Well, anyway let me say You're Welcome
For a small-business game no one wins
Hey, it's okay, it's okay, You're Welcome!
As long as there's gross revenue up ins!

Hey, it's your day to say You're Welcome
'Cause Hasbro's gotta pay dividends
Keep investing away, away, You're Welcome!
'Cause Magic just replaces you in the end!

You're Welcome!
You're Welcome!
And thank you!

-Image and original lyrics (C)2016 the Walt Disney Company.  Used in accordance with 17 U.S.C. § 107.

Tuesday, November 29, 2016

Together We'll Build a New World

So how was your holiday weekend?

I have been so excited about this news I could barely hold it in.

We're turning one DSG into SEVEN.
The Cliffs Notes:

  • Bahr moves backstage to be Administrator only for all stores.
  • Miller takes over as Operations Manager for all stores.
  • Griffin takes over organized play chain-wide, staff development, other authority.
  • Chapman becomes Media Manager chain-wide.
  • Existing managers remain in charge of their stores.
  • DSG -> DSG Gilbert.
  • Tempe Comics -> DSG Tempe.
  • CTC -> DSG University.
  • Chameleon/Bad Moon's -> DSG Ironwood.
  • New branch -> DSG Superstition. (Spring 2017)
  • New hub -> DSG Chandler. (Autumn 2017)
  • New branch -> DSG Payson. (Spring 2018)
  • Most store policies and practices remain as they are for now and will gradually integrate, borrowing the best and most successful aspects of each original store for use chain-wide.

The effective date of the changes is January 1, 2017, but you will see many things phased in before that, and parts of the integration won't complete until much later.

The detailed version:

Desert Sky Games and Comics, the existing location at 2531 S. Gilbert Rd, gains the suffix "South Gilbert."  While our lease is still up in the air at DSG Gilbert, our landlord is gracious and accommodating and has floated several possibilities that would keep us in place where we are.  Best of all, with the rest of our massive expansion underway, we have a lot of flexibility and leverage here.  For the time being DSG Gilbert will serve as the "retail hub" location.  DSG Gilbert will feature TCGs, video games, miniatures, and new-release products in comics and other categories.

Tempe Comics at 1523 E. Apache Blvd becomes Desert Sky Games and Comics - Tempe.  DSG Tempe will serve as the "event hub" location, and will push even further into supporting premium gameplay experiences in the vein of stores like Super Games in Atlanta or Madness Games in Dallas.  New-release comics, minis, and video games will be present, and TCGs will be massively supported at this location.  We will be applying for some FFG Regionals to be held at DSG Tempe this coming summer.

Critical Threat Comics, formerly Pop Culture Paradise, at 715 S. Forest Ave in Tempe, in the heart of my alma mater's main campus, becomes Desert Sky Games and Comics - Arizona State University.  DSG University has heavy customer traffic and a deeply developed casual play community and will emphasize that as well as hosting the massive chain-wide comics library and archive.  There will be no miniatures and a reduced emphasis on products outside the comics and pop-culture categories as this location is better suited to that product mix.

Chameleon Collectibles, formerly Bad Moon's Gaming, at 2015 W. Apache Trail, in Apache Junction just west of Ironwood Drive, becomes Desert Sky Games and Comics - Ironwood.  DSG Ironwood gives us reach into a sizable community of players who have no other store near them, so TCGs and video games will be supported extensively, and this location will also serve as the DSG "last chance outlet store" where bargains are available to those who like to hunt those down.  We may move non-TCG eBay fulfillment to DSG Ironwood to support this until the Chandler location is ready.

A new location will open in Spring 2017: Desert Sky Games and Comics - Superstition Springs Mesa.  We were offered can't-say-no rent numbers on commercial space at the Superstition Springs complex, a commercial center hosting dozens of strip plazas, big boxes, warehouse stores, restaurants, and a traditional shopping mall.  There are multiple vacancies so we have not yet made our final call on the store suite, but the spaces we are selecting from range from 2,000 to 4,500 square feet.  If we end up inside the mall proper, which their management really wants (and the offer numbers back that up), then we get to have a traditional mall store, which has all kinds of side benefits when it's a branch of a chain, and can be restrictive when you're a solo store.  This also allows us to lock in coverage at one of the most important geographic intersections in the entire east Valley: Power Road at US-60.

A new location will open in Autumn 2017: Desert Sky Games and Comics - West Chandler.  (East Chandler is already served by the original location.)  We will reveal the exact location later as we would prefer it be a surprise.  Nestled in the hollow bounded by the I-10, AZ-202, and AZ-101 freeways, this will be the new primary hub location.  We have backup locations prepared but we've got our Letter of Intent in on one that is over 14,000 square feet.  All our shipping and fulfillment and web operations will move here.  Our vintage arcade will be here.  All product lines will be featured, and everything will be kept stocked until remainders are sent to DSG Ironwood.  We get only a portion of that square footage to begin with but once we have it all, DSG Chandler will be one of the biggest game stores on the continent.  Even when it first opens at just under half that footage, it will be the largest game store in Arizona, narrowly edging past two outstanding stores, Game On (Prescott) and Imperial Outpost (Glendale).

A new location will open in Spring 2018: Desert Sky Games and Comics - Payson.  We have a good open-ended rental opportunity and a chance to be the only comic or hobby game store for the entire Rim Country region.  This will also serve as an ideal template location for our pre-planned branch builds, an idea that Patrick Hug came up with earlier this year.  Once Payson is mastered, we can target other areas that would appear to be well-served by a template branch, such as Casa Grande or Kingman.  Payson is a mountain camping/fishing/hiking tourist town that doesn't do much during the snow-drenched winter, so if you can't open there in the spring, you wait another year.  Why even announce a 2018 opening so far off?  We want to give our players a look at the big picture and where we are headed.

But what about the people?  That's where the real value move is in this equation.

Each store location has staff members who make our customers' visits happy ones.  It is easy in this industry for employees to be seen as interchangeable parts.  We try to find people who bring more to the table than that, and once they flourish within our crew, we like to keep them.  To my tremendous delight, it appears we are keeping every staff member across all stores through this transition.

Lauren Alexander and Chris Huish will remain managers of their respective stores.  Store managers, more so than owners, have their hands on the throttle and influence the store culture.  Having both of them flying the same DSG colors strengthens their crews and the brand, and gives customers an expectation of a higher standard and a better feeling of comfort from "home-field advantage."

Dustin Chapman boarded the DSG train in early 2015 as a comics specialist and has advanced since then to broader Media Manager authority, including overseeing our pop-culture deployment for conventions and off-site events.  Comics is a category that gains a lot when you can centralize processing, so it was a natural move to promote Dustin from DSG Gilbert's management team to chain-wide oversight of those operations.

Mike Griffin is an active DCI level 2 judge, bringing current experience with competitive prestige event staging within the DSG ownership group.  (I was level 3 from 1999-2003, but that was forever ago, and honestly, today's level 2s are better judges than I was anyway.)  Beyond that, Griffin is extremely popular in the community, making him an effective public face for the franchise.  He also has additional technical and logistical expertise that will come into play in other parts of the DSG business plan and won't necessarily be highly visible.

Erik Miller has been in the trade for a decade and more, and specializes in front-end operations and customer relationships.  Like Griffin, Miller is also more popular than I am, making him better suited to see and be seen in the trenches, making him another effective public face for the franchise.  Every major organization that has an investor group puts the charismatic members in the spotlight and lets the silent and non-sociable members operate behind the scenes.  DSG should be no different.

Which brings us to me.  My strongest skill set is in administration.  Frankly, I am not optimal as an operational manager and a supervisor of human beings, though my staff at DSG Gilbert has been making me look good for a long time through their strong performances.  My future plans include reapplying for a license to practice law, and DSG gets the best bang for its buck when I administer all the stores and the business entity, including finance, human resources, payroll, legal compliance, procurement, logistics, and so forth.  I will keep writing, I expect.  I am a polarizing figure in the community and I don't want that to be a business detriment.

There will no doubt be questions as we move forward as far as what people can expect from the experience.  I'll hit some of the most obvious ones here, but the real answer to most questions is, we will do what makes the most sense and gives our customers a consistent positive experience while being healthy and sustainable.

Q: Why keep/use the DSG brand with such a massive upheaval?
A: We had a few brands available and involved already from the merging stores, but none were deeply established, and "Desert Sky" lets us operate over a wide area and still capture regional flavor.  It was possible we could have started over under a new brand entirely, but in the end there were too many positives to justify discarding it.

Q: Will store hours, event times and days, etc, be the same at every location?
A: Mostly.  We will phase in changes between now and January 1st.  The best way to assure turnout for a daily event is consistency, so for most things, we're either leaving it alone entirely, or making a definitive change and ripping the band-aid as soon as possible.  The better an event is already performing, the less we want to screw with it.

Q: Will cards cost the same at every location?
A: Eventually yes.  The point-of-sale is not integrated yet and won't be for a while.  Crystal Commerce does not do multi-store.  But the standard for pricing chain-wide is for lightly played cards (according to TCG Direct, which means near mint by most peoples' reckoning) to be TCG Market price.  Buying ratios will also be made consistent.

Q: What will tournament prizing be?
A: To be announced.  Right now everything is staying the way it is at each store, which is not the same across the board.  We want to capture the best parts of each store's offering.  Pack prizing has been enormously successful at DSG Gilbert, especially in building a play experience that is more pleasant for participants, even those who like to play competitively.  However that success for Standard, Draft, and Sealed has not carried over to Modern and Legacy, where nobody wants packs and never will.  It may occur that every store running Eternal constructed events will issue prizes in store credit for those.

Q: If I am banned from one DSG, am I banned from all of them?
A: It's an unpleasant topic but I know it needs to be addressed.  So, good news: Minor bans and short-term bans are going to be disregarded.  We want to give folks a chance to start again with a clean slate.  I also know some people who are not banned dislike DSG Gilbert purely because of me, since I am so polarizing as a person.  I don't want that to get in the way of you having a good time at the DSG location of your choice.  I am going to be far less prominent in the company anyway and you will virtually never see me around regardless of location.  You probably like Miller, Griffin, Chapman, and the store staffers just fine, so why don't we start over fresh?  So we're rolling out the welcome mat for most everyone.  However, for individuals who have been banned due to malicious conduct, such as theft, violence, threats, or making private party cash deals on-site, your ban is now chain-wide.  Enjoy the other stores in the Valley... if they will have you.  I assure you, they don't need your $5 FNM entry that badly, and none of them want to become known as the store where thieves, bullies, harassers, etc, are welcome.

Q: Can I pick up my subscription pull box comics at any location?
A: We are going to ask that you pick one, but you can pick any of them.  Moving a comic box from one location to another should be as simple as a request.  However it's not feasible to have box pickup dynamically on demand at any store... yet.  (This might become possible in the future with good software integration.  No promises.)

Q: Can I use my store credit at any location?
A: Yes, absolutely.  By January 1st we will have a more robust process in place for this, but until then we don't mind doing it the low-tech way, calling from store to store and striking your credit at one store and adding it to your account at the other so you can use it there.  Please allow us extra time to facilitate the transaction, and please don't ask for this at 6:45pm when we're trying to get the 7pm event fired off and there's a line at the registers.

That's about it for now.  Miller, Griffin, and I plan to get together and create a Facebook video or something of the sort later this week where we talk a little about how this all happened and what we hope to be able to achieve moving forward.  I hope you'll be able to tune in for it, I'll link it in a future article.

So there it is!  The comic and hobby game industry is in vast upheaval these days due to forces within and without, and nobody is sure what the outlook moving forward is going to be.  We think we can do something amazing that will change the game and go from a saturated, cut-throat regional metro market to a new world of clean, inviting, accessible fun, with locations within reach of our players and collectors as much as possible.  Dream Theater taught us that the best way to build a new world, a wondrous world, is together.  We hope you will join us!

Tuesday, November 22, 2016

The Trading Card Game Landscape Suddenly Shifts

If there has been one thing retailers in the comic and hobby game trade have been able to bank on since the demise of Decipher a decade ago, it is that there are no viable players in the trading card game category beyond Magic: the Gathering (designed for a broad tabletop audience), the Pokemon TCG (designed for youth and families), and Yu-Gi-Oh (designed for juvenile delinquents).

Come what may, nothing new has gotten into that category and stayed there, at least not healthily, and not sustainably.  Year in and year out, stores could make their hay entirely on those three games; indeed, entirely on Magic if they so chose, given a narrow enough focus and sufficient expense control to ride out market variance.

Check out the rogues' gallery of also-rans that have made wide-release attempts to try to break into the TCG realm (and some are still trying):

Cardfight!! Vanguard - Nearly inscrutable to mainstream audiences, gutted by deep online discounting, has the anime "questionable content" problem in spades.

Dragonball Z - Godawful rarity system, eviscerated by deep online discounting.

The Eye of Judgment - This Playstation hybrid TCG was undone by the fact that you could play the game just fine with photocopies of the cards.

Force of Will - High production value marred by horrible product availability during the critical growth period.  Oh, and by deep online discounting and speculation.  Among all the failed anime TCGs, this one seemed like it might have had the best chance to do something.

Future Card Buddyfight - Nearly inscrutable to mainstream audiences, gutted by deep online discounting.

Kaijudo - Nobody knows why this reboot of Duel Masters failed, only that it did.  It had great support and was no worse than anything else Wizards of the Coast makes in terms of price and brand integrity.

Legend of the Five Rings - In print for decades somehow until AEG finally pulled the plug, deep online discounting made this product utterly horrible for retailers for its entire lifespan.  I am conflicted knowing Fantasy Flight is rebooting it as a Living Card Game.  This is a product I swore I would never carry again.  Or even take special orders for.  Or even accept for free.  I planned to light it on fire if I ever got any.

My Little Pony - A string of missteps by first-time TCG publisher Enterplay basically killed this game in utero, and the fading out of the Brony fad took over from there.  Deep, deep online discounting.

Weiss Schwarz - High list prices, but nobody ever paid them.  A shame for a game that was designed to be a shell for every premium anime license they could find for it.

There's a trend there, if you want to accept it: Anime is basically commercial poison.  Its strongest appeal is to a demographic that perpetually has little money: teenaged boys.  A shame for an old otaku like me who used to enjoy anime considerably.  This was when I was a deadbeat, sure, but the point still carries.

The autumn of 2016 brought the first real potential shake-up to trading card games that I can remember since Pokemon itself burst onto the scene in 1999.  Releasing practically on top of one another earlier this month and a few days from now, Square Enix has brought a legendary video game franchise to the tabletop with the Final Fantasy TCG, while Asmodee Fantasy Flight has dipped into the Star Wars well and added silkscreened dice to the equation with the Star Wars Destiny TCG.
Several of the also-ran TCGs above had some demand in the early going before reaching a cliff-like drop-off largely borne of online dumpers bogarting the supply.  Force of Will took the longest to do this because early supply was so inadequate, but YY Card World apparently prefers to bend over dollars to pick up dimes because there they were selling direct to the public for a pittance of margin before the game had even shifted into highway gear.  What would be different about these two new products?

The latter presents a more obvious case: Asmodee North America's sales channel restrictions and online ban have been proven reasonably effective thus far at reinforcing brand value.  Star Wars Destiny is subject to the same resale terms.  Fantasy Flight threw retailers a semi-expected bone by permitting secondary market sales of singles from the game (and all FFG games, a fact that DSG is hard at work turning into a viable X-Wing and Android Netrunner resale framework).  Will it be enough?  The proof will be in the results, but I think market malfunctions in the mechanical sense won't be the undoing of Destiny, if it is in fact undone and not a sustained success.

Square Enix has taken an interesting approach, mirroring that of the video game industry as a whole and tabletop entities such as Upper Deck: a short margin.  If I sold Final Fantasy booster boxes for the price I offer Magic pre-order boxes, I would end up losing money after sales tax was accounted for.  That is how short this margin is.  It didn't stop the armpit of the hobby trade, the Gaming Goat "chain," from offering presales at virtually no margin at all.  Fortunately, they were only able to ruin this release for themselves.  Any other store that got any product (it was exclusive to one distributor that not all stores maintain volume with) was easily able to make MSRP and then some, even on pre-orders.

The results are informative, though they will not be dispositive for some time.  Both games have gone completely nuclear in terms of consumer demand.  Both appear set to deliver safe and healthy sell-through for at least the rest of 2016 (to the extent we can get product!) and into the early new year.  Both have sky-high production value; the Final Fantasy TCG is, in fact, the finest trading card product ever made from a physical standpoint, and it is not close.

Once we finally had a release date for Final Fantasy, October 28th (which was missed and then missed again before finally releasing on November 11th), I opened up in-store and web pre-orders for starter decks and booster boxes.  I had gotten in early because my store carries video games, and this seemed like a safe carry, but I did not want to go too crazy, so I asked for several dozen booster boxes and starter boxes, and largely received it.  I saw that pre-sales at less than MSRP were long gone and boxes were floating a few dollars over that point, so I launched at $150/box or $210 for a bundle of the box with all three starter decks, with about a quarter of my expected inventory.  It was gone within hours.  I put another quarter up, this time just boxes at $170.  Gone in hours.  More, at $180.  Gone.  I kept the rest for in-store only pre-sales, and it all sold.  This game was a 100% sellout before I had ever received a single card of it.  Even Star Wars Destiny hasn't achieved that, though it's not far behind.  Now, distribution reports that starters will be restocked in a few weeks, but the Opus I booster box will not reappear until February, a mere month or two before the Opus II boosters arrive. Wow.  I sincerely hope Square Enix can do better than that, because their moment is now.

Star Wars Destiny was previewed at Gen Con and at some autumn distributor shows, and the early buzz was positive on the retail side, but I had yet to hear a single give-a-damn from the customer side throughout the summer and fall.  Then, a few weeks ago, someone turned on the light switch.  Sky-high demand materialized seemingly out of nowhere.  Fantasy Flight offered us a "pre-release" of sorts, more of a learn-to-play day, and it also sold out in advance at $15 admission.  I ordered my way into quite a few boxes of the debut set, "Awakenings," and about half of them are spoken for on pre-order as of this writing.  A few displays will be broken for singles, and the rest will become day-one shelf stock next Thursday.  We've already got people asking how soon they can buy more boosters.  The Force is strong with Star Wars, what can we say.

Nobody can know for sure what will happen with these two new TCGs, but we can surely speculate.  I have been dealing trading cards in some form since 1998.  I have seen a lot of games come and go.  The leading indicators for both games are Army Strong, but this is also a different market landscape than any of us have lived in before.  One thing I am confident saying is that this landscape suddenly has shifted.  May it shift us to a healthy and sustainable business scenario.

Tuesday, November 15, 2016

Thoughts, Part 5

What a difference a week makes.

Image credit to  Don't worry, I have not suddenly gone political on this blog.  I am limiting that discourse here to the vantage point of my business and industry.

This time last week (Tuesday morning) my thoughts were almost entirely operational in-store.  Working on what I was going to do with money that week, what my managers were going to do with events and tasks, and what my staff was going to do with what my managers laid out before them.

By Tuesday evening I was being medicated intravenously in the Chandler hospital emergency room due to a bariatric blockage and severe dehydration.  Serious stuff.  I went out of commission around the time the news talking heads were dithering over whether to call Florida.  I knew about some of the election results by then, and I was even Facebooking about them, but I did not actually know the big one until the next day, which I spent recovering from my brush with mortality.  I told the attending physician when I had my EKG that if a cardiac event had taken place, I wanted him to call the press and say that the election results had given me a heart attack.  Great publicity!

I did not think Donald Trump was going to win, as you can observe when I incorrectly forecast a Clinton victory in an article just a few weeks back.  I also don't think the Office of the President has the most proximate impact on how stores like mine operate.  I differ from President Obama fairly extensively in an ideological sense, but you will observe that he has been the Chief Executive for 100% of my store's days in business thus far, and I have managed not to be nationalized.  What Obama has done from day to day has just not moved the needle much for DSG.  In most respects I expect the same to be true under... sigh... President Trump, a pair of words I never expected to type in that order.

Two down-ticket voting matters portend a far greater impact on my business.

First, Sheriff Joe Arpaio was finally sent packing from the constabulary of Maricopa County, in which DSG exists.  His departure will not only spare thousands from his gross abuses and violations of rights, but will also spare the public treasury the expense of the vast ledger of lawsuits he routinely loses in the course of committing those abuses and violations.  Like the eradication of the Scowrers in the Sherlock Holmes tale "The Valley of Fear," the mere removal of oppressive evil should suffice to elevate the good throughout the community.  When people are happy, they buy things.  Ita vero.

Second, and far more importantly, Arizona passed an increase in the minimum wage to $10 per hour as of January 1, 2017, ramping to $12 per hour a couple of years in.  (It is $8.25 now.)  The political support for a higher minimum wage is, in brief, an expectation that spending will increase along with it.  Setting aside how Hazlitt or Bastiat would savage such a postulate, let us suppose that it will in fact occur.  My target audience includes large portions of people whose base pay is getting increased.  In theory they will indeed start spending more.  How surely, and how immediately?  Well, the answer to that is where small business takes it in the pants.  We are just supposed to pay higher wages until that positive effect kicks in, if it ever does.  Nobody ever offers small businesses any kind of cost mitigation for this, which is ample evidence how confident proponents really are about the spending boost.  And there is only one place for the money to come from, which is my own take-home pay.  My lower-middle-class lifestyle stands further imperiled than before, if that is even possible.

Without giving away core numbers on Al Gore's Internet for all to see, the minimum wage increase amounts to about an increase in costs of about 1.5% of gross most months for my store.  Not that bad, right?  But my net from the store is only 3% to 7% of gross most months.  (I am disbursed money in a form the IRS calls a "guaranteed payment," a compensation mechanism for LLC equity holders who operate their businesses, but my pay is entirely funded by the store's net profits after overhead, and it is anything but "guaranteed.")  This amounts to a huge pay cut for me personally, anywhere from ~20% to ~50% of my actual take-home.  If your boss told you to take a fifty percent pay cut, be honest, your resignation letter would be on his desk within the hour.  Why would anyone expect it to be different for a small business owner?  So this is an issue of scrutiny for me.

As it happens, I have been building a hedge against a minimum wage hike for months now, though I expected it to be the edict of a President Clinton instead of an Arizona voter initiative, of all things.  In general I have sought to reduce labor load where possible and avoid too visible or dramatic a reduction in service.  Categories of goods that required hand-selling, such as board games, were already in trouble; this appears to have nailed their coffin shut.  The installation of kiosks and migration to a cloud-based singles-aware point-of-sale system (in this case Crystal Commerce) further reduces the labor load to administer my highest-volume product category.  My staff are diligent, industrious, friendly, and effective.  They also can only accomplish so much customer interaction at a time, and then add in maintenance and inventory tasks.  Something has to give.  If I have to pay them more, they have to do more, but also I have to find ways to get them stuck less.  This has been a huge part of my personal workload for a while now and will continue to be.

Wednesday after the election saw even less spending than Tuesday, so customer attitudes certainly did not revert right back to joyful consumption, but the weekend was wonderful.  Friday was Veterans' Day and we were packed from bell to bell, along with a minor Magic release, Commander 2016, for which I won't be writing a post-mortem.  It's good, people are happy, and unfortunately there is one deck that Saffron Olive, Rudy, or whoever it is this week leading aspiring MTG Financiers around by the nose, told them to buy, so that's the one we're running the lowest on.

Friday saw the release of the Nintendo NES Classic Mini, for which Nintendo produced approximately fourteen units and shipped them all to a Target in rural Wisconsin.  This item was essentially sold out nationwide within hours.  They probably made four or five million units for release day, which is great except that forty million people wanted to buy one.  Of course there will be pallets of the NES Mini at Costco by March 19th at MSRP, but what happens in the meanwhile?  Hopefully Nintendo can get some more quantity out there to thwart the grotesque levels of scalping we are seeing on eBay and Amazon -- have patience, folks!  Don't overpay for this! -- but absent some great reinforcement, this is going to be our annual seasonal unicorn.  Distribution allocated us zero units, by the way.  We are neither Target nor Toys R Us nor Gamestop, who got the lion's share.

Over the weekend, we had a big retro video game buy including a mint-in-box 1972 Magnavox Odyssey, the first video game console ever made and the only one older than I am!  Look for it in an eBay auction coming soon, or you can make your offers to us directly.  It's absolutely gorgeous and the box is in great shape, especially compared to what's circulating.  It even still has the dry cell batteries with it, and various paper and plastic game aids.  It's very cool to know that even when you're just doing business as usual, really special stuff can still come walking in the door.  The seller was realistic on price and we overpaid slightly but I think it's a reasonable risk.

That's all for today's installment of Thoughts!  I'll be back next week with pre-holiday musings.

Tuesday, November 8, 2016

The Frogurt is Also Cursed

In a classic Simpsons Halloween episode, Homer buys a monkey's paw from a caricatured vaguely Eastern occult shop dealer.  (As a side note, there are similarities between the occult shop and some of the stores you'll encounter in the comic and hobby game trade.)
The dealer whipsaws Homer back and forth between dire warnings to cheerful tidings as he explains that the objects in the store each carry a terrible curse, but they also sell frozen yogurt, and so on.  It is one of the all-time great Simpsons scenes.  All Homer can think to say to each of the dealer's blandishments is "That's bad," alternating with "That's good!"

Imagine if I had to explain the state of our industry today to Homer Simpson...

ME: The comic and hobby game trade has grown into a combined $2.5 billion industry.  Recognition of comic IP has never been more mainstream, and tabletop games have become so prevalent that they are appearing at big-box stores now.

HOMER: That's good!

ME: ...where they are being offered buy-two-get-one-free and rotating red-dot clearances, grossly devaluing the product in the mind and expectation of the consumer.

HOMER: That's bad.

ME: Fortunately there's more product.  More than ever before, and the best games are even better than they ever have been.  Publisher consolidation has put real money behind top titles and given them sky-high production value and broad, effective marketing.

HOMER: That's good!

ME: Of course, where there are haves, there are have-nots, and the stones the mega-publishers rejected have not become the biblical cornerstones.  Those games have instead created a crowdfunding-fueled glut of crap so overwhelming that the retail wharves are outright collapsing under all its weight.

HOMER: That's bad.

ME: But it's okay!  Because board games gangway before the 900-pound gorilla of Magic: the Gathering!  The quality of Magic releases is the highest it has ever been, with more cards players love and more ways to get them than ever before.  Magic is having its biggest year ever and just finished releasing five booster sets in a six-month span!

HOMER: That's good!

ME: Which ran our customers pretty much right out of money and left us all gasping for sales right when we needed to be ramping our way into the holidays.

HOMER: That's bad.

ME: Which means it's a good thing the "other" trading card game, Pokemon, is celebrating its 20th anniversary with an entire year of mini-releases into a market that just snorted an entire barrel of nostalgia cocaine in the form of Pokemon GO, and is so thoroughly dusted that stores could stock day-old fish with the Pokemon logo right now and probably sell through.

HOMER: That's good!

ME: All we have to do to take advantage of this torrent of Pokedollars is accept short margins, channel exclusives, feast-and-famine demand cadence, and a singles market that mainly consists of newlywed Millennials all trying to sell us the same binder of Base Jungle Fossil that they kept in their closets for sixteen years so they could pay off their Sallie Mae loans by trading in that single shuffle-worn Charizard.

HOMER: That's bad.

ME: But do you know who does have great trade-bait most of the time?  Video gamers!  Downloadable content is the future and we all know it, but the retro video game trade is roaring right now and there are millions upon millions of units of software and hardware circulating, making an excellent market for a store that knows how to develop meticulous processes for handling collectibles... you know, like the kind of processes one might use as a dealer in trading card games.  It's a short crossing of a shallow chasm to get from the tabletop to the console, and with the right tools and knowledge in hand, many comic and hobby game stores could achieve the traverse.

HOMER: That's good!

ME: Of course, getting those tools and that knowledge doesn't come automatically, and a dismaying number of retailers in this trade seem to think that the entire world will hold their hand and be their commercial nursemaid as they run a make-pretend business clubhouse.  And when someone of questionable business acumen suffers the turning of the tide, their go-to playbook has been to dump core product.  Just as with board games, this ruins it for everyone.  When luxury goods are reduced to commodities, value perception craters in the mind of the consumer.

HOMER: That's bad.

ME: Some publishers got tired of seeing their entire body of work turned into a flea market booth.  The likes of Games Workshop, Asmodee North America, Mayfair Games, and AEG, to name a few, use vertical distribution mechanisms as a form of brand protection and make dumping product prohibitive or even effectively impossible.  Even when turn rates on their products hit a trough due to seasonality or whatever reason, the asset hold on those publishers' inventory has become more of a safe haven than before they took those steps.  A patient store with a controlled operational expense ledger and good market positioning can feature those products without worrying that it will all become sand beneath their feet as Queensr├┐che warned.

HOMER: That's good!

ME: It's difficult to say whether it's enough.  Consumers are trained to shop the mass market now.  Big-boxes, Amazon, mega e-tailers.  Even when brand protection is in place, many indicators suggest that a substantial number of players continue to press the Prime button rather than buying from their Friendly Local Game Store.  There's nothing malicious about it; humans are simply creatures of habit.  The smartphone dominates all of human society now, and the mass market has the resources to best harness the almighty smartphone.  The retail landscape is in upheaval the likes of which we've seldom seen.

HOMER: That's bad.

ME: I'm not sure it is, in the long run.  Tout change avec les temps.  It has never been easier to be a consumer, and at the same time never more perilous to be a retailer.  Those of us who intend to keep doing this must adapt psychologically as well as structurally.  That is difficult when a game store cannot even articulate what its business psychology or structure is, beyond a rudiment of "I buy things and then charge a little more and sell the things, and I keep the difference."  If that's all you're doing, it's in the market's interest to cut you out of the equation.  I'm not saying we should all become the mythical no-retail board game cafe, or even that "butts in seats" is the Way, Truth, and Life, as one publisher persistently teaches.  I'm saying a comic or hobby game store needs to leverage proximity, flexibility, and execution to present a psychologically competitive attraction to the typical player/collector.  That person has to be able to get to you reasonably conveniently, and then has to want to show up, and then has to be glad they did.  Those are nebulous metrics, but they are the ballgame right now.  They apply whether it's the guy who shows up every night for Magic or the gal who is never in the store for more than ten minutes every week but invariably walks out with a stack of Image books.  And they apply for the kid who comes in every afternoon and looks at the merch for an hour and then leaves.  The grognard shopkeep begrudges the kid's presence.  The insightful one realizes the kid is building up the wish list of his dreams, and is mentally preparing how he will spend every dime of his birthday money next month.  To succeed, the store owner must understand these psychological factors every bit as well as he or she understands the store's structural logistics.  This includes both the self-awareness to detect bias or error in his or her own observational analysis, and sufficiently honest self-reflection to pivot away from a preferred plan into a different plan that might expose his or her own prior wrong decision or faulty judgment, but has revealed itself clearly to be the correct course of action now.

HOMER: ...

ME: That's both good and bad.

HOMER: Can I go now?

Monday, October 31, 2016

Who Turned Out the Lights?

Can this election just be over?  There is always a pronounced negative effect on retail sales during the U.S. Presidential election years, because consumers value certainty.  There will be a boost in sales no matter who wins.  (Hillary Clinton is going to win.)  In 2012, Desert Sky Games was still newly opened and did not expect much in the way of sales.  In the four years since, we developed a very accurate idea of what we expected.  And a curve ball showed up anyway and shot my careful planning straight to hell.
Every November, the comic and hobby game trade slumps.  The first half of the month is just dismal, with sales figures that make late February look bountiful by comparison.  The lights go back on somewhat going into Thanksgiving week, then Black Friday and Small Business Saturday, only for sales to quiet down again until mid-December, at which point it's like a firehose of money spraying our faces until a week into January.

Why does this slump occur?  There are several contributing factors:

  • Consumers save up for holiday shopping.  Obvious enough.
  • Public employment finishes much of its work for the year, because so many government workers take a lot of vacation/leave time in December.  This means people are nose-to-the-grind right now, and not out shopping and recreating.
  • Colleges are in go-time, with fall-semester finals on the horizon.  Not the best sales stimulant if you sell a product that appeals to college students.  You know, like strategy tabletop games.
  • High schools are in go-time, with second-quarter finals on the horizon.  It seems like most districts have normalized this now; when I was in high school, finals were after Christmas break and that made for quite the welcome-back.
  • Specific to our industry, the biggest release of the year, the Magic: the Gathering autumn expansion, lands right at the beginning of October, and now all the credit cards are coming due, forcing belt-tightening.

By the end of October 2015, Patrick and I were battening down the hatches for the dry spell we knew was ahead.  We reduced our Magic buy ratios, we decreased the restock volume for most product lines, we dropped the payroll budget by an increment, and we loaded up eBay full of fresh merch to clear.  And despite all that we were still sweating the bills by Thanksgiving week.  We were still missing out on some good opportunities due to having to dip into our war chest of buying funds just to cover operating expenses.

This year was going to be much the same, but then the plunge occurred almost three weeks early.  A curveball I truly had not anticipated.  In-store sales dropped off sharply enough that I wondered if a competitor had gotten in a shot on us.  No, it looked like Magic sales were still substantial, if a bit lower than last year's pace, and there isn't any other competition nearby impacting anything else.  The missing revenue would have come from board games, miniatures, and comics, none of which performed.  The ensuing week was a bloodbath that saw me dip into reserve fuel to an uncomfortable degree.  The weekend was back to average, so I figured that was just a blip.  I set up to accelerate some of our overstock, closeout, and ding-dent sales and specials to cover the shortfall.

The following week came in a bit below average.  Not enough to get us healthy but enough that I could still pay all the bills.  I did our finances and figured that as long as we weren't much worse the following week, we could lean on our weekends and buoy that safely into the November slump.  All would proceed as expected.  I ordered very light from distribution knowing the terms would be due for those orders the same week rent came due.  I amped up eBay a bit and even solicited out some Pokemon overstock to fellow retailers. In theory every hatch was sufficiently battened.

And then we lost a weekend.

It was uncanny.  The weekend of October 22nd-23rd turned in numbers like average weekdays did in September.  It left the store around $6,000 short of projected revenue.  The scramble was on.  I know a few things about moving money around and we got through the week, but oh man, I was sweating it.  Terms that week were from orders placed before the early slump of the week previous.  So they were still hefty.  I had two large cash buys come in the door that I was not going to pass up, even though that meant expending precious reserve fuel at a time I was burning it for heat and light.  This was the correct call, as the buys were Standard relevance and hot video games and both sold through quickly.

There's a mentality in business that if you can just get the doors open another day, you can get healthy again.  It is truly difficult to knock a store down hard enough that it can't get back up.  It happens, especially if a Taxmageddon scenario ensues, or some insurance or crime disaster like the Atomic Comics flood that vastly exceeded their insurance, but usually a closure is not because of those things.  Usually a small retail closure is the result of prolonged decay.  When a wave of shocks like our second half of October hits, even a modest store has a resource base to draw from.  First cash, then credit, then inventory, and finally equipment.  If it came to it and I needed half a grand in thirty minutes and the cash register was empty, I could rip one of the computers out of the till fixture, peripherals and all, and take it to a pawnshop up the street.  That's a horrible, value-eviscerating way to survive, but it is survival.  And then you can open the doors another day.  After a store has spent a year or two withering, its resource base has rotted from the core.  The first shockwave puts the store onto the metaphorical defibrillator, as there is nothing to reach for to withstand it.  If a second shockwave hits, it results in constables posting legal notices on the front door and padlocking it shut.

Last week commenced, and by Wednesday's close it was pacing to be the store's worst week of 2016.  It closed as, in fact, the worst week since at least mid-June when we switched to our current POS, before which comparisons are not precisely apples-to-apples.


One thing I learned in my previous times in business was that if you have to take a serious step to ensure you have stopped the bleeding, take that step right away and get the recovery started as soon as possible.  Thursday I went ahead and engaged in a Reduction In Force (RIF), laying off three part-time employees.  I did not want to lose them and I made it clear to them I hoped to recall them at the earliest possibility.  But with special sale promotions already happening and categorical moves addressing our structural inefficiencies, payroll was the next expense available to cut.  I hated to do it, but I went ahead with it.  I suspended my own pay as well; in essence, I am always my own first layoff.  I am the owner; I will know when the coast is clear again for me to take a disbursement.

Things followed the RIF about as I had hoped.  By the end of that same day we had turned in a much better sales figure.  Friday was within reach of normal.  Halloween ComicFest was kind of a dud, but we rustled up almost enough Saturday sales to close the gap.  Sunday was an expected throwaway due to its positioning between the two holidays of Halloween (Observed) and Halloween (Traditional).  Gradually, excruciatingly, we clawed our way forward.  The sales trough is far from recovered, but by Monday we knew that rent and payroll and bills were safe and dealt with.  I don't know how soon my three lost soldiers will get their evac copter sent out, but now at least I know I will be sending one.  The reduced staff level won't become the New Normal, which would have been an outcome I did not want.  Instead, the lean staffing will end just before the seasonal slowdown does, giving me time to ramp into the insanity of holiday shopping.

My next two months of work are basically set at this point.  I've finished optimizing the primary retail area, which I'll have some photos for the blog at some point I hope, perhaps when there is some sweet signage in place.  I'm about to construct a new tertiary retail area for higher-value video games and for our unified buy counter.  That will be effectively the final bitter end of work I will do on the present Gilbert facility unless and until I get a lease renewal or extension.  Then it's just sales, sales, sales.  Which will be a nice change of pace from an entire year of almost constant upheaval.

I am one of the lucky ones.  So many stores announced closures in the past two weeks.  Huge, titanic businesses announced they were shuttering or selling out.  Everyone from The Happy Viking to Game Universe to Your Mom's Basement to West Texas Cards & Games, and the bloodletting appears far from over.  System outages for our point-of-sale, Crystal Commerce, cost us thousands of dollars in revenue, and for many stores that was the straw that broke the camel's back.  In a market rife with dreamers willing to burn capital right in their faces to poach market share, they looked at their stock, looked at their lease, and decided the money ended up better if they yielded the floor.

One postscript I want to leave you with today.  There is a book called A Civil Action by Jonathan Harr.  It is a documentary-style novelization of the events of the case Anne Andersen et al. v. W.R. Grace et al., the vast toxic waste leukemia litigation of the late 1980s from eastern Massachusetts.  It was eventually made into a decent movie starring Robert Duvall and John Travolta, but only the book is relevant to my point here.  In the book, the law firm's financial manager James Gordon has to find ways to pay vastly escalating bills and expenses while the flow of cash into the business slows down, sputters, and finally stops outright.  Gordon becomes a veritable maestro of acquiring and leveraging credit, from the straightforward to the seemingly foolhardy.  But he had to find solutions so the case could go on, and when it finally settled, he paid back the creditors and his "wobbling pyramid of debt service" was redeemed.  Even though their situation was to an extreme that virtually no small business will ever reach, it is an educational clinic on handling the dirtiest part of the financial minutiae in stretching every last dollar and avoiding the financial breakdown of a business.

One of Gordon's lessons that left the deepest impression on me was, paraphrasing, "Don't lie to your creditors, ever.  Don't mislead, don't omit information, don't avoid them, don't color it up."  Tell them exactly what is going on and what you will try to do, and come as close to meeting that commitment as you can, and then continue to try.  This is crucial because once you mislead a creditor in any way, they can no longer help you.  They cannot extend, they cannot make allowances, because you broke their ability to trust you.  When I am in a tight spot financially, long before the point of default, I communicate with the creditor and tell them what is going on.  Not making excuses, but reporting the situation accurately and reaffirming that your intention is to pay them in full.  You would be surprised at the amount of grace that buys me.  And when I get that done, now they know I am good for it in the future.  You want to know how to build a business that can make big financial moves and weather a storm if one moves in?  That is how.

On that note, I'll go back to slinging what merch I can in the dark until the retail lights turn back on.  Anyone want some sweet board games, nicely discounted?