Tuesday, January 26, 2016

Oath of the Gatewatch Release Post-Mortem

I've written articles like this for every Magic: the Gathering expansion released since this business blog began!  They are some of the most heavily read and linked articles on this blog, so evidently people enjoy these observations.  Good enough for me!  (Enough that I basically copy the template and write in the details afresh each time.)  Here, then, is the DSGCW's experience with the release of Magic: the Gathering: Oath of the Gatewatch!

This expansion has heated up a Magic market that sat lukewarm since about November.  While eternal formats and sales of singles remained decent, the drop-off in Standard and draft attendance and the drop-off in sealed product purchasing from Battle for Zendikar were unwelcome developments.  As I wrote a few weeks ago, stores that depended on Magic had a fairly depressing Christmas.  I was grateful for the time I spent developing other product lines, because those performed well.  Magic was still the biggest single product line for revenue, but no longer utterly dominant.  With a lot on deck for 2016, now we want to see what portends for Magic: the Gathering in the year ahead.

First of all, a quick bulleted list of what Oath of the Gatewatch gave us:

  • Ultra-Chase Cards!  The final 20 "Zendikar Expeditions" land cards appeared in the set at a rate of roughly one card per 121 booster packs.  I discussed the "dangling carrot" of Zendikar Expeditions a few months ago in this article.  The card selection for the second run of Expeditions was great: an assortment of five-color and colorless utility lands joined the ten Shadowmoor/Eventide "filter lands" for this outing.  The economic effect remains as we saw it last fall: Standard players are trading Expeditions in immediately and using the store credit to complete their decks with regular cards, while players (like me) who enjoy beautifying our Commander decks have some new treasures to buy.
  • Cards for SuperFriends Commander decks!  Yes, a niche of a niche of gameplay usage, but nonetheless this set provided exactly this utility.  As my only Commander deck is a SuperFriends deck, I found this delightful.  I suspect most players are less enthused. 
  • Some standard "push" mythics that should see meaningful action, provided a deck arises by the weekend of February 6th, when the pros tell the hopefuls what cards everybody is allowed to play. 
  • Enough fat packs.  So far.  Despite selling more of them during release weekend than we sold of Zendikar fat packs in total to date, our supply is still holding up. 
  • A new basic land!  Maybe not in the strictest sense since it has no basic land type, and thus does not "turn Domain cards up to six," but Wastes is only the eighth card in Magic history that may be included in a deck in any quantity, after Forest, Island, Mountain, Plains, Swamp, Relentless Rats, and Shadowborn Apostle.  Moreover, it cleans up some of the rules of colorless mana generation and costing.  And, 
  • A good story, I guess, I kind of didn't pay attention this time but I got good feedback from customers who said they enjoyed it.  I did observe that the unquestioned ringleader of the Oathmakers was Nissa Revane, another step by Wizards to promote strong female protagonists, which I applaud. 
Meanwhile, here is what Oath of the Gatewatch did not deliver:

  • Any meaningful rare lands, with the jury still out on Mirrorpool.   
  • Enough Standard potential to draw heavy pre-order activity. 
  • That single, memorable, amazing card, though in time we may decide that Wastes is in fact the defining card of the block and affects Magic for years to come. 
  • Much in the way of new, non-reprinted cards with significant implications in Modern and Legacy. 

Attendance for the Prerelease tournament was down significantly from Battle for Zendikar, which broke all records.  We'll see if a visit to Innistrad can right the ship on this one.  This time around the take-and-drop was somewhat lower, but still noticeable.  Only 282 players were seated out of 414 player packs.

  • Saturday 12:01 a.m.: 68 players 
  • Saturday 11:00 a.m.: 38 players 
  • Saturday 3:00 p.m. (2-Headed Giant): 62 players (31 teams) 
  • Saturday 7:00 p.m.: 40 players 
  • Sunday 11:00 a.m. (2-Headed Giant): 36 players (18 teams) 
  • Sunday 3:00 p.m.: 38 players 

The biggest drops were the midnight and Saturday morning events, which speak to the effect of supersaturation of the market by new stores opening.  By Saturday night, many of them were out of product, and our remaining start times performed similarly to how Zendikar's did, with a player count in the final three events of 114 players, down only ten from the 124 we saw last time across those starts.  I fully expect our allocation to get punched in the sternum for the summer small expansion as a result of this underwhelming performance.  I know I wasn't alone, as other stores around town reported similar drop-offs in their first few events.

As before, the Prerelease was priced at $24.99 plus tax, whether paid in money or store credit.  Prize pools consisted only of the two boosters per player provided by Wizards of the Coast.  Once again online preregistration was sorely lacking, a problem we are closer to fixing but still have not yet finished.  The migration to Microsoft RMS with ComicSuite is something we want to do once and do right, and thus we're spending a little more into it and creating a more robust deployment.  This takes budget, and budget is parceled out over time.

Singles pricing had a great adjustment for us at the turn of the year, with the new TCGPlayer Market Price as a more reliable and more frequently updated benchmark that's based on actual sales and thus more difficult to manipulate.  Buy pricing was adjusted to 35% cash or 70% credit versus Market.  I'm seeing a few holes develop in our stock, such as we usually have to bump up the cash offer a bit to get dual lands and other higher-end material.  But mostly it works well and we're never stuck overpaying for chaff.  This made me a little more comfortable going into the open for Oath.  Broke the rest of the Prerelease packs and half a dozen cases.  It was enough.  Roughly even amounts of all mythics, and the following expeditions:

  • Strip Mine (sold on release day to yours truly) 
  • Ancient Tomb x 3 
  • Forbidden Orchard 
  • Eye of Ugin x 2 
  • a bunch of filter lands. 

We sell boosters at MSRP and boxes at 20% off MSRP, making off-the-shelf booster box sales about $115, or ~$123 after tax.  Despite the ongoing saturation of the market, we moved reasonable quantities of boxes and fat packs during opening weekend.  I did not yet need to restock immediately, which means hedging down on order quantities was the correct move (and I could safely have hedged down further). We now know the next expansion in April will be Shadows Over Innistrad, and with that being one of the best settings in Magic history, those of us on the retail side of the equation are excited and hopeful.

So that's it!  I am cautiously optimistic about Oath of the Gatewatch.  I like that the draft format is Oath-Oath-Battle, so that the small set will be opened enough to feed a healthy singles market.  I like that we're going encore-encore on the first two small blocks, to give players a chance to get comfortable before what I assume will be new territory in the fall.  I like that the summer fifth booster release is still yet to be announced; will it be the long-rumored Vintage/Eternal Masters that will bring back any unreserved card not nailed down?  I still need that judge foil Force of Will and it won't get any cheaper, but it will be nice to have a better supply of stuff like, potentially, Tops, Ports, Imperial Seals, and what have you.

Next week I'll move back into tradecraft with some more observations from the business side of the fence.  Thanks for joining us and have a great week!

Tuesday, January 19, 2016

Know Their Roles

Not to worry; I'll have plenty of observations next week on the Prerelease and release weekends for Magic: the Gathering's new Oath of the Gatewatch expansion.

I reached something of a breakthrough this week in terms of staff processes.  Our staff is relatively small right now, owing to our ability to have role-only specialists for Comics and Media and for Online Fulfillment.  With those tasks "insourced" to dedicated staff, the regular staff coverage is not nearly as onerous on a worker by worker basis.  The drawback is that the regular staff lost one way in which they could distinguish themselves and take on greater roles in the company, leading to more hours and higher pay.  And as our operations continue to grow, we realize on paper that we are more understaffed than we "feel," due to the current core group's extensive experience level.  It was a bear trying to get the Prerelease scheduled up to adequate coverage with as few human beings as we had available, never mind that each could be utterly relied on for their shifts.

The breakthrough was understanding that the roles could be made modular.  I'm still in the process of nailing down every definition and part of the role job descriptions.  But I have the mechanism set. Staff have the baseline role of General Coverage once they pass their probationary time period.  A new staff prospect will also generally be hired with a specific role in mind, such as Joe, whom we hired to be our "Warhammer Guy."  (I ended up titling the role "Wargaming Specialist.")  Every staff member has to know the basics of selling Warhammer, but it's up to Joe to run the league, publicize available play times, curate the inventory, merchandise the displays, tell me when I need to order something off the beaten path, serve as sales rep to our wargaming clientele, and like such.

The staff member's first quarter of employment will be to see if they can hit competency on the general role and their specific role.  If they do, the second quarter is for mastery of the specific role.  That completion leads to a pay raise and the staff member may continue to advance that role or add another one, first for proficiency, then for mastery.

Every two quarters, provided progress occurs, there's another raise built in there.  However, a quarter won't be credited if the staff member doesn't perform at metrics (and these must be measurable).  There's a realistic limit to how much role a given staffer can take on, though I'm happy to let them prove to us how much they think they can handle.  In theory if a staff member has consecutive quarters under metrics, a role could be reassigned away from him or her.  I can't see that happening with anyone I employ right now but the mechanism has to account for it.  "Bite off more than you can chew" and we'll relax that workload, but the staff member is expected to get dialed back in either retrenching to their bread and butter or otherwise working under the guidance of management to develop.

An assistant manager has four or more roles; three of his or her own and oversight of completion of roles on shift by other staff.  A manager has all unassigned roles plus oversight.  It's in the manager's best interest to get all processes the store requires, defined into a role's purview.

The thing that excites me most about building this process is that it's replicable and it scales.  Future roles will include Inventory Specialist (does all receiving and deployment); Marketing Specialist (might be role-only and not a Brand Ambassador); Console Technician (i.e. doing small repairs and mods on video game consoles and battery replacements on cartridges and such); down the road an Information Technology Specialist (though Lord knows how I'm ever going to afford such an employee) and so on.

Some roles are Bahr-only at this stage: Human Resources, Accounting, Payroll, Procurement, and Legal.  At this stage in the business, I cannot reliably relinquish any of these.  (Well, I could outsource some of it, but I have found it's worth the money for me just to do it for now.)  From among that group, assuming I don't go outside the company, I speculate the first of those duties that I'll delegate any part of will be Procurement.  At some stage people are going to have to be able to order things when I'm out of town on my 10th anniversary vacation or whatever.

This entire framework is going to take some shaking out before I can tell whether it's going to work for the long haul, but I'm excited because now I have something more definitive that reaches beyond core coverage and gets the staff involved and invested in the higher expertise tasks, and generally it's work they already want to be given, such as specializing in a given game category and being responsible for nurturing it.  We'll see how this plays out and whether I am able to serve up a fully-baked entree for Patrick to execute.

Monday, January 11, 2016

♫ Do You Want to Play Some Magic? ♫

This weekend we'll see over 400 players gather at DSG to continue the Eldrazi War in the Battle for Zendikar small expansion "Oath of the Gatewatch."

Has it really been all the way since September that we had the biggest tournament in store history, the Battle for Zendikar prerelease?  Turns out.  After a flood of buy-and-drops, we seated 362 of 414 players and enjoyed a weekend of Expedition-fueled excitement.  I wrote about it shortly afterward.

Magic: the Gathering utterly defines the hobby game trade right now, though it's a tiny player in the entertainment market overall.  According to figures released by Hasbro for 2014, Magic grossed $330 million.  This was double the revenue from Uno, somewhat less than Play-Doh or My Little Pony, and miles behind Transformers, Nerf, or Star Wars.  Disney's Frozen license alone almost doubled up over MTG.  The $330 million, a single-digit percentage of Hasbro's more than $4 billion annual total, was nonetheless an improvement over MTG's $250 million take in 2013.

These are all piker bucks against the video game industry's absurd $46 billion in 2014 sales, of course.  If the entire entertainment industry were made up of James Bond actors, movies would be Sean Connery, television would be Roger Moore, video games would be Daniel Craig, music would be Pierce Brosnan, toys would be Timothy Dalton, and the entire comic and hobby game trade put together would be George Lazenby.  The analogy goes further: We have great content, just as Lazenby starred in one of the best Bond movies, but our portion has nowhere near the reach of the others.

Still, at our scale, with that kind of money in play, it's easy to see how typical game stores are tethered at the nostrils to how Magic performs.

So what happens when Magic runs weak for a while?

It turns out this is precisely what happened in 2015, and it's worsening heading into the beginning of this year.

In boom times, Magic-focused stores live from release to release.  There has been so much pent-up demand for each new expansion that stores have been free to collect pre-orders a month in advance or longer.  (Never mind that PayPal and many major credit card interchanges require delivery or pickup availability within 30 days of taking payment for a product purchase.)  Such a store has moribund cash movement generally.  A new set is on the horizon.  The store opens pre-orders, often heavily discounted.  It's just enough to pay for the big shipment and cover rent and costs for a month or so.  Scramble for singles sales for a couple months, and then repeat, as there are four major Magic booster releases per year.

In 2014, there was a fifth booster release, Conspiracy, but it didn't change the math that much as it was not Standard-legal for play and was ultimately viewed by players as a nonessential diversion, if an enjoyable one.  The year 2014 was defined by the mammoth autumn expansion Khans of Tarkir, which quite literally saved DSG as it was rebuilding from a partnership split earlier that year.

The year 2015 seemed like it should have been even better, but after turning the amplifiers up to eleven with Khans, the releases after that packed somewhat less punch, pound-for-pound.  Fate Reforged had some high notes but didn't have "legs" and tapered off sharply.  Dragons of Tarkir was the opposite: the set had minimal buzz up front, leading to a muted debut out of the gate, but did better as the weeks went on.  This effect, however, was strongest in stores that catered to casual players, not to grindhouses, where Timmy and his fun new Dragon deck isn't especially welcome.  The strongest seller of the mid-year, Modern Masters 2015, presented a mixed bowl of pluses and minuses.   I captured excellent sales by being among the first to tie my anchor to MSRP and go loud about it.  The customer public responded and loved us for it, and it worked.  Stores that hoped to speculate their way to riches are choking even now on MM15 boxes that can be had for $50 under retail on eBay.  We're not running a museum here... selling through is the goal.

Magic Origins, something of a gap-filler as expansions go, behaved like Dragons of Tarkir in its initial run and then became ridiculous as the value of its signature card, Jace, Vryn's Prodigy, soared later in the fall.  And then we had Battle for Zendikar, which out of the gate was the best-selling product in DSG's history, and then utterly cliffed as players got the Expeditions they wanted and little else from the set appeared in competitive constructed decks.  The high power level of Khans of Tarkir overwhelmed all; Wizards of the Coast needed to dial things back and used the Expeditions to mitigate the damage and give the players something shiny as consolation.

So with Zendikar's drop-off happening around late October, and Standard and Draft attendance cratering nationwide, stores that relied on tournament traffic to survive have been living frugally -- and, in some cases, closing.  In fact, we're seeing an interesting duality right now.  An explosion of new stores, mostly Magic-focused, appeared in mid- to late-2015, and they are still in their teaser rent rates and burning through their startup capital.  They can withstand a steep drop in revenue for a few months due to depressed traffic and a Magic set that's underperforming.  Their cost base is still small; the cost ratchet is not yet bearing down on them full-force.  Old wood stores know how to hunker down and survive and are diversified in product offerings anyway.  The most vulnerable stores right now are going to be the ones that opened between early 2013 and late 2014.  Their rent ramp points are coming up and in some cases have recently hit, they are no longer the shiny new hotness, and their initial capital is likely long gone.  You're going to see distress moves from these stores as they seek to weather the cash-flow pinch.  Some will survive.  After all, the Magic market is still pretty big, and no one release can kill that.  Otherwise we'd never have made it past Dragon's Maze.  Or Saviors of Kamigawa.  Or Prophecy.  Or Homelands.

Those mid-major stores had better hope Oath of the Gatewatch is good, because if three months of retrenchment in the trade's largest property was rough... just think what it will be like if we end up having six.

If the comic and hobby game trade as a whole could have one New Year's wish for 2016, it would be that people want to play some Magic.  So, do you?

Monday, January 4, 2016

Building For Tomorrow: Software Infrastructure

Happy New Year everybody!

The year 2015 was Desert Sky Games and Comics's best year ever.  We aren't quite in the "two-comma club" yet, which happens when you gross at least a million dollars in sales.  ($1,000,000)  But we posted some strong scoreboard and it is deeply fulfilling to be able to run healthy when our local market is supersaturated, mostly with Magic: the Gathering-heavy stores.  It is even more deeply gratifying to have a Magic player community as strong as ours is, mainly achieved by emphasizing fun and casual play, when players have so many options.  Even competitive players do play at DSG, so they must see value in the organized play structure we are offering.  Meanwhile, non-Magic product categories are growing apace.

For 2016, then, our priority is to get on track for future expansion of our market presence.  By late spring we will need to make a judgment call on building a new hub location.  Depending on where available property ends up being, it might replace the existing store if it's close enough, or it might become the new main store and allow us to keep the existing location open as a satellite location.  We also remain interested in smaller satellite locations in unserved and underserved areas of our state.  Down the road, in neighboring states.  Until last week, we didn't think Tucson was in play.  Two stores in Tucson just closed, and both were good stores in their own right.  We think with the right framework we can succeed in that market.

Regardless of where we go, or even whether we expand at all, one thing we need now is a point-of-sale infrastructure that will scale better than Light Speed Retail Pro/Onsite/Client.  We opened with Light Speed and it served us well for years.  Unfortuantely, updates since late 2014 have been mostly of poor quality, shoehorning in new features without resolving existing problems.  They were never able to solve a problem with Web Store v3.2 that made it impossible for about half our customers to complete a transaction due to Error 500 that they couldn't replicate on their end.  That's the ultimate dealbreaker right there.  People can't buy a thing.  When we're in the business of people buying things from us, that's a problem.  Light Speed's Amazon integration was in perpetual beta status and didn't even hit all categories, such as comics.  We've moved away from Amazon as a selling channel, so it's a moot point, but it speaks to Light Speed's dedication to the product.  Bottom line, Light Speed is devoting their resources to their subscription cloud software, which is grotesquely expensive at scales larger than the boutique level.  And with the client/Pro/Onsite version crashing on a near-daily basis, it's no longer reliable enough for us to keep and grow alongside.

We ran Crystal Commerce for our web back-end for two years, from 2012 to 2014.  There is a lot to recommend that software for a store where the beginning and end of their online business is selling TCG singles.  Crystal Commerce is meticulously tailored to exactly that functionality and only that functionality.  As DSG has matured, online singles resale has become a less and less necessary sales vector for us.  It's a race to the bottom for pennies on the dollar and depending on the sales channel you lose anywhere from 2% to 19% of the gross sale price, before shipping, to fees.  Most stores don't even realize they are losing that much because some of the fees are visible and some are not: if you don't log in to your TCGPlayer web dashboard specifically and review your monthly statements, you won't realize how much they're deducting off the top.  You only see the net.  I know many stores see these fees as acceptable because they buy collections of Magic cards so cheaply and it's almost all profit anyway, and this allows that store to avoid spending any money on real technical infrastructure.  You can just use the cheapest PC you happen to have.  But ultimately in that deployment you're depending on there being a never-ending string of people walking in the door to sell you collections at distress rates.  When your purchasing of used merchandise goes from a want to a need, it changes the situation and erodes leverage.  And every new store in your area takes a bite out of that selling traffic.  You end up spending money into Facebook and spending time into Craigslist relentlessly promoting your store's buys.  And God help you if your internet goes out or Crystal Commerce's server is slow or down on a Friday or Saturday, which does happen.  On balance, once a store decides it's going to be more than a corner Magic clubhouse, Crystal Commerce becomes untenable.  This is based on market factors alone, and not even reaching the issues where Crystal Commerce is lacking as a point-of-sale system on functionality.

We are migrating within the next few weeks (I hope, pending various deliverables) to the Microsoft Dynamics Retail Management System (RMS) point-of-sale software, using Diamond's ComicSuite deployment and plug-in.   This is a large commitment, in both money and resources, to a scalable infrastructure that should serve us for years to come and multiple locations.

I am carbon-copying the RMS deployment that a friend of mine did for his two sporting goods stores, where they gross eight digits left of the decimal annually.  So clearly the software is up to the task.  It's not perfect, no point-of-sale software is.  And it's actually End-of-Lifed by Microsoft as they transition to a new build that Diamond figures to have ready for us sometime around 2021.  But there's deep and extensive industry support for it, and ComicSuite as a tool for comic inventory management is best-in-class.

So, critical to me is being able to keep uptime and resilient business continuity across multiple locations whether I am anywhere nearby or not, and being able to administer it all from a central terminal, mine.  This means that each store requires a rack-mount database server.  I bought a Dell PowerEdge for the current DSG, an investment of about $4k after configuration and a RAID-0 of six terabytes (leaving three as the final capacity), hot-swappable and extensible.  Each location will require one of these.  Adding in the rack-mount keyboard and admin monitor, case, power conditioning, and network hardware, we're approaching $5k before even having a single terminal for sales.  That seems like a lot, but if Light Speed crashes on a busy Saturday, I can lose almost that much in sales that day alone.  Crashes are, from my friend's experience, exceedingly rare in a robust deployment such as this.

Then I need three lanes: Two front-of-house and my primary admin lane, which is also the remote lane for conventions.  RMS, unlike Light Speed, offers unlimited non-lane logins.  That is, I can have staff at non-lane workstations doing things like adding inventory or managing comic subscriptions, using the Store Admin app.  Thanks to the cloud Store Operations app, I can access this same functionality across multiple stores.  The Diamond deployment has some issues with multi-store operations at this point, and I don't have to solve those problems yet, but I am confident that with some combination of ComicSuite and Store Operations, I can execute any needed command from somewhere.  So, since Light Speed required Macs and RMS runs on Windows 7, I will be adding three business-configured desktop PCs that each run about half a grand for the base box, and another $80 each for a basic HDMI monitor from Costco.  I'm going to limit the lane PCs to exclusive use for that, and no general computing, to extend their useful life.  Accordingly, we'll keep one of the iMacs up front for lookups and the like.  I already have cash drawers, scanners, and so forth, and my EMV credit card processing is stand-alone.

The remaining expense is for RMS itself.  Diamond has full licensing for the first lane for a combined two grand up front and a few hundred a year for the maintenance subscription.  Since we're doing a three-node deployment and will ultimately be moving to multi-store, we will end up with a bundle price tailored to our exact setup that is less than three times that figure.  (Even if Diamond weren't willing to offer it as such, we could just buy RMS from another authorized reseller on such terms and buy only the ComicSuite module from Diamond.)

Some other equipment is already here and some of what we'll have to buy is incidental to the new deployment -- such as Office365 to replace the Office 2011 Mac that we have now -- but all told this is roughly a $10k technical upgrade.  And it's only a point-of-sale upgrade.  We're standing pat with our security system and our audio/video system, both of which could really use some love, but are much more location-dependent so we'll hold off on those until we know the lease situation moving forward.

I'm hoping to revisit the Building For Tomorrow topic in future articles, where I can talk about security and A/V, but also rack and fixture, other physical plant necessities, and hopefully even topics like a store's human resources framework and convention portable kit.  If you're interested in anything to do with those, or to hear more about our RMS migration adventure as I proceed with it, please feel free to leave a comment or contact.

Have a great week!