Monday, June 27, 2016

FATCQ: Fast Answers to Customer Questions Volume 2

As I discussed last week, I'm answering customer questions submitted during a Derium's CCGs Let's Talk and challenging myself to do it within five lines on the Google Composer editor.  If you'd like to see your question answered in the next installment, feel free to submit it!  I will try to answer all questions that are not disingenuous and that do not ask for confidential information.

Let's continue!

Q: Which trading card game gives you the most profit, Magic, Pokemon, or Yu-Gi-Oh?
A: Magic, by every possible metric.  While smaller, Pokemon is healthy sale-by-sale.

Q: What's the worst type of shopper in your store?
A: Thieves!

Q: How much does a store make in profit each Friday night?
A: Retail profit isn't really tracked that way.  I could run a report to show me the cost total for each SKU item sold, and compare that to the gross.  But that wouldn't tell me the net for Magic singles, for example, which are bought at varying prices.  And it wouldn't count overhead.  A small retail store's take-home profit net of everything is 3% to 7% of gross sales.  Customers think it's much more, on the order of ~36%, but try it and you'll be amazed at how costs just bombard you from everywhere.

Q: What's the biggest game item you've ever bought from a customer?
A: Arcade full-size Dance Dance Revolution SuperNOVA video game.

Q: What online sales channels have you utilized?
A: We run Crystal Commerce and sell on eBay.  We've used TCGPlayer and Amazon in the past but we found that you lose money moving sand from one pile to another and paying fees, all in a race to the bottom price.  Amazon's addressable audience is huge but their fee structure is punishing and you get crushed on spurious returns.

Q: What daily problems do you face?  Any solutions?
A: There isn't enough time in the day to do all the things I would like to do to make DSG better.  The answer ultimately comes from developing better processes, one day at a time, and making steady, incremental progress on long-term projects.  It's frustrating when I run out of time to complete a project that is going to save time, labor, or money, and in the meanwhile that cost keeps right on adding up.

Q: Would you rather run a bad store or just close?
A: I would run a bad store, because as long as you can survive, you can eventually make it better.  The Business Motto of 2016: "Must be present to win."

Q: Do you open booster boxes for singles?
A: Only when the set is brand new or the EV (expected value) of the box is at least $100 before foils, at current market pricing.  Less than that, and it's not worth the time and labor to break the boxes down, and I just buy cards over the counter from the public instead.

Q: How do you deal with foreign-language product in your store and what is demand like?
A: We have some.  Far less than English-language product.  We don't do anything special with it.  I have believed for a while that there is a vast untapped market in the Phoenix area for Spanish-language product.  But I have only sources unrelated to this industry to go by.  It's something I might be able to move on at some point.  There are good sourcing options for Spanish-language HeroClix and Magic: the Gathering.  I speak very little Spanish and would have to hire bilingual employees.

Q: What is the biggest hidden expense of your store that customers may not be aware of?
A: In terms of costs you don't see?  Rent is a big one.  Our wholesale cost on merchandise is not as good as customers usually think it is.  Payroll addenda cost a lot.  People assume if a staffer makes $10 per hour that our cost is $10 per hour.  In reality it costs more like $15 per hour when all the taxes, admin, fees, and logistics are added up.  Other big cost buckets: Summer utilities, advertising, store supplies, replacing furniture due to wear and tear, and taxes.  Always taxes.

Q: Would you consider banning a player who never buys anything?
A: Not for just that.  For the most part, to earn a ban from DSG, you have to do something malicious or significantly damaging to the business.  I think the staff would quickly learn not to spend a lot of time servicing a customer who never buys, but that customer would remain welcome as long as he or she did not interfere with other customers' enjoyment of the store.

Q: How much animosity is there between store owners?
A: Most of us get along.  Some of us don't.  It's much like any other peer group.  We talk all the time. There are private local, regional, national, and worldwide Facebook groups for retailers.  Some permit publishers or distributors, some do not.  When one store discovers a collection thief, all the other store owners cooperate to nail the bastard.

Q: What were some of the unexpected expenses/problems that came up in the business?
A: We expected most of it.  The biggest unexpected expenses have been the costs of buying out partners.  Nothing comes close to that.  In distant second, third, etc, place: Taxes have been pretty brutal.  Payroll is always heavy.  You get hit hard some weeks with a lot of new releases and you don't want to pay that big invoice but you can't be failing to bring in the goods or your customers will go somewhere else.

Q: When pricing booster packs, do you compare to nearby shops or go based on cost to run the business?
A: Something you should understand is that booster packs, especially Magic, pretty much always sell out and very easily, at MSRP ($3.99).  There is no need for any store to charge less unless they want to offer a box discount.  Usually when you see stores doing packs $3 for $10 and like such, they are cash-flow starved and just frantically cycling product.  Their customer base also gets used to that price and will usually leave if the store tries to raise it back to MSRP.  It's bad for business.

Q: What exactly do I need to open my own card shop.  Location, education, money, etc.
A: If you have to ask this question, you shouldn't be doing it.  You clearly have not done even the most basic research.  You're going to do it anyway, though, so I'll just say this: Get a cheap lease.

Q: Are there items that sell a lot but bring poor returns?
A: I assume you mean low-margin.  Of course.  New video game consoles have almost no margin at all, but they are very easy to sell and there is essentially zero danger of being "stuck" with that inventory.

Q: What percentage of your sale do you have to pay your distributor?
A: This was a new one for me.  Apparently many people think game stores "split the take" with distributors, and anything that doesn't sell can just be sent back.  Nope.  We buy our inventory and we own it.  (This is not common in mainstream retail.)  That's why most game stores don't discount much, if at all.  Short-margin items are especially bad, because if it doesn't sell, that money is already spent and can't be recouped.

Q: Are you happy to sell bulk or is it a waste of time?
A: I am absolutely happy to sell bulk.  Many stores vastly overstock on low-demand cards just to be able to say they have a huge inventory.  Anything that's not turning is tied-up liquidity.  For TCG singles you kind of have to stock it all, but there's no reason you need 99+ Chimney Imps like half the sellers on TCGPlayer.  Stocking ten or so is more than enough, and the rest can be sold off in bulk lots and turn back into money.  You can play pauper or build card houses, I'm cool either way.

Q: What can you do to start a website and put it above the giants like Star City Games, Channel Fireball, etc, in terms of sales and players using your buylist?
A: Nothing.  That market space is closed out.  You have to understand this: They have already developed an infrastructure, asset base, staff, customer market, and business operations that are millions of dollars and many years ahead of any start-up newcomer, and they are continuing to make those things better, extending their lead faster than any newcomer can catch up.  The best a newcomer can hope for is to be profitable, which is possible with careful planning and capital.

Q: Would you do it all again if you had to start from scratch today with just your initial money?
A: Yes and no.  Yes, for sure, I would do a much better job of it with all the knowledge I have gained from doing it.  I would build an amazing store and nothing would go to waste.  No, on the other hand, I can do almost anything else with that money and it will be less work and more profitable.  I would probably open a coffee shop instead, or a business installing cabinets or air conditioners.  Boring, but far more lucrative and stable.  Then I could buy all the cards and games I wanted.

That's all I have for now!  Send your questions!  E-mail, comment, or Facebook.

Tuesday, June 21, 2016

FATCQ: Fast Answers to Customer Questions Volume 1

I enjoy fielding customer questions because they are ultimately windows into how someone sees my business from a variety of different vantage points.  Kevin Saffles of the Derium's CCGs Card Shop Life video series has a running theme called "Let's Talk" in which he fields some of the more common questions we as store owners receive.  Derium's ran a Let's Talk this month and I was excited to make a video for it.  I imagine he will incorporate that into some upcoming episode.

I saw that these customer questions would make good material for blog articles here, but not if I got bogged down explaining the depths of every single one.  So, I am challenging myself to answer all these questions that I can find or field within no more than five sentences and five lines of text (in the Google composer tool; mobile and web formatting may affect how many lines are displayed in the final article).

By the way, absolutely feel free to submit questions for this.  I will keep doing these as long as I have questions to answer.  I will try to answer any question that isn't disingenuous and doesn't ask for confidential information.

Here we go!

Q: How did you start your business?
A: After the mighty Atomic Comics closed its entire chain, DSG's founding partners, myself and Mike Girard, exchanged emails about opening a branch location for an out-of-state game store chain.  This evolved into discussions about opening our own store.  We wrote a business plan.  I did the paperwork to create the business entity DSG LLC.  We staged an investor dinner and pitched the plan to our friends.  Several of them bought in.  Resources in hand, we moved forward finding a lease.

Q: How did you come up with your projected sales figures?
A: Surprisingly not rectally, which is the norm in our industry.  I took the money I had been making running my eBay store Auction Trade Arizona and ran some Excel calculations multiplying that out for our projected ability to source products and expected growth in sales.  Despite this seemingly credible approach, our projected revenues were multiples higher than what actually occurred.

Q: Did you have money saved up for personal bills or did the store support you from the beginning?
A: I remained with my day job in state government until the store was about two years old.

Q: What are your thoughts on running Pauper events?  Are they worthwhile?
A: No.  I have no problem with Pauper as a format, it's a way for players to get some more enjoyment out of their cards.  But it's just too marginal to make the calendar in a room where Standard, Modern, Legacy, Draft, Sealed, etc, all have substantial audiences.

Q: What are the first stepping stones to owning your own card shop?
A: Write a business plan, contact an attorney, and gather a bunch of money.

Q: Do you have a personal collection of any product that you also sell in your store?  Or is it purely business?
A: I still enjoy this stuff even though it's also work.  I have only one Magic deck, a Progenitus Commander deck, mostly blinged out.  I have a complete collection of Android Netrunner and enough ships to play casual X-Wing.  I have a lot of rare video games.  I own several full-size arcade games and various RGB-modded and/or rare consoles: Neo Geo, Vectrex, Super Famicom Jr, NES Playchoice, Skeleton Saturn, Component GCN, and a PVM RGB monitor.  ZERO lag, baby!

Q: What is the most expensive card you have ever sold?
A: An autographed 2003 LeBron James rookie card.  It went to an eBay high bidder.

Q: No, I mean the most expensive Magic card.
A: Several Beta Black Lotuses.  None of them worth nearly as much as that LeBron.  I don't even deal in sports cards regularly (yet) but a friend of a friend needed it sold, so.

Q: When starting a new store in an untapped market, how do you study demographics?
A: Start with Google, then proceed to area municipal, county, and state web resources.  You can generally then move to real estate and commercial leasing websites.  Nothing replaces being from the area, though.  I know stores that are suffering because their location is worse than they realized, because the area carries a stigma of being bad or on a downtrend.  I've lived here 42 years, I can tell you for almost any intersection in metro Phoenix whether it would be wise to locate there.

Q: How much of your revenue comes from snacks and drinks?
A: Less than 5%.  A negligible amount.

Q: How much capital did you start with?
A: $100,000.  Half in cash, the rest in product from my eBay store and physical resources (fixtures, equipment, computers, etc).  It was not nearly enough for the scale of store we wanted to build.  You can start a corner Magic clubhouse store for far less, of course, but you're vulnerable to everything and are facing long odds to survive to become something more scalable.

Q: What did you think of Goblin Guide not appearing in the Battle for Zendikar block and Snapcaster Mage and Liliana of the Veil not appearing in Shadows Over Innistrad?
A: I was surprised at the first, because it seemed ideal for the Guide.  I did not expect Snap or Lily in Shadows.  However, I thought we would get something -- Cavern of Souls, Craterhoof, or perhaps even Sigarda.  Instead we got a big donut, and none of the above in Eternal Masters.  I speculate that Lily might appear in Eldritch Moon.  Mark Rosewater said the two-set blocks would bring more aggressive reprints.  Thus far, that has not occurred except for the Onslaught/Khans fetchlands.

Q: Would it make sense to expand, having one set of inventory split between multiple stores?
A: Expansion is its own equation.  It is correct to expand when you have a good candidate location with a worthwhile lease offer, a good management team in place, solid processes because you can't be in two places at once, and enough money for buildout.  You can split inventory from the current store, but you diminish that store's revenue base.  A partial split is generally going to make the most sense, supplementing with cash.  Running two locations is more than twice as hard as running one.

Q: How often do you consider burning your store down for the insurance money?  Serious question.
A: Stupid question, actually.  Insurance doesn't cover the cost or time of the labor it took to deploy and organize it all.  Even a 100% claim payout that included business interruption coverage would not nearly make the business whole for the full loss sustained.  Nobody with any remote amount of intelligence would sabotage their business intentionally in such a way.

Q: Do you enjoy playing games even though you spend all your time also working with them?
A: Absolutely!  Though I don't get to play nearly as often as customers think.  It is extremely rare for me to play games I sell at the store, because when I am at the store, I am usually playing the game of "Make DSG the best it can be."  It's an extremely immersive game.  :)  I play at home fairly often and at friends' homes.  If I don't find a game appealing, though, I bail on it hard.  Working with that game becomes like handling fruit or something.  I stop even seeing it as a game, it's just product.

Q: What comics sell the best?  Big names or independent?
A: Marvel accounts for more than 70% of all our comic sales, though DC Rebirth has been a huge hit.

Q: If there are other stores in your city or town, should you try to open your new store there, or move to a different town with no stores?
A: I would never open within the orbit of an existing store.  Even if you think they are poorly run, and even if they in fact are poorly run, incumbency is a crushing advantage.  You will most likely fail.  Open where there is no store.  Then you become the incumbent.

Q: What was the worst thing you experienced after opening your business?
A: Having to separate from a deeply-vested partner.  Costly, stressful, and did tremendous damage to multiple relationships.  Business partners are a necessity now if you want your store to be able to compete by multiplication of effort, but the fewer the better because the more people arguing over which direction to go, the greater the odds of a crash.

Q: What is your exit strategy for your store?
A: There are only three ways that you can end your business.  You can shut it down, you can sell it, or it outlives you.  No matter what, one of those three things will happen to any business you ever start.  Selling a game store for real cash is not unheard of but it is rare.  I would prefer that, but I expect to have to close at some point instead.  The industry will have moved on.  By then I should have a very profitable liquidation sale.

Q: Any advice for those who would like to start a business in this industry?
A: You can make more money doing almost anything else.  Then you will have money for games and more time to spend playing them.  Don't turn your recreation into work.

That's it for now!  Send your questions too.  E-Mail, Facebook, or comment.

Tuesday, June 14, 2016

Eternal Masters Release Post-Mortem

Last weekend saw the release of the third premium reprint set for Magic: the Gathering: Eternal Masters (EMA).  Following in the mold of Modern Masters (MM13) and Modern Masters 2015 Edition (MM15), Eternal Masters reprinted a couple hundred cards legal in "eternal" formats: Vintage, Legacy, Commander, and Cube, for the most part.  Many EMA reprints were long out of print, and still others did not have any foil printing until now, due to age or having only appeared in products that did not include premium foil cards.
I barely have to tell you that EMA sold through at volume and has already been tremendously healthy for the store.  The post-mortem on this writes itself: Stores could only get a limited amount, so of course most of it sold out, and those who were inclined have a little bit to hold onto for later.  The set contents were in line with my expectations: with the Reserved List still off-limits, most meaningful cards for eternal formats are not reprint-eligible, so from among those cards not blocked, we got a smattering of nice ones and a shovelful of crap for booster draft usage.

My one "huh?" moment regarding EMA was that it reprinted nothing from the Portal, Portal Second Age, Portal Three Kingdoms, and Starter 1999 products.  These introductory sets were printed between 1997 and 2000 and were meant to teach and immerse beginners into Magic, back before there were such a thing as Intro Decks or today's curated Magic Duels app.  The beginner sets were not designed with tournament balance in mind, so cards appearing in them were illegal in sanctioned play until 2005, when Wizards of the Coast realized that they would cause no particular disaster if permitted in eternal formats.  Once the Commander format took off in 2011, some cards from the beginner sets climbed sharply in value, such as Imperial Seal, Imperial Recruiter, Ravages of War, Temporal Manipulation, and Grim Tutor.  None of the beginner cards are on the Reserved List, and with Portal Second Age and Three Kingdoms having very narrow themes and settings that aren't in Magic's normal multiverse, EMA seemed like the best landing spot for such reprints for years in either direction.  Where else are we going to see reprints of Capture of Jingzhou or Zodiac Dragon, honestly?  I suppose we will continue to wait.

I pre-sold a little less than half my allotment at $199, which now that everyone has 20/20 hindsight is being called excessively low by my fellow retailers.  How soon we forget the aftermath of Modern Masters 2015 when boxes sat unpurchased on eBay for months at $165 shipped.  And don't tell me you "knew" it was going to be better.  Everyone "knew" that about MM15 and everyone was wrong. (Though I do think speculators were excessively bearish on both MM15 and EMA out of self-serving interest.)  As late as the day before spoilers, the public was openly grousing that Eternal Masters was going to be bad and that there was nothing else in it but Force of Will and Wasteland.  I was content to absolutely guarantee nut on this set and immediately start turning that revenue.  Certainty has value in the world of business.  Then, the remaining half-and-change of my allocation sold out the door at effectively MSRP, aside from the cases I broke for singles.

If I had to do it all over again, I would probably have run the same promotion.  Discount and all.  There was a lot going for it.  But I would have made a couple of adjustments:

First, I would have put a tighter box limit on purchases.  A few carloads of players drove to the store from elsewhere around the state where their local box price was far higher, and bought in quantity.  I don't think I really reached them in a promotional sense because the odds of them becoming recurring customers was very low.  I did not sell any EMA online for this reason.

Second, I would have opened only a bare minimum of product for singles, probably nothing beyond the amount that my staff needed for our YouTube box break videos and draft commentary that they are editing up for publication.  I did not foresee that a large number of buyers on release night would be opening their boxes and just selling the entire contents whole hog to the store and re-loading until they struck out on value.  It was as close to casino gambling as I've ever seen in this industry, and I'm counting the era of illegal cash tournaments when I say that.  Those at least still felt like hobby game events.  This felt like a Keno room.  It was ridiculous.  I am well stocked on EMA singles now, in any event.

While the hype is hot right now in the immediate aftermath of release, this set will cool off.  The values of some cards that were high only due to absolute scarcity and not play utility have been completely demolished.  The values of cards that were in high demand have held reasonably.  At the end of the day the pieces for the key decks in eternal formats and key Commander builds will still be sought after, and there will merely be one more printing of them in circulation.  I've stated before that Wizards of the Coast needs to abolish the Reserved List outright and reprint cards into the ground, because this is a game, and people need to be able to buy the pieces to play their game.  But it looks like that kind of plan isn't on the table just yet.

This informs my choices for 2017.  I won't do the exact same thing; a deficiency of the modern military is that it's always ready to fight the last war.  But now I've got another bucket of data from which to assess my options for what we all presume will be a third Modern Masters installment.  Depending what kind of love I get from distribution, I may find another PlayStation-style promotion to be appealing again, or conversely I may decide that I am going to run at dead MSRP until proven otherwise and test the velocity based on what my audience size and revenue throughput are like at the time.  Whether I've got the new location open by then will also steer my decision.

I have a few articles in the works based on some social media work I've been doing lately.  If my readers have any questions, on whatever game store or comic store topic that happens to come to mind, feel free to ask them.

Monday, June 6, 2016

Good Game, Bad Product

The problem at the core of the industry's struggles in the board game category right now is value protection.  Publishers who do nothing to protect the value of their brand find that the race to the bottom online with pricing-bots is difficult to prevent.  When this happens, tactically and strategically, it can make even a good game into a bad product at brick-and-mortar retail in the hobby game trade.

The example I am going to call out today is Machi Koro by IDW Games.  (There are many like this out there, but this is the one I thought would make a clear example; be assured that my picking IDW does not absolve the many other egregious offenders.)  Machi Koro is a city-building game with fundamentally the Settlers of Catan game mechanics.  Die rolls allocate resources, which to some giveth and to some taketh away.  It's reasonably fun, and at times frustrating, and it plays differently based on player count, which adds longevity.  By all objective measures the content stands up, and there is consistent player demand for it.  Machi Koro should be an "evergreen."  But Machi Koro is instead a bad product, and here is why.

The MSRP for Machi Koro is $29.99.  (Not the fictitious $20 "MSRP" that Amazon indicates.)  My best distributor cost for this is around $15.  As you can see in the photo above, the public can readily buy Machi Koro for less than a dollar over my bottom cost, and have it shipped free to their door within two hours.  And don't tell me "but they have to have Amazon Prime."  Everyone has Amazon Prime.  You can just keep rolling free trials one after the next if you have more time than money to jump the hoops.  That $15.89 is the first-party Amazon price, not a third-party dumper, so that product is coming directly from the publisher.

Where is the value proposition for me to offer my customers in this equation?  There is not one.  In fact, I come out the worse in every scenario:

1. I price at MSRP.  Visitor picks it up, sees price tag, pulls out their phone, tap tap tap, sees that I'm charging "double what it's worth!", mutters, "This place is a rip-off!"  Walks out the door.  Will never come back.  That visitor will assume that everything in the store must be priced double what it's worth, in their perception.  My store has instantly become of no value to him or her.  Any money I spent in advertising and promotion to gain that customer is lost.  Repeat this negative customer experience (NCE) enough times and you have a store that will fail to accrue a customer base, and will ultimately close, if that store's intention is to be a board game retailer.

2. I price-match it.  I make less than $1 per unit net, which means I'm way in the negative on overhead.  This is a positive customer experience (PCE) but I will still ultimately go bankrupt and close doing this.

3. I simply don't carry it.  Visitors who want it may ask for it, or not.  If they don't ask, they simply leave disappointed (an NCE) and assume DSG is "just a Magic store."  If they do ask, I will have to tell them "no," initiating a NCE.  They may ask or we may offer to special-order it.  However, once they hear the price and delivery time, even if I offer a small discount for the inconvenience, it does not stand up to 49% off, free delivery to their doorstep in two hours.  I cannot achieve any part of that equation and stay in business.  They will be polite and say "no thanks," but it's an NCE and the internal perception is not much better than for the visitor at MSRP.  Everything in the store must be overpriced, they conclude.  They may or may not be back.  Often they won't.  Repeat this NCE ad nauseam and you have a store that will fail to accrue a customer base, and will ultimately close.

4.  I price-match with a publisher exclusion limiting the discount to ~25%.  This is basically gruel, it's the compromised mixture of the worst aspects of every other option and it results in an outcome that's mostly worse than them just ordering it from Amazon for 49% off list and having it at their doorstep before they get home from the errands that brought them out my way.  I did this for a while and on balance found that the NCE was too pronounced to balance what little PCE might accrue.  Making matters worse, changing prices meant added labor, added logistics, slowdown at the register, and inconsistent bookkeeping.  In practice, the model turned negative and I had to stop or else lose money and lose customers and ultimately close.

I have said before, even while price-matching and turning dials as I do, that pricing board game merchandise at MSRP is the best practice in our industry.  It is impossible to avoid losing a certain number of sales in doing this, but the negatives are mostly known, customers are mostly already conscious of the model's limits, those who have chosen to purchase online are pretty much already committed to that, and you don't get a whole lot of visits from people who genuinely think you're being jerks by not offering basement price in-store.  And you get the added benefit of making a PCE sometimes when a customer who can easily afford the difference (or doesn't care about the price) comes in and wants that game for their evening's dinner party.

By practicing good inventory management, in my store I discover that products like Machi Koro end up turning more slowly (or not at all) and are usually thin or one-unit at shelf level if they appear at all.  They are the first to go when the store needs more space.  Meanwhile, board games that have some publisher-based value protection are a better value proposition at retail and thus I can carry them without constantly initiating NCEs.  This results in a stratified offering where my board game category basically runs heavy on Asmodee, Fantasy Flight, Days of Wonder, Mayfair, and HABA.  Then I get some amount of positive traction out of the publishers that run low price points, like Renegade, Steve Jackson, Looney Labs, Brotherwise, and so on.  The result is a line-up with big gaping holes in it where other entire game lines should exist.  They aren't there, because they simply don't sell, and never will at MSRP because it's so much more than the online price.  And, these games in general sold poorly even under the price-matching because years of being the cheapest has made Amazon the vendor for those products to which customers turn first.  I can continue to sink blood and treasure into those products the way I have done for years, and it just creates NCEs and loses me business.

Better that I should turn to safe havens.  In board games I named the diligent publishers above.  In miniatures and CMGs, WizKids, Games Workshop, and Steamforged Games protect their brand value and it works.  All of their lines are healthy for me.  Comics in first print are not a price-sensitive category, so that works.  Video games and TCG singles are secondary-market categories, so they have their own challenges that aren't analogous to the board game value problem.  Keeping to the healthy product lines is what keeps me in business and keeps my mortgage paid and my children fed.

Unfortunately, right now that means disappointing visitors who just want to play a good game, because in that particular case, the good game may happen to be a bad product.