Monday, April 24, 2017

All Shall Perish Like the Morning Mist

This is not a discussion of pricing, though I will reference pricing for specific offerings as a way of anchoring the concepts involved.  As always, individual businesses must set prices according to their own criteria.

I'm going to hit this topic quickly because it has been a busy weekend and I have even busier weeks ahead.  This is the kind of topic where other retailers reading should do follow-up research on their own and really integrate these concepts.

Some goods are there for a while and then become worthless.  Traditionally these were called "evanescent" goods, because the definition of "evanescence" is a property of existing for a short time and then disappearing.  In recent decades the term "evanescent" goods has largely persisted only in law and academia, where the adjective also describes e.g. evidence: traces of alcohol in a suspect's bloodstream, for example.

The term now in commerce is perishable inventory.  Just like food that literally spoils if unsold for long enough, there exist goods and services that become worthless if unsold during a given interval.  A seat on a plane flight or a bus trip.  A night's accommodation in a hotel room.  An evening's occupancy of a seat at a concert hall.  That ticket to see Evanescence perform at the Dodge Theatre becomes worthless after the show, so the promoter really, really wants to see every ticket sold.
There is bean counting that achieves the goal of selling an optimal number of perishable goods and services.  Paradoxically, that number is usually not expressed in terms of a 100% sellout.  If a concert sells out, the promoter doesn't know how many more tickets they could have sold if they had staged the event at a larger venue.  If an airplane flight sells out, you end up having to beat up passengers.  If a hotel sells out, anyone who paid less than anyone else to stay there represents money lost.  And therein lies the rub.

It's impossible to tell the future, comma, lottery tickets yippee.  Though the actuaries who count the assorted airline, concert, and hotel beans tend to count very well, they will have an error rate even when performing at their best.  The business then has to decide how to mitigate those risks.  An airline might oversell and offer vouchers to get people to bail from a flight.  A hotel worried about being too empty might offer deep discount room rates far in advance or on mid-week days, and then raise the price right up until the week or days prior.  Then, the very night of, the hotel rates might plummet as unsold rooms stand on the verge of earning nothing.  It's not spherical sheep in a vacuum because it costs labor to have the service staff restore a used room, but bistro math says the hotel hopes to be close to full at a fairly high average room rate.  Close to full.  That's efficient.

By now you can certainly imagine some of the financial and promotional gymnastics that go into the perishable inventory mechanism.  If you want to live on the bleeding edge and experience this in excruciating fidelity, be a ticket scalper.  Your stock value will fluctuate wildly and you'll have to do all your research in advance and operate live without a net, and your hope is to clear a night's profit for yourself before your remaining stock of tickets turns to metaphorical dust.

So why am I talking about all this?

Tabletop game pre-release events are perishable inventory.

In most cases pre-releases are publisher-driven and stores are given a limited allocation of "player packs" or prize modules or whatever creates finiteness in the offering.  And in most cases stores can only run the event on a given calendar day.  So the store wants to sell out that event, to within one player kit.

Invariably, as occurred after last weekend's wonderful Magic: the Gathering "Amonkhet" pre-release, the retailer realms on social media were inundated by stores complaining that they had been allocated too few kits and had sold out the event too quickly and had to cancel remaining start times.  And while there were plenty of instances where this happened despite good practices, fairly often I see stores causing their own problem when it comes to perishable inventory by underpricing it.

The MSRP of a Magic pre-release is $25.99.  Disregarding for the sake of clarity the fact that each new release may vary in quality from the last, a store that sold out its previous pre-release or came close, should likely change very little.  DSG used to sell out or come within small unit counts of doing so routinely, as you can read right here on this blog.  Ever since another store dropped in three miles away, some amount of our local audience is saturated out, and we now post sell-through figures in the eighties of percents, offering the event at MSRP.  This would be unacceptable if we were not simply able to recoup much of that value selling the event kits a week later as regular product.  But we do get to do that, so ~85% of capacity is fine.  Meanwhile DSG Tempe runs over 100% capacity and gets additional kits from DSG Gilbert's excess.  So that's outstanding.

If we routinely ran very shallow on sell-through, that would be a sign that our price was too high.  Once upon a time I ran the event at ~$30 with higher prizing.  I think that's actually a more realistic price level for a Magic pre-release, and I am not the first to say so.  But as crowded as my market is, I didn't see that same traction for sets that had soft underbellies, such as Fate Reforged, despite heavy prize support.  We took a complete bath on Journey into Nyx at thirty bills.

If I found the sellouts coming very easily and Sunday afternoon events cancelled on the regular, that would be a telltale sign that I was too low on admission price.  I think I could run $20 events tax-in and sell out extremely easily, but the net on that is abysmal compared to far smaller events at MSRP or above.  It doesn't make a lot of sense when I can come close to selling out at MSRP, and in all likelihood the main thing preventing a full sellout these days is that I don't have the physical space to seat more players at prime start times such as the midnight kickoff.  (That raises a fun question of whether varying pricing by start time might be a viable option.)  Back when Dragons of Tarkir came through and sold out, my allocation was smaller, and my floor had less product on it.  Great for pre-release capacity, bad for sales the other 357 days every year.  Much as I'd love to have huge, luxurious seating for throngs of players, and we'll see what DSG Next has in store, for now we just don't have it, and product must have adequate space on the floor for visitors to shop it.  DSG Tempe is bigger than DSG Gilbert physically and still fills up on event days.

So if you're one of those stores that gets a 90-pack allocation or 120 or 180 or whatever and you sell out too quickly at $25 tax-in?  Maybe you need to be charging $27.  Maybe $29.  Egads, maybe $32, though I think that might be a little more than most markets will bear unless your store is a luxurious event center like The Wandering Dragon or Mox Boarding House.  And I have no idea what they charge, for all I know they're at MSRP anyway.

You can't really reduce prizing if you're giving out the two packs per player that Wizards requires.  You can adjust round counts, prize dispersal, and various other semi-meaningful criteria, but the big one is price and will always be price.  And if you're wrong?  You still get easy sales of the pre-release kits on release weekend.  Maybe you charge one price for advance registration and more at the door on the day of the event, though I urge caution there, that might dissuade players who feel like they missed out on a better deal and won't come play on a quick decision.

The next level of analysis is to recognize that filling capacity is a great rule of thumb, but overall net income is the real goal, and depending on price elasticity in your market, costs of operating, and like such, it might actually net you more to fill 70% of player slots at a given price point than going down $2 per player to fill them all.  I'm keeping that out of the scope of this article because I don't think a lot of hobby game stores are there yet.  They're so terrified of failing to make rent that they'll crank the price down as low as necessary to ensure a sellout, and all the while that gross revenue doesn't punch anywhere near its weight.

Do your research, learn and understand how perishable inventory works, and crib from the vast history of companies who have tried every process under the sun to optimize their results.  But don't give away nickel beer and then complain that you ran out.  Your problem isn't the brewery failing to send you enough beer.  It was you charging only a nickel for the beer they did send you.

Monday, April 17, 2017

Bunch of Savages in This Town

Sometime in the early morning hours of Easter Sunday, this happened at my Tempe location:
I won't recount the details of the burglary, as those are in the hands of the police and insurance company and that information is of little value to anyone not involved.  What prompted me to write this article was the pervasive jadedness I found in my reaction.

Not right away, of course.  First I shook my fist and cursed the sky.  But after burning off my initial reaction, I went into administration mode, and mentally planned my due diligence.  Examine the scene for myself.  Secure the police report.  Contact our attorney.  Contact the insurance agent.  Send out word to the community.  Secure the premises.

I realized at some point during this process that the entire thing had become, to use a word that isn't precisely right, routine.  Break-ins happen to retail stores.  They just do.  Statistically speaking, it's kind of unusual that it took until five years in for one of my locations to get hit.  And this is just what happens these days.  As the officer on the scene observed, one day it's our store, the next day it's the one across the plaza.  So we go through the motions and check all the boxes and file the insurance claim and hope we don't end up losing too much money, labor, and time, by the end of it all.  And there's just nothing anyone can do about it.

I am told that Griffin had even more adrenaline spikes and dumps than I did throughout the day, and understandably so as a burglary is an invasive, violative discovery and he didn't already endure this in 2000, 2001, 2005, and 2009 like I did.  I burned the fuse all the same.  By late afternoon I sat at my workstation in Gilbert, making the necessary calls and emails, and found I could barely keep from nodding.  Deep exhaustion set in.  Fight-or-flight dissipated.  A wave of indifference washed over, or perhaps it was futility, or even chagrin.  More accurately?  Disenchantment.

Why bother, after all.  It's just going to get you a brick through your window.  Why build a business when I can have the ease of an assured paycheck working for the man?  How many times am I going to miss my children hunting for Easter eggs, or opening birthday presents, or trick-or-treating, because some damned thing went wrong at work and I have to head in unscheduled?  And for that effort I get to have some try-hard tell me the best stuff on the shelf has "no value" and would I "do" 70% of market on some Legacy staple that's never going to drop in price for as long as TCGs exist?  Or field a damage swap from some eBay buyer whose kid stepped on the jewel case of his Magical Fantasy Adventure CIB, my eBay metrics now hostage to his apparently sacrosanct desire for a free replacement at my expense?

This is all in the moment, however, and some other thing will happen that will make the notion pass.  I actually had a monstrous weekend of TCGPlayer sales; until Sunday morning I was flying high, mentally banking that extra revenue already toward our upcoming move.  I have friends in town for some special Warhammer events.  We've got a vendor table in two weeks at Zapcon, the arcade convention where I've wanted to exhibit since it began in 2013.  The Magic Amonkhet prerelease is coming up this weekend, and that's always a get-healthy store event, and one the players love every time.  That will be followed by a full release for Amonkhet, a full release for the new Star Wars Destiny set, a reprint of the first and most demanded Final Fantasy booster set, and then apparently a new edition of Warhammer 40k.  One top title after another, and plenty of chances for nourishment.

Decisions made in heightened moments of distress rarely stand up to scrutiny later.  It's critical to allow time for assessment and to let events play out a little further.  In essence, no matter what the disaster at hand, it's best to keep an even keel.  It's best to think of it as... routine.

Monday, April 10, 2017

Time Bombs

One of the strengths of small business is that you can pivot.  With the reach and extent of the enterprise often within a single building, or two and a half buildings in our case if you count Isla Sorna, an owner can quickly implement a policy change, a price or marketing special, or even rebuild a merchandise fixture on the fly.

Unfortunately, not all decisions have consequences so quickly absorbed, analyzed, and responded to.  Some decisions, if early enough and important enough, are time bombs, small mistakes in the early going that ultimately metastasize into big core problems costing thousands of dollars or more to rectify.  When they can even be quantified.  And when they can even be rectified.

The biggest time bomb of all is, of course, going into business with a business partner who doesn't work out.  It is difficult to generalize about this so I won't reach too deeply into this example, but the main points of contention usually end up being unmet expectations (reasonable or unreasonable) for the allocation of resources, control, and work contribution.  I don't have a perfect system for addressing these, but our LLC Operating Agreement has done some heavy lifting over the years.  It is perhaps the opposite of a time bomb.  We have addressed much of the rest in policy.  Accordingly, DSG has survived expensive partner departures that might have destroyed a normal store.  From the eleven original LLC members, the only ones remaining are my wife Stephanie and myself.  [EDIT: To address the wiseasses out there, most of the departed partners did so happily, profit in pocket, to move on to other ventures.]  Two other members have since joined.  It took all the partners' capital to get things rolling, but with the expense of separating the partners who left on less optimal terms, we lost enough ground that I suspect I would have been better off starting much smaller with a tighter ownership group that held a more unified vision.

Here is a time bomb that explodes continuously for me and that I've been cleaning up for almost five years now.  Our logo is wrong.  When initially designed, the "Desert" was in sand and the "Sky" was in sky blue, with "Games" in brick.  It worked nicely and was easy to read.  However when monochromed, the logo instead reads "Desertsky" (think "deh-ZERT-skee" like some sort of Russian soft drink).  It is basically unusable for us but we've been stuck with it for years now.  That small design oversight turned into a $7,000 marquee sign that reads like the Leningrad Circus instead of instilling the sense of wonder I originally intended.  Or people see it at the briefest glance and think it says "Dentistry."  Even less useful for me; dentists are feared and dreaded.
Now a new logo is badly needed for multiple reasons: Uniforming across two stores, window vinyl revamping, a new marquee sign for Tempe, the marquee for DSG New later this fall, the mall sign for DSG Superstition Springs after that, social media flyers and promotions, in-store signage for both stores, it goes on and on.  I had a "square" revision made and rendered, which you see in use today on Facebook and on the store's website, but it's not working out.  To make matters worse, I never did get vector assets for it, and the branding of "and Comics" has never quite resonated whether we've featured comics or not.  The original logo also had a tagline I loved, "New Worlds Await," which we simply have not used.  We played with a new tagline of "The Next Level," which is nice and video-game-compatible, but also haven't done much with that.

Ultimately I think I trust our original idea of how our logo should look overall, but need it executed properly.  [EDIT: Since this article went live... had some assistance come our way from a friend of a friend, and we're quite happy with the logo fix.  Stay tuned to see it in action real soon!]

Here are three of my other DSG time bombs from 2012 through 2014.  If this doesn't scare potential store owners into second-guessing every tiny choice before them, I haven't done my job here today.

The biggest time bomb, of course, was our lease.  At the time it didn't seem that bad.  People heckled us relentlessly for opening a store almost twice as big as any existing store in town, at 2400 square feet.  Yeah, nice joke, huh?  Now DSG Gilbert is among the smallest stores in town, and is easily the smallest proportionate to the amount of revenue it drives through those doors.  We've had to climb right up the walls with sky-high fixtures and crowded conditions just to be able to operate our volume of business in this constrained space.  And for that privilege, we get to pay more per square foot than about 80% of the other stores in town.  (Though that's now, at the tail end of the lease, when the ramp is at its worst.  The five-year average rent rate was competitive.)  DSG Tempe's lease is much better, but that location suffers geographically and has inadequate parking.

I contend that Desert Sky Games is a well-imagined brand, specific enough to have local flavor while flexible enough to be regional, easy to remember, lends well to a color scheme that isn't the same red and black as half the hobby trade uses, and is very clear as a branding for game products whether tabletop or electronic.  Where we ran off course was adding in "and Comics" in 2013.  While accurate, it just doesn't work.  It's too long and cumbersome, it required a logo change that still didn't fix the Russian soda pop problem, and it proved unnecessary in the end, as many prominent stores like Millennium Games and The Nerd Store carry comics just fine without the word "comics" being in the title.  Moreover, I have a ton of marketing history with the full cumbersome name, and the current uniforms feature it.  It's the worst of all worlds.  I can't fix that logo soon enough, and doing so also fixes the branding.  It's just going to be Desert Sky Games from now on.  I then gain some flexibility to use Desert Sky Comics as a sub-brand (and I own and have secured all the IP for that as well).

I set up a time bomb of missed revenue opportunity in 2014 that I regret to this day.  DSG carried video games since the beginning.  Early on, we didn't do much in the category.  It was healthy on low volume.  Former partner and original manager Mike Girard simply wasn't deeply interested in the category, so we didn't really put a lot of focus on it, but it never lost money.  In summer 2014, Girard and DSG parted ways, and when I took over main operations, I hurried to narrow the category spread in an effort to conserve resources and overcome a moribund June.  I moved away from vintage toys, non-sport trading cards, and the vintage arcade, none of which were substantial in the revenue mix at the time.  But I also made a big mistake, which was to drop video games and sell our inventory for a pittance to the good guys at Tempe's The Gaming Zone.  TGZ is a quality outfit and I've said so before in this space.  Video games as a category were a very healthy thing and not something I ought to have dropped, never mind that I was worried about saving the rest.  Video games returned in early 2016 and as of last month have climbed back into the top 5 categories for gross and are the #1 category pound-for-pound.  Had I stuck with video games and dropped board games and comics instead, focusing only on core competencies, I could have bought back into board games and comics later with ease off a far larger bankroll.  Video games aren't right for every store, but they may be a good option to consider for many stores, and they especially are worth keeping around if your store already carries them!

There were other small time bombs over the years caused by yours truly.  Tournament calendaring is a big one because the power of an event calendar is when it rarely ever changes.  You want to catch those people who are back in town to see their families for a few days and remembered that you have Thursday night MTG Standard or Saturday night 40K.  Over time it builds up in aggregate, and that's part of how stores that are open for a while build their incumbent advantage and outperform loud and charismatic newcomers.  Thus even if you have a "bad" event on the calendar, it usually stays there a long time before you make a move.  Staffing has led to some time bombs.  Out of HR consideration I won't name names, but there are employees I held onto well past their expiration date.  That has not been nearly as much of a problem for the Gilbert crew since last summer.  One could argue that being stuck in troubled categories and having deadwood stock amounts to a time bomb, but I see that more as the usual ebb and flow of inventory and part of the educated guessing game that goes into ordinary procurement.

It is difficult to avoid setting time bombs of your own in business, but I wish you the best of luck in containing the damage when the explosion finally hits!  Thanks for joining me once again and have a prosperous week.

Tuesday, April 4, 2017

That Guy With the Opinions Again

My peers in this industry are highly variable, but from among those who I communicate with regularly, I have found genuine compatriots.  Paul Simer often says that if you've run a comic or game store for longer than a few years, you are a "survivor."  It is a sentiment I share.  We survivors tend to band together for mutual protection.  We fortify, trade, and intermarry.  Or something.

For the most part, retailers learn best practices, put them into place, bang around the edges of them with custom tweaks, lose some money on the custom tweaks, and then return to the center of best practices with allowances for whatever must be adapted to the resources at hand.  It is ever thus, nobody gets into this trade without enough arrogance in tow to think we can do it better.  Then, reality is beaten into our faces and we get religion in a hurry.

For example, despite some disagreement in the trenches, the data we have internally in the trade suggests that board games (or any boxed game really, but for simplicity, "board games") that are featured for demonstration to customers sell four to ten times the quantity that they do at similarly situated stores that opt not to demo that particular game.  Performing a demo of a board game is also an important social function because it opens the gateway to the tabletop hobby overall to a visitor who might not already be engaged.  It is an overwhelmingly positive best practice on multiple fronts.  And I don't do it.

Why don't I engage in the proven best practice of boxed game demos?  Because I don't have room in Gilbert to do it in any meaningful way, and in Tempe where I do have room, I don't have the consistency of customer traffic or the board game clientele depth to support it.  I could say I don't have enough board game volume overall to do it, but I don't want to beg the question or use circular reasoning.  The counterargument becomes, of course you don't have the board game volume, you don't demo.  If you did, you'd build that volume.  Chicken and egg perhaps.  That's without addressing the online dumping element, but either you've got a coping mechanism to dampen the sting from that or you're out of the category anyway.

Take this for what you will: Board games are bouncing back slowly but surely in Gilbert, showing signs of life in Tempe, and depending on the particulars of the move this autumn, might feature meaningfully at DSG New, perhaps including room to demo them.  So while I may dismiss board game demos as a non-starter under my immediate circumstances, I recognize the best practice for what it is.

At any given time, there are best practices that I believe might not be everything they were promised to be.  Or, perhaps, I believe I've found an even more betterer practice.  Or I'm just tired or irritated that morning, especially if I have had to be on the phone.  Whatever the reason, I often find myself at odds with many of my peers, doggedly insisting on swimming the stream less traveled and being typically verbose and vocal about it.  Sometimes I'm wrong, but sometimes I am right, so I stick to my judgment until process and outcomes reveal more.

Here is some current evidence of my obstinate contrariness:

I carry video games.  Something this basic constitutes something of a sore spot for many retailers.  Gamers are notoriously cliquish and many retailers in this trade are ascended gamers, so that is to be expected to some degree.  Others simply don't like or understand the category, or are apprehensive about the rougher edges of the much wider audience video games attract.  In some cases a shopkeep will get tired of unknowing customers blurting, "I thought this was a game store.  Where are the X-Box games?" or calling incessantly last winter asking for a NES Classic the store never even carried, and a snarky reply will follow.  "Oh, we don't sell electronic games."  The customer shrugs and offers their wallet full of money to someone more interested in taking it, like me.  There are three strong arguments for a game store not to carry "vidya games" that I know of: (1) They don't have the product expertise and are not inclined to import it, a perfectly reasonable basis to stay away;  (2) The store's brand is focused on something that isn't video games, or is focused on analog/tabletop generally, and the owner doesn't think the brand dilution will be worth the payoff; or (3) The store can't carry them due to exclusive rights of a GameStop in their plaza or whatever.
The prevailing opinion is against the Amonkhet Invocations, but I like them.  I don't like the Egyptian theme that much, and I don't care that much about the specific aesthetic.  This is nothing new; I did not like the floating rocks and Aztec theme of the Zendikar Expeditions, whereas I did enjoy the filigree bronze of the Kaladesh Inventions.  But my specific aesthetic preference isn't the reason I like the Invocations.  I like them because it means we are going to see more and more daring departures from the norm for special Magic cards, and that is both exciting and compelling.  Can you imagine the kind of gorgeous, solemn, hauntingly beautiful gothic frames we'll get on the Masterpieces from In Keeping Secrets of Silent Innistrad 3?  Or the intricate, superfine, exquisite Kanji frames we'll get on Masterpieces from Spirit Wars of Kamigawa? Or the old-world, refined Italian-style splendor of the Renaissance frames we'll get on Masterpieces from the next traditional high-fantasy Mediterranean block setting?  So yeah, I like the Invocations.  Because they mean so much more still to come, and oh by the way, there are probably some Egyptophiles who are absolutely loving them right here and now, so how about if we let people enjoy things.

Store credit should be good for purchase on anything in the store, period.  This might be the single point on which I differ the most from other retailers.  Anything, including tournament entry.  If there is anything store credit is not accepted for, that store is devaluing its own Itchy & Scratchy Money.  Many retailers cringe when customers redeem large chunks of store credit on premium items, but the problem isn't the redemption, the problem is that the retailer foolishly gave out too much store credit for whatever value they got.  Store credit isn't an independent currency.  It can only be obtained from our stores, nowhere else.  We control the spigot and the well pump.  If we are paying the right amount for card and game buys, and our credit bonus is reasonable, and we are prizing tournaments prudently, then we will already have accrued the needed value at the time of the store credit disbursement.  The redemption, when it happens, is mere bookkeeping at that point.  It was a long-term interest-free loan against merchandise at margin.  I welcome it, it gets deliverables off the books.  I believe it is unacceptable to place restrictions on the redemption of store credit, and I think consumers will vote with their wallets on that.

A lot of retailer-to-retailer advice is given without any manner of disclosure that the advising store's situation is, in some instances, grossly atypical.  And I'm not just talking about places in hip coastal enclaves who can collect MSRP on social pressure versus those of us in the southern wastelands competing against pervasive online plus every backpack/garage dealer the tides can wash up.  I'm talking about someone asking for advice on handling seating and parking for his first PPTQ and hearing the way it's done from the guy who has a 700-square-foot board game store and has never had more than six people in his building at the same time.  Or someone asking for help organizing their TCG singles so they can move into online sales and hearing advice from a store that does no online sales and dispenses singles from binders.  Or someone asking how to handle aggressive local competition and hearing sage wisdom from the only store within a 70-mile radius in Tertiary Micropolitan Census Designated Area.  Look, if you're a gross outlier on a given question, maybe leave that help request alone and let the parallel stores give guidance instead?  When a new Facebook group was formed for board-game centric retailers, I did not join.  Many of my friends are in there and I'm sure I would have been welcomed, but that's not what my store is and my input there would have been of low value to them.  In that group, I would be the outlier.  It was appropriate for me not to crash that party.
Finally, booster drafts should never be paired randomly.  15 37 26 48, odds vs odds and evens vs evens round 2, and round 3 writes itself.  You simply tree the rest of the bracket if you have swiss rounds and no elimination.  It's so easy, and it's not even taught anymore except for qualifier playoffs, and now we have situations where real drafts happen in real stores and you can get paired against the person who fed you in packs 1 and 3, and who has a steep statistical advantage against you.  I've been complaining to Wizards of the Coast about this for years and yet WER still pairs randomly because reasons mumble mumble.  Worse yet, most store owners don't care.  For the player who enjoys playing at a high level, and this is not necessarily a "grinder" but can be anyone who enjoys drafting enough to perceive why this is more than mere nuance, I want to be able to provide a superior experience.

I'll leave it at that for now, I'm sure these same debates will rage on within the trade and our forlorn little corner of it.  In an environment where three dozen business concepts a day find themselves the subject of argument, it's not difficult to find a contrary view.  Hopefully, even if you don't follow the contrary view, you're understanding why you went the other way.

Also, pineapple does not belong on pizza.  That's an absurdity.