Last week Wizards of the Coast announced that, effective this September, they would no longer distribute directly to stores. Their direct distribution encompassed Magic: the Gathering, Dungeons & Dragons, and a small smattering of board games under their own label and that of Avalon Hill, such as Axis & Allies and the Betrayal series.
Within a few days, the authorized distributors announced that the price of those products at wholesale, especially Magic, would be increasing, presumably owing to Wizards increasing distributor cost as the flip side of handing the distributors all the volume previously serviced by direct sales. Distributors then passed that cost through. In fact, for stores that do not select a given distributor for Magic prerelease allocations, the price of Wizards products will be going up quite a bit and quantity allocations are not at all assured.
And you know what?
Good.
Oh, the outcry from the massive sea of Magic Pit game stores has been immediate and anguished. Wizards Direct, you see, was their primary source for product. Many of them don't move enough general volume of product to hit pricing tiers from the major distributors. So this change represents an existential threat for them. They can no longer count on swiping exactly $75.96 per box on their rewards card to sell it at $85 "cash price only" and commit sales tax fraud over and over as many times each week as shipments can reach them, in a desperate race to the bottom hoping to win the fleeting approval of local grinders. They're finding their box prices shooting up about $5 per, in some cases more, which when you're in a business that has a 3% to 7% average final net on MSRP, is basically the entire profit on the previous box flip. Remember, a box of Magic has an MSRP of $143.64. Not $110, not $100, not $90 or whatever the MTGfinance subreddits suggest. If you leave sixty bucks on the table hundreds of times every week, eventually the store fails. You can only make up so much of that on snacks and sodas.
For those of you unfamiliar with the landscape, Wizards has twelve mainline distributors in North America, four of which are region-restricted to Canada and Latin America for Wizards products:
U.S.:
- ACD (national)
- Aladdin (regional, upper Midwest)
- Alliance (national and Canada)
- Diamond (national)
- GTS (national)
- Mad Al (regional, Appalachia)
- Magazine Exchange (regional, Pacific coast)
- PHD (national)
- Southern Hobby (national)
Non-U.S.:
- (Alliance, as noted above)
- Devir Americas (Latin America)
- Lion Rampant (Canada)
- Universal (Canada)
The smaller distributors, which I call "regional" because their reach is concentrated with the stores within shorter distances of them (though they do ship nationally), were out of the gate with slightly lower price points than what was offered by the national distributors. This is natural, they want to gain what business they can, and as there's no such thing as a free lunch, they hope to make it up in additional sales of sleeves, playmats, Pokemon, and whatever else. We're talking $1-$2 difference per box though, and a lesser hit from not picking them for the prerelease.
The national distributors tend to have basically everything in stock, and are less desperate for that business; their client stores may have ordered Magic and D&D in volume, but also ordered many other things. Any store carrying sports cards was going to need to buy from GTS or Southern Hobby anyway. Any store carrying board games in any serious way would find that Alliance has exclusivity on products from major publishers, and ACD and GTS have exclusivity on a few as well.
So, why would Wizards of the Coast do this? Why scrap their own distribution fulfillment and turn things over to the channel, knowing price increases would follow and they would be ceding some amount of market control?
Well, there's an immediate reason that I'll reach in a moment, but first it helps to understand why Wizards distributed directly in the first place, since many publishers don't do so.
Back in the late 1990s, there was no real control over who bought product from where. If you knew the phone number to call, you could get wholesale access to anything in the game industry that you wanted, provided you could supply a tax or business license number and you didn't mind allocations and occasionally waiting. Distribution was a bit of a mess. Diamond was the last comic distributor standing as Second Genesis, Pacific, Heroes World, and every other comic distributor bit the dust or got swallowed up. Zocchi was on the ropes. Gamus had not yet merged with Talkin' Sports to form GTS. The arrival of the first TCG bubble in 1995-1996 hurt a lot of stores and finding day-and-date game stock was becoming a cottage industry on its own. (For board games we still don't always have it even today. In many cases, the street date is you can sell it whenever you can get your hands on it.) Wizards of the Coast needed to be able to push volume, and it was a good thing they set up direct sales to do so, because that made it possible for them to cash in on the 1999 Pokemon craze.
Throughout the 2000s, distribution normalized for the most part. Diamond acquired Alliance, the GTS merger occurred, and the major players survived the 9/11 downturn and the d20 bust and saw things stabilize mid-decade. The economic meltdown of 2008-2009 claimed a lot of stores, but this time distribution didn't lose their shirts on terms like they had back in the '90s. In 2006, the Supreme Court ruling in Leegin v. PSKS allowed Wizards to lock out non-brick-and-mortar businesses from distribution, and the Premiere Store program evolved into today's Wizards Play Network (WPN) Retailer program, enforcing standardization of organized play, conduct standards (which we'll circle back to shortly), and street date adherence unless you're Target or Wal-Mart.
By 2013 or so, most stores could get as much of any Magic standard booster expansion or Dungeons & Dragons sourcebook at launch as they wanted, and have it day-and-date. Wizards could have shut down direct sales at any time since then. They are doing it now, right at the culmination of Magic's 25th Anniversary year, and I think they've chosen this point in time for another reason.
And that reason is this: They don't need us anymore.
Magic is successful in the mass market now. Magic Arena, though nascent, is clearly going to be good enough at this point to move forward. Watch as this September's new set, Guilds of Ravnica, likely includes some manner of redemption or code card. Possibly Ravnica Allegiance in January if they aren't quite there yet in time for this fall. They have a Magic-based D&D setting now, with Guildmasters of Ravnica launching in tandem. They have a market vertical that they can support through traditional channels. And meanwhile, there are too many independent hobby game stores, a great deal more of them than the market needs by a long shot, and they are the most difficult faucet end of the product channel for Wizards to deal with.
Unless you've been there running a WPN-participating store for the entire boom cycle we're now on the back end of, you can't truly appreciate just how much hand-holding Wizards does for WPN member stores. We literally get monthly shipments of free promo cards and marketing materials, everything from posters and standees to rack and fixture (a demo table in June) to elaborate advert decor to free giveaway decks to teach new players the game.
All Wizards ever asks of us for this bounty is that we use the materials the way they were intended. By an astonishing coincidence, that happens to be the way we get the most value out of them. Why, it's almost as though they had people with marketing degrees sitting there every day imagining promotional schemes and developing materials meant to work in tandem with those schemes... on purpose! Can you believe it?
And for all that effort, the independent game store channel just thumbs its nose at Wizards on a discouragingly regular basis. And I'm not just talking about the litany of complaints on the WPN Facebook Group by retailers whose porridge is too hot and who would have used the promo pack from Whatever Set if only it had been a lighter shade of chartreuse. I mean there are stores who just do nasty things and it makes us all look bad in so doing.
Earlier this summer, Wizards sent all WPN stores a very professional-looking heavy stock poster of their Conduct Commitment, basically a statement that WPN stores are a safe space where bullying and harassment are not tolerated, and all are welcome. You haven't seen this posted at my store yet for the sole reason that we are in the process of having it framed and it's a non-standard size so we couldn't just use frames we had on hand. It's nice enough that we don't want to ruin it with push pins and everyday direct wear and tear. But it's going up on the wall.
Naturally, the proprietors of A Store of Fire and Dice in Lynbrook, New York, which is apparently located within some jurisdiction called "Kekistan," defaced the Conduct Commitment poster and posted for all the glorious internet to see that their store is not a safe space, plays by its own rules, you get the picture. It's such juvenile behavior and so easily avoided by, you know, not behaving like a juvenile, that it boggles the mind that a store would do such a thing. And yet here we are. What's more is that introducing politics into a public business is such a bad idea in virtually all circumstances. Even in coastal California where liberal politics are as big a layup as you'll ever see, area stores tread carefully.
Wizards revoked the store's WPN membership, which means they're going to get the worst of it on distributor pricing for Magic now, because they have no prerelease selection to bestow. Depending on how much Magic is in their sales mix, this might be a store death sentence, in effect. With so much on the line, one marvels that they would poke the bear, but they did.
Oh, we only know about this because the store publicized it on Facebook Live, complete with a GoFundMe campaign for the customary digital panhandling. Wizards does not publicize its program enforcement. This means we don't know whether the poster defacement was the store's first WPN offense or its twentieth, whether they have been the source of complaints by players or judges in the past, whether they have broken any policy before, and so on. And we won't know because, again, there are no public smitings in program enforcement. This is just a normal aspect of how these things work.
Quietly losing access to sanctioned Magic isn't something a Magic-heavy store can do, of course, so they have to paint themselves as aggrieved and invent a mighty persecution narrative with which to "fight back." Lifetime-DCI-banned outrage pornographer Jeremy Hambly jumped in to defend them, because of course he did.
Wizards doesn't need that hassle. Hasbro doesn't need that grief. And they especially don't need to be spending multi-million-dollar marketing budgets trying to teach these kinds of reprobates how to be professional and run a real business. Why should they? These stores can exhaust their capital, fail, and then be replaced by the next ready dreamer without a business clue in the world other than they want wholesale access to Magic.
Well, if that's how it's going to be, then "wholesale access to Magic" needs to be something that Hasbro maximizes the value of. And now, with their distribution change, they're closer to maximizing it. They are getting theirs. They have a duty to their shareholders to do this.
And to those stores who see this as a serious problem, I say... you know, you could always just close up shop? I mean, if a five-dollar increase in the price of booster boxes you're already giving away at a nickel over wholesale is an existential threat to you, maybe just wind down your business and leave this gig to the professionals?
Come on now, don't say you haven't considered it. Most of you got in when the singles boom was at its peak around late 2013 to early 2014. You've been complaining for months now that you didn't get to sell $20 bills for ten dollars with the past two Masters sets underperforming the market. You never branched out into additional revenue sources, you never made your primary Magic revenue line sustainable, and now you don't have the capital to do either of those things. You've got to be coming up on lease terminations soon. Why stay in the game when you're close to dead in the water and now Hasbro has made it abundantly clear you aren't needed?
Your market has made that clear too, but you were too deaf to hear it. You looked at an oversaturated industry, and because you wanted wholesale access to Magic so badly, instead of rationally realizing that there wasn't room in the pool for infinite people to dive, you barged right in, "ME TOO!" The player base is salami-sliced so thin by the abundance of stores that the grinders know they can brush you up for free blood and treasure, and when you fail, they'll just move on to the next
Heck, the grinders are being smart. They're being smarter than the people opening up new game stores these days. The grinders, at least, know exactly what they're doing, and it's working for them. Why should they do otherwise? If I were them, I would not change a thing. Maybe they are playing their role in this distorted ecosystem better than ever before.
(We just hit peak Backstage Pass. I'm sitting here siding with grinders over independent retail hobby game stores. We did it, folks. Cats and dogs living together, mass hysteria.)
In any case, established stores will be ready and willing to buy up whatever assets remain from stores that throw in the towel, just as it ever was. That purchasing will take place at salvage rates. I therefore remind everyone who wants wholesale access to Magic that such access can be procured simply by opening a small game store, and if you don't have any particular ideas on how to make that business function, there is always the option of racing to the bottom on price so as to gain the fleeting approval of grinders. Just, you know, leave politics out of the equation.
No comments:
Post a Comment