Tuesday, April 2, 2019

Assumptions

In order to make any kind of business decision, certain assumptions have to be made, and with a confidence level.  A 50% confidence level is a coin toss, and the assumption becomes essentially valueless at that point.  A 99% confidence level is reasonable certainty, with the accepted caveat that you can never be absolutely certain that some apocalyptic scenario won't suddenly end your business entirely.  Earthquake, pandemic, return of Jesus, 100-year flood, Thanos snaps fingers, etc.

The confidence level of your typical assumption will vary as market conditions change, both macro and micro.  Publisher announcements, changes in local laws, even who gets elected President can affect assumptions to various degrees.  We are essentially guessing what details will emerge on events and items that are still fairly far away on the horizon.
Here are an assortment of assumptions I make decisions with right now.  There are a lot of references to the year 2022.  That is when DSG's Chandler lease ends.  While I will be delighted to continue the business beyond that year, for most decisions I might make, I only have to consider the ROI that DSG can achieve on or before that date.

99%: People will still be playing tabletop games until at least 2022.
80%: People will still be playing tabletop games until at least 2032.
60%: People will still be playing tabletop games until at least 2042.

In the long run, even though "analog" games are a wonderful thing, changes in technology will probably make it much easier to play them in some sort of virtualized form.  Essentially, where will we be on a scale from Today to The Invention Of Holodecks.

99%: People will still play video games on existing physical media until at least 2022.
99%: People will still play video games on existing physical media until at least 2042.
75%: The market for physical video game media will still be growing in 2022.
55%: The market for physical video game media will still be growing in 2042.

The digital sunset that everyone thinks is already upon us will eventually come.  However, much like no single streaming service lets us watch whatever specific thing we want all the time, not every digital delivery video game option will reach many of the richest and most engrossing titles throughout video game history.  In some cases key hardware won't be circulating.  In other cases the license for the game content won't be feasibly renewable.  In some cases remote servers will no longer be online as the player base moves on to newer titles and platforms.  In some cases all three will be the case, and by that I am referring to Rock Band: The Beatles.

Having said that, population growth generally guarantees at least a modicum of some market growth in most categories, which is why we're at 55% by 2042 for any market vitality at all.

Let's get somewhat more specific:

99%: People will still play paper Magic: the Gathering until at least 2022.
70%: Hasbro will still own Magic: the Gathering in 2022.
55%: There will be no market correction to Magic: the Gathering singles before 2022.

We've discussed this here at length.

Here is an example of the grotesquely narrow end:

99%: I will sell at least one copy of D&D Saltmarsh within 30 days of release.
70%: I will sell at least 20 copies.
55%: 50 copies.

For comparative purposes, DSG sold more than 50 copies of Guildmaster's Guide to Ravnica during the two-week WPN exclusivity window, which is no longer in effect as of this spring's release of Saltmarsh.  I will still sell a lot of this as D&D is hot and Saltmarsh is going to be demanded.  But it won't be like it was.  It can't be; Amazon dumps books in order to accrue market share, and even though many players do support the store, it's going to be tough to attract the masses when they can buy it on Prime for a nickel over wholesale.  Based on this assumption, I am going to order roughly 40 copies.

The 30-day window is important to stores that buy on net terms.  Ever since I fully embraced the pawnshop side of my business, we do a lot more paying cash up front (or on short terms) so that we no longer have debt-encumbered inventory most of the time; we buy what we can afford in advance, we own it immediately, and I worry about cracking the turn-rate whip later.  However, processes and decision-making based on a 30-day assumption are already ingrained.

Backing off to the more general range, looking at video game buys:

90%: If I buy a Nintendo home console without testing it, it will work.
70%: If I buy a Nintendo handheld console without testing it, it will work.
60%: If I buy a disc-based console without testing it, it will work.
99%: If I buy a cartridge or card game without testing it, it will work.
99%: If I buy a disc game with little or no substantial visible damage, it will work.*
80%: If I buy a scratched disc and resurface it, it will work.
90%: Any given Xbox 360 fat, Playstation 3 fat, or Playstation 2 fat we are offered will be non-working on arrival in some form.  Either red ring, yellow light, or disc read error.

Our testing and buying processes are informed by what we've seen in volume, and most stuff does work just fine.  Most often when a console is in the back room, it's because it's incomplete and we need to dig up components, or else it's known bad and we bought it for parts.  It doesn't make a lot of sense to diagnose a $40 console we'd buy working for $10 (say, a PS3 fat) when a typical bench expense is already $40+.  (Right now I am doing this work, but we have to craft our processes on the assumption that we might have to pay a technician to do it at some point down the line.)

The asterisk* reflects the reality that it's possible a game doesn't actually work for software reasons (server long since offline, game requires subscription, etc) but when we say it will "work" we mean the system will read the disc properly and boot the game as far as it's currently expected to be able to.  And while my disc resurfacer is practically a miracle machine, sometimes scratched discs with data-layer damage make it through our staff-inspection filter, or the disc ends up being worse than it looked.

We have some very specific tests in some cases.  Playstation 2 fats from the later manufacturing runs, before the changeover to the Slim versions, usually have good DVD drives, so I have a memory card prepared with a save-game of Gran Turismo 3 where an employee can very quickly load an endurance track in simulation mode.  (This usually takes hours of "license" tutorial gameplay to unlock.)  The endurance tracks are all on the second layer of the game DVD, and any PS2 fat with a failing laser will throw a disc read error dependably on that test.  If you can start the endurance race and the game music isn't skipping, that there's a working PS2.  Buy it, book it, prep it for resale.  Yes, that's an elaborate test to devise and implement, but it increases my confidence level to 99% on the assumption that if I buy a PS2 fat that will run that track, I can sell it and not have it get returned later for not working properly.

Some other general things:

80%: I will have an employee resign between now and the end of the year.
60%: I will have to terminate an employee this year.
80%: We will have HVAC issues this summer that will cost at least $1000 to fix.
85%: DSG will increase Warhammer sales in Q2 2019 even with a company store opening in town in mid-April.
90%: I will discontinue a miniatures line or product this year.  Possibly one that is still yet to be released as of this writing.
95%: DSG will increase Magic sales in Q2 2019 even with multiple new competitors popping up.
80%: I will discontinue a TCG of some kind this year.
60%: There will be another substantial renovation of the store interior this year after our Premium application is completed.
55%: DSG will be bought out by another business entity this year.
75%: DSG will remain configured as one hub store location for the rest of this year.
95%: DSG's hub won't have any location change before end-of-lease in 2022.
99%: I will remain physically alive for the remainder of the lease.
100%: If I win the $100mil Powerball, I'm flipping a bunch of people the bird, high-fiving a bunch of others, gifting some folks a very green Christmas, and walking away into the sunset.

I think I'll head over to the Circle-K to buy that lottery ticket.

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