DSG is going to be taking a break from Warhammer. (Well, from wargames entirely, but since Warhammer is the only one that matters most of the time, effectively, it's a break from Warhammer.)
Last year I moved DSG out of the comic book business, citing our poor positioning in the category relative to product, branding, and deployment imperatives. You may notice that I consider that to have been a permanent move, though I suppose if by some strange turn of events I acquire a comic book store again, I guess I'd be back in that business. With Warhammer, time and experience have taught me never to say never. Some of the same imperatives apply here, but the reboot commitment quotient is reachable if the right combination of favorable factors occurred.
OK, I'm getting ahead of myself here. DSG has had a small but extremely great Warhammer player community for these past two-ish years, and I think they are owed an explanation.
Before that, disposing of some housekeeping: There is not going to be a pennies-on-the-dollar liquidation. We'll sell the rest of our 40K stuff at 15% off MSRP during our Black Friday Week sale (This pricing is in effect immediately if any of you want to just come buy the kits now.) Citadel Paint is going to stay, if Games Workshop permits it. The rest is already gone. We've been selling Age of Sigmar, Warcry, and accessories on Amazon FBA for weeks now, and seen more sales of these items by far than we were seeing in-store. Our remaining organized play assets and promotional material have been designated to be gifted to various folks.
So, why now. After four-plus years as a Warhammer stockist, why would I pull the plug on a high-revenue product line and move in another direction?
There is no villain this time, no finger to point, no blame to place. Warhammer has had its ups and downs at DSG, and sometimes ups outnumber the downs, but not in Nottingham. On balance it has been a profitable line. The last few quarters have seen it go upside-down in revenue versus inventory brought in, but the danger from that is partly mitigated because we're gate-admitted to FBA for Warhammer and it sells very well in that fashion. In fact, that's kind of the rub, and part of the industry shift that has led us to this change.
Overall retail trends are basically forcing us on this one. People have changed the way they shop and buy, and major brands have changed the way they engage with consumers. This affects Warhammer at DSG, but also D&D and board games. Since board games are mostly played at home and not the store, the phase-out of that category will be much less visible until afterward.
Obviously, online sales are a big factor. We're not left out in the cold on that by any means; in a can't-beat-'em-join-'em fashion, DSG has significant volume on TCGPlayer, Amazon, and eBay, though the latter is getting worse as a seller platform and will eventually be nothing but a junk dump. But the reality is, and we're seeing this even in cases when our in-store price is well below our Amazon price, people still shop Amazon first, sometimes only, and when they shop local, they tend to gravitate first toward the brand vertical (Games Workshop's own company stores), then toward big box mass market, and then the top tier of independent stores, and no further.
That's a crucial pecking order and it deserves more airtime here so you can clearly see what the conclusion is before I even tell you.
Tapping one's phone to have a series of sweatshop slave workers convey that item from a warehouse shelf to your front doorstep, it's just so easy, that for any commodity merchandise where this is an option, it's a compelling option even though we know deep down inside it's enabling awful worker treatment. Even when there are a few bucks to be saved locally, people just assume the Amazon price will be around the cheapest (often it is absolutely not, but Amazon burned a billion dollars to convince people it was, and that plan worked) and thus they tap tap buy. Frictionless commerce. Jeff Bezos knew what he was doing and there's a reason he's richer than gravity.
Next after that, people turn toward the brand vertical, if there is one. Lewis and Dart explained all about this in The New Rules of Retail, but I don't think even they expected how prominent the verticals would become. I can't point a finger, I do it myself, I buy my tech at the Apple Store and the Microsoft Store, I buy the kids Legos at the LEGO Store, I buy gifts for my many nieces and nephews at the Disney Store, and so on. There are no Hasbro company stores... yet... but there are Warhammer stores, and the three in our region are high performers. Even the smallest of the three has a comprehensive stock. Warhammer Chandler is supposed to be generating new gamers and referring them to independents in the area, and I don't doubt that some amount of that happens, but in practice this was offset by established Warhammer players migrating their buying to the company store, especially for the various exclusives.
The big box or mass market comes in next, including such stores as GameStop. People talk about how they hate big box, but then they shop big box anyway. I mentioned above that Amazon does not usually have the lowest price at all, but big box, especially Wal-Mart, often does. I recognize price as an imperative for most shoppers, and there's a reason why our used merch is sold typically at market price or a number resembling it, and a reason our in-print Magic boosters are 3-for-$10 every day. Cash is king and money talks. Big box would eat independents for lunch except that their selection tends to be narrow ultra-mainstream middle-of-the-spectrum and no further, because big box depends on the simplicity of a narrow span of options to hit logistical economy of scale.
Finally, we have independents, and by the time most shoppers are past the three prior options, they're going to go to the top-tier, "Tier 1" store for their category, and that's it. In metro Phoenix, Imperial Outpost Games is the only Tier 1 independent Warhammer retailer. Even when DSG had its highest Warhammer inventory count ever, roughly spring 2019, on par with the two smaller company stores for coverage, we weren't close to matching IOG. I would have rated us Tier 2 at that time. Nationally known stores like Giga-Bites Cafe and Little Shop of Magic are Tier 1 for Warhammer just like IOG is. There are a couple of solidly Tier 2 stores in town like Games U and Game Depot; neither of them is on par with Giga or Little Shop, but both are legit. These days, after more than a fiscal quarter seeing SKUs fail to turn and get sent to FBA to recoup, DSG has slid into Tier 3 territory for Warhammer.
You're probably catching on to the underlying principle here. To be sustainable as a business, we need to put our resources into being Tier 1 at anything we carry, or else we will simply get shouldered out by market forces and ultimately fail and bust. That's the economic reality of small specialty retail in a major metro area today, in the modern interconnected marketplace. Even at DSG's scale as the (physically) largest game store in the Valley, we just don't have that framework in place for miniatures, and have not been able to build it successfully. Right now I think we're at or near Tier 1 for Magic, but need lots of work to solidify that. We recently bought out the video game stock of a store out of state that was leaving the category, and that's going to put us close to Tier 1 for video games. We're not there for D&D or board games. IOG and Game Depot are Tier 1 for board games, and the only unambiguously-Tier-1 D&D store in town, Gateway Games in Mesa, closed its doors two weeks ago. So both of those categories are going to see changes as well.
We have a clear Tier 1 game room, and we realize many Warhammer players will ask why we don't keep minis tables around regardless. The reason is that the game room has to be cash-gated (pay to play) or else it's just a promotional expense for things the store sells. To cash-gate a game room, it usually needs to be a restaurant like Snakes & Lattes or Giga-Bites. While I like both of those places, I am realistically never entering the restaurant business. For a long time I thought I could cash-gate the game room by upgrading it and making it nice, but Gateway Games had the nicest D&D rooms in literally the entire southwest and they encountered nonstop price resistance and player non-cooperation, forcing me to recognize that plan is a non-starter. I'm glad I discovered this before paying for such infrastructure upgrades. While some manner of game-room gating is likely as time goes on, and it could very well include minis capacity, it's not going to be today, and it's not going to happen in time to change our Warhammer decision.
"So you're dropping Warhammer because you're Tier 3 or worse but not board games or D&D where you're Tier 3 or worse?" Board games are a bit more fluid, like I said above, because players don't really need the store to have a place to play. We can accordion that category bigger and smaller at will and it mostly won't get noticed. Deadwood stock can be deleted from the racks quietly and sent to Amazon FBA, a process that has already been happening. While board games are "muggle-approachable," they also are a category where a brick-and-mortar store doesn't add that much value, and I envision their departure from DSG happening without any announcement.
For D&D, we still do need to solve the cash-gating equation for the game room, and we have an idea in mind that wouldn't work for minis but could work for tables of seven players plus a Dungeon Master, and we'll be implementing that soon. We sell so many dice and WizKids D&D minis that the category has something of a reprieve, because Amazon dumps sourcebooks at a nickel over bottom cost and I assure you that if I had to exit a second category today, it would be RPGs.
In contrast to those two categories, Warhammer's sourcing is effectively locked to publisher direct, which causes chaos when anything goes wrong with an order; it requires a substantial expenditure of space and resources for everything involved from product to tables to terrain to floor to my managerial attention, and it's not "muggle-friendly" as an approachable IP. None of these things are the players' fault and none represent any bad acting on the part of anyone. It's just inherent characteristics of the wargames hobby. Some of these concern points also existed for comics, but Warhammer stuck around at DSG an entire year longer than comics did.
So why just a "break" if those sound like such permanent-esque factors?
One of the projects I didn't really have time to bring to fruition was internally dubbed "Secret Site Wargames," pronounced "SWIG" for short and yes I know the acronym is imperfect. SWIG would have been a small, 1200-square-foot independent store (branded differently than DSG, and more in the wargames theme, but your DSG Stars and store credit would still cross over) carrying miniatures and nothing else. We even had a site picked out for it with a great lease rate. SWIG would have carried Games Workshop's full catalog at all times, plus the major minis games and paint and tool lines from elsewhere in the industry, such as Army Painter, Vallejo, X-Wing, Lord of the Rings, Song of Ice and Fire, Woodland Scenics, and so on. The attraction would have been the absolute brand and stock focus on those lines making the store Tier 1 in the category, plus MAP-maximum discounts and nothing-a-month rent making those discounts possible, earning the cash-is-king crown. I think this is probably the mastered concept and in today's market landscape it's a winning play. Part of why I'm calling DSG's move a "break" from Warhammer is because SWIG may still exist at some point, perhaps as soon as late 2020, depending how other factors go. It's safe to say if I carry Warhammer again, SWIG is probably the only way I'd do it. I don't mind spilling the beans about this because an idea, without execution, is worth nothing. If someone beats me to the punch and launches a SWIG-alike successfully, they deserve the reward. I've spoken with a few of our Warhammer players who have ideas along these lines and I would be happy to publicly align with them as friendly network/allied stores if they move ahead with it.
There are definitely other stores dabbling in Warhammer in town, Tier 3 or worse, and while their business is their problem, they should really all exit the category too because why would a devoted wargamer even go there when they have such superior options as the Tier 2 or better stores, or the brand vertical of Games Workshop's own company stores, or Amazon? I think in practice a lot of these stores have the Warhammer merch in stock, at base stock level, just as a hedge or as fanservice to a small portion of customers or to see if something sparks, but it never really does and the trend line continues to bend the other way.
As of the end of Q3 2019, DSG makes almost 90% of its revenue from TCGs and video games. The future-facing business path before us is to be in those categories and utterly master them. That's where the lion's share of my professional attention is going to be directed. I have always liked Warhammer and will continue to like it, and I recognize that if other businesses can provide a world-class Tier 1 experience to the Warhammer hobbyist and I cannot, at least for the time being, I need to get out of the way.
