Professional Documents
Culture Documents
These topics are important to the decision-making and planning process. You must make
them before you open. They take priority because of their urgency to people who want
information now.
Later on, I'll address topics of great importance that focus on decisions
later in the process, like
• Merchandising Skills
• Marketing & Advertising
• Professional Organizations
• Paperwork & Forms
• Lease Negotiation
• Planning Store Layout
You use these skills once you're already open or preparing to open, but
in some cases (especially M&A), knowing how you’ll do them later
affects your early decisions.
Why Me?
My management experience began in 1987 with Domino's Pizza.
Domino's at the time was still expanding strongly. Its management
program was designed to teach walk-ins how to run a half-million-dollar
a year business within six months and train them to buy their own
franchise. The corporate training was intense. It involved paperwork,
training classes, videos, tests, weekly supervisory review, and much
practice. The average manager age at the time was 19, and the
average 7-store supervisor was 21.
My market at the time, which included my trainers and the people I
trained into management positions, led the nation in profitability.
A dozen years later, I had an opportunity to buy a game store. One of
my favorite hangouts was on the block. The owner claimed he wanted
out mostly to spite his soon-to-be-ex-, and I’m sure there was much
truth to that.
I suspect he also thought the industry was declining. His sales were
down, although he didn't have very clear sales records to help identify
where the problem was. That was in 1999. Pokemon was already on
the market, but nobody had any. We signed paperwork and I traded
money for the keys in May.
Within weeks, Wizards came through with the Pokemon. After that, I
had ready cash to cover any errors I made. The timing was partly luck,
and partly good decisions on my part.
From the first, I had good advice. You see, the owner who sold to me
already had an offer on the table. He even told me what it was and let
me see the offer. After much discussion with a friend (another
Domino's veteran and now owner of a $1+ million a year courier
service), I offered less.
Yes, I bought the store with a lower offer than an already existing offer.
That worked for me because the owner was in a hurry to sell, and I
offered him more money sooner. It wasn't a question of what was the
better financial decision in the long run. It was a matter of what he
wanted most. Later on, when he offered to buy out the rest of the
payments (he held the note, saving me from having to secure
financing), I saved another $5,000 because he was spending money
faster than he anticipated.
So I'm in the industry. One of the things I learned at Domino's was to
identify what I needed to learn about a business. I set out to find a
network of peers and any publications I could find to help me in my
education. I'll tell you about all of those in another article, but let's just
say that they were priceless. It quickened my education and saved me
thousands of dollars in errors.
At Domino's we had the three "key indicators," or "keys" in company
jargon. Keep those numbers low and profits go up. What are the keys
in gaming? Product cost and labor. I'll address each of those topics in
separate articles.
Sales rose continuously. I tracked Pokemon separately even before I
installed a point-of-sale system, and non-Pokemon sales climbed. While
I was happy to put the Pokemon money in the bank, I really didn't
consider it indicative of my management skill. It was, in a way, free
money to anyone with a WotC account. The numbers I was most
interested in tracking for purposes of feedback were my sales by
category. As long as all of those were growing, or the sum total was
growing, then I must be doing something right.
They did.
Sales kept going up for every category but historical miniatures. I tried
at first because it was a legacy of my store, and I didn't want to
disappoint the guys who had shopped there before I bought it. When I
finally stopped trying, several other categories increased more than
the loss. I hated disappointing the old customers, but I had bills to pay,
and I had other customers who wanted to give me their money.
Opening Expenses
This figure is the simple sum of a long list of items. Here (DOC File) is a
sample checklist for your planning. Note that your specific business
plan might not call for all of these items. In fact, no store will use all of
them--it includes line items for both rent and mortgage, for example.
• Incorporation
• Accountant fees
• Attorney fees
• Utility deposits
• Rent deposit
• Bank fees & costs
How do you get these figures? By calling people who offer these
products or services and asking how much they cost. For others, you
might want to ask other businesses in your neighborhood how much
they spend (trying to get a projected bill out of your electric company
will probably drive you nuts, but they might be willing to give you a
billing history of the suite you’re leasing). You’ll make dozens or
hundreds of phone calls before you even open. You’ll want to keep
extensive notes for your comparisons.
Sample Store: Sample store incorporates personally, saving attorney
fees but still paying state fees. Sample store has no bargaining position
with deposits and so pays the full $4,800 in rents and utility deposits.
Total for this category: $5,500.
• Tables
• Chairs
• Counters
• Wall fixtures (pegboard or slatwall or a combination)
• Shelving
• Computers (include software)
• Point-of-sale system (it’s software, but it’s important enough for its own listing)
• Receipt printer
• Printer
• Fax
• Telephone(s)
• Bulletin board
• Misc. office supplies
• Shrink-wrap machine
• Cleaning supplies
Sample Store: Sample store has been buying fixtures for a year from
liquidation sales and is willing to build additional fixtures. However, the
owner doesn’t want the store to all look second-hand, so he’s willing to
spend $500 on a few slatwall fixtures, planning to upgrade the rest of
the store in 2-3 years. Adding up the supply cost, the cost of a cash-
wrap, POS system, and miscellaneous equipment he hasn’t obtained
yet, the FFE comes to $4,000.
Build-out
Sample costs include
• Materials
• Paint
• Tools
• Flooring
• Lights
• Misc. repairs
• Signage
• Contracted work
Inventory
Capital Reserve
Before you can calculate your capital reserve, you must determine
your burn rate. Your burn rate is the rate at which you spend money
before you start to break even. It’s a combination of your fixed
expenses like rent and utilities and variable expenses. While
technically labor is considered a variable expense, I include it under
the fixed expenses category. That leaves for your variable expenses
only the cost of replacing the inventory you sell on a daily basis. Our
calculations assume that your inventory level remains constant, which
it won’t--but we’ve already accounted for your first year’s inventory
gain in the calculation above, so we’re okay there.
and others. Include a salary for yourself. A healthy business pays its
manager, whether the manager is you or somebody else.
One tricky amount to include is your loan repayment. You don’t know
the amount of the payment because you don’t know the amount of the
loan yet. Leave it out at this stage and then revise the break-even
afterward to include the loan repayment.
For the items that you don’t spend every month, like your business
license renewal, food permit, GAMA membership, CAM adjustment, etc,
add up your annual expenses and divide that number by 12.
You should also include a “fudge factor.” You might forget to include a
line item, something might cost far more than you anticipated, or
prices might increase between your estimate and the date you make
the purchase. There are two methods for including it. The first is to add
a small amount to each line item. Personally, I prefer the other
method: add an additional line item to your fixed costs. Call this
category “fudge factor.” Make it about 10% of your other costs. For
$4,000 in fixed costs, add $400 for your fudge factor.
The total of all of these line items is the amount you spend each
month. Divide that total by .4 (or multiply it by 2.5, which is
mathematically identical) to determine how much you’ll need in sales
each month to pay those expenses. For your convenience, I have a
break-even analysis that I’m willing to share here (XLS File). Fill in the
numbers specific to your store as you gather your figures.
Sample Store: Without going into detail, let’s say monthly expenses
total $5,000, requiring $12,500 in sales to pay the bills.
You’re not likely to do $12,500 in sales your first month. The trick
becomes to calculate how many months you’ll operate at negative
cash flow before you start to break even. For the record, the majority
of the plans I’ve seen or store sales records I’ve seen reach their
break-even between months 13 and 16.
While everyone’s sales patterns are different, for planning purposes I
use a simple progression. You’ll do $1,000 in sales your first month,
$2,000 your second, and $3,000 your third. Keep doing that, so after
one year, you’ll have a $12,000 month.
Sample Store: With a break-even of $12,500, it’ll take 13 months to
reach break-even. Partial months round up.
Thirteen months at $5,000 a month is $65,000 in capital reserve.
Using an online loan calculator like this one, your loan payment is
$1,700 a month. Let’s add that to our monthly expenses and get
$6,700 per month, or a total capital reserve needed of $87,100, which
forces us to recalculate again, which will cause the loan required to
increase, which…quit. Just use $90,000. You can make up the margin
of error with accelerated loan payments.
Sample Store: Opening expenses of $28,500 and capital reserve of
$90,000 means this store needs $118,500 to open.
As you can see, if this store owner has $30,000 available, he could
afford everything he needs to open his doors. He’d even have $1,500
left in his bank account. One month later, he might do a thousand or
two in sales, but he’d owe $5,000 in expenses before he even thought
about restocking the merchandise that sold. He’s bankrupt already!
Believe it or not, some variation of this scenario is the single largest
cause of business failure. The big variable is how long the owner can
survive by racking up credit card debt, cannibalizing inventory, not
taking a paycheck, etc., before he runs out of money. If you’ve learned
the lesson here, you’ve increased your likelihood of success
tremendously.
Business of Gaming Retail #3: Show Me the Money
The primary sources of opening money are a) you and your family, b)
private investors, and c) bank loans.
Two, you don't have to pay it back. By deleting the line item called
"Loan Repayment" from your break-even analysis, you reach positive
cash-flow sooner. By starting with money, you're not repaying interest
on your startup capital. Depending on how much you start with, the
lack of interest alone could save you $10,000 or more.
Three, cash can help you get a loan. A bank will be more eager to lend
to you if they see that you're taking a risk. It's far easier to get a loan
for $80,000 if you're putting up $20,000 of your own than it is to get a
loan for $100,000 with no cash out of pocket.
Private Investors
Whether you meet them through your current job or through a newspaper or magazine ad,
or seek out angel investors online, investors will want to see many of the same things a
bank will. Usually, though, they'll look at the viability of your plan more closely than
they will your personal financials.
Although you might find a single investor willing to finance the whole
business, it's more likely that you'll have to seek out more than one,
each contributing a certain amount in exchange for partial ownership.
You can set up these "shares" for investments of $5,000 or $10,000, or
any amount you wish to establish. You will almost certainly want to
include buy-out options for your investors so that you don't have to
pay them indefinitely.
You might wish to involve a different kind of investor, one who brings
talent and labor in addition to cash. This investor would be an active
partner in the business (as opposed to a silent partner, who provides
only financing). When you consider a partner, you have to consider
more than just how much cash he brings with him. You'll want to
compare skill sets; if he knows the Warhammer 40k line and you know
collectible card games, you're a good match. Ideally, you want
someone whose knowledge and experience complement yours. If you
wish to have a partner, you need a clear delineation of duties,
expectations, percentage of ownership and rewards.
Bank Loans
As a small business owner, you are the business. The bank is interested in ruffling
through your business plan and making sure the numbers don't contradict each other, but
what they really want to see is your personal credit. They'll run a credit check on you.
They'll want your personal income tax records for the past 2 or 3 years. Your loan
application will have your personal name on it.
The bank's reasoning is that when (not if) you fail, you'll return to the
field you're in now. They want to see how well you can repay them
doing what you're currently doing. That second job comes in handy
here, too. If you didn't spend all that money, then you've built up a
nice income. That higher income figure should improve your debt-to-
income ratio substantially.
How about terms for that loan? You might not have much to say about
the interest rate, but you can negotiate the repayment term. If your
banker doesn't offer it up front, ask about a balloon payment. Banks
are often willing to calculate the payment rate based on a 7-10 year
term but write the loan as a shorter term (3-7 years) with a balloon
payment equal to the balanced owed at the end of the term. They
have no expectations that you'll pay the balloon; they assume that
you'll refinance it. That could cut your loan payment almost in half,
lowering your break-even by another $840 per month.
What about the capital reserve? You prefer a line of credit for that. It
can be a BLOC (business line of credit), HELOC (home equity line of
credit) or some other option; ask your banker which option works best
for you. The advantage here is that you're not paying interest on funds
you haven't withdrawn yet. In your first month of operation, you might
only withdraw $5,000 from your LOC, as with our sample store from
last month. That means you'll pay interest on $5,000 (less than $60) in
month 2 when you withdraw another $5,000. If you took out a loan for
your entire $60,000 burn amount, the interest element alone of your
first payment would be $500-that's almost 60% of the payment! The
interest rate is often higher on the LOC, but the dollar amount you pay
will be much less.
To a bank, loans have a cost associated with them, which mostly represents the amount of
labor that goes into generating and maintaining your loan. Because of this cost, banks
don't like small loans. It's strange, but sometimes they'd rather loan you more money than
less. If your loan request is close to an even dollar threshold (say, $94,000), round it up.
If they only approve you for a lower dollar amount, you're still covered.
Here's a shocker-the SBA doesn't make loans. You hear about "SBA loans" all the time,
but here's how that works: the SBA guarantees a certain percentage of a loan made by an
approved lender if that lender meets certain guidelines in investigating and processing the
loan.
A bank originates the loan, but the bank is more likely to lend you
money if you meet the SBA's criteria, because they know that if you
default they can still recover most of the loss from the United States
government.
Sorry, Charlie. VCs want high-yield returns with an unlimited cap. They prefer for you to
take your company to an IPO within a few years. If your business plan doesn't have the
figure "$20,000,000" on it anywhere (and, barring a typo, it won't), they're not interested.
That should answer the basic questions about where and how to find
starting money. If you have specific questions, post on the forum. Next
month we're going to compare opening a new store to buying an
existing store.
Business of Gaming Retail #4: Buying vs. Opening
If the opportunity to buy a store comes your way while you’re planning
your entry into the industry, I recommend that you seriously consider a
purchase before you commit to opening your own store from scratch.
With planning and awareness, you can overcome most of the negative
points to buying an existing store, leaving you with nothing but the
good side.
Advantages
Opening a store offers only a few advantages, but those benefits are
fundamental and significant.
Cash-Flow
The main advantage is money. While purchase prices vary, you can
often purchase a store for not much more than the cost to open a new
one. You still need a capital reserve to remain open, but you have an
advantage.
When opening a new store, you might have several months pass
between signing your lease (and thus paying rent and repaying a loan)
before you open your doors and begin collecting sales. When you buy,
you can open your door the same day. That puts money in your pocket
sooner, and that saves you interest on your loans and lets you get
maximum use out of that lease.
Furthermore, sales levels at an existing store are likely to be
significantly higher than a brand-new store, even if the existing store
has suffered a loss of sales over time. You might reach your break-
even in 3 months instead of a year. The difference could reduce your
need capital reserve by tens of thousands of dollars.
Easier Financing
Business Relationships
Staff
The store might have staff you wish to keep. Even if you choose not to
retain any of the old crew, you might already have volunteers in place
to promote various game lines. It’s possible that you can negotiate for
the old owner to work for a time as part of the purchase agreement.
Having the former owner around could make the adjustment easier for
the customers.
Disadvantages
The disadvantages of opening your own store are more numerous
than the advantages. One thing common to most of these
disadvantages is a restricted range of choices. Opening is definitely
the better choice if you want total and immediate control over your
store.
Location
At least initially, you’re stuck with the seller’s choice of location. You
can bypass that restriction by not agreeing to a lease assignment (in
which the seller essentially has you take over the lease for him) or by
timing the purchase to coincide with the end of a lease. If you choose
this route, you must have your new location up and ready to go or
you’ll lose considerable sales and customer confidence during the
down time.
Along with the location comes the existing lease. The seller could have
signed a horrible lease, and you don’t want to find that out the hard
way when the landlord asks you for $6,000 in CAM charges at the end
of the year. If you do accept a lease assignment, scrutinize the lease
carefully. It might be better for you to approach the landlord
independently and ask for a new lease.
Reputation
Until you build your own reputation among the customer base, you’re
stuck with all the good and bad reputation the previous owner
established. If the store has a reputation for cheating players, you have
it now. If customers associate it with bad customer service, you’re
stuck with that poor image. It might take a year or more for you to
establish a different reputation.
Image
Product Selection
The existing store might have product lines you don’t plan to support.
Liquidating those lines might cost you some of your existing
customers. The liquidation will also take time away from other projects.
Buying a store isn’t easy by a long shot. Easier than opening a new
one—maybe.
Lloyd Brown
www.lloydwrites.com
Sales
When you first look at an offer, you must know the store’s sales. I don’t
mean just last month’s sales or last year’s sales. Ask for a categorized
record of sales by month. If possible, look at actual daily sales records.
Look for patterns in the records. Is each category growing slowly over
time? That’s good. Are some categories growing while others are not?
That could be bad--or a reflection of national sales trends. Is the store
faltering? If so, I recommend considering two options.
Option #1 is to stop negotiating. You don’t want to buy a business in
distress for your first business. The location could be terrible. Recent
superior competition could have opened up nearby. Something else
beyond your control could be happening there and you might not be
able to reverse the trend. You’re done here.
Option #2 is also to stop negotiating. Let sales drop for three months
and see how firm the seller is on his price. In all likelihood, additional
cash-flow loss will put tremendous pressure on him to sell at any price.
Sure, another buyer might make an offer. If you’re comfortable with
that risk, a small amount of patience could pay off extremely well.
When is falling sales a good sign? Steady sales decreases could mean
that the current owner is not doing something right. Customer service
could be horrible. The store could be dirty or understocked. If you can
fix the problem that’s causing the drop in sales, then falling sales will
reduce the market price of the store—and that’s to your advantage.
Inventory
The second key item you need to know is the inventory level (always at
cost, never at retail). Looking at a flat number tells you nothing. Let’s
say the store you’re considering claims an inventory value of $30,000.
Is that good or bad?
Remember those word problems in your middle school math books?
The answer is “D. Not enough information.”
All products are not equal in value. The current Magic: the Gathering
boosters might be as good as cash, but dusty d20 modules might be
overpriced at 90% off retail. A computerized point-of-sale system
should be able to tell you when the store last sold a certain item. If an
entire product line has seen over a year since its last sale, the value of
that product line is zero. Sixteen cases of the Young Jedi trading card
game are worth less than some Warhammer armies, for example.
Some owners categorize the inventory into different groups. Class A
inventory represents high-turn stuff that you know you can sell at full
price in a short period of time. Count it at full value. Class B product
represents reliable sales over a longer period of time. It might be worth
up to 75% of list price. Class C inventory includes lesser RPGs, older
miniatures, slower game lines, and oddball accessories that might
have been hot at one time. It might be worth half what the POS thinks
it’s worth. Class D inventory is the junk that you hope to God will sell
one day. It has little, if any, value. While you won’t know which
categories each product lines belong to without having any game
retail experience, you can estimate based on the store’s sales
records, purchase records (no restocks = no sales), consulting with
distributors, and even by watching customer activity for few days.
Another point of reference is the rise and fall of inventory over time. Is
the store showing a steady increase in inventory? You can tell this by
looking at a balance sheet, which should provide information like cash
on hand and inventory levels over 2-3 years. You can measure it in the
short term by looking at order forms. Pick two consecutive recent
months. Count up the total inventory invoices (include standard
gaming merchandise from distributors, direct accounts, cash spent for
second-hand products, snacks and sodas—all of it.) Divide that amount
by the sales for that period. Normal buying cycles might create some
variation, but the figure should be between roughly 53% and 63%.
A number lower than the range might mean that the store is
cannibalizing inventory to pay the bills. If the store buys $12,000 worth
of goods but sells $24,000 worth of product, the store might have a
great cost structure, or it might not be spending its money to restock
product. Looking at the cost of goods sold will solve that problem for
you.
A number higher than the range means that the store is spending
more on inventory than sales justify. That same $12,000 purchase on
$18,000 in sales means that the store probably sold about $10,000
worth of goods but spend $12,000 replacing them. In the short term,
that happens. A new Magic: the Gathering release might cause it.
Buying one or more large gaming collections might do it. Adding a
new product line might justify it.
Most of the time, however, it means that the buyer (usually the store
owner) is not a very disciplined purchaser and buys products faster
than the store can sell them. It’s a common problem that will crush a
store’s bank account. If the store maintains that practice all year,
based off of our sample figures of $12,000 in purchases and $18,000 in
sales, the store spends $24,000 too much every year in cash. That will
kill virtually any retailer’s bank account.
The store’s turn rate is another meter that can help you determine the
store’s health. Turn rate is the number of times the store turns (sells)
its inventory. A store doing $120,000 in annual sales should never
have an inventory of $80,000. A figure of $20,000 to $30,000 would be
healthier.
Retailers vary in their expectation of a turn rate, and it should vary by
product mix, sales level, rate of sales growth, and other variables. I will
make a bold statement and declare that for a mature game retail
store, anything between 2.5 and 4 is probably fine. A newer store still
growing quickly will have strange figures, as its current inventory
should be vastly different than its inventory from a year ago.
(Technically, you calculate turn rate based on the Cost of Goods Sold of
the products you sell, divided by your average inventory over that time
period. Thus, the $120,000 in sales might carry a COGS of $72,000,
which, in the above example, yields a turn rate of 1.1. That’s
untenable.)
The Lease
In most cases when you buy a first store, you’ll take over the seller’s
lease. The seller will assign you the lease, which simply means that
you’re taking over as primary rent-payer. Often (but not always), the
landlord has to approve this assignment.
That means that you might be a committed to a debt of anywhere from
$1,500 to $100,000. Make sure the lease is one you’re comfortable
with if that’s the case. Otherwise, you might want to talk to the
landlord about renegotiating the terms of the lease.
You might also plan to move the store right away. If location is the
problem, then moving the store might fix that problem. It also incurs
many of the same costs as a startup, and you’ll lose customers in the
move. To make buying and moving a store a good choice for your
entry into the industry, the deal has to be exceptional.
We’ll do a more in-depth discussion of a commercial lease soon. For
right now, you want to look at the rent, the escalation rate, and the
length of the lease so you know what you’re getting into. You’ll need
the rent and escalation figures to run your financials (you do have the
break-even analysis, right?)
Customer Base
Look at the population of the area the store’s in. A town of 2,500
located 15 miles from a population center of 100,000 is a poor location
for a game store. Is it old or young? You want young. Wealthy or poor?
You want wealthy. Male or female? Good indicators of a large potential
customer base include colleges and military bases.
Plan B
You could instead hire a specialist to conduct a business valuation
for anywhere from $500 to $3,000.
Lloyd Brown
www.lloydwrites.com</A< div>
The average amounts given for each category's sales are somewhat
deceiving, and here's how to "un-deceive" them. Each category has a
clear brand leader. For RPGs, it's Dungeons and Dragons. For CCGs, it's
Magic: the Gathering. For miniatures, it's Games Workshop's two main
brands. Customer spending for the industry leader is significantly
greater than customer spending for other games. There's no way a Kult
RPG player will spend $240 per year for five years--there just isn't that
much Kult product. My average figures assume that the majority of
your customers play the main game, and that some play other games,
and that a few play both.
Accessories in General
Most of these major categories offer accessory opportunities. When
possible, your margins on accessories should be greater than your
margins on the items they promote. This greater margin compensates
for the lower price of these items. A RPG book might be $30, while a
set of dice might sell for $9, and a dice bag for $3.
If you carry the category, carry the accessories. I'm not asking. I'm not
suggesting. I'm telling. Accessory sales are your key to a high average
ticket price, provide you with a comfortable net profit margin, and give
you a competitive edge against mass market stores and book stores.
A customer who has already made the shopping decision to drive to
your store, pick up a game, and purchase it will not be deterred if the
dice he needs cost $7.99 instead of $6.99, but your gross margin goes
from 47% to 54%. He's not going to put back the $30 book he's buying
and drive across town to save that dollar. Underpricing your
accessories can easily cost you $2,000 to $5,000 in annual revenue.
Role-playing Games
Role-playing games have the advantage of high volume with less work
than the other two major categories. The downside is that the turn rate
for this category is lower than the turn rate of your other two major
categories.
RPGs display well on bookshelves, but they are heavy for most wall
fixtures. For best sales you'd ideally place them all face out, but most
stores make do with some combination of face out and spine out. One
good medium is to place the core book face out so that browsers can
find their favorite game, and then place other titles to the right of that
core book. New books are also good candidates for secondary face out
positioning, as are games purchased on sale or something that you
wish to promote for special occasions.
The difference between the two methods of placement is substantial in
both sales and storage space. The trick is to judge whether inventory
or prominence is more important. Carrying $10,000 worth of inventory
allows you to offer your customers twice as many titles as $5,000
worth of RPGs, but if the customers can't find the game line they want
or don't see the specific book they need amid all the titles, you don't
gain the benefit of carrying all of those titles.
I recommend that a new retailer spend between $1,000 and $5,000
initially. $1,000 gets you a good selection of D&D titles and a select
sampling of other core books titles. With $2,000, you can pick up the
entire D&D line and a broader selection of several secondary titles.
With $5,000, you can carry most titles for all of the top 10 product
lines.
RPG Accessories
Along with the RPGs you offer, you'll want to carry dice, dice bags,
gaming software, vinyl battlemats, and miscellaneous other
accessories. Of these, dice will be your primary revenue-generator--
and your primary cost. You need to display dice in something; dice
manufacturers offer various-sized plastic bins for this purpose. You can
ask your distributor what's available and appropriate for an order the
size you're placing.
Figure that most of your RPG accessories fit in or on a single glass
display. If you carry a very large selection, you can dedicate more
space to it, but a typical 4' glass counter area is sufficient in most
circumstances.
You can get a selection of dice cubes and dice bags for as little as
about $250, or you can order one of the big displays, carry multiple
brands of dice and order the high-end gemstone dice from Crystal
Caste and spend up to $2,000. It might be a good idea to invest half as
much in accessories as you do in the RPGs.
CCG Accessories
Card sleeves, deck boxes, and cardboard boxes for storing a collection
make up the primary accessories for this category, but they also
include glass counters and the occasional dice. You can display sleeves
in the boxes in which they often come by placing them on a
countertop, but I personally had great success placing them on pegs
on the wall. The visible display generated earned its space, resulting in
triple the sales of the shelf position they occupied before I moved them
to the wall.
CCG sleeves typically come in boxes of 15, and there are many colors,
brand and line choices. For a starting collection, you might ask your
distributor if you can buy individual pieces instead of having to buy a
whole box. If so, you can devote as little as $250 to this category. For a
broader selection, you can add more colors and deck boxes and spend
$500, my recommended minimum amount. Do not spend more than
$1,000 on this category without retail experience and knowledge of
your customer base.
Miniatures
While this discussion is mostly about miniatures for wargames, this
category also includes product lines like Reaper's Dark Heaven line.
Most of those buyers are painters buying the attractive figures for their
hobby or D&D players looking for figures for use in their game. Few
Reaper customers play their miniatures game.
Miniature game players spend more than RPG customers but typically
less than CCG customers. Games Workshop identifies their average
customer as spending $1,500 over an average period of 5 years in the
hobby. Most of the spending comes early in the period.
The downside to this category is the space requirement. My store
dedicated over 56 feet of wall space, top to bottom, to Games
Workshop alone, plus almost 300 square feet of wall space to Reaper.
Blisters require peg space on your walls or gondolas. A single 4' section
might support 100 blisters, depending on how high you place them and
how large they are. Boxes and books require shelves or special racking
for your wall fixtures.
A small selection of Reaper--say, their Top 100 product mix--plus a
minimal investment in Games Workshop, Warmachine, and one other
miniature game might run $4,000. If you plan to invest heavily in any
of the main products or plan to offer a greater variety of miniature
lines, you could spend up to $15,000.
Historical miniatures deserve a special note. You could spend $50,000
and the first day you're open, somebody will walk out empty-handed
because you don't have a pack of left-handed Maccabean javelineers in
15 mm. The product selection available for this category is enormous,
and the customer needs are specific. I would recommend a minimum
of $4-5,000 if you know the product lines well and plan to support only
a few particular games or concentrate on one era. The rest of my
columns assume you're not carrying historical miniatures.
Miniatures Accessories
Paints, brushes, knives, and other hobby accessories add substantial
volume to your miniatures sales. Paints form the bulk of this category.
My minimum recommendation is one line of paints and brushes, plus a
single brand of hobby supplies, each stocked in small numbers. You
might need half a wall fixture for display and spend $500.
If you plan to concentrate on miniatures, you might buy up to three
lines of paints, offer more supplies, and stock them more deeply. If
you're buying direct instead of through game distribution, you can
often find some very attractive bulk discounts for hobby supplies, but it
requires large purchases, and I don't recommend it for new retailers.
Expect up to three or even four wall sections, depending on how many
terrain features you offer, and up to $4,000 in cost. Paints get
expensive quickly, especially when you're buying a full rack.
Board games
Board games are, in some respects, the worst category. Individual
spending is low, the games are bulky, and a good selection is fairly
expensive. On the other hand, they are easily recognizable by muggles
and your product line of broadest appeal. I also include non-collectible
card games in this category.
If space were critical, you could concentrate on the card game
selection, carrying only a few staple board games like Settlers of
Catan, and get by with about $250 worth of product on just a couple of
shelves. Stocking an initial 30 or 40 board and card games costs about
$500 and takes up 2 standard wall fixtures or a similar amount of
gondola or shelf space. This represents my recommended initial
investment for most stores. For stores in areas with high foot traffic or
stores that plan to promote this category strongly, I recommend about
100 games, including several high-ticket items (there are a few in the
$80 range) for a total investment of up to $2,000.
Board games have no meaningful accessory sales.
Using these figures for space and inventory investment gives you
some idea of how much space you'll need for your retail area and how
much you can expect to spend on your initial order. Inventory is
probably your largest single initial investment, and it's definitely the
largest expense you'll have throughout your retail experience. If you
have any questions about my assumptions or the figures that led to
these estimates, feel free to ask in the forum. Next month: suppliers.
Lloyd Brown III
www.lloydwrites.com
Business of Gaming Retail #7: Finding Suppliers
Typically, your distributors call you on Monday (or another day pre-established as your
regular order day) and solicits an order. The usual phone calls cover your pre-orders that
have just arrived, other new items that have arrived since your last order, and then your
restock orders. The distributor should have information on each item, such as price, who
makes it, what product line it’s for, and a brief bit about why you should carry it. In
general, this information is manufacturer provided, so it’s entirely biased.
A good sales rep will know more about the products, hopefully from having seen them,
played them, or tested them. If you have a good relationship with your distributor, he
might be able to point out a group of your regular customers who might be interested.
“You sell a lot of L5R. This is an Asian-setting RPG that those players might like.”
After an initial period of paying COD or by credit card, distributors often offer options
for payment on terms, which can be as much as 30 days. This option allows you greater
control over your cash flow. In general, payment terms are growing shorter these days,
and your distributor might only offer 1-2 weeks.
Distributors can tell you about promotions offered by manufacturers, such as free
signage, shelving, or co-op options. Large distributors sometimes initiate their own
promotions, too, often in conjunction with a manufacturer. Often, when a publisher
initiates a program like this, they institute it through the distribution tier rather than
handling it themselves.
Ideally, your distributor will have a good website that allows you to browse and pre-order
upcoming releases. It should allow you to place an order through the site, at your own
pace, if you prefer that method over talking to your sales rep on the phone. The site
should have real-time inventory so that you can check availability when a customer wants
to place a special order in your store.
Convenience is the primary reason. You make fewer phone calls, make fewer payments,
and have easier return or exchange options in case of an error.
You also build up a relationship that can be helpful in many ways. A distributor who
knows you can suggest products to order or avoid. You might be able to return products
that don’t do well for you, although policies vary on this issue.
Disadvantages/Cautions
Unless your store is very focused, no single distributor carries all of the products you
offer. Most likely, you’ll use a second distributor for filling orders when your primary is
out or for buying products lines your primary distributor doesn’t carry. With any decent
sales volume, you might end up ordering from 3-4 distributors each week, maybe even
making a second order mid-week.
Beware of imaginary discounts when choosing your distributor. At least one major
distributor offers a good discount, with seemingly minor exceptions. However, the list of
exceptions is now several pages long and includes the dozen or so manufacturers whose
products make up 90% of your game sales. If they offer you 47% off retail, but a tally of
your invoice reveals that you actually pay closer to 42% regularly, you can bet you’re
hitting all of the names on that “short discount” list. It might pay to look for a distributor
with a seemingly lesser discount who doesn’t have such a long list of exceptions.
Selection. The more products you can buy from a single source, the less time you have to
spend managing multiple orders. Splitting your orders also means paying more shipping
costs. It also might mean that you’re paying more than you expected for your products
because your low-cost primary distributor doesn’t carry that particular line.
Costs. Start with the standard discount, but don’t stop there. Look at shipping costs,
minimums for free shipping (if any), short discount items, COD fees, payment terms, and
payment forms. If a distributor allows you to pay by credit card, for example, you might
be able to get away from those COD fees and still defer your payments up to 30 days.
Ship Time. The magic number is two days. If you can get a restock in two days, you can
order Monday for delivery Wednesday and then get in a second order on Wednesday for
the weekend. Obviously, one day ship time would be better, but you’re not likely to take
much advantage of that. It might help if you’re in a competitive market where that one
day means you get product sooner than your competitor, but you’re not likely to order 5
days a week in the current environment of high product minimums and shipping costs.
Fill Rates. Even the best discount is worthless if your distributor is constantly out of
stock. The same is true for an expansive selection. If you’re trying to reach a free
shipping minimum, a poor fill rate will leave you banging your head on the wall.
Ordering Direct
Manufacturers already have some infrastructure for delivery. They handle a certain
amount of consumer orders, they arrange for shipment to game distribution and might
have sales channels elsewhere, as well. It’s a fairly simple thing for a manufacturer to
accommodate retailer orders as well.
Ordering direct offers two main advantages. By ordering direct from companies
represented in the distribution tier, you might be able to save some money, depending on
the company’s terms. In some cases, you can save up to 20% of the retail price by
ordering directly from the manufacturer, although a 10% difference is a more common
savings.
The second benefit is that you can buy product not available through distribution. If you
only carried products available through distribution, you’ll have a few disadvantages.
First, your store’s selection won’t be unique, making it harder to establish a distinct
brand. Second, it’s easier for local competition to capitalize on your success. If you pick
up War Gods and do well with it, they can buy into the line, too, making money off of the
hard work you spent in creating a customer base. If you succeed with a product not in
distribution, your competitors will have to hunt the manufacturer down and seek them out
to establish an account and place an order.
As a minor and ephemeral benefit, the manufacturers often have product available when
distributors are out of it. Sometimes, distributors themselves have to jump through hoops
to place orders with manufacturers, and your distributor might not place a restock for
game x if they still have game y in stock. A direct order might allow you access to a
product that is sold out through multiple distributors.
Disadvantages/Cautions
Time. If you spent 5 minutes per week with each manufacturer you carry in your store,
you could easily spend 35 hours per week. There are more important things in the store
for you to micromanage. If you do plan to order direct, you might want to assign a
regular re-order schedule to each of your direct accounts.
Shipping Costs. You might order $1,000 or more per week from your main distributor,
but you’re not likely to spend more than a couple of hundred dollars with a manufacturer,
especially for restocks. When ordering from manufacturers, you pay shipping costs more
often, both because of ordering policies and smaller orders that fail to reach a free
shipping threshold.
Hidden Costs. By diverting ordering from your distributor, you might end up paying
more for your products you buy from that distributor. If your discount is based on your
sales volume, and you start buying a large amount of product from another source, you
could end up paying more for all of your products, while paying less for a single product
line.
Longer Delivery Time. Distributors have a full-time staff who do nothing but receive
product and deliver product. Manufacturers are in the business of designing games. Their
“warehouse staff” might be the junior game designer’s duties after 3 PM. Instead of
shipping your order the same day, which is a service you can expect from your distributor
if you get the order in early enough, it might take up to a week—longer, in some cases—
before your order leaves the manufacturer.
I’m not a big fan of ordering direct to save money on products that are available in
distribution. From my experience, the extra time spent, the shipping costs, the delay in
receiving, the harm done to your distributor relationship, etc. all combine to make any
savings of less than 15-20% negligible. For a particularly large order, (say, a $1,000 or
more), a lesser percentage might be worth seeking.
I do recommend seeking out direct orders to gain a competitive edge. Going to
conventions and the GAMA Trade Show, checking your mail for offers, and listening to
your customers might very well reveal an exciting product that your competitors don’t
have. Order direct for something that will bring customers into your store, price the
product to make money, and then have your well-trained sales staff upsell them on
accessories. Make them new customers if you can; if you can’t, send them back to their
regular store broke.
Games Workshop. Games Workshop’s prices through distribution are pathetic (though
their direct prices are poor, too). Improvements in their customer service and internal
policies make ordering from them manageable. Because your sales volume of their
products is likely to be very high, then difference in margin is considerable. Ten percent
of $50,000 per year is a good number to add to your bank account.
Crystal Caste. I totally admit that this recommendation isn’t for the financial reasons I
explained above. I just loved working with Mark Alexander. However, Crystal Caste also
has a 100% exchangeability policy. If you end up with a display case full of orange and
yellow dice, you can send them back for colors that sell.
Wizards of the Coast. Some stores do and some don’t. They require certain criteria for
setting up an account, like having a game room, and they don’t accept all stores. Many
retailers feel that ordering directly from WotC is not worth the harm done to your
distributor relationship. Personally, I used to order initial shipments from WotC and
restocks from my regular distributor until I found a distributor who offered a better price
on WotC products. That distributor got all my WotC orders, new and restock.
Used Games
If you plan to sell used games, you might want to buy an initial stock from a convention,
eBay or a local used bookstore. Expect to pay more than normal from these sources.
Once you’ve “seeded” your local market, you should be able to find all you need from
your own customer base.
Put up signs in the store, hand out flyers, take out ads in local convention programs, and
tag your existing advertising with “We buy games”, and you should have plenty or
product available to you.
Advantages
Adding game space has one primary advantage and several corollaries
descending from that advantage. The advantage is marketing
opportunities. It does no good, however, if you don't actively take
advantage of it. That's another article, though, so on with the
advantages.
Branding
The game room allows you to present your store as the place to play
games, not just the place to buy games. You can use this to shape the
image you present to your local market. Market your store as a social
gathering place to encourage people to visit and increase the time
they spend there.
Competitive Edge
If you're the only store in your market with a game room, you have a
competitive edge against the other store. If you have the largest game
room, you have an edge. If you have the best tables, the coolest
design, or the most people showing up for your tournaments, each of
these is a reason for players to go to your store instead of the
competition.
Manufacturer Opportunities
Organized Play
You can leverage the game space to host game leagues and
tournaments. Offer prizes from your own inventory or take advantage
of game manufacturer-sponsored events. These events often bring
new players to your store, increase the amount these players spend,
and encourage players to visit more often. Each of these factors
increases sales.
Regular events can create very large sales increases, especially if the
owner is involved. The owner's personal interest is a weighty
endorsement. Regular play encourages new purchases. Combine the
two and you might see sales of a single product line increase by
$1,000 a week.
Disadvantages
The disadvantages are numerous and range from problem behaviors to
purely financial reasons. They range from minor to serious in their
value, and individual store owners apply different weight to each of
these issues. If you plan to have a game room regardless of these
problems, you should be prepared to handle them before you open.
Mess
Theft
You know people will steal from you at some point during your career.
You might not have thought that they would steal from each other. Do
you kick somebody out when you suspect he's stealing? What if you're
wrong? No matter what you do, you'll lose customers over it.
Similar to theft is the concept of "trade rape." You know the crowd.
These are the competitive players of CCGs (or now CMGs) who trade
their commons or uncommons for "money rares" from the new or
younger players. I've heard a player cheer "I just made $70 off that
guy!" moments after the new player left the store. At some point,
those players wise up and you have a customer who probably won't
return and might tell his horror story to his friends.
Cheating
How much insurance do you have? Care to find out the hard way? Wait
until a player in the game room leans back on a chair and falls, or
somebody has a bad problem with a hobby knife, or a fight breaks out
over a tournament ruling. If these people were playing at home, the
problem might still have happened, but at least you wouldn't be on the
hook for it.
Cost
The game room costs money. You pay rent for your space, and
whatever space you devote to your game room costs a certain amount.
If you pay a total of $15 per square foot per year (after adding your
rent, CAM and any other charges) for your 2,000 square feet, and you
devote half of that to your game room, you spend $15,000 so that
gamers can have the privilege of playing games in your store.
The game room also has hidden costs. Who's running those events? If
it's you, then you presumably pay somebody to run the counter. If it's
an employee, you pay his wage. If you're giving customers a discount,
it still costs money. You can get volunteers to run some events, but
volunteers can't do all of it.
Better Alternatives
This thought is the main point of contention with the game room. What
else could you do with the $15,000+ it costs to maintain that game
room each year? If you think you can make it more productive with an
aggressive TV commercial campaign, then you should rent a smaller
location and spend that $15,000 in advertising.
A more common approach is to spend that money on inventory to fill
that other 1,000 square feet. Another $15,000 in inventory could earn
$45,000 in annual sales over and over again without all the hassles
that come with the game room. New product lines or deeper stocking
of current product lines can earn be as much of a competitive edge as
the game room.
This list doesn't include all the points on either side, but it does
represent the major arguments. At least one list has identified about
30 complaints against, for example, most of them falling under the
broad category of "unwelcome behavior." Comments and questions are
always welcome in the forum.
Lloyd Brown III
www.lloydwrites.com</A< div>
Business of Gaming Retail #9: Pre-Opening Marketing
You must make some decisions early in your planning, because what
you plan to do and how you plan to implement it affects your business
planning. Ideally, you've already made these major decisions:
Pricing
Adopt your pricing strategy before you open. Your pricing strategy affects your cost of
goods, so you'll need to consider this part of marketing before you run your financials. If
you choose to discount all of your products 20% off retail, your gross profit margin will
run about 25% instead of the healthier 40% or more you'll attain with SRP pricing. If you
choose to charge SRP for most items and a premium rate for certain items, you might
attain a gross profit margin of 50%.
You don't have to set the prices for every item you'll carry this early in
the planning. You do need to have some idea of your pricing strategy-
discount, suggested retail price, premium pricing, a combination, or
some other concept. You can do the fine-tuning when you install your
point-of-sale system or start tagging things with a price gun.
Branding
Do you want to reach the hardcore multi-genre gamers, the family market, female
gamers, card-playing teens and pre-teens, or what? Who you plan to reach helps
determine how your store presentation and policies help you reach your customers. If you
want to reach teenagers, for example, you'll want to hire a younger staff, use
contemporary teen language in your print ads, and plan your events around school hours
and social activities. All of these choices help determine your brand.
It's not an overstatement to say that all of your major business
decisions flow from your branding choice--which itself is a marketing
decision.
Product Selection
Do you want to establish a reputation for having everything, all the time? It'll cost you a
heavy inventory. Maybe you're content just to have the best RPG section or the best CCG
selection in your area. Choosing product categories was part of initial planning, but you
also have to consider how deeply you'll carry that category and what part it plays in the
big scheme. A store that offers 10 board games presents an entirely different impression
than one that offers 200 board games. Which one best fits your company's needs?
Advertising
How will you set your advertising budget? Will it be a flat fee or a percentage of sales?
Will it vary by season or month? Will you experiment with a variety of media or
concentrate on one channel? How will you measure your advertising success? How will
you create urgency in your advertising so that customers respond to it in a reasonable
amount of time? Which customer sub-section, if any, will you concentrate on?
Maintain a Blog
If you're in a market hungry for a new game store (and if you're not, you shouldn't be
opening), potential customers will watch this blog closely after they encounter it. Keep
readers informed about changes to your opening date, share your horrible contractor
stories, and get them excited about how awesome the place is going to be.
Most game manufacturers offer message boards for the discussion of their products.
Brief, informative and non-spammy messages in an appropriate place on a message board
are fine. Substantive, interactive discussion with forum users is better.
Local Conventions
Whether you run a "teaser table", run games, or just take out an ad, visibility at
conventions will create awareness about your store. Local conventions cater to the
leadership among your potential customer base. Get their interest, and others will follow.
Signs
A sign in front of the location can attract interest while your build-out is underway. You
might buy a freestanding sign, a magnetic sign for your car, or install your shopping
center sign ahead of time. A normal billboard might be prohibitively expensive, but a
daily billboard might be affordable for a week or two immediately prior to opening.
Radio Ads
Normally, I advise against radio ads for most store purposes because of their high cost.
Sometimes cost-effectiveness isn't your main focus. Your opening might be one of those
times. A carefully-plotted radio ad program shortly before you open could increase your
early sales, jump-starting your cash flow and improving your chances of long-term
success. Establishing a relationship with the radio station might also give you a better rate
on the remote you might want to do for your grand opening. You might even get time in
the studio to promote your grand opening on the air.
T-shirts
Make up a batch of t-shirts and hand them out. You can hand them out in front of your
shopping mall or arrange for a local radio station to give them to the first 100 callers or
so. You might want some available for your grand opening, so order enough to spare.
Your t-shirts don't have to be t-shirts. You can use any premium item for this: mouse
pads, baseball caps, buttons, or whatever you like. T-shirts are popular because they're
seen by many people, not just the owner.
Flyers
Announce the opening through low-budget flyers and distribute them within your
primary draw radius. Place them on windshields, ask to leave them on counters at
restaurants, and post them on college or military bulletin boards. Flyers are cheap enough
that you can use them in addition to almost anything else you do, no matter how
expensive your major effort.
Newspaper Article
Your newspaper might be interested in the opening of a new business. In a small town,
this might be front-page material, and even in a larger city, the business section might
devote a paragraph or two to it, especially if it offers a unique business plan or interesting
hook. A game store presented as a warehouse club might be different enough to deserve a
column. Call or write to your local paper and find out if they're interested.
You want to be able to seat a large number of people, but you also
want people to be able to walk comfortably through the area. These
two needs create conflict. Make sure you have lanes of traffic between
your tables. Notice how restaurants often seat people on the sides and
leave avenues between the ends of the tables. Use a similar concept
for your gaming tables.
If you plan to have a coffee maker, microwave oven or other features
in your game room, you need a table for them. You’ll also need at least
one trash container, which you should place in such a way that it’s
obvious to people in the game room but not obtrusive to those looking
in to see what’s going on in there.
Department Signage
Many customers prefer not to interact with salespeople. Signs hanging
from the ceiling are a good way to help customers find what they want
without opening themselves up to a sales pitch. If that’s not feasible,
you might be able to place signs on the walls or on the fixtures
themselves.
Another simple method of identifying your department is by paint
scheme. Paint a blue strip (for example) above your role-playing
section, a red strip above your miniatures, and a green strip above
your board/family games. Your signs indicating each department
should be the same color as that category’s color. Customers quickly
learn to associate these colors with those areas. If you’re fairly certain
you don’t plan to make major changes to your floor plan in the near
future, you could even paint the fixtures themselves.
Avoid using too many signs. Haphazard sign placement, more signs
than a person can read, inconsistent sign sizes and other
unprofessional usage reduces the value of all of your signs. You’ll see
better results by rotating those signs every few weeks than by trying
to cram them all in at once.
Restrooms
You certainly want at least a restroom for your employees, and if you
have a game room you’ll want to have one with easy access for your
customers, too. Your local laws might require one or more restrooms.
Check those laws before signing any lease.
Office
To some owners, an office is a selfish and egregious waste of space. To
others, it’s a necessary part of retail, providing a private place for
interviews, employee training and discipline, order placement, and
counting money. If you do have an office, keep it as small as possible.
You’re paying rent for the ability to sell your products. You want as
much retail space as possible for your rental dollars. Even 100 square
feet should be plenty of room for a desk and a couple of chairs.
Storage
Some stores won’t use any extra storage space at all. Others rely on it
extensively. The difference lies in your buying patterns and sales
outlets. If you remove products from the shelf regularly to replace
them with newer product you need something to do with the older
product. Some stores hold a clearance sale and throw away anything
left over. Others assign it to a separate inventory for sale at
conventions or online.
If you can, combine your storage space with other space, like your
office. Superfluous doors and walls mean less usable floor space. In
retail, wasted space is wasted money.
Design by Necessity
Some of your store design is a matter of opportunity and availability. If
the suite you want has the bathrooms to the left instead of on the
right, you can keep it as is, change your design, and probably save
several thousand dollars. Engaging in major construction to meet your
ideal design is probably not feasible when first opening.
Conclusion
Ideally, you’d have a circular path through your store which highlights
all of your best products, directs customers past your game room and
leads them right up to the cash wrap, which has a long but quick-
moving line of customers. Failing that, your goal is to manage your
traffic flow to maximize the benefit of your merchandising skills, your
in-store signage, and the marketing benefit of your game room.
Lloyd Brown III
www.lloydwrites.com </TD< div>
So I have a big surprise for some people: there’s more to life than
margins. Let’s be clear on what we’re talking about. Your margin is
your profit (in dollars) divided by price, and usually expressed as a
percentage. An item that costs you $6 and sells for $10 has a 40%
profit margin. Price is inextricably linked to sales velocity, and vice
versa. In general, a lower price creates more unit sales, and a higher
price reduces the number of units sold.
Neither will I suggest that you don’t seek additional margin when it
makes sense. If a new distributor offers you a better price than your
old distributor on a product or a product line and it doesn’t come at a
cost of service, ship time, or any other hidden cost, you should buy
from that distributor.
High Margins
When you test a theory, there’s no point testing it on close comparisons. I’m not going to
discuss margin differences of 1-2%. Let’s test it at the extreme. If you listened to a
publisher pitch a product that you think you’d sell once a year at a 95% margin, would
you buy it? Hey, it’s a 95% margin. Of course you’d buy it.
Would you buy two?
Buying two would be stupid. If you’re only selling one a year, you’d
never need two. You place a restock order at least once a week. The
odds of missing out on a sale because you didn’t have one are low
indeed. You’ll be happy spending your $10 to gain $90 at some point
during the year. There’s no point in spending $20 when you can spend
$10.
What if you could increase that sales rate by lowering that price? What
if you could purchase it at $10, sell it for $60, and sell two per year
instead of only one? Well, that’s “only” an 80% margin, but you’re
netting $100/year in profit instead of $90. Clearly, the lesser margin is
the better choice here.
What if you sold it for $50, spent $50 advertising it, and doubled your
sales to 4 per year? You’d make $200 for a total investment of $90.
That’s an annual gain of $110. Even better! More importantly, I think it
makes a point. That “mere” 55% profit margin put more money in your
pocket.
Low Margins
Now let’s look in the opposite direction.
Would you carry an item with a 5% margin? I’m sure you wouldn’t. Low
margin is the antithesis of retailer wisdom. Nobody in his right mind
would carry a product that offered a 5% margin.
What if you could sell 10,000 of them in a year at $4 each? Interested
yet?
That’s about 30 whatevers a day. If you are on a two-day ship, you
could order by the 100 and spend an initial outlay of $380. That’s right.
Your total cash-flow goes down by only $380, and you put $500 in your
pocket at the end of the year. Are you still saying “no” to carrying this
item?
You might be saying “yes, but not at 5%.” Good for you. What if you
raised the price by 10%? Sell them for $4.40 instead of the MSRP of $4.
Your initial debt to your distributor is still only $380, but each 100 you
sell earns you $440, or nearly a 14% profit margin. Sure, sales might
drop. How much, you ask? How much you got, I ask?
How much would sales drop if you raised the price by 10%? 10%?
Probably more. 20%? Maybe more. 30%? Maybe that. It depends on
how well-informed your buyers are and how competitive the market
was.
But sales would have to drop by 2/3—over 65%--before you lost money
on your price hike. Lose 30% of those sales and double your profit—all
at the exact same $380 initial investment. How does an extra $1,000
per year sound? Better? I like it better than $90/year on that 95%
margin item.
Now, I’m willing to bet that most of you understand this concept
intuitively, even better than you think you do. Do you carry or plan to
carry Games Workshop in your store? Why? At “only” a 45% margin,
it’s a weak product. For that matter, why do you carry new games at
all? You can make 70-90% margins on used games.
Why stop there? You could buy only Magic commons that you can get
in bulk for a price equivalent to $.005/card, sell them for a dime each
and make that coveted 95% margin on every sale! Your store would be
the best store ever! You’d make millions.
Or not.
A Bigger Picture
You don’t use this crazy business model because you understand two things. One,
individual item margin doesn’t make or break your store. It’s your average margin you
have to protect. A traditional game store doesn’t work on 5% margin because it doesn’t
have the sales velocity for it. You’re not likely to sell 10,000 copies of every single item
in your store.
The second thing you obviously understand is that it’s okay to sacrifice
margin for sales volume under certain circumstances. You know you
won’t pay your bills off of a 95% margin and $1,000 in total annual
sales. You can’t generate enough total dollars with the cheap stuff if
you’re operating under a traditional game store model. You might sell
some 75% margin used games, some 80% margin Magic singles, and
some 70% margin hobby knives, but if you want to break $25,000 in
sales, you need to add those middle-margin new card games, RPGs,
and miniatures. You stock Warmachine at normal margins because it
sells pretty well. You stock Games Workshop because you’re pretty
sure their massive sales engine will bring customers to your door to
the tune of $50,000 to $200,000 per year.
Which brings us to some further points about margins, like the ones
you find in the real world, outside of spreadsheets.
The 10,000 widgets you sell at $4 could have a beneficial effect, even
with the 5% margin. What if you sold each of those customers a $2.00
bumper sticker at 70% margin? You’d bank an additional $7,000. Using
a more realistic upsell rate of 12.5%, or 1 in 8, you’d still make an
additional $875 in profit. That almost doubles your total profit for the
experiment.
Cost
All of this discussion relies on manipulating one element of margin: your selling price.
The other element of your margin is your cost. What happens when you mess with that?
Briefly, I mentioned buying goods from a distributor who offers them
cheaper. In reality, that decision isn’t so easy. The cheaper distributor
might have a higher minimum order, longer ship time, or make more
mistakes. Or, you might not sell many copies of the item in question
and find that switching your order over for the $.42 you’d save isn’t
worthwhile.
There are other alternatives. You could buy directly from the
manufacturer. You might save 10% or more that way, giving more
weight to the value of price. A slower ship time might be acceptable for
a $50 savings. However, will your discount go down as your volume
goes down with that distributor? You don’t want to save $50 on one
product line and pay an extra $400 across the board. That’s
counterproductive.
How about quantity orders? We could be onto something here. While
this is more common outside of the gaming industry, you might buy
certain items which are cheaper in quantity. You might find your hobby
supplies for example, are up to half as expensive if you buy in case
quantities. How do you judge whether to buy a single box of hobby
knives with a 40% discount or 20 boxes with a 70% discount? The
difference is a cost of $20 vs. $288.
Let’s see what you can do with that higher discount.
You could buy the bulk deal at 70% off, keep what you intend to sell
over the next 1-2 years, and trade the rest with another game retailer
or a hobby supply store. That would give you the benefit of high
margin without the liability of too much cash investment. However, it’s
risky unless you arrange it first. Maybe nobody else wants any, or they
all saw the same ad you did and made the same deal. Then you’re
stuck with a closet full of product you won’t sell except at conventions.
What if you didn’t sell the hobby knives? I know it’s crazy talk. We’re
retailers. We exist to sell things. But what if your main purpose isn’t to
sell them but to drive sales of something else? Look at the rest of your
miniatures supplies. What’s not selling? What if you offered a free
$1.99 hobby knife with each purchase of any Hot Wire Foam Factory
cutting tool? Well, that’s probably too much of a price difference. A
free $2 item isn’t much incentive for a $40 item.
How about a tube of putty? Compared to that price, the $2 addition is a
fairly significant bonus. Add the free knife to a $17.99 tube of putty,
and your profit margin on the total purchase becomes 41.9%. That’s
not bad. But what else did this do?
Well, for one, it increased your total profit by a factor of 5.4! Instead of
the $1.40 profit you would have earned by selling the knife, you
earned $7.50 profit on the combined sale. You might also have
encouraged customers who never used putty before to start using it for
the sake of the free knife, which means they’ll keep buying it after the
promotion is gone.
Conclusion
So, any discussion on margin that just stops at “There’s no way I’m selling anything less
than 45% margin in my store” is missing the point. You can’t have a discussion on
margin without considering all the attendant factors. Neither a high margin nor a low
margin is enough information on which to base a decision. It’s like saying there’s no way
you’ll sell a game with a blue cover or a miniature with the weapon in its left hand. No
way!
Margin is, after all, just a meter. It’s like a dollar-per-square-foot
analysis or a turn rate. You don’t put a margin or a turn rate or a
percentage in your bank. You put sales in your bank account, and you
put profit in your pocket. Those are the numbers that matter. If you’re
going to focus on a mathematically derived formula, focus on those.
Business of Gaming Retail #12: Bankruptcy in 10 Easy Steps
One of the perks of being a game store owner is game at cost. I mean,
what’s the loss if you order an extra box of minis for yourself, or open
up a few boosters for your personal collection. That stuff can’t cost
more than $50 or $100 bucks a week. What difference does $5,200 a
year make? That’s almost nothing.
Selling something for full price is better than getting half price. You
can’t afford to take a loss on anything, not at the prices you pay.
People still play Galactic Empires; one of those guys was just in here
the other day looking for some Star Frontiers. Give it a little more time.
Besides, you know the minute you sell it on eBay, somebody will walk
in the store looking for it.
That’s what I pay him for, right? I don’t need to get involved with that
stuff. Nothing I do makes that big a difference, anyway.
I made all those phone calls for my bank, insurance, and credit card
vendors years ago. They’ve been fine all this time. No sense rocking
the boat now. Besides, I’m sure everybody’s rates have raised over
time.
Local Marketing
These actions concentrate on reaching the people in your immediate
neighborhood. Draw a 5-mile radius circle around your store on the
map. Make that the area of your local marketing focus. In urban
markets, most of your customers come from that circle.
Signs
Flyers
Create small flyers and hand them out to local businesses. Depending
on the business density, you might be able to reach 25-100 addresses
per hour of walking and driving around the neighborhood. Be aware
that most people resent unwelcome intrusion into their workday, but
also be willing to stop and talk to anyone who expresses interest.
Cost: $10-25 (more if you pay someone to do this for you)
School Clubs
Conventions
If your area has any local conventions, set up a booth. If you have
product to sell, great. If not, you can hand out flyers, talk to possible
customers and see what the other stores are selling. You might
volunteer to run a game, judge a tournament, organize a miniature
painting content, or otherwise involve yourself in the con’s activities.
Attend conventions outside of your local marketing circle because
people who live in your circle will drive to them.
Cost: $200 (convention table fees, food onsite, gas, and assuming no
hotel expense for local cons).
Conventional Media
You might not use radio or TV much while you’re open because of its
cost, but I recommend it before opening to generate as much interest
as possible early on.
Print Ads
These include the flyers you hand out personally, boxtoppers the pizza
place next door might agree to distribute, mailouts you time to
coincide with your opening, etc. Depending on your purpose, you
might be able to print them out on your computer at home, or you
might need to call on a professional. Manufacturers can provide you
with high-quality graphics for any color ads you plan to mail out.
Hint: postcards are cheap to make and mail. Design a postcard that
includes a coupon of some sort. A free booster pack with purchase of a
starter deck is good, as is a jar of paint with any miniatures purchase,
or free dice with any RPG.
Cost: $25 to $2,000
Radio
You can run radio ads on short notice, and run as many or as few ads
as you like. You can also change your ad on short notice and with little
to no cost. You won’t be able to target your geographic market or
reach your target demographic very accurately. However, you can cast
a very wide net and potentially reach many existing gamers who are
buying their products from bookstores, online, or through other outlets.
Because of the high cost, you can’t waste anything on radio. Use it
after your soft open but before your grand opening. If you use a
remote for your grand opening, you’ll receive some free
announcements in advance. You might time your radio advertising to
run before that, giving you a month or so of continuous slots.
Cost: $250 to $2,000
Television
Internet
The Internet offers some excellent marketing opportunities for low or
no cost. Whenever possible, link from one site to the others. Some
people are interested in podcasts but don’t read blogs. Having both
available helps you reach a larger audience.
MySpace
Create a MySpace page for your store and search out gamers in your
market. You can post photos, include a map to the store, link to your
store site, etc.
Store Website
Your store website should go live before the actual opening. It serves
as an online brochure to provide customers with basic information
about your store. It should include your address, map, phone number,
contact form, and an events listing or calendar. Before you open,
include deadlines on your events page, but as you approach that
opening date, mention things like game releases and conventions.
Include pictures of the process as you go—installing your sign, laying
down carpet or tile, building shelves, etc. New content gives visitors a
reason to keep returning.
Cost: $0 to $60/month, not including Internet access
A Blog
Podcast
A podcast is like a voice blog, except that it’s more versatile. Gamers
can take your podcast with them on their iPod and listen on the go or
listen as they work. They don’t have to dedicate their full attention to
reading. With an RSS feed, they don’t need to remember to check it
every day.
YouTube
Shoot short clips of your store’s growth as you prepare and collect
them for a video on YouTube (and on your MySpace page while you’re
at it).
Meetup.com
Meetup groups for D&D, Magic and other games are always hungry for
a venue to play in. Let them know that you’ll be providing one soon,
and they’ll keep close tabs on you. On the other hand, don’t be a dirty
spammer. Go play a couple of games.
Giving away cool loot at the grand opening is a great way to entice
gamers. Instead of handing it over freely to anyone who walks in the
door, though, combine it with a demo, a full game, or some sort of
interactive event.
One of my favorites give-away combinations is the “you kill it, you
keep it” miniatures demo. Use some common D&D minis figs or
something else where you can design an interesting board with cheap
figures and let anyone sit in at the table and play. Set a time limit or a
maximum number of pieces to keep your cost down and let more
people have a turn.
You can do raffles at every hour or every two hours. Each entry into
the door gets a ticket and customers can buy extra tickets. Raffle
prizes should be worth sticking around for--$10 at least.
You might be able to defray the prize cost by appealing to
manufacturers for aid.
You can set up a table with two gigantic dice and have visitors roll off
for loot according to a posted sign. Charge a token $1 entry and have
prizes worth $2-15. The crew at Kenzer & Company does something
like this for their Knights of the Dinner Table live readings at
conventions, with the special incentive that a roll of a 1 on the dice
earns the thrower a signed copy of KoDT #1. Yes, that’s a total of 1 on
2d6.
Cost: $100 to $500
Radio Remote
Radio remotes are expensive, but sometimes it’s not about cost but
results. Bringing a radio personality to your store and letting them
drive listeners to your location can kick-start your grand opening like
nothing else.
Cost: $500 to $5,500, depending on the size of your market
Press Releases
Send out a press release announcing your grand opening to the news
media in your area. If they decide to write an article about your store
or mention you on the air, it’s free advertising. Interesting celebration
methods (like a costume contest or a quidditch match) earn their
attention.
Mayoral Presence
A big space gives you more layout options. You can have the luxurious
game room you want with private rooms. You can display all your
books face out. You have room for signage and wide lanes of traffic.
You have room for luxuries like two bathrooms.
Most importantly, you can display more merchandise. If you open in a
900-square-foot location, you won’t be able to fully stock miniatures,
role-playing games, board games and have a large game room. With
6,000 square feet, you can carry nearly any product lines you want and
still have room for game space.
Each of these things is a competitive edge—a reason for customers to
choose your store for their game-buying purchases.
Space Comparison
A good location is one that you can give direction to easily. “Take exit
5, turn west and go three blocks” is a good set of directions. You’ll find
yourself giving directions on the phone often, and every step is an
opportunity to lose a customer who can’t find you. Locations on major
streets near highway exits make it easier for customers to find you.
Front-facing locations visible from the road are better than suites
facing the side.
Spaces that give you pylon sign space are better than those that don’t.
Corners are better than in-line suites because you have frontage (and
visibility, and space for signage) on two sides.
Wider spaces are often considered more valuable than narrow spaces.
Having a wide space visible to the customer is called frontage, and it
has a value because it makes the store easier for the customers to find
and more visible to the casual shopper.
You can use that trend to your advantage. If you plan to use part of
your space for a game room, you don’t need expensive frontage. Sites
next door to anchor sites in outdoor shopping centers often have odd-
shaped suites adjacent to the anchor—sites without much frontage
(and thus unattractive to many potential tenants). You might find that
a landlord is eager to negotiate the rent on one of these sites.
Despite all of the industry talk about how gaming stores are
destination locations and don’t need a lot of foot traffic, it seems that
the stores who place themselves in line with that philosophy fail most
often, and stores in more visible locations fare better. While the basic
idea might be true, it’s also possible that the other benefits of a good
location help the store out. If you’re planning on finding the cheapest
retail space possible, no matter where it is, keep in mind this anecdote
from Dave Wallace, owner of the Fantasy Shop chain of stores based in
Missouri. Dave bought out a failing store and the owner volunteered
this gem: “I knew it was in a terrible location, but I couldn’t pass up the
rent.” Don’t be that guy.
Other Factors
While the big three often make the decision for you, lesser factors can
combine to affect your decision on where to place your store.
Competition
You don’t want to open a store a mile away from a large, established
game store. It’s worse if that game store’s strengths are similar to
yours (you did a marketplace comparison in your business plan,
remember?). Try to place yourself at least five miles away from a
stable competitor. If you plan to finish off a failing game store, you
want to be closer to that store so that you can recover more of the
store’s customers, but keep in mind that this placement is clearly a
hostile move and will taint your relationship with that store owner.
Contract Terms
Sometimes your ideal place is impractical not for reasons of rental rate
but because of other items in the lease agreement. The term might be
too long. A landlord used to national franchises might insist on a 10-
year term, for example.
Similarly, the landlord might insist that you’re responsible for replacing
the HVAC unit if it fails during your lease. Don’t sign that! At a later
date this column will review lease agreement terms in more detail, but
for now just consider that there are non-negotiable items in a lease
agreement.
Buildout Costs
Parking
You need parking space, and it should be in front of the store. Near my
house there’s a store that concentrates on CCGs, toys and collectibles.
It has some D&D minis, but few other games. It has changed hands at
least three times in recent memory. Its most recent neighbor lasted
less than six months. It’s on a corner with a very high traffic count in
both directions, but the parking is in the rear, except for about five
spaces of parallel parking on a busy street.
You don’t need a large amount of space, and your business benefits by
being a primarily after-work hours business, which means you can
share some of the parking spaces used by the neighbors in your
shopping center. If you can’t count on at least 10-20 parking spaces in
close proximity to your front door, you should probably look for
another location.
Summary: My Recommendation
Plan to move. Keep your square footage as low as it needs to be to
accommodate your business model. Keep your lease term as short as
possible. If you succeed and find that you need more room, you should
be able to survive moving your store. If you fail, you limit your liability
and retain the ability to recover financially afterward.
Weigh your key factors together. Determine which factor most
consistently supports your brand. If your brand is “everything in stock,
all the time”, then you need more space. You don’t need visibility as
much as you need space. If you plan on high-attendance events, then
parking becomes more important, and a higher-rent location with
simple directions and ample parking becomes your primary goal.
Lloyd Brown III
www.lloydwrites.com
Business of Gaming Retail #15: The Shoestring Game Store Model
Assumptions
Usually, the discussion begins when somebody has an unusual opportunity for cheap
space. In one case, the individual owned a commercial property and his tenant had moved
out. In another, a landlord was willing to lease the space in exchange for upkeep on the
property. Sometimes, it’s an adjacent space to an existing business and the owner wants
to experiment with games. Other times, an existing business owner is willing to sublet
some of his space and allow a friend to experiment. Lastly, the place might simply be a
tiny commercial space with very low rental rate.
Whatever the reason, this plan counts on cheap to no rent costs. In
fact, the figure used on the spreadsheet is $500. If you don’t have such
an opportunity, you’ll find that the cost of rent quickly expands your
costs to the point that you have to start looking at a “real” game store
model to make things work.
Cost Analysis
This plan refers to my two key startup utilities: my Break-even Analysis and Startup
Costs Worksheet. Plug these figures into the appropriate fields as we go. If the options
available to you are different, use those.
Build-out
You have to do it yourself. You might offer to pay a few friends in games, but you lay the
flooring, install the fixture, repair the light fixtures, replace the ballast, paint, fill in holes,
add interior walls and doors.
Get a d/b/a according to your local guidelines and operate as a proprietorship. If you
already own a corporation, you don’t need to create a new one. Your corporate status
allows you to operate any legal business.
You’ll probably need a local business license. On the other hand, you
might be able to operate as a club, especially if you’re subletting from
a friend. Operating as a club makes it difficult to obtain product, but if
you’re sharing space, your friend should be able to open an account
and designate you as the person in charge of ordering. Check your
local requirements and make sure your business model doesn’t involve
anything that would invalidate the club designation.
For a bank account, you can open a separate personal bank account at
the bank or credit union you already use. You might have to order
checks, but with many expenses being payable electronically these
days, you might not.
While we’re being foolish, you’re also operating without commercial
insurance. If somebody slips and falls, you pay for it when they sue
you. If somebody breaks in and steals all your goods and cash, you’re
on your own. Good luck with that.
Signage
The “real” plan calls for spending thousands of dollars on a box or channel can sign, but
you can get away with less than $100 for a vinyl banner with grommets that allow you to
hang it anywhere. Replace it when it wears out in a year or two, and it’s still cheaper than
a wooden sign. Paint your window signage yourself or pay a friend in games (or just get a
second vinyl sign when you get the first).
A neon Open sign costs about $100. You can get the old-fashioned kind
that says “Open” on one side and “Closed” on the other for a buck or
two.
You can probably find an old computer around the house, buy one from a friend, or get
one from a used computer store for a couple of hundred dollars. When it comes down to
it, you don’t need one, but e-mail, looking things up online, and other bonuses make it a
great value.
For a potentially lower cost, buy a cash register from your nearest
wholesale club for less than $100. Collect some of the loose change in
your house and throw it in the drawer for your opening till of about
$50.
You can get a soft drink cooler from Coca-Cola or Pepsi for free, as long
as you buy your product from them. Because they often require a
certain minimum order, you might order only once a month.
Your major cost for this category will be shelving. You can make your
own bookshelves while you’re doing your own build-out, but you won’t
be able to reduce all your costs. You can’t make your own pegboard
pegs and shelves, for example. You probably can’t make your own lit
glass display cases. Look for bank auctions, closing businesses in your
area, and other opportunities for cheap second-hand fixtures.
Secret: when big-box stores remodel, they sometimes throw away their
old fixtures. Make friends with an employee or manager at one of these
giant retailers and ask if they’ll give them to you. I’ve seen store
owners get several thousand dollars’ worth of fixtures this way.
If you have space for them, install game tables and chairs. They’re
cheaper than filling that space with merchandise.
Utilities
Go without the alarm monitoring and pest control. You can probably make do without
separate bills for electricity, water and sewage, depending on how you’re getting your
free/cheap space.
Your phone listing in the Yellow Pages is the one real advertising cost I
wouldn’t do without. Its value is high enough that the cost, although
steep, should repay itself through sales from new customers. Do not
buy an ad in the Yellow Pages.
For utter minimum cost, use your existing cell phone number. You
won’t get a phone book listing, but if you have the phone number in
your window, it’s worth something.
Labor
You’ll work most or all of the hours yourself. You can do this by reducing your hours of
operation so that they coincide with your off-duty hours from your real job. In
combination with a partner, you might be able to cover a fuller range of hours,
approaching a real store. Otherwise, you might open at 6 PM and keep the store open
until 9 or 10 PM. On the weekends, you can work full hours.
Running the store yourself keeps your labor dollars down to zero.
Because we’re talking about a shoestring operation and not a real
financial bid at success, you don’t take a paycheck. A real business
would pay its operator, whether that operator was the owner or a hired
employee.
Word of mouth will be your primary method of new customer acquisition. Free and
cheap Internet marketing will help. See the previous columns on Pre-Opening Marketing
and Promotion for some discussion on free or low-cost online promotion.
You probably have a business card template with your word processor.
If you don’t, you can find one online at places like www.download.com.
Paper to print your own cards at home costs as little as $10 to $15.
Your local budget printer is actually not much more, usually running
$20 to $30 for a box of 500 black and white cards.
Local conventions offer another opportunity for letting people know
you’re open. Run enough games to get free or minimal-cost entry into
the convention as a game master. Talk to the vendors and gamers
about your store. Hand out flyers. Sponsor a drawing or give away
premium items.
Inventory
Inventory will probably be your largest cost. I recommend going only with the highest-
turn items from each category that you want to sell and keeping only one of each in stock.
Buy one D&D Player’s Handbook, for example, and one box of the latest Magic
boosters. For a store like this, CCGs are one of your best bets; CCGs require a small
footprint.
Warhammer 40k or Fantasy Battles is a good bet, too. Although each
game requires a lot of space and heavy inventory, customers tend to
buy large quantities, and you don’t need to carry every single item.
You can carry boxes only (no blisters) to reduce your inventory needs
to a minimum.
The new edition of D&D means that you’ll be able to keep the entire
product line on a single bookshelf. In fact, your shoestring store should
have no more than a single shelf of RPGs. I’d stock both new and used
product on that same shelf.
For collectible miniatures games, I’d start with a case of starters and
boosters for a single game. It should require only a tiny section of your
wall space and cost less than $150.
To add some diversity to your game selection, concentrate on board
and non-collectible card games that are available for less than $25.
You can buy enough to fill a section of pegboard for less than $1,000.
You can cherry-pick the best titles for $250.
I’d add a selection of accessories to match my investment in each
category for every category other than board games. That means
sleeves and boxes for CCGs, dice for RPGs and paints and hobby
supplies for the Games Workshop games.
You might also want some snacks from the local wholesale club. Keep
your selection limited. Offer too many choices and the product will
expire before you sell it because you already know that sales volume
will be low.
Financials Analysis
My back-of-the-envelope figures for this shoestring store run $10,000 to open. If you
have that much in cash, great. If not, adding in the repayment (even if you have to put it
on credit cards) costs no more than $400/month. A signature loan, for example, might
cost $200/month, based on a 3-year repayment and 8.5% APR. The spreadsheet shows
that the store has to sell about $3,000/month, or about $100/day to break even. With the
signature loan, it’s $2,500/month. If you have the cash up front, then it drops to
$2,000/month.
That figure works fine with the amount of inventory you have on hand.
If we spread that sales total out over a more reasonable sales pattern,
you can make the bills every month if you do $200 on Friday, $250 on
Saturday and $85 each of three other days you’re open. That figure
doesn’t even count on the extra 2-3 days in each month.
So in response to the questions, yes, it can be done. I’ve even shopped
at stores like this once or twice. However, expecting to bootstrap this
type of store into a real financial investment is dangerously alluring.
You don’t have a solid infrastructure on which to grow. Your best bet is
to expect it to live only as long as you have the free/cheap rent and be
ready to let it go when you lose it.
Business of Gaming Retail #16: Zoom Out
Some people worry too much about the sparklies and pearlies too early
in the process. At the model-drafting stage, think about the big stuff.
As you draft your business plan, zoom in on the detail a level or two.
Once you’ve decided that you’ll carry RPG accessories, you can decide
how much you’ll spend on them and how and where you’ll display
them. Don’t get any closer than that. Don’t worry about which
compartment what die goes in until you receive that shipment.
Knowing what the big picture looks like helps ensure that you’re ready
for the small decisions when you’re actually doing the final setup.
Once you’ve opened, it’s really easy to focus on the stuff that’s close
at hand. Handling these small issues is called “putting out small fires.”
Covering the store when somebody can’t make it. Playing peacemaker
during a tournament. Getting product in when it’s out of stock at your
primary distributor. These things require attention now, but they don’t
do much to improve your company. The continuous nature of these
small fires means that you don’t get a chance to stop and look at the
overall state of the store. You might be truckin’ right along, but are you
going in the right direction?
Marketing
Close: Did I get a good turnout for that last tournament I ran?
Staffing
Close: Should I give Bob the day off and work until close?
Medium: Does Bob’s evening shift cover the hours I need a second
person on staff?
Top View: How do I calculate my labor goal, and how do I write a
schedule that’s cost-effective while providing the customer service I
need?
Fixtures
Close: Now that this game’s promo is over, can I use this cardboard
display for something else, or should I toss it?
You don’t have to sit down on a schedule and analyze these things on
a regular basis, but if that works for you, here’s a suggestion. Make
sure you stop to think a little bit bigger than the daily grind at least
once a week about a variety of issues. Am I running enough events? Is
my focus on CCGs costing me minis players? Is my board game
inventory getting out of hand? Am I adjusting my weekly order
quantities for the increasing/decreasing sales of the season?
Once per month or so, stop and analyze a major aspect of your
business. Location, product mix, fixturing, branding, event
management, business format, insurance, vendor accounts and other
elements of your company require periodic attention.
The ultimate goal is to regularly zoom in and out between all three
levels. As you put out a small fire, zoom out a bit. Most of the time,
you’ll find that you’re in good shape. Occasionally, one of these small
fires seems a little redundant. Maybe you’ve had to break up one too
many fights in the game room. How do you fix that? What’s causing
the fights? Is it always one player, is it fuzzy rules, is the competition
level of the tournament too high? If so, then a suspension might fix the
problem, or including a list of floor rules might help, or offering Best
Sportsman prizes might cool things down.
If you’re still in the planning stages, keep your focus broad and don’t
get too caught up in the small stuff. Consider these topics
• Where will my business be located, and how will that location help me reach my
customers?
• How will I set my marketing budget, and how will I spend it?
• Will I include a game room, and how will I use it?
• How much inventory will I carry, and how does that inventory help me establish
the brand I want? How does it meet my customer needs?
• What kind of fixtures will I use, and how will I lay out my floor. What fixtures
and layout will help establish the brand I want and create the shopping experience
I want?
• What’s my competitive edge, and how do I leverage that to draw in customers?
If you find that you’re in the business planning stage and these aren’t
the kinds of questions you’re asking yourself, you should stop and take
a larger view. Make sure you build your business in such a way that it
meets your larger goals in the first place and avoid either substandard
results or having to rebuild it later on.
You can also decide who's going to do these jobs. Some you'll do
yourself. Some you'll assign to an employee, and others you'll assign to
an outside professional. Even in the case of work farmed out, you're
still responsible for finding someone who can do the job the way you
want it done.
You and a partner might split duties; in fact, your list of skills might
help you decide who you want for a partner or if you want a partner at
all. Your prospective partner, for example, might not bring any skills
that you need. Maybe he's better off as a silent partner, contributing
money but not labor.
CIO
CFO
You're ultimately responsible for reporting and paying your taxes. Even
if you retain an accountant (everyone nod your head now), the
accountant only makes recommendations, and he makes them based
on how you describe the nature of your business and your overall
goals. You might want to change your operations or even corporate
structure based on your accountant's advice. You're also responsible
for making sure the utilities get paid on time, the rent gets paid, and
your employees get their checks accurately and on time. You also have
to pay sales tax in most states.
These duties might take half an hour to three hours per week. When
tax time comes around, expect to spend 5 to 20 hours in organization,
communication, visits to the accountant, etc.
Clerk
You're your company's best salesman. Many of your hours will involve
counter duty, at a wide disparity in sales volumes. On some shifts,
sales volume means little customer involvement. At other times,
several impatient people demand your attention simultaneously.
Clerical duties also subsume creating or rearranging displays,
performing spot inventories, receiving and shelving orders, completing
shift-end paperwork, changing out receipt paper and other duties
specific to your store.
How much time you spend helping customers is up to you, but I
recommend that even a hands-off manager work the floor at least one
day per week to stay in touch with the customers and make sure that
policies are being followed. More likely, you'll work 5-7 days a week in
this capacity, often from open to close. You'll perform many other
duties during this job's down-time.
Buyer
Currently, game store owners typically place orders for new releases
first, and then spend a discretionary amount on restocks. New products
sell much more quickly than new products; when you have $500 to
spend, you'd rather spend it on products that will sell in two weeks
than in products that might take six months to sell.
You can place new orders in response to sales solicitation by your
distributor's agent on the phone, or you can more actively research
new releases on your distributor's website. You can even place pre-
orders ahead of time, which helps the distributor place his initial orders
(and increases your chance of getting an item when supplies are
limited) and helps the manufacturer more accurately predict demand.
I used to start my restock order-placing process by taking inventory of
everything I needed. Then I'd assign each item to a distributor, often
checking availability on their website. I'd place a large enough order to
meet a minimum, then assign the rest to the next distributor in the
priority list. I'd also take into consideration who has the best prices.
When portioning out lists like this, you have to start with exclusives: if
only one distributor carries a product line or a specific item, they get
that order. Then go with items that they carry cheaper, or for which
they'll break open a case, or whatever is important to you. Lastly,
complete the order with miscellaneous items for which all factors are
roughly equal.
In addition to your main weekly order with your primary distributor,
you might place another order with a secondary distributor, place an
order with a large manufacturer (by which I mean Wizards or Games
Workshop), and place a second or third restock order throughout the
week. You might also be aggressive enough to search out small
manufacturers who don't use distribution and place orders directly with
them. You can find some good deals like that, but it would be easy to
spend your whole week tracking them down, and the best of them will
be picked up by distributors anyway. Your inventory, prep time and
time spent placing orders by phone or Internet form could take 2-10
hours per week or more, scaling with sales volume. Networking and
searching for new products can take as much time as you care to
spend.
Contractor
Handyman skills can save you thousands of dollars during your initial
build-out. Just as importantly, the ability to maintain your plumbing,
build custom display cases, lay down tile or carpet and perform other
common tasks might mean the difference between break-even and
profitable long-term operations. If you don't have these skills, can
acquire them, or do you want to contract out each individual job to a
professional or trust one of your eager customers with it?
Maintenance duties vary in their demands on your time, but a good
rule of thumb is 1-2 hours each week.
Advertising Specialist
HR Specialist
You'll decide your company's hiring policies, starting from when to hire
a first employee to training your replacement at the store level. You'll
need to research federal and state laws to make sure you don't open
yourself up to liability. You should establish paperwork procedures to
document everything you should keep and dispose of things you don't
need. Make sure your hiring policies are sound and that your
procedures are in line with your policies.
With no employees, you'll spend little or no time in this capacity.
However, I recommend that you delegate some time to preparing for
the eventuality of hiring help. Write down job duties and descriptions.
Find a job application template that you like (and that meets your
lawyer's approval) or design your own. Write down policies you intend
to establish for call-outs, vacation time, and other employment issues.
List the benefits you offer; start with payment but don't forget
employee discounts, free LAN time, free convention entry, free t-shirts,
or anything else you plan to offer your crew when you hire them.
Before you hire anyone, expect to spend several hours in planning and
preparation. After you hire them, you'll spend anywhere from a few
minutes to two hours per week in this capacity, depending on the
number of people you employ.
Cleaner-upper
Who cleans the bathrooms, sweeps the sidewalk, wipes down the
ceiling fixtures, vacuums the floor, and washes the windows? You do-at
least until you hire somebody else to do it for you.
Depending on whether or not you have a game room and the activity
level in your game room, this job could take anywhere from an hour a
week to an hour a day. Periodic large projects might take several hours
at a time.
Game Champion
If you have a game room, you might choose one or several games to
promote heavily through events. Your duties might include painting
miniatures, creating terrain, judging tournaments, running painting
clinics, conducting demos, hosting contests, reporting activities to the
manufacturer, and advertising events to your customers. You might
also organize events run by volunteers.
The time this duty takes depends on your store's sales volume and the
effort you apply. It could be zero. It could be 50 hours per week. I
personally recommend that, for most business models, you have a
game room and that you run sponsored events to drive sales directly
and leverage those events as a competitive edge against Internet
retailers, bookstores and other retail outlets.
Store Manager
This catch-all job's duties include making daily trips to the bank,
completing nightly paperwork, making trips to the warehouse club for
supplies, writing a weekly schedule, and performing other minor tasks
associated with day-to-day activities in the store.
In total, you might spend 1-6 hours per week engaged in these
miscellaneous duties.
Summary
As you can see, it's easy to work as many hours as there are in a week.
Fortunately, the higher-end estimates apply mostly to busier stores,
and you can assign some of these tasks to other people. For those just
starting out, though, it's a good guide to how you'll spend your days for
the foreseeable future.
Lloyd Brown III
www.lloydwrites.com
This article takes a broad look at the pros and cons of that business
model.
Risks
Hiring a manager to run your store in your absence brings with it a
great many risks. Some of them you'll face with any employee, but
others are heightened because of the situation. Let's review the largest
of these risks.
Theft
The manager could steal from you. In fact, it's almost a certainty that
your employees will steal from you at some time or another. Yes, even
in small towns. Yes, even people you know. Yes, even him.
Employee pilferage accounts for up to 46% of all retail loss. Why?
Greater access is a main reason. Shoplifters can only take what's
available to them, while employees have the run of the store-including
the till and the safe. Shoplifting is more common, but an employee can
take off with your Power 9, sticking $4,000 worth of cards in his
pocket. The difference in the amount of theft in one case makes up for
the frequency of theft on the other.
Employees can also take steps to conceal their loss. At the small scale,
they shift blame to another crew member. "Floating" cash or inventory
loss onto another person's shift makes it hard to pinpoint exactly when
the loss occurred (and therefore, who is responsible). They might
simply steal up to the limits of your cash shortage allowance; if you
allow $50 a month, they might just take $12.50 a week from an
otherwise even till.
Thus, a manager, who might have both less supervision than an hourly
employee, and greater access to assets and paperwork, is a great risk.
He can drain substantial profit from your store and can conceal it from
a superficial search. Managers might double-enter receipts for cleaning
supplies, sell gift cards to friends at a reduced rate, or take product
home to sell online while writing it off as an unexplained loss.
Liability
Lack of Development
The early days of store ownership involve a steep learning curve. You
quickly learn the difficult task of inventory management, develop
relationships with your vendors and learn how much sales volume a
single person can handle alone. If your manager gains that skill instead
of you, you're at a disadvantage. If your store manager leaves and you
have to either take over or train a replacement, then you go through
that experience again. Learning through experience is costly. It
involves making errors and promising to yourself not to repeat them.
You want those skills, but it takes much longer to gain them if you're
not in the trenches on a daily basis.
Underperformance
It's hard for me to fully emphasize the importance of this cost, and it's
only partly because it's hard to measure.
The difference in attitude between a financially-obligated owner and a
salaried or hourly manager means an enormous difference in
performance. Look at every area of control your manager has: cash
control, product ordering, scheduling, running events, discretionary
use of product for promotions, etc. If each of these categories runs
more costly than the owner would run it by a percentage point or two,
the total amount of loss due to underperformance can easily exceed
10%. Knock 10% off of your bottom line, and you're probably not
showing a profit.
Try this experiment. Open up your financials. Add 3% of your net sales
to your labor figure. Add 2% to your COGS. Add another 2% for various
fixed cost increases (repair & maintenance, cash shortages, etc.). It's
ugly, isn't it? Now figure that your sales will probably drop 10% off of
your projections. Is the bottom number still black? It might be, but it's
probably a very low figure by now.
There is a maxim in management: people only do well that which you
monitor. If you monitor average ticket prices, your salespeople will
upsell. If you focus on labor, your management will watch labor. If you
ask your manager how much he's planning to spend on inventory, he'll
watch his buying budget. Unfortunately, you can't watch everything. If
you do, you'll spend more time at the store than at your day job.
Advantages
If you only own one location, there are really only two reasons for it.
The first is the main assumption of this article: that you're doing it to
work another job. The main benefit you seek is therefore free time.
Another reason for hiring a full-time manager is that you don't feel
comfortable performing the task yourself. If that's true, then store
ownership is probably not a good idea, but we'll cover the topic of
superior talent, too.
Free Time
The main advantage of having somebody else run the store is that you
can continue your day job. The income you gain from that job might
exceed the loss of productivity caused by your absence.
The "free" time is not all yours, nor is it free. In addition to the salary
you pay, you have to deal with the above costs and risk. Also, you
can't hand over all responsibilities to the store manager. Unless you're
insane, you won't give your manager unrestricted access to your
checkbook, for example. That means you have to spend time paying
the bills.
You'll also have to spend some time monitoring the store. Watch for
sales trends to make sure nothing's being neglected. Look for
irregularities in your paperwork that might reveal theft. Yes, even for
that guy you trust. Make sure your product purchases are within your
budget and that your labor cost is running to goal.
Give your manager feedback. You might do this informally, by placing
a call as needed. You might have to schedule periodic meetings after
leaving your day job. Maybe you stop by for an hour each night before
you head home. Your paperwork isn't the only source of information
about the store. Talk to customers, too. They'll tell you if your
customer service has been falling off lately, or if the store's been
opening late, or if special orders have been handled badly. Besides
talking to customers when you visit the store, make it a point to call
them on the phone.
If you have a security system in place, spend some time watching
videos of the crew at work. Do the employees sit on the counter and
surf the web when there aren't any customers in the store, or do they
tackle their chores right away? Do they look up and greet customers
right away when the door opens?
If your manager gets sick or injured, you might have to run the store or
face closing it for a shift-or longer. Can you skip out on the day job on
short notice to run the store? Or can you afford the loss of sales caused
by closing? Which is more costly?
Talent
Perhaps you're not the best person for dealing with customers. Maybe
your ideal job is working at a desk in a dark corner, communicating
with people only through e-mail. Short e-mails, at that.
If you're best at the administration and weaker on the execution, it
might be to your advantage to hire an outstanding people-oriented
manager to take over those duties for you. Develop procedures that
minimize the damage the people-person can do to your inventory with
his poor math skills. Make the schedule yourself so Miss Congeniality
doesn't forget to have somebody open the store.
Conclusion
Some people reject the idea of hands-off management out of hand. For
others, it makes sense if handled correctly. Next month, we'll discuss
how to handle it correctly and the additional complications of
supervising a store in another market.
Lloyd Brown III
www.lloydwrites.com
Customer Service
Some people can make friends with anybody. Five minutes after the
door-chime goes off, they've made a new friend and been invited into
a customer's home game. A partner with this skill can turn casual
gamers into weekly customers and turn browsers into buyers. The skill
is worth money.
Retail Experience
Management Experience
Game Categories
Cash
Money isn't a skill, but it's still a valuable asset-in many ways, it's the
most valuable. You can learn inventory management. You can improve
your customer service. Getting more cash, though, usually takes much
more dedication, time and luck. A partner who brings a cash infusion
can be a great benefit. A partner with cash and some other strength
can help build a strong store.
The tricky part that requires your judgment is the value of that cash.
Skills and time have value, too. A partner who provides nothing but
"sweat equity" might put you over the top, too.
Handyman
Anne
Brett
Carl
Carl brings about $5,000 cash and about $10,000 in credit (on plastic)
to the table. He's a graphic designer by trade and works from home,
but business has fallen off and it's not sustaining him right now. He
wants to work full time at the store. He plays non-Magic CCGs and all
kinds of RPGs, especially indie games.
David
Your first candidate is a CCG demo volunteer named David. He's had
success at other stores, where he sees tournament attendance of 20-
30 on a regular basis. At your store, he gets the same 4-8 people
showing up, barely reaching the minimum numbers to avoid the
tournament "fizzling" from a lack of attendance. He thinks that, by
bringing his customer base to you and working solely at your store, he
can double or triple sales of the game he plays. He has no cash and
isn't willing to risk his credit, but he builds interest in the games he
plays.
Emily
Fred
Inventory Selection
Instead of starting off with the most popular product lines and adding
newer lines as your customers express interest, you can stock your
store with secondary product lines, offering a wider selection than your
competitors offer. Instead of starting with just D&D and 1-2 of the next
most popular RPGs, you could stock D&D fully, stock World of Darkness
heavily and carry core books and recent titles for nearly every in-print
RPG. Instead of just Magic and the current popular anime-based CCG,
you could stock boosters, starters and singles for a dozen games. Your
board game shelf can become a board game department. Of all of the
places I spent discretionary cash, inventory additions almost always
made me happy.
This extra inventory gives you a competitive edge that you can
leverage in your marketing. Advertise your store as "the best-stocked"
or "the most games in town." People like success, and you'll see that
even dedicated customers who are happy with their current game
store will visit your store. Such inventory addition costs a relatively
small amount in the big picture, however. If you have access to greater
amounts of cash, you could invest in additional products lines. Comics
and anime are just the start. The "entertainment model", which
includes DVDs and consoles games, becomes a possible addition. Toys,
collectibles, costumes, hobby supplies, coins, and other potential
revenue streams could all become a part of your company's income.
Employees
While more inventory is mostly a difference of degree, a bigger store
might mean that you have employees right from the start--a luxury
(and headache) other stores might not enjoy until later. You'll need to
learn to write a cost-effective schedule that also covers your sales
needs. You'll need to make your plans for how many employees to
hire, how much to pay them, who will train them, how you'll manage
payroll, and your employment policies, like time off and employee
discounts. It's a lot of up-front homework.
Better Locations
With better funding than the typical business model discussed in this
column, you can widen your location net to include busier
intersections, freestanding buildings or mall spaces. A higher-grade
commercial shopping center requires little change other than scale,
but mall stores change the model at fundamental levels. In brief, mall
stores attract more visitors, sell a more public-oriented product mix,
and have higher labor and higher losses due to theft. On the upside,
they typically achieve much higher sales volumes than outdoor
shopping centers.
Image
Being big is about more than just having more inventory and floor
space. Customers associate certain standards with larger stores. While
a shoestring look is fine for a shoestring store, that same look is jarring
in an anchor suite. You'll want your crew to wear uniforms, make sure
all the light bulbs are working, and generally keep the place clean and
maintained to top-notch standards.
Items considered frivolous at lower sales volume might be a necessity
for you: shopping baskets, spot lighting, a video surveillance system,
an alarm system, and a POS system. Consider each of these things a
gain of percentages. In a low-volume store, increasing sales by 1%
might not be worth a large capital investment, but in a busier store,
the investment repays itself sooner. The same applies to loss. If your
security system reduces shoplifting by 10%, it's worth twice as much
at $500,000 per year as it is for a store doing $250,000.
Buying Property
Many retailers scoff at the idea of purchasing the property in which
you'll run your business, but it can be the right choice in the right
circumstances. Buying opens up more financing options, including an
additional SBA option. Even if you do have your own money, investing
somebody else's money is still a good idea. Ironically, you might find it
easier to obtain financing when you're seeking a larger amount.
While building equity in a small business can have value, you only
realize that value if you manage to sell the business. And 50% of small
businesses that go on the market fail to sell. Equity in real property
rarely decreases (the current market notwithstanding), and in the long
run it almost always gains faster than inflation.
A Bigger Store
Putting your money into a single store can generate a higher profit
percentage than if you generate the same sales volume out of multiple
outlets. A $600,000/year store is a better money-maker than two
stores reaching $300,000 each. The biggest difference lies in the
overhead reduction: one rent instead of two, one manager's salary
instead of two, etc.
Building a single store to higher sales volume requires a heavier
marketing budget, a higher inventory level, and (usually) a broader
selection of inventory. It might require a small amount of additional
equipment, like a second register station and multiple phone lines. You
need the marketing to bring people to the store. You need deeper
inventory to reduce stockouts and offer in-brand selection, and you
need more product categories to reach a wider audience.
One Store Thumbnail Sketch:
• Catastrophic loss if the store fails
• Limited geographic draw
• Greater control
• Lower costs
• Better performance
More Stores
You might look at the financials for a single store and see that you can
afford to open two, three, or even more locations. Owning multiple
stores has its advantages over a single store, but it also has
disadvantages. If you decide to pursue multiple stores, make sure you
have the right temperament and skills for the different nature of your
business and know what hazards threaten your success.
The advantages of having multiples stores include greater sales
potential, the ability to reach a wider geographic area, the option to
expand through acquisition, and a little bit of inventory control. You
have the option to survive if you fail at one location by attempting to
recover your customers at the other stores and redistributing fixtures
and inventory (or storing it until the next location opens). Having
multiple locations in the same market allows you to divide the cost of
certain advertising (like cable TV) between the stores, while all
locations benefit from the same ads.
The risks of opening multiple stores include reduced performance, a
lack of connection with your customers, and a lack of control. Hired
employees won't work as hard as you will, nor as wisely, so your
figures will suffer. If you delegate ordering authority to others, be
prepared to watch your inventory. Loss increases not only through
theft but to diminished diligence.
If you plan to open multiple stores, I recommend that, unless you have
managed/owned a retail game store in the past, you open a single
store at first and run it as owner/operator for at least a year. You have
to learn the job before you can teach the job. During that year, lay
down the groundwork for your growth. Have a training program in
place for your management. Have supporting paperwork for your
employees. Plan out your growth so that you're not trying to open
multiple stores on the same weekend.
Most importantly, I urge you to plan to open at least four stores and to
open them all under the umbrella of a single phone book or cable TV
service area. Opening stores in multiple markets means that you lose
one of the principal benefits of multi-unit ownership. Operating 2-3
stores is a primary "danger area" of growing multi-unit owners because
your direct attention is spread too thin and the sales volume often fails
to justify an additional tier of management.
Multiple Stores Thumbnail Sketch:
• Failing in one location does not automatically ruin the company
• Reach more customers in a wider area
• Less control
• Rely more on management skills and less on technical skills
• Open to growth through acquisitions
• Greater upper sales limit
I considered adding a section on "How I'd Do It", but I felt the addition
ran a little long for this column. If you're interested, I'll post it in the
forum. Next month, look forward to "Thinking Really Big", a pie-in-the-
sky store model that dwarfs all other stores.
At one point, I had to look for an alternate location for my game store,
War Dogs Game Center. Many possibilities came open. One customer
mentioned that a particularly large location--30,000 square feet--was
available for $1 per square foot. As it turns out, that's only slightly
more than we ended up paying for the 2,000 square foot location we
moved into. Incidentally, it's almost next door to the next location the
store ended up in when that lease was up, so the location was good,
too. It was a very real possibility until we found out that the helpful
customer was apparently just making up figures. None of the locations
he mentioned were available for anywhere near the prices he
described. We stopped listening to him.
The scary thing is that this plan is entirely feasible at the stated (albeit
imaginary) rent.
The cash wrap area is angled to be near the exit yet approachable for
impulse buys during extended stays. A gated entrance opposite the
exterior door allows the clerks to freely exit the cash wrap to assist
customers yet clearly indicates what part of the store is "employees
only". Multiple POS stations allow for up to three employees to ring up
transactions simultaneously.
Video games are held behind the counter. Only their cases are on the
shelf for display.
Slatwall fixtures hold the big stuff, while the knives and smaller items
are in glass fixtures. Ideal cases hold a single layer of products under
glass for display and keep overstock concealed in the bottom, like
jewelry cases. Estimated inventory value for this section is around
$8,000, counting on making some large inventory purchases to
achieve the best price possible.
Board games, CCGs, and role playing games require shelf and slat wall
space. Miniatures require wall or gridwall space. Accessories for all of
these games are on the wall here or (in the case of dice) at the cash
register. Initial estimated inventory value for this section is $75,000.
The CCG singles are in binders or boxes locked behind a table where
players can casually sit and browse through them (the theory being
that sitting customers spend more time than standing customers). The
countertop has a separate cash drawer behind it, and an employee has
a PC there to look up prices and barcodes and conduct transactions.
Initial CCG inventory costs about $10,000, but a good chunk of that is
Power 9.
Minis singles are also here, with showpiece on display and inventory
behind the counters in deeper boxes. These include not only CMGs but
also premium-painted GW and other minis.
The spinner racks hold about $1,000 worth of product at cost and
should turn at least 3-4 times per year. Large purchases allow profit
margins to approach 70%. The relatively space holds 4 such displays
clustered in a box pattern and the browsing room around them.
The LAN area features two tables, each with 4 computers facing each
direction.
At an average of $6 per head for use of the room, the LARP room
needs an average of 88 paying players per weekend to break even.
The price structure allows for free entry for a certain number of
storytellers per game, reduced rates for special events, etc.
The store might also sub-lease the section to a narrator for a flat fee,
allowing the narrator to charge a higher entry fee if desired and collect
the funds directly.
The game room holds different terrain boards to be used for miniatures
tournaments or for casual play.
Hey, with 30k sf, if I want my own game room for me and a few invited
friends, I'm darn well going to have it. It's fully equipped with a huge
table, comfy chairs, a refrigerator, soft drink fountain, and shelves full
of minis and books. This door locks, and I keep the key on me, thanks.
Materials and labor involved in the building should run less than $600.
When moving the store, I estimated that War Dogs generated $40,000
per year in food sales to the immediate area between customers and
employees. If the store can capture a significant portion of those sales,
the additional revenue would be a nice boost to the bottom line. An
external sign, a separate phone book listing, and easy access allow the
deli to not only supplement income but bring in additional, non-gamer
traffic. The deli should be able to generate at least $120,000 in annual
revenues at a gross 20-25% profit margin.
The deli offers sandwiches, wraps, chips, wings, individual pizzas, and
a rotating menu of additional items. It includes a fountain drink
machine and a wide variety of exotic bottled drinks in a cooler.
Busts, action figures and other toys in all price ranges. This section
uses traditional retail gondolas. Higher-end products will be behind
locked glass cases and require employee attention.
The main focus lies in science fiction, fantasy and horror, with a special
emphasis on game-related and licensed fiction. The store offers new
and used titles.
Used Console Games (2,000 sf)
This section also includes displays for new and used consoles, guides
and other accessory items.
A giant TV screen and theatre-style seating provide just about all that's
needed. While the main intention is to support a local anime club,
other groups can rent the room for their own entertainment. Uh, no
adult videos, please.
This room could also double as a seminar hall for conventions the store
hosts.
This area would have to struggle to earn its keep based on sales, but I
believe the prestige would justify its existence. The competitive edge
element alone is potent. If you have a choice between the vanilla game
store down the street, and the game store that has the original art for
the Juzam Djinn, where do you shop?
Promotional materials cost for both tables costs about $400, including
the price of the tables. For a slightly greater price, we could include
drawers below the table, filled with different miniature game setups.
The shrink-wrap machine and packing supplies are here for Internet
sales. Used games are priced here, demo copies re-shrinked, and
damaged product stored here for return to the distributor.
Separate restrooms for men & women. This area also includes the
cleaning supply closet.
The office contains the owner/manager work station and one other
employee work station (usually a full-time eBay sales handler). It holds
all the typical office equipment and supplies. The owner can track sales
here through the POS, monitor the store through video surveillance,
and otherwise keep an eye on the store while engaged in other
activities.
I have to assume that out of a space this big, you lose at least 1,000
square feet due to odd corners, wasted space, support pillars, interior
walls, etc. The odd 30 square feet is just to bring the total up where it
should be.
I don't think I even accounted for all of the space allowed, but it's
already a giant store. If you want to add your own suggestion, mention
it in the forum.
Business of Gaming Retail #22: Sell from Beginning to End
But those popular games represent only a fraction of your sales. If you
build them but ignore the rest of the sales cycle, you're not maximizing
your store's sales potential. You need to be able to sell products before
they hit the shelves and not stop selling until every last vestige of
them has disappeared from the supply chain.
Midlist
The midlist refers to products that are not new enough to justify high
visibility but not old enough to clear out. It includes most of the
product on your standard shelving or pegs. Your midlist products
generate a large portion of your sales. Maintain product visibility. Keep
hot merchandise face-out rather than spine out. Keep it in stock. Make
sure it's shelved in the right place.
Department signage helps your customers find this merchandise.
Shelf-talkers bring attention to items you wish to promote. Rotate
products and displays often so that regular customers see different
products.
Backlist
You might not keep backlist items on the shelf. Maybe you removed
them so that something better can have that floor space. Maybe you
stock Goon the RPG, but you don't carry the Thug and Bully
expansions.
Instead, place a manufacturer catalog on your shelf, next to the Goon
core book. If it's a small publisher and their product offering fits on a
single page, you might include it inside the book's cover. If your
customers are interested, they can place a special order with you. A
stamp on the catalog with your store name, phone number and URL
can help customers remember where they bought the book and who
should get their order.
Good special-order practices are key to increasing sales of this
category. Have a standard procedure for taking orders, placing them
promptly and then making sure the customer knows about them.
Follow up as needed so that you can either sell those goods to the
customer who ordered them or move them elsewhere quickly.
Some stores refuse to take special orders because of the flakes who
place orders and then fail to buy those items. At my store, the greatest
amount of product in my hold bin was about $1,100. The average was
less than half of that. On the other hand, special orders earned the
store $100 to $250 a week in consistent, regular sales. That's about a
20x turn rate. The rest of your store won't do nearly that well.
Trade
You might trade unmoving product with another store. One retailer's
trash, as they say, is another's treasure. Some manufacturers offer
stock swaps in which they accept a return on unmoving inventory in
exchange for other inventory. Your distributor might, under certain
circumstances, offer something similar. You can always ask.
Clearance
With most of your products, you want your price to reflect a happy
meeting of sales velocity and revenue. Price too low and you sell faster
but you make more. Price too high and sales slow but profit margin
rises.
With clearance product, the happy meeting point lies closer to the
speed side than the profit margin side. Clearance product won't create
a player base, it won't generate repeat sales, and it won't provide a
long-term revenue stream of any kind. Your goal is to get it out of your
store so that you can use your valuable floor space selling profitable
merchandise.
The keys to creating speed lies in awareness and the right price. You
create awareness by creating a visible display. A wire floor bin is
perfect for many products. It should hold a big sign that says
something obvious, like "Clearance" or "Buy me or the terrorists win."
You might also mention product lines you're blowing out in your weekly
e-mails, newsletter, or on your website. If you maintain a bulletin board
in your game room, try sticking a note on there announcing the latest
addition to the clearance section.
In some cases, a low discount might be enough to generate customer
interest. Such products might be the unpopular booster set from a
popular game, an overpriced terrain piece that competes against a
superior product, or an RPG supplement you over ordered.
Sometimes the discount needs to be higher to get attention. When
you're not sure how much to reduce the goods, offer a climbing
discount, increasing the discount by 10% each week or two until it's
gone. Except in unusual cases, I don't bother with more than 70% or
sometimes 80% off. It's not worth the effort at that point. The dollar or
two you get isn't worth the storage space or sales effort. At some
point, you're financially better of throwing dead product away and
using that space to sell items of greater value.
Instead of using your valuable retail floor space, you have at least
three other options for getting rid of slow-moving merchandise. EBay is
an almost guaranteed sale within a week. You can do an in-store
auction very profitably, mixing your own clearance products in with
customer sales for a huge sales day or weekend. Blow stuff out at a
convention and don't worry about poisoning your own customer base
with deep discounts. If you have off-site storage, you can hold products
there until the next sales opportunity.
How it Helps
One problem you'll notice as you start your store and place your orders
is that you always want more stuff than your buying budget allows for.
You want to buy all of the new stuff and restock the stuff that sold. The
trick, then, becomes knowing what not to restock.
Careful attention to selling your dead games helps remind you which
items required a lot of work and time to sell. Don't restock those
things. Selling these games also adds a small amount to your weekly
sales total. If you're using a percentage of one week's sales to set the
next week's buying budget, you'll find that you have a few more dollars
available for ordering.
Business of Gaming Retail #23: Reader Questions
You need at least one person on duty for each hour you’re open. You
might need to plan on time before you open to set up, count your
drawer, receive inventory, or whatever. Likewise, you need to plan on
time after closing for cleanup, paperwork, making the deposit, and
other after-hours chores.
The tricky part comes when you have multiple people working for you.
When should one shift end and another begin? When do you need to
overlap so that you have more than one person on duty? How much
work should you expect out of one person?
You get your double coverage from the overlap between the opening
and closing shifts. Your opener might come in at 9:30 AM to get the
store ready to open by 10:00. Your closer might work until 10:30 PM
(half an hour after you close). Look at your sales records to find out
when your busiest time is. If it’s between 5 PM and 7 PM (which is
common), schedule your opener to stay until 7:00, and bring your
closer in at 5:00. From 5 to 7, you’ll have two people on duty.
You might have an odd sales pattern at your store. The most likely is
that you have an unusually busy midday—usually because you’re near
a crowded business district and people stop by on their lunch break. In
that case, you might need somebody to come in just for 2 or 3 hours. If
your peak business begins at 6:00 PM and continues all the way up
until close, you might need to schedule two closers. During slow times,
one could work the counter while the other does chores.
The rule of thumb says that a clerk can handle about $100 an hour in
retail sales, but that figure varies widely. In big-box retail, for example,
it’s a slow clerk who rings up less than $1,000 an hour during the
holiday season. Look at your schedule and judge from your own
experience how much you can expect somebody to ring up without
help. It might be $100, or it might be $200 or even higher.
When you first start, you should have $75 or $100 in 5s, 1s and loose
change. If you spent heavily on advertising and promotion before
opening and can reasonably expect a higher-than-average soft
opening, you might increase the amount up to $150 or even $200. If
you plan to buy used goods at the counter, you might need to keep
your cash on hand higher.
Your cash drawer should always be light to minimize the loss from
robberies. Anything less than $150 is a good idea, and the less you
have, the better. Total cash on hand can be higher than what you keep
in your drawer, though. You can keep a couple of hundred dollars
available for petty cash and inventory purchases in a safe, locked in
your office, or elsewhere.
Pshaw! That’s an easy one. Buy my book when it comes out. It’s
contracted and with a publisher. I’ll let you know when we have a
release date, and all that.
Business of Gaming Retail #24: Just in Case
What “just in case” habits do you have in place for your store? Let’s
look at some disasters of different scales and what you can do to avoid
or minimize the damage they inflict on your business.
You should have plans in place for backing up your data on a regular
basis. Ideally, “regular” means “daily.” At the least you should save
your information on a weekly basis. If your computer suffers an
unrecoverable crash, losing your sales data could cost you thousands
in tax liability. Losing customer records could impair your ability to
market effectively. Losing inventory information could cost you
endless, tedious hours of recreating a data base. Keep it all safe.
Don’t limit your protection to the big stuff. Losing vendor contact
information, account numbers, and other records could be
inconvenient. Keep them safe and remember where and how you
stored them.
Also, your backup should be off site. It makes no sense to back up your
data to a device that would be destroyed in the same accident that
takes out the original.
Robbery
That’s right. If you have money in your cash drawer and openly wear a
firearm, you’re more likely to be robbed than if you don’t keep money
in the store and have no visible security measures.
It’s in your best interest to remove cash from the store on a regular
basis and to advertise this fact to the public. Strip your till of big bills,
placing them in a drop safe or a time-delay safe. Make deposits daily,
either after hours if your bank has a secure night-drop facility, or
during the day. On very busy days, make a mid-shift deposit Place
signs on your door or near the cash register notifying the public that
you don’t keep a lot of cash on hand.
Likewise, protect your people. More than your cash is at risk during a
robbery. You or an employee could get shot trying to do something
stupid. In case of a robbery, cooperate. Be patient and wait it out.
Don’t fight. Most robberies take less than two minutes and nobody gets
hurt.
Scams
Scam attempts are mostly a minor annoyance, but they could cause
major problems if you don’t spot them. Don’t allow employees to
obligate you to anything. Sometimes scammers will pretend to be a
service provider you’re already using, either by failing to mention their
name or by using a name that sounds similar to a common one. They
might claim to be from “your bank” but not mention the name of the
bank. Never volunteer information over the phone unless you initiated
the phone call or know the person on the other end of the line.
One common scam is a company calling you to tell you that the cost of
your credit card machine supplies is about to go up. They invite you to
order more supplies now. These calls are never from your credit card
processor. They’re cold sales calls from strangers hoping that they can
alarm you into ordering their overpriced supplies.
If you’re ever not sure about the identity of someone you’re talking to,
ask for a phone number and tell the person you’ll call them back. Don’t
call that number. Look up the appropriate number in your records or
online.
Accident
Take steps to prevent accidents. Slips and falls are the biggest cause
of workplace accidents. Don’t leave debris (like empty boxes) in
walkways. Sweep as needed and mop after hours. If you have a game
room, make sure your chairs are in good repair. We don’t use any
dangerous equipment, so that’s not a major concern.
Your Absence
Suppose you have to leave on short notice for a family emergency?
What if you’re hurt in an accident? What if you want to attend the
GAMA Trade Show? How about if you win a couple of cruise tickets on
the radio? Can your store do without you for a week?
Make sure your crew knows who’s in charge while you’re gone. Make
sure the person in charge knows how to reach you. Have contingencies
for placing orders, paying bills, and getting deposits to the bank. Plan
for getting keys, alarm codes, and safe combinations to the right
person. Change the schedule to cover all the shifts. Everyone should
know your standards concerning merchandising new shipments, cash
control, and cleaning, and that you expect these things to be
maintained in your absence.
You can’t plan for every single possibility, but spending a few minutes
in planning and building your business model to minimize damage can
save you time and money (and possibly injury) you would otherwise
lose. This article doesn’t cover everything, so consider other ways you
could lose money (like credit card fraud, which is a big topic by itself)
and make plans for those before you open your doors if you’re not
open and right now if you are.
Business of Gaming Retail #25: Reasons Game Stores Fail ( And how you’ll avoid them)
Yet, you’re still reading. Either you’re completely narcissistic and don’t
believe that you can possibly fail at anything, ever, or you have some
confidence that enough planning will help you avoid the worst pitfalls
and push the odds in your favor.
1. Undercapitalization
If you read How Much Do I Need? and accurately estimated your costs, you’ll overcome
the largest hurdle right away. Learn this lesson: if you can’t get enough capital to do it
right, do not start. Other people might have gotten lucky and achieved success despite
this error, but it’s unwise to count on luck as part of a business plan.
If you do this one single step correctly, you’ve shifted the odds in your
favor. It’s that important.
Research accountants. Hire one. Talk to him or her. Follow the advice you receive. The
biggest mistake that most new store owners make is assuming that all of their purchases
are tax deductible. One big one—the biggest—is not. Inventory is an asset, and a gain in
inventory is considered profit. If you grow your inventory by $20,000 over the course of
the year, you’ll owe income tax on that $20,000.
Likewise, consider your personal tax liability, also. Set up your payroll
so that your income is only taxable once. Paying taxes twice on
$36,000 a year can crush your cash flow worse than any overordering
you did throughout the year.
If you do set up a corporate structure, learn the requirements for that
structure and protect them. You might think you’re home free because
you created an S-corp for your company, but if the government tells
you that you lost that standing because of an oversight on your part,
you could be stuck with one or more years of tax liability. Consult your
accountant over any changes you wish to make to your ownership or
financial structure.
If you’re bad at this, you’ll run out of money. It’s “game over” at that point. Pay attention
to your checking account. If you use a line of credit for your capital reserve, draw on it as
necessary. If you need to refinance an outstanding note to stay solvent, do it and worry
about the loss of profitability later. You’ll only have the luxury of being able to do that if
you keep the doors open.
Having strong inventory management skills will allow you to exercise
great control over your cash. Create a buying budget or some method
of knowing when you’re spending too much. You have to develop
discipline in your inventory purchasing or you’ll empty your bank
account quickly.
What’s your advertising budget? How do you set it? Where will you spend these
advertising dollars? How will you track your success? What is the best advertising
medium for reaching your customers? If you don’t know the answer to these questions,
you’re probably not paying enough attention to the advertising part of your business
model, and you’ll suffer because of it. You must continue to bring in new customers
because you lose customers on a regular basis. Even if you do everything right, customers
still move, die, get married to people who hate games, etc. If you’re not gaining
customers at a rate higher than your attrition rate, you’ll fail.
Advertising to your existing customer base is cheap and easy, but it
fails to bring in new customers. You’ll have a newsletter and bulletin
board and all that, but how do you get new customers? Advertise on
TV, run ads in the local paper, hire banner-wavers to hold signs by the
street? You have to do something.
5. No Competitive Edge
Why do people shop at your store instead of one of the other purchasing options available
to them? If you don’t know that before you open, don’t open. However you answer that
question, use that answer as your benchmark in all of your business planning. You have
to know how you’re better than an online store, how you’re better than a chain bookstore,
and how you’re better than other local game stores. Compete on your strengths and
minimize your losses to their strengths. Whether your strength is breadth of inventory,
game space, atmosphere, or unique product offering, know what it is and leverage it.
If sales outpace your financial projections, it’s a time for excitement but also a time for
caution. Growth, especially rapid growth, can kill a business. If you fail to keep enough
employees to deliver good service, you’ll lose customers. If you hire too many, you’ll
spend more in labor than you can afford. If your inventory level is too low, you’ll miss
out on sales due to frequent stock outs. If it’s too high, you’ll lose cash to inventory
creep. If you mistake seasonal changes in sales for actual growth, you can make some
damaging mistakes. If you move to a large place to accommodate more inventory or a
larger game space, you might fail to meet your more expensive rent when sales return to
their first-quarter sales levels.
The most noticeable and risky growth steps are opening multiple
locations. Wherever you aren’t present, performance suffers. It’s likely
that nobody else in your company will ever be as efficient as you are
for various reasons. If profitability at your first store is 10%, the second
store might only break even. Worse, it might lose money, risking
destroying your entire company.
Fortunately, most people who start a business have some skill at doing their job. If you
make it past the other obstacles, you aren’t likely to fail because you’re a bad game seller.
Most people going into this industry know at least one game category well. That will
probably be the leading category for you at your store. If you’re a card-flopper, you’ll
probably sell a lot of cards. If you push lead, you’ll sell miniatures. Go with it.
Gamers have something of an advantage here. Knowing what
elements to promote and which to ignore is a natural talent. Magic
players know that an opponent’s life total is not important if you’ve
established table control. Likewise, chasing margin is a fool’s game if
you’re bouncing checks from a lack of sales. Board gamers, familiar
with resource management, have some ability to judge the relative
merits of an expensive but good location and a cheap but less-
desirable location (hint: if the cash you save on the cheaper place can
bring you more customers than the better place’s visibility can, go
cheap).
Importance of Branding
In my library I have a copy of the Consumer Reports magazine in which Consumers’
Union did a taste comparison of soft drink brands. They compared the national flavors
like Coke and Pepsi with less popular drinks like RC and national “generics.” The results
were illuminating.
The taste difference between the national brands was practically
insignificant, which wasn’t surprising. The reception to the lesser
brands, however, interested me. The judges rated the best of the
regional brands only slightly less good than the national brands. The
difference in quality certainly doesn’t justify the enormous difference
in sales volume. What’s the difference?
Branding.
Coke’s annual advertising budget is measured in the hundreds of
millions of dollars. Virtually everybody in the world recognizes Coke.
Thirty years after the ad campaign was retired, I’d still like to buy the
world a Coke and keep them company. RC doesn’t have polar bears.
Seven Up never had crazy legs.
These powerful brand images allow a product that’s virtually
indistinguishable from its lesser competition to dominate the
marketplace.
Branding is Comprehensive
Branding is a coordinated effort. It involves your logo, slogan, graphic design, product
mix, return policies, hiring practices, pricing policies, advertising media and messages,
and other choices you make about your business. Whenever you make a business
decision, ask yourself “Does this support or harm the image I’m trying to project?”
Branding is Organic
Your brand will continue to grow and change over time. When you begin, you might
focus on service and quick special orders. You’ll become known as the little store with
great service. Maybe you’ll grow to a larger location and start to feature selection as a
key part of your branding. You might lose the “little” part of the image during the
transition.
Brand Happens
Public perception is your brand. Your brand is not purely subject to your control; it also
depends on your local customer mix and their tastes. If you want to promote board games
and they want to play CCGs, then you’ll have to cater to that demand or lose sales.
Branding Techniques
You can control your brand most readily by managing certain aspects of your business.
These aspects are the things that are most visible to your customers. Consider these
choices before you start if possible. If your store is already open, then you might need to
adapt your branding strategy to existing traits. Either technique can work.
Name
Your choice of trade name is vitally important. Alderac Entertainment Group tells of the
phone calls they receive because of their name; people in California apparently equate
“entertainment” with “prostitution”, which leads to some awkward conversations.
Slightly less humorous is the thought of people who don’t have anything to do with them
over the misunderstanding. How much are they losing in potential sales because of the
unfortunate and unforeseen public association? That type of association is more
important to you than it is to a game manufacturer, but it’s a solid lesson of the
importance of conveying the right message.
One of my favorite store names is “Rainy Day Games”. It immediately
conveys the image of a family gathered around a dining room table.
Often, we have to deal with the public association of “games” with
electronic games of one kind or another, but Rainy Day Games
manages to dismiss that image right away. It also creates a
wholesome family image right off the bat—it’s a powerful branding
element. I so wish I’d thought of it first.
Note that this concept applies to your trade name. Your corporate
name is immaterial for most purposes.
Logo
Uniform
Choosing uniforms is more than just putting your logo on a t-shirt (or at least it should
be). Choose a type of shirt. Do you require t-shirts, polos, or button-ups? What color
shirts? How about pants or skirts? Got a shoe requirement?
How about the rest of the employee image? If an employee turns out
to have a swastika tattoo that he hid during an interview, does your
image policy specifically disallow it? Do you even have an image
policy? You should, and it should support your overall brand.
A quick paint job can go a long way toward creating an image. Bright colors attract
children, for example, so if you want to target children with your marketing, you should
use primary colors. Elsewhere, choose one color or two contrasting colors to associate
with your store. Your graphic images, your paint colors in the store, your uniforms, and
other branding elements should incorporate these colors whenever possible. Nearly
everyone recognizes a Pizza Hut by its red roof, for example, and a Subway by the
yellow marlite.
Store Departments
It is a proven fact that a branded product name sells better than a generic product name. A
“Happy Meal” sells better than does a “Kid’s Meal” carrying the same products. “Secret
recipe chicken” sells more chicken than plain old “fried chicken”—even if they’re the
exact same food cooked in the exact same way.
As a retailer, your ability to brand your products is limited. Your
Monster Manual looks like everybody else’s Monster Manual. However,
you do have options. One of these options is to brand your store
departments. Toys ‘R Us calls their learning and developmental section
the “Imaginarium.” You could similarly brand your RPG section, your
hobby section—even your game space. This column has mentioned
department signage and painting before. A simple border around a
department could be enough to visually offset it from the neighboring
sections. Don’t be afraid to paint your pegboard or even slat if it makes
a better visual impact.
Website
The design and content of your website presents its own version of your store’s image. If
you have a message board, the discussion and level of moderation make a statement
about your store. Do you squash arguments right away, or do you step in only if you’re in
danger of losing a customer?
Product Mix
What you carry helps define who you are. If you’ve decided that you’re going to be the
“we carry everything” store, then you need a monster dice bin, an enormous RPG section,
and a lot of space for your minis. In fact, “big” sections might be your theme. You might
have a Huge RPG section, a Giant Miniatures selection, and a Ginormous card game
space. You should look for a suite with a high drop ceiling, keep the walls white, and use
a lot of light. You might have your cash-wrap on a raised platform to give your
employees the illusion of greater height (which, incidentally, might help them monitor
potential shoplifters, too).
If you’ve chosen to make your store kid-friendly, you also have to
make your store mom-friendly. That means either remove the adult-
rated products or make sure they’re not available to the younglings.
You’ll have to make sure that a noteworthy portion of your store is of
interest to the age group you wish to attract. Your anime-themed CCGs
should be more prominent than your Vampire: the Eternal Struggle, for
example.
Advertising
Whether it’s print, TV or radio, consider not just the specific message you want to deliver
but general impressions you want to create. Before worrying about a price, should you
even mention a price point? Do you misspell or misuse words? Is the ad too busy? Does
your language use exclude or attract children? Do you want it to?
You have a million things to think about already, but branding is
critical. You should pay attention to it all the time. If you’ve already
become used to thinking about your store from different perspectives,
as this column has mentioned before, it should be easy for you to back
all the way out and look at your branding.
Building Assets
Building assets is your best method of financial positioning. Even if you abort your plans
late in the planning stages, you can use most of these assets for other purposes.
Home Equity
Despite the current housing market, many people have considerable equity in their
homes. In fact, home equity loans and lines of credit are a primary financing source for
many first-time business owners. If you’re just beginning your planning, you might
consider making modest upgrades to your home to increase its value.
Retirement Funds
You might be able to borrow against a 401 (k) plan, even choosing the interest rate of
your loan to yourself. In any case, having a retirement plan improves your net worth,
which helps when you apply for a conventional loan. If you’re still in the planning stages,
adding to your retirement plan now can pay off later. I’m mostly including a mention of
retirement funds for completeness. Due to the risk involved, I like the idea of borrowing
from a retirement fund even less than I like leveraging home equity. It shouldn’t be a
primary source of your financing. Its primary use should be in establishing a healthy
picture for your banker, so that you can invest his money instead.
You might not have an investment portfolio, but if your current job offers stocks, it’s
time to evaluate what you have or start buying in while you’re still planning your store.
Depending on how you plan to finance your store, you might want to keep the stocks or
liquidate your holdings. If you do cash out, watch your timing and try to wait as long as
possible; if you decide not to enter the game retail industry after all, you probably can’t
buy back into those stocks.
Trade Magazines
Virtually every industry has its own trade magazines, and these trades pay good money
for articles. If you can explain something in simple terms, stick to a topic, and follow a
publisher’s guidelines, you might be able to crank out an article or two. With some trades
paying up to $2 a word, a single article might net $500 to $6,000. You don’t have to be a
professional writer, either. The most important skill is knowledge of your topic.
Coin Collecting
I used to deliver pizzas. At the end of the night, instead of turning in my coins with my
other money, I threw them in a jar. Every Christmas season, my wife and I rolled that
change to pay for the holidays. The last year we did that, we cashed in $1087. When I left
there to buy my game store, the joke around the pizza place became that “Lloyd bought
War Dogs with rolled-up coins.” While you probably can’t cover all your expenses, a
couple of years’ worth of change could help you reach your break-even months sooner
than expected.
It’s easy to rack up multiple bank accounts. You have your main account for your family.
Then you have the old one you used when you were single. You might have a cash
reserve in an investment account. There’s that account with the expensive bank that you
only opened to collect the $25 signup bonus. You have some money in PayPal. Corral all
of these stray dollars into one place and you might be surprised at how much it is.
Yard Sale
Turn a bunch of junk into cash. A successful yard sale might net up to $1,000, depending
on how much you have to sell. Just as nice, it might clear up space in your garage where
you can stockpile fixtures until you’re ready to move into your storefront.
Your Test-Market
Demo Materials
If you took my advice to become a demo volunteer, you might have a collection of
materials to start with. If you really ran with it and become a volunteer for multiple
companies, you could have more materials than some stores use. Between promo material
and any unopened compensation they sent you in the form of product, you could have a
few hundred dollars in assets.
Retailers often end up becoming fixture junkies. You can’t help but look around any
given store, not just to see what they have, but how they display it. You’ll ask yourself
“Can I use something like that?” surprisingly often. Start your neurosis early by acquiring
cheap and free fixtures while you’re still in the planning stage, months before you sign a
lease. Picking up a usable piece each month might save hundreds or thousands off of your
startup costs by the time you open. You can find cheap fixtures in auctions and going-
out-of-business sales around town. You might make an offer to a landlord who’s stuck
with the property of a vanished tenant. You can find free fixtures occasionally when
stores of any size—convenience to big-box—remodel. If you’re in the right place at the
right time, or put yourself in the right place at the right time, you can snag very expensive
fixtures that would otherwise be thrown out.
Manufacturer Charity
The manufacturers whose products you’ll sell have a vested interest in seeing you
succeed. The attitude of manufacturers toward retailers runs the gamut from heavy favor
to outright disdain, but asking for promotional materials and products can yield some
much-needed inventory. As always, don’t ask for things you don’t need and don’t get
greedy. Asking for a bonus on top of an order is better than just asking for a freebie
outright, for example.
Buy Debt
While many people avoid debt, the right use of your company’s credit and your personal
credit is a tool for you to use. Carpenters don’t refuse to use nails out of some crazy sense
of elitism or personal acumen. Neither should you be afraid to indebt your company if it’s
the best thing for your company’s overall health.
If you plan to start by buying an existing business (xx article reference), then you can
reduce your purchase price by acquiring debt at the same time. Suppose, for example,
that a store owner wants $25,000 for his store. When you ask about his current debts, he
tells you that he owes his distributors $4,000 in current and late bills. Tell him you’d be
willing to take over that debt if he’ll reduce his asking price by $4,000. If he has any
intention at all of paying that bill, there’s little reason to reject your offer. You can then
negotiate repayment terms with the distributors to whom he owes money. Offering to
repay $200 on top of each weekly order defers that final payment by 5 months. Continue
that exercise with each of the seller’s individual outstanding debts (rent, utilities, other
service providers, etc.) and you might save yourself $15,000 in upfront cash. You’ll pay
off most or all of it eventually, but you’ll reduce the startup funds needed by a substantial
amount.
Credit Cards
No sane person would tell you to put all of your startup expenses on a credit card, but it
can make sense to finance your capital reserve on personal credit of one kind or another.
Notice the careful and deliberate use of the word “can.” That doesn’t mean it always
makes sense. Some factors in favor of this plan include a) a low burn amount needed, b)
low interest rates on the credit cards , c) a strong incentive plan with your credit card
company, or d) high local commercial loans rates.
Bring on Investors
Someone investing a few thousand dollars can put you over a benchmark and turn on the
light green for you to continue forward. These investments need not be large. An
investment of $500 up front could be worth far more than its face value in its reduction of
your primary loan repayment, depending on how you word your investor agreements
(hint: defer any repayment for six months to a year after opening). Such low-dollar
investments are much easier to get from friends and family than a $20,000 lump sum.
A business owner, who we’ll call Brian, owns five stores. He started
well. He managed his first store for several years, building sales,
reducing turnover and otherwise improving things across the board. He
paid down some of his acquisition debt, purchased some land at a
great price, and moved into a freestanding building on his new land.
Everything is great.
All of this was even more spectacular because this store was in an
inner-city location with lots of problems. Robberies, shootings, internal
theft, insurance claims for stupid reasons--you name it.
Brian’s early company growth was well-managed. Not too fast and not
so slow as to lose momentum. He bought a second store and
developed it. Then a third. Two years later, a fourth. Last year, a fifth.
But between four and five, Brian made some changes to his company
structure. He appointed a supervisor--a questionable move for a 4-
store company, but it could work with continued growth. Brian began
holding two weekly meetings. One meeting was for managers and the
other was for the assistants. Brian looked around for an office so he
could move his company operations out of his home. He was planning
on more growth.
A hundred thousand dollars later, sales had barely budged, and the
company was hemorrhaging cash badly.
Cash Reserve
Maintain a cash reserve. Don’t spend the cash reserve except for legitimate emergencies
or to cover known and predictable sales cycles.
Advertising Budget
Set an advertising budget and stick to it. Spend a careful, measured amount according to
the business’s needs. This spending also might vary in amount and direction according to
seasonal sales, so don’t feel like you’re locked into a set amount. You might spend $600
during the summer and $400 during the slower months. You might maintain radio all
year but change your print ad frequency according to the new release cycle. Don’t use
advertising as a discretionary expense based on cash flow. Treat it like a bill and “pay” it
every month.
The 1st edition DMG had a great line of truth in it: “High pay is not a sign of strong
leadership” Or something like that (I’m sure some zealot will provide me with the precise
wording). Pay according to the job done and don’t overpay when things go well. If you
ever have to reduce pay, even when you’re overpaying compared to your competitors,
your crew will resent it.
Spend your first bit of excess cash on assets, preferably assets you can leverage if your
cash gets low again. Additional inventory can be good. Paying down debt early is
awesome, especially your acquisition debt. Once that comes off the P&L, profitability
and cash flow go up.
Reinvest Wisely
One of the things I like to do when considering how I want to reinvest capital is to
compare the effectiveness of my spending with other options. If I have $1,000 to spend, I
compare the value of whatever I’m considering versus existing options. What if I spent
that $1,000 on labor and materials to run an additional miniatures game league? What if I
spent it on booth fees and travel for 2 more conventions? What’s the best use of that
money? Do I really need a third-party mystery customer program?
If you spend money on frou-frou expenses, make sure it’s extra money
first. Don’t spend necessary operating capital on indulgences.
Brian’s Fate
You’re up to date, so that part isn’t written yet. Brian’s strength obviously lies in working
through tough times. When sales are slow and the challenge is steep, he’s frugal,
disciplined, and focused. Despite the troubles, he hasn’t given up and he hasn’t been
forced to close yet.
In the case of several of these primary models, you might be best off
integrating elements of them into your standard business plan, relying
on them for additional revenues rather than sole or primary revenue
streams.
Membership Club
Outline: Charge cost or just above cost for your merchandise but
require customers to buy a membership if they wish to shop there at
all.
Advantages: For one, you have access to revenues (membership fees)
without much direct cost. Secondly, by requiring a complete
application from your prospective members, you gain full contact
information, allowing you excellent marketing potential within your
customer base.
Disadvantages: Finding a magic meeting point between discount and
membership fees is often impossible. For example, if you give a 40%
discount, you’re giving the average CCG player maybe a $160 annual
discount, but if you think that they’ll pay $150 or even $100 for an
annual membership, you’ll be disappointed. You’ll also deter casual
shoppers who just want a single $20 item.
Although the maintenance cost of a single account is low (identification
cards, labor costs, etc), there is a cost, and it adds up with enough
accounts. You’re also creating a sense of entitlement among your
customer base. They paid for the right to be there. They feel that you
can’t ask them to leave because of their behavior. Legally, they might
even have a point.
Beating the Odds: Some form of a membership club is a good idea, but
trying to be the “Sam’s Club” of gaming is probably not going to
happen. Membership clubs deserve an entire article on their own, but
for now concentrate on small discounts and other benefits instead of
large-discount incentives.
All Consignment
Outline: Technology allows you to track not only who owns what
merchandise but separate consignment fees, the amount you owe
them, and everything you need to handle a full load of consignment
inventory.
Advantages: Reducing your largest single startup cost to zero would be
a huge cash flow advantage.
Disadvantages: Not having new inventory means that you miss out on
some good and easy sales opportunities. You will also probably have a
very difficult time getting enough merchandise in your store to achieve
that “critical mass” necessary to kick-start sales.
Beating the Odds: “Cheat” on the all-consignment option by carrying
select new merchandise. At the very least, you might purchase
collectibles like CCGs and open them for singles.
Mall Kiosk
Outline: Sell a small selection of goods out of a mall kiosk.
Advantages: Huge traffic count is the main advantage to mall
locations, and it’s a big one. A young demographic and a high
discretionary spending amount make for a good combination in
potential customers. The cost of a used kiosk is small compared to the
potential build-out costs and fixtures costs of a full-size game store.
The risk is also less: you’re not committed to a huge lease that could
bury you financially if the business fails.
Disadvantages: The typical game store mix doesn’t sell very well in a
mall environment. Family games, puzzles, and other games sell better.
Unfortunately, the kiosk doesn’t give you much display space, limiting
your available inventory to a couple of thousand dollars.
Beating the Odds: In the right place, you might do comparatively well
with CCGs. However, a high sales-to-investment figure doesn’t
necessarily mean that your sales will pay inventory costs, rent, and a
salary. Depending on your rent, you might need to exceed $100,000 in
sales from a single game category just to be able to pay for your time.
Conventions Only
Outline: Your store is only open on weekends, and your location is a
convention table.
Advantages: No risk. Light inventory costs. You pay rent only the
weekends you work. Keep your day job.
Disadvantages: Again, low sales potential is the big killer. Even if there
were a convention every weekend within driving range, your potential
revenue from small conventions is low. A small con might draw 300
people or less. It’s difficult to do $2,500 in sales from 300 people. You
have to store your inventory when you’re not at a convention. You
have to transport it back and forth. You have to pay for hotel rooms.
The convention season is just that—a season. You’ll have several
weeks where you have to choose which cons to attend because there
are multiple choices. More often, you won’t be able to find any
conventions nearby. The big cons, where you can earn big money, are
very expensive in terms of fees and inventory.
Beating the Odds: With a mix of frequent small local cons and a few
select medium-sized regional cons, it’s possible to exceed $50,000 per
year in sales. If you can keep your inventory costs to 60% or less, pay
your small-con fees in product, and minimize hotel fees, you might
attain a gross profit of $12,000 or so. That can be a fair bonus on top
of your day job.
Comparative Rates
• CCGs: 6x to 20x
• RPGs: 1x to 6x
• Minis: 2x to 8x
• Board games: 1x to 4x
Stores with a narrow focus—those that see more than half of their
sales from a single category—can report even higher turn rates than
these.
Obviously, these rates vary tremendously. How do you know whether
you could use 3x or 8x for your CCG sales? Look at the marketing
section of your business plan. To whom are you advertising? CCG
players are younger than RPG players or minis players, and they’re
more likely to be male.
Minis players, especially Games Workshop customers, come from
higher income groups. If your focus is broad, you’ll bring in more board
game players than the other groups. How about game tables, if any? If
you have enough space to support competitive events, CCG and minis
sales go up (RPGs do increase, but not as much). If your tables are the
skinny conference tables, they’re more comfortable for cards. If they’re
chest-high and covered with felt, you’ll attract miniatures players.
Another factor in calculating an expected turn rate is your inventory
level. If your inventory level is too low, your turn rate will be
comparatively high but total sales will be small because you’re missing
out on a number of sales. A 25x turn rate on $1,000 worth of Magic
yields only $25,000 a year. That’s a great turn rate, but you’re not
putting much in the bank. You’d be better off if you add a second game
for a total category turn rate of 18x on $2,000 in inventory, or even
14x on $3,000 by carrying a couple of more games.
On the other hand, having too much inventory gives you greater total
sales but a lower turn rate. If you carried $15,000 in CCGs (which
would be tough), you’re not likely to keep a double-digit turn rate at
all.
• Low visibility
• Low traffic count
• Unfamiliarity with the products you carry
• High competition
• An older population base
• Carrying used products
• A marketing plan that emphasizes product selection
• Spine out book displays
• A focus on low-turn products like RPGs
Workshop
I had two pages of text for a workshop for an imaginary store, but I set
that aside for now. If you are in the planning stage and would like help
for this difficult element of the plan, please e-mail me or send me a PM
through RPG.net. I’d love to include actual figures as an example to go
through this material with more detail.
Critical mass refers to the quantity of product you have on the shelf.
When you reach a certain inventory level, sales dynamics change.
Instead of being a waste of money on dead inventory, people start to
notice. They talk to each other about it. They ask your crew about it.
They pick it up and handle it. Most importantly, they buy it.
It's about more than just quantity, although quantity is the easiest thing to measure. It's
easy to talk about $5,000 worth of inventory, or 200 SKUs, or 40 linear feet of product.
Those things can be counted. All things being equal, $5,000 worth of Games Workshop
minis is probably closer to reaching critical mass than $3,500 worth of GW.
Professional merchandising matters, too. That means your shelves should look full, even
when they're not. Some retailers think that having empty spots on the wall makes it look
like product's selling. Maybe it does to you, but to your customers, it looks like you can't
afford to restock, or that product's selling so poorly that you don't bother to restock it.
Likewise, your inventory shouldn't look like a pile of yard trash. Keep
everything straightened and in the right place. Patrol your shelves for
misplaced product regularly and put stuff back where it belongs. If
packaging is shopworn, liquidate it according to your normal
procedures, whether that means marking it used and putting it in that
section or clearing it out on eBay.
Any new or expanded product line needs advertising to support it.
Whether you advertise primarily to existing customers or you (more
wisely) deliver the message to potential new customers through TV,
the newspaper, direct mail, convention flyers, or whatever, if you don't
advertise it, your sales suffer at any inventory level.
An Example Begins
Let's say you want to carry something basic. You run a small store and do well with
CCGs and the cherry-picked Games Workshop minis you stock. You carry D&D, but
only the core books and the recent titles. You dominate your local market in the cards and
do well with GW, but you think that you'd compete better by establishing your position
as THE local RPG store.
You could add the core books of, say, 20 different games. That's a cost
of about $300 to $350. Your investment is small, but you're almost
certain to lose it. The problem is that people who play those games
probably have the core book already. If not, they're not seeing
anything on your shelves to convince them that they should buy it
from you. You'll see some minor sales-certainly better than the zero
sales you previously had in that category.
If you leave this situation like it is, you'll probably end up dumping it
after a year or so. Many of the games you have on the shelf at the end
of the year will be the original copies you placed there when you began
this experiment. If you place this product spine out, it doesn't make a
very positive impression on the customer. It's less than two feet
across. It's easy to miss entirely, and a browser can scan from end to
end in a minute or two. You might see $1,500 to $4,000 in sales if
you're lucky. That's a great turn rate but a horrible category sales
figure.
You're heading the right direction, but it's like steering a little bit while
trying to turn your car. You run over the curb, wipe out a mailbox and
run over a disabled minority. It doesn't work so well.
An Example Continues
So you add a few more titles to the more popular RPGS. You add secondary titles,
including the most recent releases. You add 5-6 titles for what your distributor tells you
are good-selling titles, add a couple of titles of newer or lesser-known games and pick up
a few more one-shots. You start thinking about carrying a selection of dice and order a
few sets-maybe one of each color of the latest fancy pattern. Your inventory expands to
50-75 different titles. You probably don't carry more than one of anything, unless it's the
D&D Players Handbook and Dungeon Master's Guide. You have $1,200 or so invested in
your non-D&D RPGs now.
Sales continue to climb, but the entire category doesn't get much of
your time. At $5,000 to $10,000 a year, you're still only selling 2-10
titles per week.
An Example Grows
At this point, you roll up your sleeves and look at the sales you want and the resources
you have to spend. Looking at sales records and consulting with crew and customers, you
can identify the three or four game lines that seem the most promising. Fill those out. Get
all the evergreen titles and everything released in the past two or three months. If the
game line is reasonable, you might want to order one of everything. Some of those titles
will have outlived their usefulness, but at this level, you don't expect that they'll all sell.
They will contribute to your customer perception, and so they'll indirectly affect your
sales just by being on the shelf.
Counting your expanding accessories line, you might have $5,000 tied
up at this point. Your sales probably grow to something like $10-
$20,000 per year.
An Example Blooms
Sales are growing, but notice that your turn rate has decreased. In fact, it has probably
decreased to the point where it has the lowest turn rate of any major category in the store.
It's a dangerous time. You might be tempted to declare the whole thing a failure.
Now let's push it over the top.
Add some minor RPGs that nobody else in the region carries.
Merchandise your RPG section with some department signage to
identify games by manufacturer or by category. You know how
magazines use oversized pull-quotes in a block of text to bring
attention to a particular quote? Do something similar with a game by
placing them in a different fixture. Osprey Books used to offer free
spinner racks with the purchase of a certain number of books. When
they changed the style of spinner racks they used, I re-branded the old
ones for Palladium's Rifts and other games; the paperback titles fit
perfectly on the racks, and it set Palladium apart from the rows of
other games.
Expand your accessory section to include every kind of dice
imaginable. Move your RPG section to premier positioning in the store;
even if you move it back in two or three months, it'll benefit from the
foot traffic.
You might build your inventory up to $10,000 in this effort.
Sometime during this last expansion, your category approaches its
critical mass. Several things happen at that point. Maintaining sales
becomes easier. You notice that people come into the store looking
specifically for RPGs-something your store wasn't known for before.
Curiously, your top sellers might gain market share in sales, even while
their presence in the store shrinks in comparison. The reason? Those
players like shopping in a store with good selection even if they never
take advantage of it. Strange how people think, isn't it?
The combined benefits of reaching critical mass with your inventory
begin to pay off. Your turn rate for the category increases again as the
sum total of your inventory becomes more productive than the sum of
its parts.
These numbers are based vaguely on real sales records. Use them for comparison only,
and take into consideration that I'm making certain assumptions about overall sales
volume, store size, traffic count, advertising and marketing, and lots of other factors
according to a certain business model. Don't use them as a blueprint for your own plans
without adaptation to your specific needs.
Business of Gaming Retail #33: 10 Ways to Save Money
On the other hand, maybe I've come across some tricks you haven't
considered before, and it's worth knowing where to look for cost-saving
opportunities. If you increase sales by $1, you increase profit by $.45
at most. If you reduce costs by $1, then you increase profit by $1. It's
always worthwhile.
3. Use shared web hosting. If you have a friend hosting your store's
website for $30 a month, you could save a bundle by switching to
somebody like godaddy.com. Most stores don't need extensive website
maintenance, which is the primary advantage of the virtual private
server. You post events to your calendar, announce new products, and
host an off-site forum. Easy, peasy. Save another $350 here.
7. Stock up on sodas. If you carry snacks and drinks, you might find
yourself restocking often. Soft drink prices vary according to
manufacturer promotions and seasonal sales cycles. Check your sales
records so that you know how many you sell in a week and buy more
when prices are low. Don't think it's too weird to buy four months'
supply at a time if it can save you money. If you save .10/drink and sell
8 cases of drinks/week, that's $1,000 in your pocket at the end of the
year.
9. Window washing. You don't really pay somebody to wash your store
windows, do you? If you have hourly employees, I'm 100% certain that
you have down time during the day. You're already paying those
employees. Have them wash the windows as part of their duties.
Likewise, any services like office cleaning or whatnot are indulgences
that might be more appropriate to other economic climates. Taking
back the $10 a week you give window guy gives you $520 a year.
10. Reduce your personal salary. Are there any bills that you normally
pay out of pocket that the company could justifiably pay? What about
some of your fuel costs? If you go to the bank, the warehouse club, or
run other chores for the store, consider reducing your salary and
paying yourself mileage instead. Reducing your payroll cost means
reducing your payroll taxes. If you pare back your check by $50/week,
your annual tax savings might be around $340.
There you go: $4,205. Call it my gift to you. More cost-saving tips are
welcome in the forum
7. Free signs. When you price your exterior sign, you could be
spending a bucket of money. It's entirely feasible for you to ask for an
incentive. Let your potential sign-makers know that you're also looking
for a package deal that includes interior signage, real estate signs, a-
frame signs, or whatever it is you plan to use for your store. You should
easily be able to get free stuff worth 10% of your exterior sign order,
for up to $400 in value.
Business of Gaming Retail #35: Grace Period Whirlwind
If you're starting a store and bank financing is part of the plan, here's a
partial checklist of things that you can do in that window between bank
approval and the time you sign on that loan.
Do all of your talking, crossing out, and faxing now. Plan to sign that
lease the day you get your money or the day immediately after.
Pick a Bank
Call around for bank rates. Look for branches near the store and the
best rates.
Bid on Auctions
Make sure they don't expire until you have money, but if online
auctions are part of your fixture or equipment-finding plan, get a head
start.
Plan Ads
Plan Website
Likewise, decide what pages you need and what type of design you'd
like. If you have the skills, get the whole thing ready to launch. If not,
write your copy (the "About Us" page material, for example) and be
ready for a professional to take over.
Create Accounts
Create separate accounts for PayPal, eBay and other stuff that you'll
use for store purposes.
Draft Paperwork
Keep Working
If you have a job, keep it until the last minute. Work in these other
tasks around that job. The extra few thousand you bring in before the
store gets open will be useful. If you don't, you still have time to get
something temporary. You might be four months from opening.
Buy Things
You can buy things on credit once your credit card cycle has ended.
That means that you'll receive your financing before your first payment
is due. Pay yourself back for anything you bought.
Go out on a Date
This time, I want to discuss the other business plan—the one that you
use as an internal document describing what you want to do and how
to do it. It’s a good exercise if you already have a store, too. Identifying
where your focus lies provides you with a meter to judge whether or
not individual policies, products, and programs are really helping you
reach your goals or are just cluttering things up.
This plan can skip a few things that you’d use to describe the business
to an outsider. You can omit the description of the industry, for
example. You know that WotC and Games Workshop are industry
leaders. You don’t need to explain RPGs. Likewise, you don’t need your
own resume. You know who you are.
A brick and mortar store? The Internet? Conventions only? Most of this
column’s discussion assumes B&M, but that’s not the only option. Also,
the choices aren’t mutually exclusive. If you have a retail store, you
should probably sell at conventions and online also. Usually.
What do you sell?
Just pick the broad brush strokes for now: product categories. You
don’t need to decide if you’re going to carry GURPS or Savage Worlds.
Just decide whether or not to carry RPGs. With most business models,
carrying accessories for a line is standard if you carry the line. Sell
minis, sell paints. Carry D&D, sell dice.
If you have a retail store, you have to consider this big factor from the
beginning. As I’ve mentioned before, neither choice is a no-brainer.
There are reasons for having and not having, and both have merit. I’ve
seen successful stores that follow both models.
These two factors—major product lines and the presence or absence of
a game room—largely determine how much space you need. If you
plan to carry CCGs and a single shelf of RPGs, with no minis or game
room, you only need about 200 square feet. If you want to carry
everything in the Alliance catalog and have enough room for a Magic
World Championship qualifier, you need a gymnasium.
Will you try to be the cheapest? Offer the broadest selection? The best
service? If you plan to compete on service, how do you define that
broad term? Does it mean that you have the shortest line at checkout?
A personalized system of product suggestions? How will you measure
your performance along these lines?
To better identify this question, phrase it another way: “Why would
customers choose us over one of their other purchasing options?” If
the answer is “my shining personality”, you can expect a couple of
things. First, you better plan yourself on the sales floor. Second, unless
you make hiring people like you a core part of your business model, it’s
not scalable. It’ll never grow beyond your ability to interact with your
customers.
I’m only being half serious with that “shining personality” bit, but that
means that half of it IS serious. I know a store owner whose weekly e-
mails are works of art. His graphics are beautiful without being too
cumbersome, and his sense of humor gets me to open the e-mail every
time, even though I’m 1000 miles away and never likely to enter his
store. I’ve heard it said that humor is the hardest thing to write, and if
you can be funny consistently, you have an edge.
The good news behind this strategy is that a room full of tables and
chairs is much cheaper than a room full of merchandise. The bad news
is that the upper end of the value is usually less than that of the
merchandise. However, the difference in cost might make it more
profitable. Most often, it breaks down to a personal preference. Some
people think a game room is an absolute necessity, while others think
it's a social nightmare and more headache than it's worth. This
discussion isn't about whether a game room is a good idea but about
how to use it if you have it.
Math Break
You could spend $30,000 on inventory, fixtures, and signage. You might expect that
merchandise to earn $50,000 to $100,000 in additional sales, depending on what you
stock. Or you could spend $1,500 and hope that the space increases the sales of inventory
you already own by some amount each year. Assuming a cost of $19 per square foot plus
a convenient figure of 1,000 square feet, your game space needs to increase your retail
space sales by about $40,000 per year to cover the $19,000 in cash flow. If your store is
otherwise doing $200,000 a year in sales, you need to increase your sales by 20% to see
that much gain. Is that a reasonable expectation?
Like so often, it depends.
I've mentioned in general terms about how game room events
encourage sales. I strongly support managing the activities of your
game room rather than just allowing open play willy-nilly. Knowing how
to leverage events maximizes your gain and gives you the best chance
of reaching the figures you need to pay the bills.
Demos
A customer plays a game. If he has a good time, he's more likely to buy it. It's one of the
core principles behind gaming retail.
Demo games require a heavy labor investment. If that investment
doesn't pay off, demos can be a huge resource sink. A sign on your
wall doesn't take up a lot of time per customer. You spend 15 minutes
making it, and it increases the chance of a game to sell slightly. Demo
games have a higher cost, and a higher conversion rate. How high is
higher? Because of the heavy investment, you need to maximize your
chance of a sale or sell something that's so expensive that even a low
conversion rate is worth your while. Let's take a quick math break.
Math Break
If you spend 6 hours painting up minis for a Warhammer 40k demo table, open up a
couple of terrain pieces, and set up a demo table, you might be out about $100 or so in
materials. We'll use minimum wage for the labor. That rounds your initial cost up to
about $150. If you do a 10-minute demo 3 times per day, you spend another $560-ish in
labor over six months.
After that six months, you've invested $710 in 40k demos between
your initial and ongoing costs. With a gross profit margin of 45%, you
need to sell about $1,578 to break even on cash flow (we're only
counting immediate sales for right now). You should be able to sell a
new 40k customer about $125 worth of stuff. He gets a starter box,
glue, the basic paint set and spray primer, knife or sprue cutter, an
army book, etc. At that rate, you'd need to convert at least 13
customers to break even. Out of 540 demos, that's a conversion rate of
about 2.4%.
Three percent might not sound very high, but compared to the rate of
return of mass mailings or TV commercials, it's very high. Is it
possible?
Sure. GW's entire retail business model depends on math similar to
this.
How do you to min-max this demo to give yourself the best chance of
success?
• Make demos short. Use quick-start rules for RPGs. Play only a few turns of a card
game or a miniatures game. Try to make board and card games less than 10
minutes. Five minutes is better.
• Set up a pretty table. No Coke cans for towers. Use a real tower.
• Have stuff in stock. You can't sell Settlers if you have no Settlers.
• Participation prizes. Let players keep the minis for an RPG (you used commons,
right?). Give out singles for CCGs.
• Support games that support you. If you can get a demo copy from a manufacturer,
that tips the scales in favor of that game.
• Support games with a high buy-in. 40k is an excellent example because the
average player spends so much money. If you invest the same amount of time and
effort into a $40 board game with no expansions, you'd need over 3 times the
success rate of your demo to break even.
• The same applies to RPGs. D&D players are easily worth 10 times as much as
Amber players. Even if your chance of success with Amber is twice as high as
D&D because you think it's a "better" game, you lose by supporting the smaller
game because your efforts don't generate enough return. (I know Amber's OOP
right now, so just replace "Amber" with whatever one-shot title you like. The
math's the same.)
• Let the wookiee win. Carefully stage game play so that you don't obviously throw
the game. Customers who win like a game more and are more likely to buy it.
• Use volunteers. Having manufacturer-compensated volunteers run demos saves
you a cost. Use them when you can.
• Close the sale. Once the customer is fired up about the game, put stuff in his hand.
You need this, this, and this. Cash or credit?
Demos work best for minis and simple card or board games.
Next month: Other In-store Events
Leagues
Leagues are a finite periodic event with a competitive element. You require players to
play matched opponents or choose their opponent within a certain time frame. Rank
players each week depending on the results of these games.
The danger with a league is the risk of losing players who don't do well.
As the ranking ladder stratifies, the people with no chance of winning
tend to drop out or play less. Keep this principle in mind when drafting
your league rules.
How do you win with leagues?
Tournaments
Tournaments encourage competitive play. When people lose to a deck or army type, they
often incorporate a new element into their game. They might buy a tank for more
firepower, or they might rebuild their deck with dual lands.
What makes your tournaments rock?
• Unique prizes. Store credit as a prize is universally accepted, but it's bland. A life-
sized space marine, on the other hand, draws players from several states over.
• However, don't front-load the prizes. Coming in second and going home empty-
handed is disappointing. If you want repeat customers, spread your prize pool
among the top 4 or 8 or more.
• Use a judge everyone trusts. Magic has a ranking system for its judges, but game
knowledge is only part of the equation. If the players respect the judge, they'll be
satisfied with a ruling even if turns out later to have been wrong.
• Charge the right entry fee. A high fee discourages participation. Most of the time,
you're better off with more players. More bodies means more opportunities to sell
games.
Painting Clinics
Have an expert help players learn to paint. Have some materials on hand for players to
use. You might use an event like this in coordination with a league or a tournament to
make sure everyone's figure gets painted in time for game play.
Character Creation
Teach people how to make characters for a given RPG. Have character sheets on hand. If
the game has supporting software for character generation, pull that up on a laptop or a
LAN station. People comfortable with character generation are more likely to participate
in an ongoing game.
GM Clinics
GMs spend more money than players. Making more GMs out of your players increases
sales. Your veteran GMs are usually eager to share their wisdom with new or prospective
GMs. Create opportunities to get these two groups together and grow your RPG base.
Deck-building Clinic
What happens after a player plays a demo? He buys a starter or two, mashes some cards
together and begins playing with your existing player base. The new guy plays against
their deadly tournament decks and extensive experience. It can be a brutal transition. This
workshop focuses on building a competitive deck for new players. Use it after you've had
an influx of new players.
This is a demo with a twist. Alderac did this to support Clan War, its miniatures version
of Legend of the Five Rings. While the game eventually went away, the demo format was
very motivating. Create a scenario in which players are encouraged to fight several
figures and let them take the ones they kill. Limit their time or their number of kills to
control your cost. If you're using painted metal figures, hand out unpainted versions.
Game Days
They're like conventions but smaller in scale. Offer small prizes for events and encourage
maximum participation on this day. It encourages people to try new games or participate
in tournaments.
Use these events in coordination with other activities to build sales.
One weekend might feature a Pathfinder character creation clinic.
During the clinic you run a sale on introductory Pathfinder products.
You also promote the weekly games that are looking for new players.
Mention that you're planning a GM Clinic next month and ask what day
works best for those attending. Match up painting clinics with your
leagues so that the new players can get their miniatures painted
before showing up to play.
For sales projections, you can probably count on 2 turns of inventory in your first year,
projecting a half a turn improvement in each subsequent year. So if you have $100,000 in
inventory (at retail), you can expect $200,000 in sales that first year. Your second year, as
you dial in your inventory, you might expect to bump that to $250,000. About 3 turns is a
useful max, unless you get really creative.
Now, if you want to be really conservative, start with 1.5 turns and project from there.
As for profit margin, a "gross" profit margin of about 45% is average, if you run a
diversified store (highly recommended). You may get that higher if you specialize in
board games. It will go up slightly over time as your discount increases at game
distributors. Do not fall for these discussions of "loss leaders" or other hogwash. Once
you start discounting, it's very difficult to go back.
After you've got your income projections down, really, really, really work on nailing
every single expense that you're likely to encounter. I find the expense portion the hardest
to grasp. When it begins to look impossible, you're getting close.
As for marketing, most game stores don't do enough. A good, solid rule of thumb (it may
be old fashioned), is to budget 3-5% of your gross sales. I think that's an especially good
idea in the beginning. Social marketing also works wonders: Twitter, Facebook, a store
blog, and a managed mailing list (constant contact).
Finally, pay yourself on day one. Build it into your business plan. In fact, build your
business plan AROUND your salary. If you don't start out paying yourself in the
beginning, it may never happen.