More Trade Disruptions

1.I   I expect to see a lot more disruption in trade, both imports and exports. This will prove to affect a lot of boardgame publishers, especially those launching new games via the Kickstarter channel. Since most of them use China for sourcing the manufacture of their launched games, disruptions in the channel will greatly affect their logistics and pricing. The industry dodged a pricing bullet with the delay by the administration of a tariff on boardgaming (and other related products) imported from China but neither nation has signed off on even the touted Phase One of an agreement. The president has said he is in no rush to sign off on an agreement and we could see a delay in one until after the 2020 election. More concerning than that though, at least to a lot of experts, is the neutering of the WTO trade courts by America’s decision to block the appointment of judges to the court, not only under the Trump administration but also the Obama and Bush ones. This deprives the court of a quorum, forstalling it from making rulings on trade disputes. Thanks to the court serving as an impartial referee (although the US argues otherwise and has made its displeasure known by blocking judge appointments), the last 50+ years have seen tremendous growth in international trade, aided by the arbitration of the court, reducing instances of trade wars and allowing multilateral agreements to flourish. With the projected demise of the court in the next few years, I would expect to see a return to greater reliance on bilateral agreements and more instances of stronger economies imposing agreements on weaker ones.

Why DIstributors Matter

This weeks' Rolling for Initiative column follows up on last week's column on exclusives and looks at why distributors in general matter to the gaming industry.

Changes to WOTC Pre-releases

Another week, however, and another controversy.  WotC has told distributors they can no longer offer incentives in order to get retailers to purchase pre-release tournament products through them.  It appears WotC wants the focus on the pre-release and the story surrounding it rather than on individual items that not all stores will have available for players.

Even though Wizards of the Coast has not announced this policy change publicly, distributors’ release announcements for Shadows over Innistrad make no mention of any pre-release specials tied to ordering the pre-release from that distributor, which is a noticeable change from past pre-releases.

For those not familiar with how pre-releases are handled, stores in good standing with WotC are allowed to host pre-release events for each new Magic release.  All pre-release products come from WotC and are allocated to stores based mainly upon how many players the store had attend a prior pre-release.  However, stores have the option of ordering their pre-release product directly from WotC or one of about a dozen distributors.  WotC even facilitates the choice by offering the list of approved distributors to stores.  Each distributor, or WotC itself, sells the pre-release products to the store at a specified discount.

As pre-releases can account for hundreds of thousands of dollars of sales in a short period of time, distributors have found it lucrative to convince retailers to sign with them by offering incentives for doing so.  Such incentives have included discounts on other WotC products, free sleeves and deck boxes, and limited edition items such as the store-branded playmats ACD offered a few years ago, or the POP figure from Southern Hobby.  Now, WotC wants to end the practice.  Due to the amount of cash a pre-release brings in during such a short amount of time, neither stores nor distributors will want to push back against this and risk losing the ability to host a pre-release.  Ergo, unique promo items will go by the wayside and distributors will find some other ways with which to compete on pre-releases.

Response from WOTC via ICV2.

We asked Wizards of the Coast to confirm whether it had asked distributors to eliminate incentives for pre-release orders.  A spokesperson responded:

“Although we do not disclose the terms of distribution agreements, we want to ensure every retailer that we do not prevent distributors (or retailers) from marketing prerelease products. Rather, we ask distributors to refrain from certain incentives and conduct that detract from the player experience and damage the brand. For example, in the past we’ve demanded distributors stop offering playmats with explicit images of our characters or from withholding Magic product unless stores buy other nonrelated items.

“It is best for retailers and our fans when distributors compete on effective distribution, price and customer service; our policies reflect this.” 

Changes Coming to Asmodee, Days of Wonder and Fantasy Flight Games

The big news that hit the game industry last week was the announcement by Asmodee that the company will become Asmodee North America and will offer Asmodee, Days of Wonder and Fantasy Flight Games products under the new structure. The reason for the change as given by new CEO Christian Peterson:

“The marketplace has long been distorted by providing one-size-fits-all sales terms to every retail account, regardless of its channel of sale. The growth in demand for games over the last decade, in our view, has been fueled not only by fantastic product, but by the support of specialty retailers who incubate personal connections between players, facilitate tournaments and leagues, provide instant product availability, and increasingly provide a ‘third place’ that is instrumental for so many gamers to enjoy and discover our products. The retailer cost of providing such channel services is significant, and so we’re now making policy changes to ensure that the sales terms provided to those retailers, relative to other channels, are positively reflective of the value they add to our distribution chain.”

If everything goes according to Asmodee NA’s expectations , all of the changes planned by the “new” company  should go into effect by April 1^st and there are some fairly major ones, most of which will affect the channels of distribution. However, one will have significant impact on the consumer

Changes affecting the channel—The three companies will remain independent in terms of product, however distribution will consolidate, starting January 1^st .  This means that Alliance will no longer have exclusive distribution rights to the Days of Wonder line of products, which include Ticket to Ride and Small World. At the same time, Asmodee NA will reduce its distribution partners to 5:  Alliance Distribution, ACD, PHD, GTS and Southern Hobby. This means that distributors such as Aladdin, E-figures and Mad Al’s, among others, will no longer stock the Asmodee NA product lines and retailers wanting to carry them will have to have an account with one of the five authorized distributors.

A second major change affecting the channel is, instead of raising the price on the combined company’s products, discounts on products across the line will drop to 45%, reducing the margin of gross profit anywhere from 3 to 5 %. Much as with WOTC’s reduction in margin earlier this year, this reduction comes straight out of the gross margin of distributors and retailers. It remains to be seen what Asmodee NA does with the extra percentage.

Changes affecting the consumer—One major change in Asmodee NA’s operations that will directly affect the consumer is a new requirement that any retailer wanting to sell Asmodee NA’s products must sign an independent retailer agreement before the retailer can purchase any Asmodee NA products. There are several items in this agreement but the main one that appears to affect consumers is that retailers, unless they have a separate agreement with Asmodee NA, can no longer sell any Asmodee NA products online. Only retailers that have an agreement with Asmodee NA to sell online will be able to do so and I would imagine this agreement will have some restrictions on MAP (minimum advertised pricing). This means, for example, a lot fewer online sources selling FFG’s Star Wars Imperial Assault for $65, 35% off the MSRP.

These are the major changes planned by Asmodee NA. What actually happens we will know after April 1^st. 

Amazon and Taxes

Ran across an interesting article in Business Week recently on Amazon and how it influences our lives.  Roughly 36%  of all purchases made by Americans intersect with Amazon in some way.  Either you first find out about a product on Amazon or you do some research on it on Amazon or you make the final purchase on Amazon but over 1/3 of all purchases made  currently interact with Amazon at some time before the purchase concludes.  It amazes me that one company has so much influence on our lives.

Amazon is now wanting to influences your purchases even further, by increasing its ability to provide same day delivery of products.  Same day availability of products is the major advantage brick and mortar stores have over Amazon and other online retailers.  A customer can walk into a store, pick up a copy of Settlers of Catan or Get Bit and walk out with it the same day, playing it that evening.  Currently, you cannot do that with an online retailer.  With the exception of things such as software, movies, books and other items that can arrive electronically, the customer must wait at least 24 hours for delivery.  Amazon, as the article notes, wants to change that by allowing customers to order an item online in the morning and have the physical product delivered that afternoon.

This, by the way, is why Amazon has come to support ending Congress' exemption for online retailers from collecting sales taxes in local municipalities.  Online only retailers do not have to collect sales taxes in states in which they do not have a physical nexus, so Wal-Mart, with physical locations in every state, has to collect sales taxes for all online sales.  Amazon, which does not have such, only has to collect them in places where it has physical distribution centers, and in many cases, not even then.  However, in order to provide same day delivery, the company will have to have physical locations, exposing it to the requirement to collect sales taxes.  Ergo, it wants to make certain that other online retailers, not providing same day delivery, no longer have this competitive advantage.  For Amazon, it is another win.