Anchor Points

Happened to catch a story on "anchor points" this morning on NPR and thought I would discuss how game and comic stores utilize such concepts in influencing your behavior.

The concept of the that having a high priced item for sale makes the prices of other items in the same place of business seem lower and more reasonable by comparison. Allow me to explain with a common example in restaurants.

The wine list in a restaurant will often have a list of what the customer might perceive as expensive wines and then one really expensive, say a series of vintages ranging from $20 to $60 per bottle and then one bottle priced at $500. The $500 bottle is an anchor point, making the other bottles appear cheaper by comparison and reducing your resistance to purchasing a more expensive vintage.

Stores especially that deal in single Magic and other TCGs as well as comic shops that deal in rare comics use the concept of the anchor point to reduce resistance to the purchase of a higher priced single card or comic book.

Say you have a Jace, the Mind Scuptor from a FTV:  Twenty set in stock at $70 and a Beta Bayou in stock selling for $1400. The $1400 card becomes the anchor point, setting the upper limit of price on the cards on display at $1400 and making the $70 Jace a bargain by comparison.

Similarly, a $2000 copy of a Superman comic from the 1940s, makes the $300 Spider-man comic from the 1960s seem comparatively reasonably priced.

The store may not plan to even sell the anchor item, though I am certain they would if someone offered the full price. Just having it there increases the likelihood of other items, otherwise perceived as expensive, selling.

Commodification

A commodity is a product that is only differentiated from similar products by its price. Case in point, the Cavendish banana (yes, those yellow bananas you find at the supermarket do have a name). Since one looks like another, you cannot tell if they ones you have sitting on your counter at home were bought at Aldi's, Wal-mart, Schucks or Kroger. The only difference between them is the price you paid for them.

Decades ago, companies did differentiate their bananas. Chiquita put a little blue label on them and could charge a premium price of a quarter or more per pound because they were "Chiquita bananas". Over the years though, that blue sticker lost its value as Chiquita stopped doing anything to protect its brand and Chiquita bananas became no more premium than any other banana.

Something similar is happening in the gaming industry. Games that customers used to have to go to a specialty store to get, such as Munchkin, Ticket to Ride, Pandemic, etc, are showing up in stores such as Target, Barnes & Noble, even Wal-mart, making it much easier for the customer to find them. The trade off is that the games are becoming commodities, the only difference between one copy and another is the price.

Iello has inoculated itself against the commodification somewhat by producing two different versions of King of Tokyo. The FLGS version comes with Gigasaur while the Target version comes with Baby Gigasaur, meaning that the same version of the game is not available everywhere.  Similarly, as I noted in an earlier post, WOTC is releasing Volo's Guide to Monsters with two different covers, one for the game store and one for the mass market. This may be early steps  brands are taking to protect their value from commodification.

Stealth Products

Stealth products always bemuse me. By stealth products, I mean products that show up with little advance motive or promotion that my customers would have quite a bit of interest in if I could let them know about it. Cases in point the new Legendary Deadpool expansion and the Dominion upgrade set that came out a couple of weeks ago.

Contrast the (lack of)promotion surrounding them with the amount of promotion WOTC put out for the new Widow's Walk expansion for Betrayal At House on the Hill.  Stores knew about this expansion months ago and could put in pre-orders for it 8 weeks ago. We were able to talk it up with customers and even tell them the exact date we expected to have it in store. Both Deadpool and the Expansion Set arrived with almost no advance notice. We found out about Deadpool this week and the Dominion Expansion Set the week before it arrived. Hardly enough time to generate any interest or let customers know about the product.

Shelf Space

Turnover is a major factor in determining if a game or graphic novel gets restocked or not.

Turnover refers to the number of times I sell a product during a given period, either per week, per month or per year. A game or graphic novel needs to sell a certain number of times in order to justify us restocking it. If a game only sells one copy a year, it is better for us, from a business standpoint, to not restock it and put those funds we would spend on it to stock in a different product. Case in point, a number of Pathfinder paperbound books. We looked at the sales records on them and found that a good half of the ones on the shelf have not sold a single copy since the first of the year, so we marked them down and put them back in the used section with no plans to restock new copies.

The Genestealer Cults figures from Games Workshop are a good example of a product with high current turnover. We have sold several copies of the Genestealer Cults book and associated figures and have restocked it weekly since release. We will do so until sale drop off but, since the army has proven a key one for Warhammer 40,000, we will keep the line in stock. 

3 Problems with Pathfinder (from the Retailer's Point of View)

Scott's column on ICV2 this week discusses the problem with selling Pathfinder releases in the local game storel

Hastings Files Bankruptcy

Here are some more figures on the Hastings' bankruptcy. Indicating the popularing of  Funko's POP figures and the quantity of POP figures Hastings carries, the largest amount Hastings is to that company. For those not familiar with the others, Diamond is the primary supplier of comic books and graphic novels to stores, while ACD and PSI are both major distributors of boardgames, TCGs and RPGs to stores. Ultra Pro is one of the major manufacturers of card protection supplies.

It appears a major contributor to Hastings' bankruptcy is  a shift from a newsstand account for its comics to a direct account. A newsstand account is what Barnes & Noble and Wal-mart, and Hastings until the last year or so,  have for their comics and magazines. A newsstand account allows stores to bring in comics, keep them on the shelves for a certain period of time and return whatever does not sell for credit with the supplier. Stores with a direct account, such as our's, buy the comics outright and own them. The difference is profit margin. Stores with a direct account make more profit per book sold than do stores with a newsstand account. Hastings, likely seeing increased comic sales and wanting to make more profit per book, shifted accounts but kept centralized distribution, in effect sending the same quantity and selection of comics to every store in the chain.

This became a problem because not every store has the same target market. Some customer bases lean towards Marvel, some towards DC and some towards independent titles. In order to be successful, stores have to tailor their selection towards what the customer buys. This is why you see comparatively few independent titles on our shelves as sales indicate customers here don't purchase them. Hastings model did not tailor selections to the market and they built up backstock, which they did not have to deal with under their previous account and were not set up to deal with now. Unsold inventory means dollars tied up that cannot be spent on new merchandise or otherwise improving the store.

The Importance of Turnover

About once a week, we get asked if we have XXX game or are getting XXXX game or will get XXXX game back in stock. The primary driving of our responses to each of these is past sales. If a game has sold fairly steadily, at least 4 time or 4 turns per year, we will likely restock it. That means we move a copy about once every quarter but often means that we sell several copies during the Christmas season and none the rest of the year. In a case like this, we will likely not carry the game during the winter, spring and summer and stock it back in during the last 4 month of the year. If we carried it through the Christmas season and didn't sell any or sold only one copy, we will most likely drop it for the next year in favor of something that turns more steadily. Every game that sits on our shelves is money tied up in inventory that could be put to some other use.

GW Sales Down

For those of you interested in the business side of the industry, Games Workshop reports the company expects a sales shortfall for 2015 but ended the year with 12 more stores open than last May.

Protection to the Max

Most game stores have carried the Max Protection line and most gamers are familiar with the line, although often not in a positive way, as Max Protection had some serious production issues years ago and the memory of those problems still lingers in long time players’ minds. However,  I had noticed the quality of Max Protection sleeves improving  markedly in the past few years, so when I ran into Glenn Goddard, who I had not seen since his years with Wargames West and now works for Max Protection, at September’s Alliance Open House, I asked him about the previous perception of the product line and to compare it with the company’s products now. Goddard not only kindly provided with a comparison between the two but also a brief history of the company as well.

Max Protection’s roots are in a company named PKK, founded in 1989 by Patrick Kwan Sr. and Jr. Both Kwans were avid sports fans and collectors and launched PKK to satisfy what they saw as an underserved niche in the collectables market. When Magic, and later Pokemon, hit the market, PKK branched out to provide protection supplies to those collectors, introducing, according to Goddard, the first “penny sleeves”, the first deck box and the first colored sleeves. In 1999, a competing company bought out PKK but, when the buying company later went bankrupt a few years later, PKK returned to the Kwan’s control. Deciding to continue the company’s direction but under a new name, it relaunched as Max Protection in 2003 and quickly found renewed success with its image sleeves, the first company to release sleeves with pictures on the back of the sleeve, rather than a clear or solid color back.

Unfortunately, the release of “holo-foil” image sleeves in 2004 provided what Goddard calls a “Domino’s moment” for the company as the new sleeves, while impressive to look at, proved less durable for regular play and the images has serious peeling problems, coming off the sleeves after only a few games. Though players loved the idea of the images, Max Protection developed a reputation for poor quality, especially among tournament players, that persists to this day. Players abandoned the company’s products in droves, opting instead for image back sleeves from other companies that had entered the market. As Max Protection found out, once you lose a reputation, it can take years to recover it. That is just what the company has worked on for much of the past decade.

Max Protection invested significantly in both product development and licensing, developing their higher quality Shuffle –Tech sleeves and their Premium Packs combining a hard plastic deck box, 100 Single Colored Large Sleeves with 100 Perfect Fit sleeves all for the same price 100 sleeves by other companies in a paper box. In addition the company has secured licenses for both Bruce Lee and The Princess Bride and had produced sleeves and boxes featuring both licenses. In addition, the company entered into an agreement with Alter Reality Games to sponsor their ARG Circuit Series, generating more positive responses from customers as tournament players used the new sleeves and spoke favorably of them, resulting in increased market share for MP.

My store cutback severely on MP products after the 2004 problems but have slowly added them back to our product mix over the past decade. We have found some slight resistance but most players either don’t remember the problems with the holo-image sleeves or have entered the hobby since then and know nothing about it. Either way, I am happy to see the company doing well.

Magic Sales Down in 3rd Quarter

For those interested in the business side of the industry, this column makes for a good read. Magic sales were up for the first quarter, largely due to WOTC moving Dragons of Tarkir's release date to March under the company's new release schedule. However, this move reduced Magic sales in the second quarter, since Dragons would normally release in May.

This doesn't explain the drop in Magic sales in the 3rd quarter of the year though, especially since WOTC says Origins is the best summer release the Magic line has ever had.  Quarter 4 should prove an increase over 2014 though, as Battle for Zendikar has proven the most popular Magic release in several years.

Pricing Pre-releases: Looking at the Numbers

A number of stores will discount pre-release events in the hopes of drawing more players. Short term, this sort of promotion benefits players because they can play more cheaply than otherwise and it benefits the store because it puts more people in seats and puts a healthy chunk of case in the till in a short period of time, so it’s all good, right? Not really, not for the players long term and certainly not for the store.  Here’s why:

As I have mentioned in previous columns, the dirty little secret of retailing is that stores have to sell stuff for more than we pay for it. Unfortunately, though, as mentioned last week, WOTC is a wonderful company that does many things that help both retailers and players, one thing they don’t do (and nor does any other gaming company) is give up our products for free.  The store had to pay for all those Magic Origins pre-release packs players spend last weekend cracking, either when they arrived through COD, credit card, bank transfer, etc. or within 30 days if the store has terms with the supplier. This means the store needs a chunk of cash quickly and a tried and true method of doing so is cutting prices. However, more cash now means less cash later. Let’s look at some numbers

The Magic Origins pre-release packs cost the store approximately $14 each, give or take some change. A store, desiring to put a lot of butts in seats, decides to charge $20 for each space in the prerelease and gets 50 people to show up,  generating $1000. That’s a nice chunk of change. However, remember those packs aren’t free. The store pays $700 for them meaning it has $300 left. Still not bad. 

Now, let’s take a look at store number 2. Store #2 charges $25 per tournament and only gets 25 people, generating $625 in proceeds from the event. Store #2 pays $330 for its packs, since it gets them for approximately $14 per pack as well, leaving a profit for the event of $295. 

Store #1 owes its supplier $700 for the pre-release packs it used. Store #2 only owes its supplier $330. Store #1 put a lot more work into its tournament in terms of judging, seating, tracking results. Anyone who has ever run a large Magic or other TCG tournament can testify to how much work goes into it, but for all the extra work, Store #1 only generated a total of $5 more in profit from the event than did Store #2. If three more players had shown up at Store #2, it would have generated $328 in profits, making about 10% in profit on the event with a third less players.

Why is this important to the store and the players over the long term? Because, unless you have deep pocketed investors willing to take a loss over a long period of time (See Amazon) or have an incredibly efficient operation (see Wal-mart), profits are what keeps the store open, whether they are profits coming from regular day in and day out sales or from special events like a pre-release. Long term, without sufficient profits, a store cannot remain open and its customers will have to find someplace else to shop and play.

TableTop Day: The Poster

International TableTop Day is this Saturday and we have events scheduled for all day. But I don't wanna talk about that. Instead, I want to talk about the poster that Geek & Sundry created for the event and that just arrived in our kit (that arrived today). You can see the poster I am referring to here.

Back from looking at it? You probably didn't see anything wrong with it but then most of the people reading this probably don't run stores. The problem is at the bottom where it tells people to look for an "event near you" and gives the TableTop Day url. The problem:  if you got the poster, that means you got the kit, which means you plan to run TableTop Day events. So why do I want to put up a poster telling people to go to the website to look for an event when we are hosting events in the very place where you saw the poster.

You see, retailers, once we have you in the store, want you there as long as possible. Many stores don't have clocks so you cannot tell how long you have been there and we certainly don't want a sign up telling you to elsewhere for an event that we will host at the store.

Oh, well, a paper cutter fixed the problem really quick.

Thinking about Thanquol

Games Workshop confused me with the marketing for this week’s Warhammer The End Times Thanquol book. The company’s other End Times books, in general, have released in hardback form through trade distribution, meaning that stores bought them through Games Workshop’s wholesale trade division at our wholesale discount. Stores can buy GW products, generally limited editions or slower selling items, though what GW calls its Direct Sales division but receive a smaller discount than we do on items purchased through the trade division, meaning that items purchased through the Direct Sales division provide less profit to the store. Since they are less profitable, stores generally only purchase items through Direct Sales when they have a special order from a customer or Games Workshop decides to release a limited edition item that stores feel has enough sales potential from GW customers to justify stocking it in at the lower profit level (Generally, this is not a really hard decision to make as 1) GW limited items tend to have high pricepoints, generating larger profits in dollar value, if not percentage and 2) GW players tend to be very avid collectors, much more willing to purchase limited edition items than are players of other games). Clear?

The way The End Times Thanquol’s release was handled created more hoops for retailers to jump through to get the hardback version of the book, which was released as a limited edition only for $75 through Direct Sales, instead of in limited quantities through the trade division. The paperback version, which usually arrived through trade several weeks or months after the hardback release, released simultaneously with the hardback at $66 but through trade instead of direct.

However, Games Workshop put a special incentive in place for those stores wanting to order the limited hardback. Forward the confirmation email for your order to your trade sales representative and the store receives a credit amounting to an extra 10% off plus the shipping charges for the hardback. Ergo a book that stores could normally order in limited amounts for the normal trade discount is going through Direct Sales instead for the same discount.

With me so far? ‘cause it gets better. Games Workshop put an order cap of one copy of Thanquol per order. So now, stores can order as many any they want, but, as of last week, they have to put in an individual order for each and every book, with Games Workshop picking up the freight charges to the retailer for each copy of the book that ships out, amounting to quite a hefty sum. Maybe there is some reason for going this round but it would have been far cheaper in terms of freight for GW to have allowed multiple copy purchase by retailers or by distributing them through the trade division, with the usual cap on the number of copies ordered. I know of at least one retailer that scored almost 50 copies of the book by ordering one copy at a time and having them all arrive on the release day. The freight charges GW absorbed on that had to eat most if not all of the profit GW made on the sale. I guess, with the price point on its line and the corresponding gross profit, GW can afford to do this once in a while but I hope they do not make a habit of it.

When You Should Not Sell Your Game To Me

Followed a discussion on Facebook for the past couple of days focusing on games launched through Kickstarter and why they not only did not need retail storefronts to sell their game but actually avoid them, failing to see any value in what the retail storefront offers. By handling the shipping functions, they get to keep the part of the profit they would otherwise pay to the distributor and retailer for their services (and believe me, distributors and retailers do provide services for the share of the profits they receive, but that’s another story). For most of those small publishers, they are right. They don’t need my store to sell their game.

From discussions I have had with others in the industry, roughly we have about 1500-2000 dedicated gaming stores. This includes shops that focus on trading card games but excludes the big box stores such as TRU, Barnes and Noble and Target that carry board and card games but would view a day’s sales of them as a rounding error in the total.

For a small press game, which frankly most Kickstarted games are, unless you go the Print on Demand route, in order to keep costs as low as possible, a publisher plans for a print run of between 1000 to 5000 or so copies, with pretty poor pricing until you hit the 2000-3000 copy mark, meaning lower profit per unit.  Unless things have changed drastically in the past couple of years, a publisher can roughly expect to sell about 300 copies of a RPG and 1000 copies of a boardgame to non-crowdsourcing backers, that is into the general market, meaning that about only one out of every 5 stores will stock a publisher’s RPG and 1 out of every 2 stores will stock a publisher’s board game. Those aren’t very good odds, either for the publisher or the store. In a case like this, barring such special circumstances as a local fan base, it is probably better for the publisher to print in smaller quantities, increasing the cost but allowing them to skip the store and sell direct while making comparable levels of profit. Without pre-sales, this means a lot of copies left over from the initial sales push. However, the “long tail” of the internet makes it possible for those extra copies to sell eventually, rather than get sold as remainders.

The long tail is a marketing concept that developed to explain how companies like Amazon and Netflix can offer millions of products and still remain profitable. Essentially, it’s the 80/20 rule extended (You remember the 80/20 rule:  80% of sales come from 20% of products). The long tail says that comparatively few products account for the majority of a company’s sales and that the vast majority of them only sell a few units per month or even year.  Since the marginal cost of adding a new item listing to a website is next to nothing and the cost of storage has dropped dramatically over the past decade (Digital storage costs are minute and more companies are using Fulfillment by Amazon, piggy backing on Amazon to drastically cut their storage costs), small press companies can much more easily make a profit while conversely selling fewer copies of a game to do so, meaning, that, at this point, they don’t really need to sell to me. It’s when demand for the game outstrips the ability of the publisher to also handle sales that distributors and retailers provide the needed services

8 Points if You Want to Open a Game Store

If you really want to open here are some things you ought to know and do:

1)      You will probably fail. Failure rates for new businesses after 5 years, according to the Bureau for Labor Statistics, run anywhere from 50 to 90%. That means there’s a pretty good likelihood you won’t make it.

2)      Plan on giving up most of your life outside the store. Most game store owners work in, or on, their business between 55 to 80 hours a week. That gaming you were planning to do with your friends? It’s not included in those hours.

3)      Have capital to invest you can afford to lose (See #1). Due to the high failure rate, few banks will offer a business loan on this type of operation. You can get a loan but it will likely be a personal loan, meaning it is guaranteed with your other assets.

4)      Make a business plan (Failing to plan is planning to fail—Alan Lakein, among others). You can find samples from the Small Business Administration or help from the Service Corps of Retired Executives  (SCORE). Both are great sources of information on starting a business.

5)      Find a copy of Dave Wallace’s A Specialty Retailer's Handbook: Games and Comics. Wallace owns the Fantasy Shop chain of comic and game stores in St. Louis and is responsible for helping more store owners become successful than any other person I know.

6)      Join the Game Store Resource Forum on Delphi (http://forums.delphiforums.com/gamestore). It is the only place of which I know which welcomes potential game store owners and has a group of experienced store owners willing to answer questions from their years of experience. While not nearly as active as several years ago, a number of experienced store owners still frequent it.

7)      Attend the GAMA Trade Show in Las Vegas next March (http://www.gamatradeshow.com). The GTS typically has a track of programming targeted specifically for potential and new store owners. You may attend, even if you do not have an operating store but are excluded from receiving the Retailer Appreciation Package, a perk reserved for operating stores.

8)      Follow Black Diamond Games’ Quest for Fun Blog (http://blackdiamondgames.blogspot.com/). There are a number of game store blogs out there but Gary Ray of Black Diamond Games operates one of the best when it comes to explaining the whys and wherefores of game store operation. Do a site search for posts tagged “Tradecraft” and you won’t be disappointed.

There’s a whole lot more to running a game store than just opening a few boxes of boosters and pricing singles. If you seriously want to open a game store, start preparing now.