How to Make a Profit Running a Game (or any other type of) Store

 “Buy Low, Sell High.”

There you go, that, in the proverbial nutshell, is how you make a profit in the game business, actually in any business.  Or, paraphrasing something a friend of mine, Marcus King (late of Titan Games and Entertainment, more recently with Troll and Toad) repeats from a mentor of his years ago: “You make your profit when you buy and your cash when you sell.”  The lower for which you can produce or buy a product, the more money you make when you eventually sell it.  Simple, right?

Not completely.  The above is indeed the basic of pricing but there are a number of different strategies and tactics a  business can take with its pricing, depending on what sort of image it wishes to project.

First, and most basic, is cost pricing.  You take the cost of the product you purchase or make (hopefully low, see above), increase it by an amount sufficient to generate enough money to cover the business overhead and provide a profit that you consider sufficient and sell it for that price.  Fairly straightforward, though not necessary simple, as this method does require you to know your overhead costs and how to break them down in order to assign them to items for sale.  This also highlights a recurring problem game stores have with a price for their products set by the manufacturer (manufacturer’s suggested retail price or MSRP).  Since customers are notoriously reluctant (with good reason) to pay more than the marked MSRP for items, having a price pre-set by the manufacturer constrains the amount of gross profit the store can earn from the item,  ergo the only way for a retailer to increase profits is to cut costs.  This is why game stores really dislike short discounted items from manufacturers, as a shorter discount on a product that much less money available to cover the costs associated with running the store.

Demand based pricing and competitive pricing are the two other major strategies a game store can choose to adopt when setting prices.  Demand based pricing derives from economic laws of supply and demand:  As supply decreases, price increases.  As demand increases, price increases.  A perfect example of this is collectable card games such as Magic and Yu Gi Oh.  Within any new release of either, there are always 1 or 2 cards highly desired by players.  The price for these cards quickly rises, due to demand, with the prices for the foil versions of the same cards priced even higher, this however, due to scarcity/lack of supply.  If players find these cards not as playable as hoped for or they cycle out of the preferred tournament environment, supply remains the same but demand drops, causing a reduction in the price a retailer will find customers willing to pay for cards, Magic’s Jace the Mind Sculptor card a perfect example.

When a store opts for competitive pricing, it is a good thing from the consumer’s point of view, not so much from the retailer’s as this means you reduce price in order to either grow market share or meet prices offered by competition on the same products.  Typically a retailer will cut prices in order to attract customers drawn to a lower price.  Magic packs are a classic example in game stores.  Hoping to attract more customers, mainly the price conscious kinds, a retailer cuts the price on Magic boosters to $3.50, 12.5%.  Other stores in the area have three choices:  ignore the price cut and either sacrifice those price conscious customers or determine some other way to retain them, meet the price cut and sacrifice some profits to keep customers, or exceed the price cut to keep those customers and attempt to draw in price conscious customers from the competing store.  If you choose option three, expect the other store(s) to cut their prices to meet or beat yours and, next thing you know, you have a full-fledged price war on your hands.  Great for the consumer, really bad for the store as that money you are giving up from profits is money that would otherwise go into running your store.  Price wars are usually won by the store with the deepest pockets as lesser capitalized give up, though really, no store ever wins a price war (though it is rather good for manufacturers as long as it lasts and as long as no store goes out of business).

So, returning back to the beginning, stores make profits by buying a product as cheaply as possible, selling it for what the market will bear and competing as much as possible on things other than price.  Do that and you have a really good chance of staying in business

Using the Media to Promote

In case you missed it this past last fall, and if you did, I can understand why, NPR ran a 5 minute segment in which host Scott Simon discussed good (and good selling) boardgames with Kathleen Donohue of Labyrinth Games & Puzzles in Washington DC. Games mentioned include Secret Hitler,  Azul as a beautiful game to give, Codenames, cooperative games from Peaceable Kingdom and, as a game that all ages will enjoy, that ol’ stalwart Ticket to Ride (which, surprisingly, is offered pretty close to Asmodee’s MAP on Amazon,  unlike companies with no MAP, such as WOTC, which does not seem to care a whit how much Amazon devalues the D&D brand). Though some people might complain about the games selected, given that Secret Hitler is only available through Amazon (from where a lot of stores buy and resell it) and a couple of others are exclusive with particular distributors,  it is still a nice bit of publicity that reached some 4 million to 6 million listeners at no cost to Donohue (except for her time and whatever preparation she made) or to any of the publishers of the games she mentioned. Just how much is getting your game (or your store) in front of 4 million people? Now and for the next 8 months is the time for you to start cultivating media contacts and developing promotional plans that will bear fruit in the last quarter of 2019.  How to do this?

Reach out to the media or otherwise make yourself known to them.  Donohue gets mentioned on some NPR program at least once a year because many of the staff there are fans of her store. MSNBC’s Rachael Maddow used to shop at the now shuttered Modern Myths  and would post photos of her purchases there on occasion. The editor of one of our local papers is a customer and we don’t hesitate to pitch him a story when we have something we think is newsworthy. Making sure the media is aware of your existence is a major factor in getting your store mentioned in articles like this . Incidentally, one of the things I would like to see GAMA do over the next year is launch an public relations campaign to position the organization as the go-to source for information on the tabletop game industry. Similarly, in your community, your store should be the one the media contacts if they have a question about what Secret Hitler is or why Catan has maintained its popularity for so many years. The Growler, which published the article linked to earlier, focuses on craft brewing while Illinois Country Living, published by the Association of Illinois Electric Cooperatives, also published an article on boardgames last summer. You never can tell what publications what might want to do a story on your store or game. 

Create Events and Pitch Them--The news media likes news and is always looking for stories to publish. In today’s 24 hour news cycle, the need for new content is unending and your events, especially if they are out of the norm, can provide that content, especially if you can tie it to some sort of national event such as Free Comic Book Day or Free RPG Day. We have actually had success contacting our city government and getting them to proclaim the 1^st Saturday in May as Free Comic Book Day in Carbondale and the 3^rd Saturday in June as Free RPG Day (Unfortunately, we still had to explain what an RPG is, but once we used the term “Dungeons and Dragons”, the proclamation went through fine).

The media is your friend or wants to be if you approach them. It is too late to work with them for this holiday season but you’ve nine months to prepare for the next one.

Kickstarter from a Retailer Perspective

While from a publisher’s point of view, there is no real downside to Kickstarter, from a retailer’s point of view, there is almost no upside to the process, at least at the basic level at which crowdfunding works.

Conisder, the publisher lists a game on Kickstarter, or IndieGoGo, or some other crowdfunding site, gets pre-orders for it, collects funding, produces the game and ships it out.  Yes, there is more to it than that, but the publisher is selling their games to the customers who are most primed and ready to buy them.  At least one publisher that uses Kickstarter extensively has said they have moved their business model to a crowdfunding platform.  The company develops a game, puts it on Kickstarter, pre-sells 500-1000 copies, then, instead of keeping the game in print, develops another one and launches it via Kickstarter.

From the retailer’s point of view, stores see games coming up on Kickstarter and watch as they fund, with the opportunity to stock them occurring weeks or even months after those who participated in the Kickstarter receive their copies.  Assuming the typical print RPG sells  300-500 copies of a print run while small press boardgames sell 500-1000 copies, almost all of that demand gets satisfied by the Kickstarter campaign, leaving little demand left for distributors and retailers to satisfy.  Unless the game attracts a lot of post production buzz, such as Brotherwise Games Boss Monster, a Kickstarter funded game has already seen most of its sales during the campaign, leaving only a few potential sales through the distribution channel and lots of unsold Kickstarted games sitting on the shelf.

A number of Kickstarter campaigns do offer retailer tiers, wherein the retailer commits to purchasing several copies of the game, delivered at the same time as other supporters, at a discount comparable to what the store would get if purchasing the game through distribution.  This does require the retailer to tie up precious capital for several months, waiting for the product to release. Other Kickstarter campaigns, if the retailer commits to purchasing a certain number of copies of the game, have arranged to take payment and ship the game at the same time as it ships to the regular backers, putting it on the shelves while buzz still exists about it.

The big benefit that Kickstarter provides to retailers is the potential to develop an unending flow of new games and related products, some of which will prove comparatively successful in the distribution channel, such as 13^th Age, and some which will not, such as Kill the Overlord.  The case then becomes how much scarce time the store can allocate to determining which is which.

A Retail View of Kickstarted Projects

While from a publisher’s point of view, there is no real downside to Kickstarter, from a retailer’s point of view, there is almost no upside to the process, at least at the basic level at which crowdfunding works.

Conisder, the publisher lists a game on Kickstarter, or IndieGoGo, or some other crowdfunding site, gets pre-orders for it, collects funding, produces the game and ships it out.  Yes, there is more to it than that, but the publisher is selling their games to the customers who are most primed and ready to buy them.  At least one publisher that uses Kickstarter extensively has said they have moved their business model to a crowdfunding platform.  The company develops a game, puts it on Kickstarter, pre-sells 500-1000 copies, then, instead of keeping the game in print, develops another one and launches it via Kickstarter.

From the retailer’s point of view, stores see games coming up on Kickstarter and watch as they fund, with the opportunity to stock them occurring weeks or even months after those who participated in the Kickstarter receive their copies.  Assuming the typical print RPG sells  300-500 copies of a print run while small press boardgames sell 500-1000 copies, almost all of that demand gets satisfied by the Kickstarter campaign, leaving little demand left for distributors and retailers to satisfy.  Unless the game attracts a lot of post production buzz, such as Brotherwise Games Boss Monster, a Kickstarter funded game has already seen most of its sales during the campaign, leaving only a few potential sales through the distribution channel and lots of unsold Kickstarted games sitting on the shelf.

A number of Kickstarter campaigns do offer retailer tiers, wherein the retailer commits to purchasing several copies of the game, delivered at the same time as other supporters, at a discount comparable to what the store would get if purchasing the game through distribution.  This does require the retailer to tie up precious capital for several months, waiting for the product to release. Other Kickstarter campaigns, if the retailer commits to purchasing a certain number of copies of the game, have arranged to take payment and ship the game at the same time as it ships to the regular backers, putting it on the shelves while buzz still exists about it.

The big benefit that Kickstarter provides to retailers is the potential to develop an unending flow of new games and related products, some of which will prove comparatively successful in the distribution channel, such as 13^th Age, and some which will not, such as Kill the Overlord.  The case then becomes how much scarce time the store can allocate to determining which is which.

How To Make a Profit

“Buy Low, Sell High.”

There you go, that, in the proverbial nutshell, is how you make a profit in the game business, actually in any business.  Or, paraphrasing something a friend of mine, Marcus King (late of Titan Games and Entertainment, more recently with Troll and Toad) repeats from a mentor of his years ago: “You make your profit when you buy and your cash when you sell.”  The lower for which you can produce or buy a product, the more money you make when you eventually sell it.  Simple, right?

Not completely.  The above is indeed the basic of pricing but there are a number of different strategies and tactics a  business can take with its pricing, depending on what sort of image it wishes to project.

First, and most basic, is cost pricing.  You take the cost of the product you purchase or make (hopefully low, see above), increase it by an amount sufficient to generate enough money to cover the business overhead and provide a profit that you consider sufficient and sell it for that price.  Fairly straightforward, though not necessary simple, as this method does require you to know your overhead costs and how to break them down in order to assign them to items for sale.  This also highlights a recurring problem game stores have with a price for their products set by the manufacturer (manufacturer’s suggested retail price or MSRP).  Since customers are notoriously reluctant (with good reason) to pay more than the marked MSRP for items, having a price pre-set by the manufacturer constrains the amount of gross profit the store can earn from the item,  ergo the only way for a retailer to increase profits is to cut costs.  This is why game stores really dislike short discounted items from manufacturers, as a shorter discount on a product that much less money available to cover the costs associated with running the store.

Demand based pricing and competitive pricing are the two other major strategies a game store can choose to adopt when setting prices.  Demand based pricing derives from economic laws of supply and demand:  As supply decreases, price increases.  As demand increases, price increases.  A perfect example of this is collectable card games such as Magic and Yu Gi Oh.  Within any new release of either, there are always 1 or 2 cards highly desired by players.  The price for these cards quickly rises, due to demand, with the prices for the foil versions of the same cards priced even higher, this however, due to scarcity/lack of supply.  If players find these cards not as playable as hoped for or they cycle out of the preferred tournament environment, supply remains the same but demand drops, causing a reduction in the price a retailer will find customers willing to pay for cards, Magic’s Jace the Mind Sculptor card a perfect example.

When a store opts for competitive pricing, it is a good thing from the consumer’s point of view, not so much from the retailer’s as this means you reduce price in order to either grow market share or meet prices offered by competition on the same products.  Typically a retailer will cut prices in order to attract customers drawn to a lower price.  Magic packs are a classic example in game stores.  Hoping to attract more customers, mainly the price conscious kinds, a retailer cuts the price on Magic boosters to $3.50, 12.5%.  Other stores in the area have three choices:  ignore the price cut and either sacrifice those price conscious customers or determine some other way to retain them, meet the price cut and sacrifice some profits to keep customers, or exceed the price cut to keep those customers and attempt to draw in price conscious customers from the competing store.  If you choose option three, expect the other store(s) to cut their prices to meet or beat yours and, next thing you know, you have a full-fledged price war on your hands.  Great for the consumer, really bad for the store as that money you are giving up from profits is money that would otherwise go into running your store.  Price wars are usually won by the store with the deepest pockets as lesser capitalized give up, though really, no store ever wins a price war (though it is rather good for manufacturers as long as it lasts and as long as no store goes out of business).

So, returning back to the beginning, stores make profits by buying a product as cheaply as possible, selling it for what the market will bear and competing as much as possible on things other than price.  Do that and you have a really good chance of staying in business.

Why Sales People?

this article asking if the sales person is dying as a job category caught my eye, that and the discussion of the growth of the concept of “retailtainment” as the direction in which retailing will move.

If you have read the linked article, there are a couple of points with which I would take issue:

1)      The author grossly overstates the importance of online retailing to the overall retail sector. Although it has grown rapidly, online retailing still accounts for only about 10% of sales in the entire retail sector.

2)      The retail sector typically ramps up hiring for the holiday season in September through November then lays off a lot of those hires after Christmas, so an 89,000 person decline in retail sales people may not be that out of line for the period October to now.

Retailing remains important though with 1 out of every 10 people in the US employed in retailing and it is still where most people get their first job and learn valuable skills, such as interacting and working with other staff members and the public, time management and personal  responsibility , that will serve them, if learned properly, throughout their life. However, unlike when I first entered retailing in the 1980s, people no longer spend their careers as retail salespeople. Movement by stores towards part time work, lower wages and fewer, if any, benefits (and I am talking things like health insurance and retirement plans, not free snacks and a discount off game purchases), have kept employee turnover high across the industry, approximating  67%, meaning the average retailer has to replace two-thirds of their staff every year. This is why many large chains have moved toward self checkouts with only one staff member monitoring 4-6 check out stations while Amazon tests staff less stores, where the customer selects items off the store shelf, scans the items themselves and the purchase gets billed to their Amazon account. Simple once set up and no human interaction needed. Will this happen quickly? Nah, too much infrastructure needs to get implemented for retailers to adopt the model widely anytime soon, but it is coming.

This is why stores will move toward the “retailtainment” model,  in which customers are entertained while they shop. Customers want an experience to go along with their shopping, which is why they flock to a new restaurant when one opens. Dining there is a new experience, one they cannot get elsewhere. In fact this is why new stores have heavy foot traffic for the first few weeks after opening. Customers looking for a new experience stop by to check it out, but once the new wears out, they head off to the next experience.

So what do game stores have to do? Create experiences. Tournament model stores, those with as many or more tables than retail space, already do this, creating weekly or daily experiences for their customers. The rest of us have to use atmospherics (appealing to the senses) to bring the customer back. Stores and salespeople aren’t passé but we will have to work even harder to remain relevant.

Fixed and Variable Costs

You may still remember the concepts of fixed and variable costs from your Introduction to Accounting classes. Of course, if you manufacture anything, you have to concern yourself with them on a regular basis, otherwise you go out of business:

Variable costs--this is the cost of the material that goes directly into manufacturing and packaging product. They are called variable costs because the total amount varies based on how many units of a product you manufacture. Since a rough rule of thumb is that the costs of the materials in a product should amount to approximately 10% of the final selling price of a product, your variable costs approximate 10% of the selling price of a product. Since, for example, a copy of Munchkin Deluxe sells for $29.99, the cost of the pieces, tiles, box and everything else should approximate $3. This is the variable cost of a copy of Munchkin Deluxe. If you produce 1 copy, the variable cost is $3, 500 copies is $1500. The variable cost stays the same per unit no matter how many or few of the item you make.

Fixed costs--this is the cost of overhead to make the product. There are all sorts of costs a manufacturer has to consider when making a product. They have to pay for payroll, rent, insurance, shipping, utilities, advertising, equipment, supplies, etc. The cost of all these get lumped together into fixed costs. In brief, fixed costs get allocated to each unit of a product manufactured and get figured in when calculating the price. The more units produced, the more the fixed costs get spread out.  Using the Munchkin Deluxe example, say the fixed costs for Steve Jackson Games to cover all overhead are $500,000. If Steve Jackson Games produces only 1 copy of Munchkin Deluxe, the company has to allocate ALL of its fixed costs to that one game, meaning a single copy of Munchkin Deluxe has to sell for $500,003 to cover all of the company's costs to produce it. Now, while Munchkin Deluxe is a great game, it is not $500,003 great. If the company produces 500 copies, the fixed costs allocated to each copy drops to $1000, meaning each copy now has to sell for $1003 to cover all the costs, and that does not even include any profit. Better, but still not practical. Steve Jackson Games, realizing this, ramps up production to 100,000 copies, which drops the fixed cost per copy to $5. Adding on the variable cost of $3, each copy now has a cost allocated to it of $8, meaning that, at a $29.99 price point, each copy has a gross margin or gross profit of $21.99.

However, Steve Jackson Games does not get to keep all of that gross profit as they have to pay things such as taxes, interest, dividends and other expenses AND sell copies of Munchkin Deluxe to distribution and retailers at a reduced price off that $29.99 so that distributors and retailers can make a profit selling copies of the game as well. If Munchkin Deluxe continues to sell at the $29.99 price point, Steve Jackson Games, its distributors and retailers will keep selling at that price. If sales drop or production costs increase, driving up either fixed or variable costs, the price will have to change.

The Future of Retailing and Sales People

This week's ICV2 Column looks at the decline in retail sales people and the growth of retailtainment.

Antiquated Business Model

This week's ICV2 column looks at the "antiquated business model" of the brick and mortar store.

How to Encourage Me Not to Carry Your Game

The main reason we stock a game is customer demand. If customers ask for a game, we will try to get it, although sometimes it is just really really difficult (Superfight, I'm looking at you). However, if there is little to no demand for a game but we think we might see some in the future, we will consider stocking it. However, there are two things a publisher can do in this situation to really kill our interest in an individual game or their product line as a whole:

1) Use Kickstarter over and over and over (and over). oh and by the way, add on promos and special items to backers that make the game more enjoyable and playable or just cooler that stores won't have access to once the product launches (if ever) into distribution. This attracts most of the people interested in your game and, especially if you are a small publisher, means the majority of my customers for your product already bought it.

2) Short discount your product. Discounts (the difference between what a store pays for a product and what we sell it to the consumer) average somewhere between 40% to 50% when a store buys direct or through distribution. If the discount on your product falls below 40%, you have to make a very compelling case why stores should allocate scarce capital to bring in your game, rather than one that could do equally well, if not better, and generate more profit for the store. For that matter, why should I just not take that money and invest it in Magic or dice, which I know will sell and generate a profit.

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.

Event Space

One of the things we have to consider in terms of gaming space is how much revenue, direct and indirect, does it generate for the store?  We can easily figure out how much retail selling space, where we display products, generates by looking at the product on display and determine how many times it sells over the course of the year.  Magic takes up a very small space but sells at an extremely high rate.  it easily generates enough revenue to keep a space on our shelf.  Something like The Morrow Project RPG, however, that barely turns once a year, has a hard time justifying any new releases getting space on the shelf.

Gaming space, however, is harder to quantify, since it doesn't have products directly assigned to it.  Ergo, we look at the revenue generated by first, tournaments, and second, events closely related to products.

For example, a Magic tournament will take precedence over almost anything else.  Not only does Magic sell a lot in the store, but we charge people to play in most tournaments, so the space generates revenue directly.

We have to figure something like Warhammer 40,000 or D&D Encounters differently. We don't generally charge directly for people to play in them so we have to calculate the value assigned to their space in terms of sales of the product.  Warhammer 40,000 accounts for a significant amount of store sales so we are quite willing to support it by allowing players to use most of the back gaming space twice a week with no charge, figuring that will encourage more sales of the product.  Sales of D&D 4th Edition are a fraction of 40K sales so we are not willing to give the event nearly as much space. 

How to Be a Successful Retailer in Three Steps Step 2

 2.  Convert shoppers into customers.    This is where personal selling, the fourth component of promotion, comes into play. The other three forms of promotion serve to inform shoppers and get them to the store, personal selling gets them to buy the product.  Some may need lots of personal attention, others only a little.  Part of the training you should give your sales people (or realize yourself, if you are the only person on the staff) is how to recognize how much attention each shopper needs to turn them into a customer.  You have a destination store.  Shoppers don’t come into it if they are not at least slightly interested in the products you have to offer.   The higher your conversion rate (percentage of shoppers that become buyers) gets, the more money hits your bottom line.

Check back Wednesday for Step e

How to Be A Successful Retailer in Three Steps Step 1

#1.  Get shoppers into your store (or onto your website).  This is the basic purpose of sales promotion, advertising and public relations, all components of promotion. They get the word out about your store, creating interest in potential shoppers and driving them into your store.  The problem with these forms of promotion is that games stores (and comic shops, for that matter) appeal to a very niche market.  Almost everybody uses toothpaste and laundry detergent, a comparatively tiny segment of the population plays Magic or Settlers of Catan and there isn’t much in the way of mass media that reaches them easily, at least not in any form that is not prohibitively expensive for all but the top grossing stores.  Most stores find word of mouth their most effective way of bringing in new shoppers and, of course, word of mouth is one form of public relations.

 Check back Tuesday for Step 2.

Stupid Store Managers

Given that our employees are on the front line when dealing with our customers and how valuable (and rare) a good one is, much less a great one, it always bemuses me when I run across stories of managers and employers disrespecting their staff.  I got thinking about this again after running across the following in a  recent News of the Weird column:

 In March, William Ernst, 57, owner of the QC Mart chain of Iowa
convenience stores, excitedly announced a company-wide employee
contest with a prize of $10 for guessing the next worker that Ernst
will fire for breaking rules. "Once we fire the person, we will open
all the envelopes [containing the entries], award the prize, and start
the contest again." Ernst added, "And no fair picking Mike Miller
from (the Rockingham Road store). He was fired at around 11:30
a.m. today for wearing a hat and talking on his cell phone. Good
luck!!!!!!!!!!" (After firing a cashier who had complained about
Ernst's attitude, he challenged the woman's unemployment-
compensation claim, but in October, a judge ruled in her favor.)
[Des Moines Register, 10-3-2011]