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Business of Gaming Retail #1: An Introduction to Game Retail

Business of Gaming Retail


Greetings! Regular rpg.net readers might know me from Freelancing is Not for Free, a
column for role-playing game freelancers. Last month, I ended that column to address a
regular question that pops up at least once a month here on RPG.net:

"I want to open a game store. Can anyone help me?"

The answer is "yes."

What Kind of Help?


Here's a list of some of the topics I intend to address first:

• Calculating Startup Capital


• Getting a Loan
• Buying vs. Opening
• Deciding What to Carry
• Finding Suppliers
• Fixtures & Equipment
• The Pros & Cons of a Game Room
• Pre-Opening Marketing
• Finding Capital

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.

Leaving the Industry


The plan when I bought the place was to run it about 50 hours per
week and write for about 30 hours a week (yes, I'm quite comfortable
working 80 hours a week or more). I thought that being around gamers
all of the time would help my writing. The stories, the new
perspectives, the playtesters, the rules arguments--would all help. On
that part, I was right.
In reality, the store took far more than 50 hours per week. Worse, I
wasn't very productive with my remaining time because the store
needed regular attention even in my absence. The store was not the
path to where I wanted to be. Once I realized that, I prepared a sales
package that included all the information necessary for due diligence
and shopped it around. I finally sold the store to one of my employees,
who took sales even higher next year and then beat that record again
the next year.

And Here We Are


Since I sold my store, I've written business plans professionally and
counseled other would-be store owners. I’ve written a book on gaming
retail, which is with a publisher now. I've begun working with other
would-be business owners in my area, potential franchisors nationwide,
and other people planning to start their own business.
These articles should create a slew of follow-up questions because
their brevity will force incompleteness on my part. Naturally, I can't
discuss how to adapt each article to every gaming business model. I'll
have the answers for some of those in articles planned for later, but
I'm willing to address them immediately in the forum. I'm always
available for specific discussion relevant to your situation. If at any
time you would prefer discuss your issues privately instead of sharing
your plans on the forum, you can e-mail me at Lloyd@lloydwrites.com.
I'm here for you.

Business of Gaming Retail #2: How Much Do I Need?

Business of Gaming Retail


This article is one of the most math-intensive I’m going to write for this column. It’s not
that the math is complicated; there’s just a fair bit of it to do. Fortunately, I've provided a
couple of aids you'll be able to download.

Also, please understand that I’m making certain assumptions about


your business model. If you want to argue why my 60% cost of goods
figure doesn’t seem to jibe with distributors offering you a 47%
discount, or other details of the math, I’ll be happy to discuss it in the
forum.

The amount of money you need is composed of two elements: your


opening expenses, which you’ll spend before you open, and your
capital reserve.

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.

Administrative & Operating Expenses

Sample costs include

• 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.

FFE: Furniture, Fixtures & Equipment

Sample costs include

• 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

Sample Store: The owner is willing to do some of the work himself,


except for the electrical work, for which he has neither the tools nor
the training. Also, he knows that commercial suites have a history of
building up stop-gap wiring above the drop ceiling, and he wants a pro
to make sure the fire hazard up there is minimal. He plans on $1,500
for the electrician (who also replaces the ballast in all the light fixtures,
something the owner learns is easy to do and will do himself from then
on), $2,000 for flooring and $500 for miscellaneous tools and repairs.

Inventory

Your inventory expense is probably the largest single category on your


list of opening expenses. It’s also the greatest variable between stores.
There’s no easy answer here.
Here’s a rule of thumb to help until you actually sit on the phone with a
distributor for an hour or so and work out an initial order: figure on
spending $20 for every square foot in your store devoted to retail. That
is, take your square footage, deduct for your game space, bathrooms,
office, and wasted space, and multiply by 20. If you use 1,200 square
feet out of a 2,000-sf location, figure on spending $24,000. If you only
have 700 square feet and you’re going to be using all of it for retail,
figure on $14,000.
That’s a rule of thumb, which means it’ll be wrong for most of you.
However, it’ll be close enough for planning at this stage. Like many
topics, it’ll get more coverage later.
Sample Store: Our sample is a large-ish 2,000 square foot store. The
owner knows it’s a bit of an indulgence for an opening location,
especially with no local competition, but he plans an aggressive event
schedule and wants room for multiple tournaments or demos in the
game room, which will take up 1,200 square feet. Also, he has to sign a
4-year lease to get the rate he wants, so he’s going to be here for a
while. That leaves about 750 square feet for inventory, which means
roughly $15,000 in merchandise.
Note: as a general rule, I wouldn’t spend that much before opening. I’d
spend less initially and hold back some of my inventory dollars to
spend after gauging customer interest. If miniatures are hot for you to
the exclusion of other game categories, you can buy more inventory in
that category and maybe add a second line of paints. If you had
instead spent 1/4 of that hold-back money on minis, 1/4 on cards, 1/4
on RPGs, etc. most of it would be tied up in slow-moving inventory and
you’d be missing sales opportunities in your best category. Despite
that distinction, you’re going to be spending this money in the first
year, and it messes up the math if we count it under your capital
reserve, so we include it here.
Sample Store: We’re up to $28,500 in pre-opening expenses.

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.

Finding Your Break-even—How Much

Add up the total of all of your monthly expenses. These include

• Rent (including CAM or triple net)


• Utilities (electricity, water, phone, Internet)
• Labor (including tax and payroll service fees)
• Trash removal
• Pest control
• Alarm monitoring
• Bank fees
• Insurance
• Repair & maintenance
• Advertising

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.

Finding Your Break-even—How Long

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

Business of Gaming Retail


I've advised many people on opening game stores. A few have opened their doors. Most
have not. The largest single cause for not making the jump from the asking-questions
stage to the opening-the-door stage is an inability to finance the business.

I refer to a couple of terms from last month's article, so if you haven't


read that, you might want to refer to How Much Do I need?

The primary sources of opening money are a) you and your family, b)
private investors, and c) bank loans.

You and Your Family


It helps to build up as much cash as possible before you begin, so you'll probably want to
use at least some of your own money no matter what. Cash helps in three ways. First, you
don't have to apply for it. It's yours. It's not contingent on a business plan or a credit
check.

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.

I recommend that anyone thinking about opening a store get a second


job, preferably in retail, for the six months or year it might take you to
open your doors. You get used to working long hours, you learn some
valuable skills, and you have a chance to bank up some cash. If the
hours are not manageable because of family demands or health
reasons, you can quit without losing a six-figure investment.

If you consider family money, I recommend treating prospective family


members just like unknown investors. Show them a business plan.
Write up an agreement, including your repayment schedule and
penalties for late payments. Your professionalism will reassure them
and your attention to detail might prevent an unpleasant family
dispute later.

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.

If you involve investors, the relationship will probably dictate your


business structure to some degree. Business format is a huge decision
and one size does not fit all. Talk to your lawyer about exactly which
structure best fits your needs.

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.

If you're thinking about opening a store, go get a copy of your credit


report today. Fix any errors on it. Address any legitimate issues on it.
Talk to your banker about whether you should open any new lines of
credit or close some off. Between now and the time you apply for a
loan, make sure you pay every single bill on time. If you have
something bad in the past that's due to fall off the credit report, don't
apply for a loan until then.

Subtract your cash on hand from your pre-opening capital, because


that's the segment on which you'll pay the greater interest (in dollar
amount, not percentage). If your pre-opening capital is $50,000 and
you've saved up $8,000, you need a term loan for $42,000. The
difference is $425 off your monthly break-even and a total of $2,200 in
your pocket over the life of the loan.

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.

Your best bet, in terms of likelihood of approval and interest rate, is a


home equity loan. If that's what you end up applying for, you might
want to use the extra cash you make with your part-time job to pay
down your mortgage instead. At the interest rate you'll get from a
home equity loan, the relative value of cash goes down.

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.

Loan Application Tip

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.

Other Loan-Related Issues


While we're on this topic, let's answer some of the immediate follow-up questions.

What about the Small Business Administration?

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.

How about Venture Capitalists?

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

Business of Gaming Retail


You might be interested in this industry because you have the opportunity to purchase an
existing game store. If you have read my introduction to this column, you know that’s
how I found myself a retailer. I had considered opening a game store for several years, so
when a chance came along for me to jump in, I took it. I never regretted it.

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.

This discussion is a comparison showing how buying and opening


differ. It doesn’t discuss due diligence, partnerships, analyzing sales
records or other issues. That subject’s not even on the schedule at
present, but it might be worth adding. You tell me.

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

It might be easier to obtain financing to purchase an existing


business, especially if the business you’re buying has a good credit
history. Also, the seller might be willing to finance the purchase. If he
does, you merely have to meet his credit requirements, and those are
likely to be more lenient than a bank’s requirements.

Business Relationships

You’ll already have accounts in place for utilities, credit card


processing, and other business needs. In the case of most of these
accounts, you’ll be able to simply notify the company of the new
information. Nearly all they care about is making sure they have your
name and billing information.
Unfortunately, the largest and most important accounts—your game
distributors—will treat your account as totally new. You’ll have to
reapply for credit and most of them will insist on putting you on a COD
basis until you establish a history. You can compensate somewhat if
you have a business credit card, which will allow you to defer
payment and avoid COD charges.
Despite this paperwork difficulty, the distributor knows your store. Your
sales reps can make purchasing recommendations based on previous
sales history. Learn to tell which sales reps you can trust and which are
simply out to make a sales goal.

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

Until you deliberately make changes, you’re using another owner’s


selection for your fixtures, uniforms, paint scheme, signage, etc. If you
have to change all of these things to make them the way you want
them, you might not have saved as much money as you thought.
Making changes immediately might alienate some of the existing
customers.

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

Business of Gaming Retail #5: Game Store Business Valuation

Business of Gaming Retail


Last month we compared the benefits of buying a new store vs. opening your own store.
This month, we’re going to expand on that topic a bit by discussing what you need to
look at when you review an opportunity to purchase a game store and how to calculate
your offer for the store.

Assessing its Viability


Although you could make virtually any situation work if you threw
enough money at it, some stores simply aren’t worth saving. If you
have to spend $250,000 to make a store work, why would you? Even if
the owner gave you the store, it would still be a bad deal in most
cases.

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.

Assessing its Worth


One way--out of many--to start your estimate of the store’s value is to
begin with the value of the inventory. It’s not necessarily the best, but
it’s the easiest across-the-board method to demonstrate.
Let’s say your letter-categorization of a seller’s $36,000 in listed
inventory came to $19,500. He has box loads of Magic singles that you
counted as class D, and his RPG section has some current D&D and
White Wolf, a shelf full of 4-year old d20 titles, and about half the
Conan line (that’s A, B, D and probably C, respectively).
Your baseline offer starts at $20,000. To that, add a percentage of
annual sales. Fifteen or 20% is a good starting point. You might add
some value for the existing furnishings, fixtures and equipment.
Likewise, if the carpet is ratty and you want to replace it, you might
wish to reduce your offer. If you plan to change the name, count
nothing for any existing signage--you’ll replace that. If the store has a
high turn rate, you might wish to add value for that. If it’s clean and
attractive, you could place a value on that. Otherwise, subtract value
because you’ll have to improve its condition.
Remember that value is relative. What has value to you is different
than what has value to somebody else--including the seller. If buying a
store saves you from having to spend 4 hours preparing an initial
merchandise order, I’m sure you place some value on that time. If it
saves you from having to negotiate a commercial lease, you might
value that, too.
Your final figure for this store might be anywhere from $10,000 to
$100,000. The total number of variables is too long to discuss in a
short column, and the combination of variables makes it an extremely
lengthy discussion. I plan to write a detailed sample of how I calculated
a store’s value recently--one that was actually purchased by somebody
else for almost exactly the price I calculated. Read about it in the
forum. We might also discussion alternate methods of calculating a
store’s value.

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>

Business of Gaming Retail #6: Deciding What to Carry


Business of Gaming Retail
While developing your business model is not the time to get caught up in how many
copies of RPG x or blister pack y you'll be ordering. You need to make some rough
decisions about which product categories you'll carry and how deeply you'll carry them.
These are some of the basic decisions that affect how customers view your store, your
fixture and space needs, and your investment amount.

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.

Collectible Card Games


CCGS or TCGs (tradable card games) offer the advantage of high turn
rates with a small footprint. CCG customers spend more money on
average than do customers of other games. Your best-selling space in
your store is likely to be wherever you keep the open booster box of
the latest Magic: the Gathering release. That single square foot could
generate $10,000 or more annually.
If you carry CCGs, I recommend that you begin with a minimum of four
games, for each of which you'll want at least one starter box and two
booster boxes. That's a minimum of $750 to $1,000, depending on
which games you order. On the high end of the scale, you could carry
more booster boxes for the largest product lines and add the basics for
additional games. Again, $5,000 is the uppermost I would recommend
for a new retailer, but $2,500 is a more realistic maximum budget.
You can fit this inventory in a very small space. A single countertop will
work, or a 4' shelf on the wall. I've seen a very attractive display
placed on slat wall shelving units, taking up a single section of slat.

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.

Collectible Miniatures Games


CMGs sell and play much like CCGs, except that they take up more
space and the packs cost more. A minimal investment might include 1-
3 product lines, stocking 12 individual pieces of each, for a total of
about $150. That's a very thin inventory, however, and I recommend
adding starters and a wider selection of sets within each game for a
minimum of $300. When buying by the case and supporting multiple
games, you would spend closer to $1,500 in offering a fuller selection.
CMGs do not provide for much in the way of accessories. The games
tend to be much like board games in this regard-features of miniatures
games like terrain pieces are rare.

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

Business of Gaming Retail


Your primary sources of products will be game distributors and the game manufacturers
themselves. Choosing which sources to use and why varies with your priorities and the
details of your business model. These are some of the basics procedures of ordering and
the factors that affect your supply decisions.

The Distribution Tier


Distributors buy goods from manufacturers and resell them to retailers. This
consolidation of resources is a key reason to buy from them. Other reasons include
product information, free or reduced shipping costs, and information on sales trends or
hot products.

What they Offer

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.

Why use Distributors

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.

Factors in Making a Decision

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.

Why Order Direct

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.

Factors in Making a Decision

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.

Recommended Direct Orders

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.

Lloyd Brown III


www.lloydwrites.com
Business of Gaming Retail #8: The Pros & Cons of a Game Room

Business of Gaming Retail


The question of whether or not a store should have a game room is highly contentious.
Fortunately, both camps are on good terms and no one is likely to persecute you for your
decision. In face, you might develop a serious case of "green grass syndrome" at some
point during your store ownership as you consider all of the pros and cons of each side.

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

Some manufacturers require a game room for opening a direct


account, or for other preferential treatment. Having a game room can
entitle you to better discounts on certain product, better availability, or
certain direct-to-retailer incentives.

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.

Pollution of the Player Pool

Once gamers start getting together, they share information. Some of


that information is good. One Warhammer 40k player shows up for the
game with his army laid out in Army Builder format, and his opponent
compares the nice clean printout with his scribbles on spiral-bound
notebook paper. Before the day is over, you've sold yet another copy
of Army Builder.
Some of that information-sharing is bad. The CCG crowd is particularly
notorious for this--they share the concept of buying their cards from
online discounters, and your box sales begin to decrease with each
new set. Some players advise others to download books from file-
sharing sites instead of buying them from your shelf 12 feet away.
Players from a competitor's store might encourage the new players
you created at great investment of time to go play elsewhere.
Gamers might also get together to form a club. It sounds exciting and
fun, but the club's first organized action is often asking for a discount.
They feel if there's no benefit to joining the club, that nobody will join.
Do you give the discount and reduce how much money your biggest
spenders spend, or do you risk alienating the club members?

Mess

Drinks, food, loose cards, CCG wrappers, miniature sprues, spilled


paint, glue--if you sell it intact in your store, you can probably find
pieces of it in your game room at the end of the day. Over the course
of the day, cleaning up after this mess or hounding the gamers to do it
themselves can take a heavy investment in your time (or the time of
the people you're paying an hourly wage).

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

If you run tournaments, you'll encounter a variety of cheating methods


that will make you cringe. Players not marking off damage to their
'mechs in Battletech. The Magic player the others call "Howling Mine"
because he keeps drawing extra cards when he thinks he can get away
with it. Mis-marked or loaded dice. Marked sleeves. The cheater chases
off other players and leaves people with a bad impression of your
store.
Liability

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

Business of Gaming Retail


Marketing includes more than just advertising. It includes everything you do strategically
and tactically to gain and retain customers. That includes setting your pricing policies,
how you'll brand your company to create an impression in the customer's mind, which
products you'll carry, which customers you'll seek to reach with your greatest effort, etc.

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?

Add More Detail


As you approach the opening deadline, make some detail decisions on the broader
decisions you've already reached. Having made the broad decisions will help you fine-
tune these decisions as you approach opening day.

Some Specific Decisions

• Design your uniforms or establish a dress code policy.


• Decide how you and your employees will answer the phone, respond to common
questions, and greet customers at the door.
• Where will you display price tags so that customers can price items on the sales
floor?
• What products, if any, will you support with events? What events will you run?
How often?
• Will you have a website? If so, what type of impression will your graphic design
choice create? How interactive will it be? Will you have your own domain name
or just create a MySpace page?
• How will you compete locally? Will you bill yourself as having the largest game
room, the best prices, the most convenient location, the best staff, or something
else entirely? What will you do to make sure your store is the best shopping
choice for the customers you've chosen to target?
• Choose your store's graphic design, including a paint color or scheme, an overall
theme, and lighting.
• Design a logo or commission a design from a professional.

Separate articles will address the previous concepts in greater detail.


For right now, this representative list is designed to encourage you to
plan ahead on the details. You should be able to devise a much more
comprehensive list on your own.

Countdown Marketing Suggestions


Your options before you open are limited by your lack of a storefront. It's difficult to
make a television ad if you don't have a place to showcase in the ad. On the plus side,
your alternative options are usually low in cost.

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.

Manufacturer Message Boards

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.

Other Game Stores


If they're willing to help you get started, you might run demo games at their stores. It's a
good deal for both of you. You encourage sales in their store, get some sales practice, and
meet some potential customers. Talk to the game store owner and do this with his
permission and under his guidelines. Don't be the jerk who comes into a store on the sly
to steal customers. The further away you plan to open, the more likely other stores are to
help. You might have a better relationship with stores with overlapping business rather
than direct competitors: a comic book store, a bookstore, or a LAN center. Any of these
businesses might see a referral to you as a service to their customers. You'll have more
bartering power if you offer the same favor in return.

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.

Business of Gaming Retail #10: Store Layout

Business of Gaming Retail


Early in your planning stages, you should have a broad idea of what major features you’ll
have in your store. Will you have a game room? How much space will be devoted to
miniatures? Are you planning for 600 square feet of space or 3,500 square feet?

The primary factor involved in store design lies in understanding how


people shop. No one explains this better than Paco Underhill in his
best-selling book on retail, “Why We Buy.” Do not wait; do not waffle;
do not begrudge the pittance you spend on it. If you plan to open a
retail store of any kind, go buy that book and read it. Understanding its
lessons and implementing them in your store design puts money in
your pocket.

Inside the Door


One of the concepts that Underhill discusses is traffic flow. Go look at
20 different stores in nearby shopping centers. In probably 18 of them,
the cash wrap fixture is to the left of the door. Why? Customers tend to
instinctively move to the right when entering a store.
You don’t want the cash wrap to be the shopper’s first experience. The
cash wrap should be last. If they approach the cash wrap first, they
might buy one of your $5 impulse items at the counter and then leave.
That’s a waste of whatever marketing effort brought that customer into
the store.
You want that person to see some of your most attractive products,
something that will turn them from a browser into a buyer. In a game
store, a good fixture for that first sight on entry is a new product shelf
—something that, by its nature, refreshes itself on a regular basis.
You want something that exemplifies your store. Your snack rack isn’t
it. Your discount bin probably isn’t it (although it could be for some
business models). Games Workshop could be it.
The Circle
Wal-Mart calls it Action Alley. Toys R Us calls it the Racetrack. Whether
you have a brand name for it or not, your main traffic channel affects
what areas of your store sell. You should design it—and utilize it—to
direct customers on a path through your entire store. Understand that
most customers unconsciously follow this path around the store, and
place the products of highest importance in position visible from and
accessible from this main lane of traffic.
In a small store, this might be a simple “U”, starting at the door,
extending along both sides of a single row of gondolas, and ending
back at the cash wrap. In a larger store, this path might be a wide
rectangle with different closed-in departments on each side.
Customers can stop and shop, but when they’re ready to leave, they
have to get back on the path.
In big-box retail, a sidecap facing the main traffic flow easily outsells
its opposite-facing counterpart by a factor of five. The pace of
shopping is usually slower in a specialty retail store, which reduces the
variation (because people stop and look around more), but the
difference is still there. Visibility from the main traffic lane can make or
break a product line’s sales.

The Cash Wrap


As mentioned, the cash wrap should usually be on the left, in what
would otherwise be the least valuable space in the store. It should
have clear lines of sight to as much of the store as possible. Some
retailers even place their cash-wrap on a platform to give clerks an
extra few inches of visibility.
The cash wrap should have easy access for employees, placed in such
a manner that customers don’t misinterpret it as a place where they’re
welcome. If your opening is vague, you might consider installing a
gate.

The Game Room


If you’ve read the pros and cons in The Pros and Cons of a Game Room
and decided to have a game room, you have to decide where to place
it. For most stores, the answer is “in the back.” Ninety percent of your
customers do not use your game room. They might enjoy the
atmosphere of a game store with in-store play, but they don’t come in
for social games or events. Thus, the main emphasis should be on the
retail space, which generates your income.
Placing the retail area in the back offers other advantages, also. You
can control the flow of players and product from the game room to the
store exit, thus limiting theft opportunities. The noise of the game
room has less of an impact on your shoppers.
A very few retailers place their gaming area in the front of the store.
This placement creates problems in a couple of areas, but it does allow
foot traffic to see the store activity level. The hope is that a busy
schedule will draw in customers whose curiosity might be aroused by
the high energy level inside.
In the case of some large stores that occupy two adjacent suites, many
stores use one suite for the game room and the other for retail space.
This side-by-side layout offers many advantages of both points of view.
Potential customers walking by can see the activity, while you control
traffic by leaving that suite’s door locked, thus requiring gamers to
move through your well-designed sales floor before reaching it (and
past watchful employees on their way out). After hours, you can lock
the door between retail and gaming, allowing gamers to exit at their
leisure while you count down your drawer and do your nightly
paperwork in private.

Game Room Furnishings

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.

Signage Vs. Clutter

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>

Business of Gaming Retail #11: The Big Margin Discussion

Business of Gaming Retail


Margin, margin, margin—retailers talk about it a lot.

Yes, margin is extremely important. Without it, we wouldn’t be here.


The difference between cost and sales price—that part we call the
gross profit margin (margin, for short)— is what pays for the lights, and
keeps the doors open and feeds us yummy Ramen noodles.

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.

The way we normally see this relationship expressed is when


somebody, usually a nearby competitor, opens up a store with the
thought that he can sell the same stuff for lower prices than you do
and will therefore make more money. He thinks that he’ll make more
money because he’ll sell more copies of his cheap stuff. He’s wrong,
and it’s because he hasn’t done the math. Selling for 20% less than
you do (assuming he pays the same cost) means that he has to sell
about 50% more stuff than you to make the same amount of cash
because his profit margin drops to almost nothing. That’s not feasible
without additional advertising or some other way of letting customers
know about that outstanding discount.

We’ve all heard that speech by now. We know that across-the-board


discounting doesn’t work for the traditional game store business
model. I’m not suggesting that you deliberately give up margins on
items you’re already carrying in an attempt to increase sales.

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.

What I am suggesting is that you look at the total package when


deciding to carry a product, and that—under certain circumstances—
carrying an item with a shorter margin isn’t a bad thing.

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.

How to Use that Low Margin


Here’s another option. What if you used that short-margin widget to bring people into
your store? You pay premium rent to bring people into your store. You might have paid
$5,000 for a fancy channel letter sign to bring people into your store. You might run TV
commercials to bring people into your store. Where’s the sin in accepting a lower
discount to bring people into your store if the result is new long-term customers? If you
use your 10,000-widget sale to gain even 10 Warhammer 40k players, you might add
$15,000 in downstream revenue to your bank account.
This is exactly the thinking behind a loss leader, or a popular item that
you sell at less than cost in order to gain traffic count.
Of course, looking at the big picture brings problems. Nobody tells you
in advance how many copies of something you’re going to sell. If you
spend your $380 on your widgets, sell 6,000 and then the gravy train
ends, you make less than you planned in total profit, add-on sales and
in new customers. Part of predicting your price-setting (and
consequently your margin goal) is being able to accurately project
sales.

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

Business of Gaming Retail


1. Blow off Special Orders

Special orders require paying attention to something else while you’re


furiously concentrating on ordering your new items. Those special
orders don’t add up to all that much, and that guy might not even
come back in to pick it up, leaving you stuck with a $40 game, book, or
box of plastic. That’s just too much work for the reward. If you wanted
to be a Sears catalog, it would say so on the sign.

2. Hire Rabid Fanboys

People respect the opinions of your employees, and a 3-hour lecture of


the evils of D&D’s slavish class/level system is a valuable service they
provide your customers. Taking out the trash, receiving inventory,
straightening merchandise and all that crap isn’t really as important as
it is in a big-box store, where hundreds of people see it every day.
3. Order What You Want

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.

4. Keep It on the Shelf. Forever.

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.

5. If You Build It, They Will Come

Advertising is too expensive. Your store is so awesome that word of


mouth will continue to increase sales faster than customers leave the
hobby. It worked for the other stores, like that one down the street that
closed, and the one that used to be on the other side of town.

6. Just Sign the Stupid Lease and Get it Over With

The likelihood of those clauses concerning non-payment, building


destruction, or whatever coming into play is almost zero. That stuff
doesn’t matter. If I go out of business, it doesn’t matter how much I
owe because they won’t come after me for it; if I’m out of business,
they know I’m too poor to take action against. Besides, it’s not like
commercial rent’s negotiable or anything, right?

7. My Accountant Handles the Taxes

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.

8. Games Sell Themselves

If a game doesn’t sell itself, it doesn’t have any place on my shelf. If


the manufacturer doesn’t think it’s important enough to spend money
on it, then I don’t, either. That volunteer who comes in once a month
or so, trash-talks other games, argues over rules, and barely talks to
me is good enough for me if he’s good enough for them.
9. First-Come, First-Serve Service Providers

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.

10. I Have an Exit Strategy—Sell

A lot of my customers want my job. If I can find one with enough


money to pay off my debt, I can skate out of here with no loss. What
they don’t know won’t hurt me, right?

Lloyd Brown III


www.lloydwrites.com
Business of Gaming Retail #13: Pre-Opening Promotion

Business of Gaming Retail


Set your budget. You should have already assigned a figure to this category when you
created your financial statements, but now is the time to decide exactly how you’ll spend
that money. If you’ve spent below budget elsewhere in the opening stages, it’s time to
spend some of the surplus.

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

Get your signs up as soon as possible. In addition to your storefront


sign and pole sign, you might want “Coming Soon” signs in your
window. Include your website address on the signs so customers can
keep track of your progress. If you have the phone hooked up, include
that number, too. You might not be able to sell anything yet, but it’s
never too early to create relationships.

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

Talk to your nearest high school or middle school about starting a


game club. Offer to provide some games at your cost and help host the
club, showing up once per week to play card games and board games.
For public relations activities like this, I used to hand out reprints of a
Reader’s Digest article about the beneficial effects of game playing on
brain activity. The impact of a widely circulated mainstream
magazine’s endorsement of your store’s products and services is
enormous. The image of what you do changes from The Lone Gunmen
in the basement to staving off Alzheimer’s. Reprints are reasonably
priced and shipped from RD, but I have no experience with ordering
reprints from other periodicals (National Geographic has published a
similar article more recently).
Cost: $50 to $200

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

Without a store, what do you show on a television commercial? While


I’ve seen some answers to that question, I don’t like the value of the
solutions. As with radio, you might be able to shoot a commercial after
you’re open but before your grand opening.
Cable TV is very affordable, especially in the smaller markets. Also,
commercial creation is cheaper than you might have heard. Better yet,
you can get the station to comp that cost if you buy enough slots.
Cost: $500 to $2,000 or more

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

Keep interested parties apprised of your store’s progress on a blog.


Your blog should have some interesting content and not just mundane
stories of licenses and build-outs. Review some games or discuss game
strategy with a few local gamers or your partners.

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.

The Grand Opening


Your store’s grand opening event is the culmination of your pre-
opening marketing and the beginning of your standard marketing
techniques.

Contests and Freebies

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

Good luck with this one if you’re opening in Philadelphia or Chicago,


but in smaller cities and towns across the United States, commercial
growth is worth the mayor’s personal interest. If you spring for the
radio remote and have the mayor there at the same time, you’ll attract
a great deal of attention.
Lloyd Brown III
www.lloydwrites.com
Business of Gaming Retail #14: Site Selection: Choose Your Space Carefully

Business of Gaming Retail


You have two opposing desires when selecting a location: cost and attractiveness. High
traffic count is attractive but expensive. Lots of space is an attraction, but you pay for
every square foot. On the other hand, you want to keep costs as low as possible so that
you can become profitable. Determining how much you should spend on your location is
arguably your most important opening decision. Know how to make it.

Commercial Rent Basics


Typical rent rates for retail space range across a broad spectrum of
figures. Low-visibility sites on the outskirts of town might be available
from $6 per square foot/year or less. Locations in big-city malls can
cost $60 per square foot/year or more. For most game store business
models, you’ll consider a location ranging from $10 psf to $20 psf,
depending on your local market.
Rent usually includes at least two figures: your rental rate and your
“extras”, either in the form of a Common Area Maintenance (CAM) or a
triple net (NNN). In either case, you pay additional fees. Think of them
like the dealer prep and other add-ons that you pay when you buy a
car from a dealer; they’re additional costs, but they break them out so
that they can advertise a lower price than you’re actually paying.
When you ask about a rate always ask about the CAM or triple net.
When you’re comparing your notes for later, you’re comparing the
same figures for each of your possible locations. You can also plug the
right figures into your financial calculators.
Common rental terms are usually for a short number of years: one to
five are common. Obviously, a lower term is better for you, especially
for your first lease (more on that later). A one-year term at $2,000 a
month commits you to paying only $24,000. A five-year term means
that you owe a $120,000 debt. If the business closes six months later,
which debt would you rather have?
In less urban areas, you might be able to find a place offering a month-
to-month rate, but that’s rare.
Expect that your deposit is non-negotiable. It never hurt to try, but
landlords expect small business owners to fail. They think that the
deposit might be the only money they are guaranteed to get from you.
Your deposit is usually framed in terms of rent: “first three months’
rent”, or “first and last months’ rent.”

The Big Three


Your rent rate, your space, and your location are the largest and most
important considerations in your decision-making. Your choices usually
involve a bigger space in a cheaper property vs. a smaller space in a
more attractive property.

The Benefits of Space

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

I maintain a spreadsheet with game store square footage claims. The


average game store on my list has about 2,800 total square feet. Of
the stores with game space, the average is about 1,000 square feet.
About two-thirds of the game stores on my list have game space. For
various reasons, I believe the list to be skewed in favor of large stores,
however, and that the average store size is smaller than my sampling
indicates.

Visibility and Ease of Access

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

Commercial suites can be in virtually any condition when you look at


them. While most tenants prefer the white box look, which allows them
to customize the suite in any direction they want, you want to consider
a more “lived-in” look to your suite. You might be able to use existing
interior walls, flooring options, and other considerations to your
advantage in reducing your build-out costs.
One space that you can customize for $12,000 but costs $40,000 over
the course of the lease might be a better deal than a space that leases
for $36,000 over the same term but costs $20,000 to build out. Keep in
mind that you might not be there for very long. You don’t want to
spend much money on a build out only to spend more money in a
couple of years when you move.

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

Business of Gaming Retail


Before we even begin, let me point out that I do not recommend this business model for
people who want commercial success. I’m including this model because it’s a perennial
topic for discussion. Many people ask if it’s possible. They don’t want to hear that it’s a
bad idea or that it’s not very sustainable, or that it carries risks that can cost them
everything they own. They just want to know if it can be done.

I also find it instructive to look at the bad alternatives and remember


why we avoid them.

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.

Licenses, Fees & Professional Services

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.

Fixtures & Equipment

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.

Advertising & Marketing

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

Business of Gaming Retail


“Should I put the sparkly dice next to the pearly ones?”

The question reveals a microscopic look at one aspect of your store’s


operations. It’s one of those decisions that you make all day, every
day. Is it a problem? Not by itself, but hold that thought. We’ll get
there.

“Where should I put the dice display” indicates a broader thinking. It


involves your merchandising decision-making process. If you put the
dice next to the RPGs, you might sell more, but you also might lose
more due to theft.
“Should I carry RPG accessories like dice?” is a question that indicates
a very remote, large-scale view of your company’s product offerings
and approach to customer service.

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?

It’s important to zoom out once in a while to ask yourself some


questions. Let’s look at some topics and assign some zoom levels to
different questions.

Marketing

Close: Did I get a good turnout for that last tournament I ran?

Medium: What promotional options besides signs and bag-stuffers do


I have for promoting my events?

Top View: What’s my contribution margin on these events, and how


much marketing time and dollars can I afford to promote them?

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?

Medium: How should I rearrange my shelves to fit this new line of


minis?

Top View: Do my fixtures meet my merchandising needs and


branding goals? How do I know?

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.

Lloyd Brown III


Business of Gaming Retail #17: The Many Jobs of a Game store Owner

Business of Gaming Retail


When you work for somebody else, you usually have one job. You might be a salesman
or an IT professional. The company employs other people who do other jobs; together,
you run the company. When you own your own small business, you have to do or oversee
all of the jobs.

A common theme in this column is advance planning. By knowing what


to expect and how it fits into your overall business plan, you can adopt
a strategy of handling decisions that works for your company as you
encounter problems. Being aware of the full range of duties you can
expect to fulfill once you open helps you plan out how you'll spend
your time when you open.

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

You'll need to establish your Internet marketing policies. You'll plan,


implement and maintain your website. You'll select, install and
maintain the applications that drive your company, including financial
and sales records and POS system. You'll develop and institute security
methods for protecting your data. If your store offers a LAN, you need
to maintain those machines to minimize downtime and maximize your
customer appeal. Some weeks will go by without thinking of these
duties, while emergencies might require you to spend all day.

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

You'll select your media, choose an advertising strategy, write ad copy,


price your options and sign the agreements that set it all into motion.
You won't be doing the sales volume necessary to contract out the
entirety of this job; nor should you.
Advertising (as distinct from the broader category of marketing, which
is a topic for another column) is important, but the fruits of the work
usually remain in effect for a long time-longer than, say, sweeping the
floor. You might spend several hours on a project but projects don't
come up every day. Figure on a few minutes to an hour a week as an
average.

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

Business of Gaming Retail #18: Hands-off Ownership

Business of Gaming Retail


People often ask me about the concept of opening a game store and keeping their day job.
Most often, people in this group have a higher-than-average income and don't wish to
give up that income for the pay cut it would take to justify the store's finances. They plan
to hire someone to run it for them while they continue to earn the big bucks. It's an
opportunity to keep earning reliable income while enjoying the benefits of business
ownership. And games at cost.

This article takes a broad look at the pros and cons of that business
model.

Owner vs. Manager


A hired manager has a different mindset than the owner has. The two
have different priorities and different methods of achieving their goals.
In general, the owner looks toward the bottom line and the store's
long-term health. He doesn't need to please anyone, so he's free to
make tough decisions. He's more motivated to work another shift if
money's tight. The manager tends to strive toward employer
satisfaction and customer satisfaction. If customers are telling him he's
doing a good job, he's usually happy, even if profits are down. If his
bonus check (if any) is up, or if he's meeting the carefully-defined
goals his owner has in place, he feels he's doing what the owner wants.
There's another fundamental difference. The manager's house doesn't
go up on the auction block if the business fails. He can walk away and
use his experience as a resume point. An owner who financed his
business with a home equity loan has a fundamental motivation that
can't be matched by an employee who lacks a deep financial tie to the
business. Even one who set the business up with less risky financing
might still lose a large cash investment.

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

What if your manager interviews an employee who turns out to be a


thief? He interviews the person, calls his references and hires him.
After a day or so of training, he's ready to let him fly solo. Six weeks
later, your checking account has taken a huge dip. Only after careful
research do you discover the extensive product returns the new hire
rang up-all of which were fake returns so he could steal your cash.
Your manager attributes it to bad luck; you might think that a
background check could have revealed that he was wanted for theft
from two previous employers not listed as references.
More generally, liability refers to the chance of a lawsuit stemming
from the actions or inaction of your employees. If a manager decides
on the spur of the moment to inform a customer that you don't take
checks because the customer in question is dressed poorly, unbathed
and not one of your regulars, his impromptu choice could lead to a
lawsuit for discrimination.
If your manager laughs at a sexist joke made by a crew member in
front of a female customer, she sues you for sexual harassment. It's
little consolation to know that she might name the manager in the
lawsuit, too. Underneath these worst-case scenarios you have to
consider the lesser aspects of increased liability: an improper
employee termination might lead to paying unemployment, or
carelessness in the workplace might lead to a worker's compensation
claim. A manager might obligate you to a vendor purchase or fall for a
scam of some kind.

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

Business of Gaming Retail #19: Choosing Partners

Business of Gaming Retail


Whether you're in the planning stages or looking for an option to grow your existing
business, one option you might want consider is bringing in a partner. A partner can
shore up needed expertise, relieve a cumbersome workload and provide additional
capital. The partner who provides the right contribution in the right areas can help your
company achieve new levels of sales and profitability.

Overlapping vs. Complementary Skills


In a best-case scenario, each partner brings a unique set of skills to the
table. One might know miniatures and board games well, while another
knows CCGs and RPGs. One brings back-end strength (accounting, bill-
paying, and planning) and another has front-end skills (customer
service, good employee relationships). Each of you manages the
section of the store that you know best. While you might listen to the
other partner's opinions, if you bring unique skills, it's easy for you to
establish authority over that area, which means fewer disagreements.
To a degree, having overlapping skills in a certain area is good, too. If
you both agree on something, then it's a relatively safe bet that you're
making the right call. If you disagree on something ("should we blow
out GURPS and use the space for something else?"), then you can state
your opinions, weigh each case's merit and come to a mutual decision.

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

This broad category includes display management, how to read and


design a planogram, floor layout, signage, etc. No matter what
products you carry, where you place your store, or how you staff your
company, at least one of you must have this skill already or develop it
in short order.

Management Experience

Management experience can come from an office, a restaurant, a retail


store, or even a home-based web business. It includes skills like
recruiting, hiring, training, scheduling, record-keeping, cash
management, loss prevention and a host of other skills.

Game Categories

Often, people believe that game category knowledge is enough to


qualify them as a partner. In some circumstances, it might. An acute
knowledge of a game can certainly generate exceptional sales of that
game. A partner who can turn $20,000 per year of Games Workshop
sales into $120,000 can be an asset to your company. Similarly, a
partner who can improve product sales merely by identifying which
products in a line you should add to your inventory and which you
should discontinue can add profitability for that line. When you and
your partners list your assets, mention which game genres you think
you can manage right off the bat or learn in a short period of time. This
list might help determine which product lines you'll carry, and thus
influence your initial financial projections.

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

Don't underestimate the value of mundane woodworking, plumbing


and drywall experience. A handyman might save you tens of thousands
during your build out stage and thousands each year in ongoing repair
and maintenance costs. At one point, I worked out the math regarding
a full-time handyman on staff: building a whole suite of custom fixtures
for the store, keeping the lighting fully operational, creating terrain
drop-ins for the game tables, replacing ceiling tiles, painting the walls,
etc. If I had had multiple stores, I'd have done it.

Not a Partner, But.


Sometimes a prospective partner is not the right candidate for a
partnership but might make an excellent employee or demo volunteer.
Depending on your needs and their goals, you might offer them a
share of ownership after working a certain number of hours, or as a
reward for helping a product category reach a certain sales threshold.

Workshop Scenario 1: Startup


Let's say that you're tight with money and disciplined with your
spending. You've saved up $20,000 toward your goal of opening a
game store. You and your wife have decent credit and you think that
you have $50,000 in home equity. You've done your homework and
want to open a smallish game store with CCGs, RPGs, minis and board
games. You plan to have a small game room with which you'll run
tournaments and demos but no open gaming. You played D&D in high
school, almost 20 years ago, and you got back into it when 3rd edition
came out. Since then you've played some D&D minis and started
playing a little Magic: the Gathering with friends.

Anne

One potential partner, Anne, is an accountant with $5,000 cash to


invest; she's also good for a line of credit for up to $50,000. She plans
to work 10-20 hours per week in the store except for tax season, when
she's too busy with the day job. She's a casual player of Warhammer
and 40k and D&D and she's played some board games, but she's not
too much into those. Gaming is relaxation for Anne. She gets all the
competition he can handle at work.

Brett

Brett has a couple of thousand dollars in savings (let's call it $3,000)


and works as an Assistant Manager at Toys R Us. He's a typical "alpha
gamer" and probably has more games in his apartment than your store
will when it opens. He's played everything, with everybody, and he
loves them all. Brett has a low credit rating; his history shows regular
payments but few purchases made over time. He plans to quit his job
and work full time at the store.

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.

Workshop Scenario 2: Store Upgrade


Your store is three years old. You started off with a solid base of GW
games and a smattering of RPGs and CCGs, both of which has gone up
and down with the market since you opened. You do about $120,000 a
year in the miniatures category, including paints and painting
accessories. Your sales of other categories (RPGs, CCGs, CMGs) stays
in the $10,000 to $15,000 range, and you generate another $8,000
with snacks and miscellaneous uncategorized sales.
You're nearing the end of your first lease and wish to consider a
partnership. Who you bring on, if anyone, determines whether you
renew the lease or seek out a larger space. You have learned the
industry thanks to your experience, friends met at conventions, and
online networks. Now you're looking to add sales volume by expanding
your product lines or shoring up sales in a weak category.

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

Emily is a restaurant manager who works 60 or more hours per week.


She can dedicate no more than a half day each week to the store, but
she can invest some $10,000 in cash. In return, she wants a limited
partnership: a 10% share of any profits and the right to buy games at
cost. She'll participate in the occasional tournament for just about any
game, but she can't commit to a league or other regular events.

Fred

Fred is an IT tech. He works on contract, usually for six months to a


year at a time. He has good income when he's working, but his
irregular pay and a divorce from a few years ago make for mediocre
credit history. He's offering $20,000 in cash, part of which he wants to
spend on a PC LAN, console LAN or both. He'll maintain it, and when
he's not working, he can work in the store. Fred plays mostly electronic
games, but he also plays 40k and certain genres of RPGs.
Which answers are right? Well, that depends on a lot, so let's discuss it
in the forums
Business of Gaming Retail #20: Think Big
Business of Gaming Retail
This column makes certain assumptions about your business model. One of these
assumptions concerns the expected sales volume of your store, based on the most
common figures cited by store owners. The lower-level sales volumes are easier to reach
with the lesser capitalization most people can achieve. Also, the variables vary to a
greater range at higher sales volumes, making predictions about those figures less reliable
from situation to situation.

Sometimes somebody comes along with a larger capitalization


potential than normal. It could be a retired military officer, a well-paid
professional who wants to work in the gaming industry, or a fan with
an inheritance or other windfall. It could be a brilliant promoter who
began with a business plan that called for $90,000 in capital and raised
$400,000 from investors. Now he wishes to re-examine his option.
More cash opens up more options. If that's you, you'll want to know
what options those are and what factors affect your decisions.

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.

Business of Gaming Retail #21: Think Really Big

Business of Gaming Retail


In last month's column, we took a serious look at the dynamics of a business model with
a little more ambition than most. This week, I review a more fantastic vision.

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.

Before this revelation, we brainstormed on exactly what we might do


with all of this room. For reference, the largest game store I've seen
anywhere is Sci-Fi City in Orlando, which was 14,000 square feet at the
time I visited (the owner later sublet out 2,500 square feet).

The layout includes one customer entrance and a separate customer


exit, much like a Blockbuster Video. Interior fixtures force traffic into a
certain pattern designed to circulate through the entire store. A service
entrance allows access directly to the employee break area/work
station. A back door allows delivery access from an alley behind the
building.
The build-out, fixturing, computer hardware/software for this behemoth
store exceeds $200,000. Many of the inventory costs are listed with
their respective sections, but they bring the total startup costs to over
$350,000.

The scary thing is that this plan is entirely feasible at the stated (albeit
imaginary) rent.

Cash Wrap (400 sf)

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.

Behind-the-counter equipment includes a drop-safe, price gun and


other standard supplies (including paper for the receipt printer, tape
for the price gun, and labels for un-barcoded products), customer pulls
for comics, and the special request bins. The sell sheet binder, main
event schedule, catalogs without a place on the shelf and other sales
tools are available here for staff use.

Weapons (1,000 sf)

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.

New Games (3,000 sf)

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.

Used Games (800 sf)


Each 30 sf allows for 200 titles (at an average $5 each), plus browsing
space. A space of 600 sf thus allows for approximately $20,000 worth
of inventory, which will turn 1-2 times annually. The remaining 200 sf
allows for higher-value collectibles face-out in a locked glass case.

Singles Table (200 sf)

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.

An employee monitors the browsing, recommends certain cards,


handles trades, and transacts sales. This area should realistically
generate $25,000 in cash annually, at an average 60% margin, with
built-in measures to prevent over-purchasing and quick liquidation
techniques for unproductive product lines. Normally, this station is the
primary position for an employee only during weekend shifts.
Otherwise, one employee working elsewhere comes here upon
customer request to handle 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.

Bumper Stickers(20 sf)

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.

LAN (1,800 sf)

The LAN area features two tables, each with 4 computers facing each
direction.

The PC LAN includes a dedicated server and a separate PC for


demonstrating software the company sells. The area also includes two
console LANS-one for the X-Box platform and one for Sony games.

LARP Room (2,500 sf)


The LARP room is divided into six compartmented sections, to which
the narrator can assign fictional locations in the game. One room might
represent downtown, another the beaches, etc. Small breakfast tables
and comfortable chairs can be rearranged as the narrator wishes.
Radios with headsets allow up to 4 storytellers to communicate
between rooms.

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.

Supplemental income from drink and snack vending machines in this


area accounts for additional $2,500 revenue annually.

Game Room (5,000 sf)

Room for 30 conference tables allows for up to 180 players


simultaneously. The room requires at least 5 garbage cans keep the
place clean. At the head of the room is another conference table for
judges; next to that, dry-erase boards are available for posting
pairings, standings and announcements during tournaments. Ten of
the tables are taller 4'x 8' tables for miniatures tournaments.

The game room holds different terrain boards to be used for miniatures
tournaments or for casual play.

Private Gaming Area (600 sf)

This section features 4 closed-off areas with windows open to the


public game room. Each room includes a rectangular table and up to 8
chairs. Use of a private room for 5 hours (effectively one game session)
costs $12. Maximum feasible revenue possible is $13,068.

"Royal" Game Room (250 sf)

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.

This area does not generate income. It's pure indulgence.


Lockers (100 sf)

With 48 lockers renting out for $9/month, 100% occupancy equals


nearly $5,200 in revenue, for one of the highest $/sf ratings in the
store.

Materials and labor involved in the building should run less than $600.

Deli/Food station (900 sf)

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.

Equipment and initial inventory costs require about a $20,000


investment. Apparel & Accessories (400 sf)

This section offers gaming- or fandom-related t-shirts, book bags,


baseball caps, and other items from a variety of suppliers.

Comics (1,500 sf)

About $30,000 of new and used inventory and accessories in boxes


and on shelves.

Toys (2,000 sf)

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.

Novels (1,000 sf)

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)

Console game cases on movie video-style shelves allow customers to


choose a game without having access to the actual product. Customers
take the cases to the counter where they exchange it for the actual
game. Games are shelved alphabetically by platform.

A buyer at the counter buys used video games according to a company


price guide.

Initial inventory should be about $12,000 and should grow


considerably from customer purchases.

This section also includes displays for new and used consoles, guides
and other accessory items.

DVDs (2,500 sf)

DVDs and other media on traditional fixtures. This section is divided by


genre: drama, action, horror, sci-fi/fantasy, anime, children's,
documentary, etc. As with most things, we sell new and used.

Mini-Theatre (1,900 sf)

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.

Art Gallery (300 sf)

This section features art prints and originals in a combination of poster-


style fixtures and frame-suitable art. Merchandise includes prints and
originals of all sizes and price ranges, including unique items like
original iconic D&D art. It might include unique items such as books
from "named" collections-I'd love to have the Jiardini Player's
Handbook, for example, or a copy of the Magic card "Marriage
Proposal."

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?

Dedicated Demo Tables (600 sf)

Terrain set up on this table allows for an instant field of battle to


introduce new players to the hobby. Placed near the entrance, the goal
is to get every new customer to play one 5-minute game. Games
Workshop's stores use this concept as the key tenet to their stores that
average $100,000+ annually through their product lines alone.

If we attribute the table to customer conversion, we need to turn 10


walk-ins per year into regular miniatures gamers in order to meet the
area's sales goal.

The assumption is for two tables: one to promote Games Workshop or


other miniatures and the other to promote the latest impulse-priced
card game, like Fluxx.

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.

Demo Video Stands

The computer monitor shows various products available for sale in a


video loop, with sales information edited onto the video. This might
include PowerPoint presentations prepared in the store and other
commercial material. These monitors rest on existing shelving or hang
from the ceiling, requiring no dedicated floor space.

Work/break area (500 sf)

This area includes a refrigerator, microwave, vending machines, a TV,


and a table for off-duty employees to eat, read, study work-related
material, etc.

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.

A full-time minis painter uses store supplies to paint individual pieces


and armies on commission and for spec sales both in the store and at
online auctions.

Storage Area (500 sf)


Overstock merchandise and off-site inventory is stored in a locked
room. These sales are a mix of low-margin, loss items (discontinued or
clearance inventory), and high-margin used product that work well to
increase the overall profitability of the store. This work area should
account for at least $15,000 worth of annual sales in its own right,
even though the in-store sales are relegated to other areas.

Restrooms (300 sf)

Separate restrooms for men & women. This area also includes the
cleaning supply closet.

Office (300 sf)

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.

Wasted (1,030 sf)

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

Business of Gaming Retail


Most retailers develop skill at selling products on the sales floor. For many, this is part of
why they became retailers. They love gaming, and their enthusiasm helps them sell their
favorites.

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.

Before the Release


Sell upcoming items by reminding customers in advance of the
product's release date. For a big release, remind them of the release
date in shrinking increments of time: three months out, a month out, a
week out, and then the day before. For lesser releases, a notice a week
or two in advance is sufficient.
Products like Alliance's Game Trade Magazine are helpful tools for
collecting pre-orders. You can have a stack at the counter, lay them
out on game tables, or hand them to your best customers. You might
create a pre-order sheet and leave it on the counter so that interested
parties can sign up. If you use a standardized special-order form, fill it
out ahead of time with the name and stock number of an item you
want to promote; that way, customers need only put their name on it
and turn it in. The easier you make it for them to order, the more pre-
orders you'll get.

New Item Sales


This time is perhaps the most important stage in a product's life cycle.
Generating a huge player base of any given game creates the potential
for supplement or add-on products later on the game's lifetime. If you
have 30 players for a new CCG with the first set, then your potential for
sales with the second set is excellent. You'll also have a strong network
of players who will continue to play the game. On the other hand, if
you only make 5 players, then the game will probably die for you
within an expansion or two, leaving you with cash-killing unsold
product.
Raise your players' interest with tournaments. Introduce new players
through demos. If the manufacturer doesn't provide one, you might
want to design your own demo deck, oversized game pieces, or RPG
scenario.
Stock new items together. Have a "New Releases" shelf or end cap
inside the front door. It's perfectly okay to stock additional copies with
the rest of the product line, but you should keep at least one copy
visible to everyone who walks in. It's easy, and it builds sales.

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

Business of Gaming Retail


I see certain questions on a regular basis. The answers to the most important of these
questions become full-fledged articles. Others don’t need that much attention, but they do
need some time. Here are the ones that come to mind first.

How do I set a weekly buying budget?

One way is to set it as a fraction of your previous week’s sales. If you


do $4,000 in sales, set your buying budget at 50% or 60% of that
figure ($2,000 or $2,400). Divide that figure between your different
categories so that you’re not spending the whole amount at Alliance
and then wondering how you’re going to restock your snacks, Magic
singles and t-shirt rack.
This policy is very important, and you should seek to fine-tune it as you
learn your store and adjust it as you go so that it helps you meet your
store’s needs. In your first year or so, expect your inventory to grow,
both in response to increasing sales, and as needed to expand into
new categories or product lines. Budget for and plan for your inventory
increase instead of letting it happen by accident.

How do I handle CCG singles?

The number of ways stores handle CCG singles is approximately equal


to the number of game stores that sell CCG singles.
First, should you even sell singles? Selling singles opens up new theft
opportunities, and it’s very time-consuming. Either aspect might be a
deal-breaker for you. On the other hand, singles can add high-margin
sales, increase your sales volume, and give your company a
competitive edge.
Second, which games deserve singles sales? If you sell a booster and a
starter box of each set of a particular game, that game wouldn’t be a
good candidate. For that matter, booster sales might not be the best
indicator in any case; game play and tournament activity might be a
better indicator. Start with your busiest (or best-selling) game first. If
you’re happy with the results, you might wish to expand your singles
sales to other games.
Many stores deal only with current tournament-legal rares in a binder,
organized alphabetically by set, in order by collector number, or
whatever is easy for you and your customers to handle. These cards
might be under a glass display case or behind the counter, available
only on request and not to leave the counter. Commons and
uncommons might go in a bin or box, for anything from a nickel to a
dollar a card.
Larger stores, or stores that focus on CCGs, might have everything in a
binder, including commons. They might have a binder for every set all
the way back to M:tG’s Alpha (I did).
Price competition can be intense for singles. Many stores use some
sort of index pricing, comparing the prices at online resellers and
choosing what works best for their store. Others price the singles
themselves, based on their knowledge of the game and the perceived
play value (and its subsequent demand). Most stores adjust their
prices up or down according to what’s currently winning tournaments.
For absolute simplicity, you could simply price cards according to
rarity, with all commons the same price, all uncommon the same price,
and all rares the same price. This strategy might work best for low-
competition games, regional favorites, isolated markets, or low-volume
CCG sales in general.
You might buy your singles from your customers, buy them in
collections, or open booster boxes.
If you buy singles from customers, do you offer cash or credit? Credit is
better for you, while cash gets you a greater selection from your
customers. You could use a mix: anything over $20 has to be credit, for
example, or you only pay cash for a select list of rares. If you buy a
collection, you might offer a static buy price according to the number
of cards in the collection, sift through them looking for exceptional
cards, or negotiate each purchase individually. Opening booster boxes
gives a good diversity of product and a reliable supply; it also gives
you an influx of new cards that your players need. On the other hand,
it’s relatively expensive and can leave you with multiples of unwanted
rares.

How do I set a schedule?

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.

How much cash should I have for my cash drawer?

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.

How can I thank you for all your help?

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

Business of Gaming Retail


You might wear a seat belt because your local laws require it. You might also wear one in
case you get in a collision. Sure, a head-on collision at highway speeds might end your
life whether you wear a seatbelt or not, but for most daily accidents, that seat belt can
save your life or significantly reduce the injuries you suffer. You don’t plan to drive off
the road or get in the path of a drunk driver. But you buckle up anyway--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.

Fire, Flood, Dogs and Cats Living Together

If you build up your property at all, allow for numerous electrical


outlets. Crowded outlets are a potential fire hazard. Make sure all
electrical work you have done meets local codes. Keep at least one fire
extinguisher on hand, recharge it on schedule, and replace it every 10
years. Before you mount it on the wall, check your local fire
department for required locations.

Your business should certainly carry commercial insurance. Insurance


is the epitome of “just in case” situations. You should insure your
fixtures and inventory against fire, theft and other common hazards.
These things happen. I know of one store that had a car drive through
the front glass. Twice. You can’t prevent these incidents, but a good
insurance policy can make them easier to survive.

Buying a policy once and forgetting about it isn’t enough. Keep


accurate inventories. Review your coverage as your business grows. If
you have $5,000 worth of computer coverage but add 8 stations to
your LAN, it’s time to review your policy. If you’ve grown from
$200,000/year sales to $350,000/year, you’ll want to recheck how
much inventory you have covered.
Computer Failure

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

Let’s consider some robbery deterrents. Which of these is the most


important: lit parking lots, two clerks on duty, clear windows, security
cameras, guns under the counter, alarms, or a lack of money?
Surprisingly, robbers cite a lack of money in the store as the most
important reason to cross a place off their list of potential targets.

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.

Hallmarks of scams include speaking quickly, vagueness, demanding


that you make a decision right away, and not having information about
you (like asking for your address to ship you their goods). If you
already had an account with them, they’d have your address.

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.

Are you covered by worker’s comp? If so, do your employees know


where to go in case of an accident? Do you even know where to send
them? Find out and post the information where they can find it. Keep
your account number where you can find it.

If you’re not covered, what do you plan to do in case of an accident?

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)

Business of Gaming Retail


You’ve heard the horror stories of small business failure. You know that about 110% of
them fail in the first five minutes and the rest fail before lunch. In the discussion on
negotiating rent, you read that landlords don’t expect you to last out the duration of the
lease. When you ask for financing, you know the bank looks at how much of the loan
they can recover when, not if, you fail.

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.

2. Improper Tax Management

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.

3. Cash Flow Management

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.

4. Insufficient or Ineffective Advertising

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.

6. Poor Growth Management

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.

Bonus: Reason Businesses Don’t Fail

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).

Business of Gaming Retail #26: Demo Volunteer Management

Business of Gaming Retail


Volunteer-driven events are not an accident or a by-product of your store. If you have a
game room, you should make leverage of that game room a high-priority duty. That these
volunteers cost you no salary doesn’t mean you should be frivolous with their time and
energy. Make the best of the experience for both of you and you’ll both be much happier
with the results.

Demo Volunteer Rules & Guidelines


Do not promote your game at the expense of other games. If you
champion Privateer, for example, don’t trash GW’s pricing policies to
sell your manufacturer’s figures. It’s unprofessional, and it doesn’t help
the store meet its goals. Our goal is to sell stuff, and transferring a
customer from one product line to another doesn’t increase our sales.
It could even be detrimental. Your company’s product might have a
lower margin, or your customers might spend less annually than your
rival’s customers.
Do not, under any circumstances, steer our customers elsewhere. We
spend a great deal of money on rent in a high-visibility location and on
advertising to attract these customers. Don’t advise them to go to
another store. Do not tell them they can buy your company’s games
cheaper online. If your company offers an exclusive deal only on the
website or something that we can’t get, talk to us first before
promoting it. We might be able to negotiate it with the company, or we
might decide to end our support of that company’s products. In any
case, honest and forthright communication is the best route.
On the other hand, feel free to recruit from customers in the store, as
long as they aren’t actively engaged in another activity. Once you
establish relationships with the customers, it might be appropriate to
interrupt a game—briefly—to ask if they’d be interested in joining
when they’re done. For the most part, avoid interfering with other
ongoing games.
Don’t argue with customers. New players tend to accept whatever you
say without question, but veteran players think they know everything.
You can make a point using careful language. Point out that you might
have information regarding a ruling that the customer doesn’t,
because you’re on a mailing list or participate in a discussion forum or
have had private e-mail communications with the company. If they
don’t accept your argument, let them be right in casual play. In a
tournament, they have to accept your ruling, even if they dispute it
later.
We require you to dress appropriately. If the company provides you
with a t-shirt, that’s the best thing to wear. If not, or if you choose to
wear one of our demo team t-shirts, you may do that also. If neither
option is available, dress neatly—no holes in the pants, face piercings,
etc. Remember that you represent another company and must meet
their expectations of your image.
Remember that your job here is to assist with sales. While you don’t
have training or authority to ring up sales, we do expect you to know
where the product is located in the store, be familiar with the product,
and know what a player needs to get started playing.
These are the big points.

The Lesser Points


Be on time for your events. If you need setup time, arrive early enough
to allow for it. If a particularly long-running event requires the store to
open early that day, we might be able to arrange that.
Normally, you are responsible for any event reporting your company
requires. If you need anything from us in this regard, just ask. We often
send them an after-event report anyway. If you receive news about
any promotions the company is doing, ask us. We’ll almost certainly be
interested in participating. Normally, we hear about special promotions
through our communication network, but there’s always a chance we
might miss something.
We ask that you schedule events at least a month in advance when
possible. We’ll send out a notice to our customers then, and again a
week before the event. If the company gives you any posters or any
other POP materials, we’ll try to find a place for them. We want people
to know about the event.
Have a sign-up sheet with you when you run your event. Ask for the
names and e-mail addresses of participants. If they don’t want to give
you any information, don’t press. Afterward, we’ll send out a notice
that says something like “Thanks for your time and we hope you
enjoyed the game.” Of course, we’ll also add their e-mails to our
master list.
While you might represent the store in a limited capacity, you’re not an
employee. We ask that you don’t give others the impression that you
are.

Your Obligations to Them


Inform your staff. They have to be able to field questions about the
event on the phone or in person. Keep information in a convenient and
consistent place so that they know how to find out anything they need
to know.
Notify customers. Your volunteers can post signs in the game room, or
they can announce their event on your online forum, but only you can
send out e-mails, mail postcards, or add the event to your calendar.
Make at least two announcements—one 2-4 weeks in advance and
another about a week before the event.
Give them their mail. Sometimes the manufacturers send materials to
the volunteer. Other times they go to the store. If you receive
materials, keep them in a safe place until the volunteer needs them.
When they arrive, call or e-mail the volunteer; sometimes the package
contains POP marketing materials that you can use in the store. Check
the contents ahead of time, too, so that you don’t have to find out the
day of the tournament that the kit for 12 only came with enough
material for 6 players.
Make room. We had a stated priority for the game room. Store-
supported events took first priority, regular weekly games had second
priority, and all pickup games were on a first-come, first-serve basis. If
you need to rearrange tables or anything for a large tournament, do it
beforehand so that the volunteer and your players are ready to start
on time.
Report to the company. Report success or failure of an event and offer
a suggestion why. You might not have had enough notice, or all your
interested players were in a tournament at another table. Let them
know if the demo was too long, or if the tournament rules ended up in
ties in every match.
Throw the best ones a bone. If a volunteer consistently goes above and
beyond the call of duty, give him an extra. Their compensation varies,
but it’s usually not enough to make the activity a financial win. A bonus
here and there can encourage them to give your store higher priority
or to continue the activity after they would otherwise quit. Keeping
them happy can be cheap. Sometimes the thought really is what
counts.
Lastly, say thanks. It matters

Business of Gaming Retail #27: Branding

Business of Gaming Retail

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.

Fundamental Concepts of Branding


To know how to use it to your advantage, you should understand a few concepts about
branding in general.

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.

You Could Be Wrong


You might not accurately know how customers perceive of your store. Talk to them. Ask
them to name six words that they associate with your store. Ask them why they shop
there instead of other places.
Don’t stop with your customers. Talk to neighboring businesses. Talk to
your competition. Talk to former customers (your POS should be able
to give you a list of lapsed customers). Find out what the public thinks
about your store. Knowing the truth about your image can help you
fine-tune your branding efforts.

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

Your logo is a thumbprint graphic of your company. It should be immediately associated


with who you are and what you do. Common visual elements associated with games
include chess pawns, dice and checkerboards. If the rest of your branding machine is
strong, your logo can be virtually anything.

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.

Colors & Patterns

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.

Business of Gaming Retail #28: The Change in Your Couch


Business of Gaming Retail

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.

Stocks & Bonds

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.

Multiple Bank Accounts

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

In an earlier article, I recommended testing your local market by running a convention


space, hitting trade shows, or helping an existing retailer. I’ve even seen game retailers
run flea market tables. This method works best with second-hand merchandise that you
can buy cheaply and sell quickly, often starting with a personal collection. Start with just
$200 or so in inventory and build up from there, reinvesting your sales into more
merchandise. If you’re lucky, you might start with $2,000 to $5,000 in second-hand
goods that you won’t have to buy when you open your store.

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.

Start a Fixture Collection

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.

Assume the Seller’s Debt

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.

Business of Gaming Retail #29: Managing Success: A Cautionary Tale

Business of Gaming Retail


Recently, I’ve been in a position to watch a curious thing.

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.

Brian, who watched his contribution margin ruthlessly when he owned


and operated a single store, grew careless with his cash as his
company grew. He took managers on training activities out of town. He
bought managers lunch after the meetings. He instituted new bonus
programs.

The Fifth Store


The deal was sweet. The price was reasonable for an underperforming
store, given its sales history and location. Best of all, the owner would
hold the note, removing any obstacles concerning credit and lengthy
loan applications. He wasn’t sure why it was underperforming, but he
was certain that his positive attitude would overcome any problems.
The 50% drop in sales over the past 2-3 years didn’t trouble Brian at
all.

About $40,000 in cash went out right away in upgrades. He spent


heavily in advertising on this new store. That store received roughly
triple the local advertising of his other stores. Mailouts, flyers,
promotions with other businesses, aggressive price points. He gave it
the works.

A hundred thousand dollars later, sales had barely budged, and the
company was hemorrhaging cash badly.

After about a year, he changed managers. That initially helped sales by


a couple of percent, and some key costs came down (and then rose as
the new manager’s initial zeal waned), but the store was still losing
money.

The combination of frivolous spending and a cash-negative acquisition


was about to cost him his entire business, a business that cost him
over $1 million and 10 years to build.
On top of that hurdle, the company entered a seasonal sales slump
and the overall economy went from weak to weaker. The four stores
that had been carrying the fifth stopped producing cash. During some
weeks, only one store produced more money than it spent. Brian
looked to refinance some long-term debt, only to find that banks were
reducing his credit limit, as they were to many other people.

Because there was no cash, there was no possibility of improvement.


Accounts fell behind, which meant that costs went up as the company
sought alternate providers and paid fines and late fees. Advertising
stopped, which saved cash but meant that the next week’s sales would
be flat or down, too. Manager bonuses stopped, which reduced morale
and incentive to perform. Increased demands on the managers for less
pay resulted in cheating on paperwork. All of these factors made it
harder to get out of the hole.

In an attempt to recover, Brian depleted his entire retirement fund. He


borrowed money from family. Attempting to stave off current cash-flow
problems created years of long-term difficulty.

Begun this death spiral had.

How Do You Avoid It


It is far easier to avoid this kind of problem than it is to recover from it.

Cash Reserve

Maintain a cash reserve. Don’t spend the cash reserve except for legitimate emergencies
or to cover known and predictable sales cycles.

Choose a method of setting up a cash reserve. Set a dollar amount or


(better yet) a multiple of months’ worth of expenses. If your store sees
a seasonal variation, you might want to change your cash reserve
requirements periodically throughout the year. You might need more
money to build inventory for Christmas, for example.

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.

Pay a Fair Salary

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 Success Wisely

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.

Business of Gaming Retail #30: Alternate Business Models

Business of Gaming Retail


The majority of the articles in this series apply most specifically to a certain set of
assumptions about your game store model. Most of them are so fundamental that you
never even consider another option. The articles assume that you’ll rent a commercial
space. They assume that you’ll sell new inventory. They assume that the majority of your
revenues will come from the sale of products. These things are common, but they’re not
technically required.

Variant business models have advantages and liabilities over the


standard way of doing things. In most cases, the liabilities outweigh
the advantages. Otherwise, they would be the primary way of doing
things. However, if you can find a way to overcome the obstacles, you
might stumble onto a new retail niche that could provide a substantial
income at reduced cost or risk to you.

Several of these models face a common problem. Without a storefront,


you’ll have difficulty obtaining your merchandise through distribution.
If you’re limited to second-tier distributors and you’ll pay more,
reducing your potential profit on an already dicey model.

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.

Game Club Environment


Outline: Game space rent is your primary revenue-generator instead of
game sales. Most of your store includes game space, which you rent
out per hour or by the time slot.
Note: I see this one constantly. The people proposing it usually have a
very clear idea of what they want and a very vague idea of the
numbers involved.
Advantages: The goal is to minimize inventory costs. If you carry
minimal or no inventory, you can reduce startup costs by $15,000 or
$20,000. Reduce your time spent on inventory management and you
can afford to devote more time to event management. With less
emphasis on inventory, you can devote less attention to loss
prevention. Your clerks can handle more sales per hour if they’re not
helping customers with product selection.
Disadvantages: Aside from inventory, you have almost all of the costs
and problems associated with operating the standard business model,
except that you miss out on a large quantity of sales. Unless you
charge very high rental rates, you need nearly full-time use of your
game space. Unfortunately, game activity is concentrated during a
small block of the day. Barring raising your rates, you have a distinctly
finite cap on your income.
Beating the Odds: A variation of this theme is to concentrate on high-
turn, low footprint competitive games like Magic. Your revenue comes
from tournament fees and singles sales. Games Workshop’s games
offer a potential for similar operation, but the required inventory costs
more in terms of space and money.

Business of Gaming Retail #31: Pre-Opening Sales Projection

Business of Gaming Retail


Projecting the sales for your business plan or for a major modification to your business
plan is the trickiest part of the job. When you calculate costs you can get price sheets
from distributors, rate cards from advertising media, and rent figures from commercial
leasing agents.

You don’t have similar tools when calculating income.

What do you have?


Matrix Projections
If you had access to the sales figures for other game stores like yours,
you could compare the size and scope of your store to theirs and
estimate your sales based on the comparison. If, for example, a nearby
store does $400,000 a year in sales and you plan to carry similar
product lines and have similar space, you might be able to count on
anywhere from $250,000 to $450,000 in sales, depending on the
comparison.
This method faces two major difficulties. First, unless your store is
identical in every way to the comparison stores, the comparison will be
invalid. You have to adjust your comparison up or down based on the
areas in which you are strong or weak. If the stores in your state are
doing $200,000 a year, you’d need an exceptional reason for
projecting $350,000 annually. With experience and a personal visit or
two you can look at a store, gauge its foot traffic, gauge its inventory
levels, and estimate its annual sales. Unless you have industry
experience, you’re not likely to be able to do that.
Secondly, and more importantly, you aren’t likely to know how much
other game stores do in sales. Most people don’t share that
information, and some of those are less likely to share it with a
potential competitor. Even on industry-only message boards,
discussions of sales are usually relative rather than absolute: “I had a
good week”, or “Is anybody else way down from last year?”

Inventory Levels and Turn Rates


Add up the value of the product lines you intend to carry. You have
your inventory costs from your expenses sheet, so you know about
how much you’ll spend on your goods. Multiply by a reasonable turn
rate (for simple math, I’m using annual sales divided by an average
inventory at cost). What is a “reasonable turn rate”?
It depends.
Different products turn at different rates. Collectible card games turn
quickly; role-playing games sell more slowly. If you plan to earn most
of your dollars from the card-floppers, your overall average turn rate
will be higher than that of a store selling principally historical
miniatures.

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.

Things to suggest a higher turn rate:

• Good product knowledge


• A well-rounded advertising plan
• Game space
• Good image
• Multiple product lines
• Frequent activities
• A younger population base
• Good merchandising skills
• A marketing plan that emphasizes competitive prices
• Face-out book displays
• A focus on high-turn products like CCGs

Things to suggest a lower turn rate:

• 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

All of this brings us back to “How do I calculate my store’s turn rate?”


Look at your business plan. Multiply your planned categories by one of
the turn rates given within each range. Use a figure closer to the top of
the range if you check off items on the “high turn rate” list and a figure
closer to the bottom if item of the “low turn rate” list apply to you.
Project your sales for each category and add up the totals.
That’s a good figure for your second year.
Your first year will be one of growth, culminating in figures near those.
You might want to work backward, counting at month 12 and scaling
back a little bit until you get to starting figures half or lower than your
final figures. Your first three months should include fairly brisk growth.
Monthly growth should slow for a few months and then slow even
further near the end of the year. Sales growth of 10-20% a year for the
next couple of years is normal.

The Wrong Way


Calculate your sales projection based on a realistic expectation of what
your business model and resources can generate. If your plan does not
work off that level, rewrite your plan to grow sales or reduce costs.
Don’t keep raising your sales projection to meet your needed capital.
That’s a recipe for failure.

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.

Business of Gaming Retail #32: Critical Mass


Business of Gaming Retail
When you're bringing in a product line, whether it's a new store procuring its first order,
or a new store expanding into a new product category, you have to consider where your
critical mass lies for that inventory level. If you want to add anime to your product
offering, you can't just put 8 DVDs on the shelf and wait to see what happens. You have
to add a certain amount of inventory before it begins to earn its shelf space.

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.

The "Mass" Part

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.

The Other Parts

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.

The Usual Caveats

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

Business of Gaming Retail


Cutting costs is less about brainstorming and more about consistency and awareness.
Frugality is a mindset. It should such an integral part of your business operation that it
doesn't need separate discussion, much like "hard work" and "paying attention."

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.

1. Consider seasonal hours. If you're in or near a business district, you


might have strong daytime sales from customers who stop by during
lunch or while conducting other business in the area. If you're in a
mostly residential area, you might not be very busy during the
daytime. If so, you might want to consider changing your hours for at
least part of the year. Opening an hour later on weekdays could save
$300 a season, depending on your labor cost.

2. Price shop utilities. Periodically call around to price shop your


commercial insurance, credit card rates, and other variable utilities.
Insurance, especially, is highly variable. Even different agents
representing the same companies can offer a different price on the
same policy because they earn different commissions. Make it a point
to check the competition regularly-every year or two-and make sure
you still have the best rate. Knocking two-tenths of a percent off your
credit card rate might put $350/year in your pocket.

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.

4. Trade for services. If you need common maintenance around the


store and don't have the skills to handle it yourself, don't call a
professional just yet. Ask around your customer base and see if you
have a customer who's willing to take payment in trade. Assuming only
four service calls per year at minimum charges of $100/call, you'll save
$160.

5. Tighten up on cash. Cash control can be a killer. Set standards for


your employees. Let them know what your standards are and what
steps you'll take to enforce them. If we assume that your stern
warnings cause them to pay attention to cash and don't even count the
effects of charging employees for cash loss, recovering a lost dollar
every day you're open saves about $360/year.

6. Compare inventory costs. Some distributors charge a discount vs.


retail. Some charge a flat rate. Your POS should be able to track the
different cost of items from each supplier, helping you keep track of
who charges what. If you use a POS report to help create your restock
orders, you should be able to sort your orders by cheapest supplier.
Reducing your inventory costs by half a percent saves $625 a year.

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.

8. Cut out unnecessary memberships. Fifteen dollars a year won't kill


you, but how many times a year do you tell yourself that? Cut out
GAMA unless you plan to go to the GTS, cut out website premium
memberships, and slash other incremental costs and you might save
$200 a 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

Business of Gaming Retail #34: Seven Ways to Save Money at Startup

Business of Gaming Retail


I'm not counting lease negotiation in this article. A commercial lease is a huge effort with
plenty of strategies for reducing costs. It's too easy a target. Consider these bonus tips.

1. Inventory deals. Distributors often give additional discounts for your


initial order because it's so large compared to your regular weekly
orders. If a distributor normally offers a 46% discount and offers an
extra 2% on your first order of $15,000, you save $300.

2. Incorporate on your own. You can write your own articles of


incorporation or other paperwork, paying the attorney to supervise
your work instead of starting from scratch. If you don't feel comfortable
with that, ask the fee for just drafting the paperwork and letting you
file it yourself. If you can save 3 hours of attorney time, that's about
$450.
3. Bank your capital reserve. If you received your capital reserve
financing as part of a term loan, you might be leery about paying
interest on what could be $80,000 or more. Don't let it sit in a checking
account. Put it in an interest-bearing account until you have to draw on
it. Sure, you'll earn less interest than you're paying, but might save
yourself $500 in interest that first year.

4. Shop for a checking account. If you received a bank loan, they


expect you to make them your primary banking institution. If not,
you're free to shop around for the best rates. Ask about monthly fees,
per-item costs, and other charges. The difference between your best
choice and second-best choice might be $10/month, for a savings of
$360/year.

5. Buy office supplies and equipment incrementally. Places like Office


Depot and Staples frequently send their customers incentives in the
form of gift cards or discount cards. Spend $50 and get $10 off, for
example. Once you make a purchase, you'll start to receive these
offers. A 15% off discount could save $75 on your 3-in-1, but if you
bought your supplies at once, you wouldn't have gotten that discount.

6. Free displays. At various times, game manufacturers offer displays


for their products, usually tied to certain minimum orders. In some
cases, the displays are cheap cardboard pieces good for no more than
a couple of weeks. In others they are beautiful racks that will serve you
far longer than the products they're designed to hold. Ask your
distributor about current offers when you place your initial order.
Potential savings: $600 or more.

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

Business of Gaming Retail


Ah, the mindset of a gamer. When a bank approves a loan, they typically request that you
reapply if you take more than 30 days to enact the loan. To me, that means a 30-day grace
period in which you can do stuff without having to pay back interest.

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.

Negotiate Your Lease

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.

Get Business License

Most communities require one. Check on yours. You don't need to be


very specific when you get it, so if the details of your plan see some
last-minute changes, don't sweat it.

Fill out Distributor Applications

Have them ready to fax after you sign your lease.

Plan Store Layout

Based on the floorplan of your selected negotiation, plan where you'll


put the different game categories, your counter, game room (if any)
and storage.

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

Prepare your pre-opening flyers or whatnot now. When opening time


comes around, you'll be even busier than you are now. Make a rough
draft of the layout you want, the message you want and the price point
you want to promote. If you have graphic design skills and can lay out
the whole thing, go for it. Otherwise, you'll at least have something you
can present to the ad company.

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.

Online Social Networking

Blog. Tweet. Facebook. Whatever. Let everybody know that you've


made progress. Set a soft opening date. Start a countdown to build
excitement.

Create Accounts

Create separate accounts for PayPal, eBay and other stuff that you'll
use for store purposes.

Draft Paperwork

Get a job application together. Set up your financial software. Write up


a cash-out procedure if somebody besides you will have their hands in
the cash. Assemble any of the paperwork that's on your list of things to
assemble.

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

Normally, I don't harp on the "human element" of business ownership. I


figure that you already know you're in for long hours, Ramen noodles,
and credit rejection because you're self-employed. However, there's
less pressure right now. This is bonus time. Build in a break for yourself
and when the time comes, take it. It might be the last chance you get
for a while

Business of Gaming Retail #36: Drafting That Other Business Plan

Business of Gaming Retail


Often when I talk about a business plan in the context of this column, it’s a formal
document that you write as part of a commercial loan application.

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.

Where will you sell?

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.

Game room or not?

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.

How will you compete?

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.

How will you get new customers?


You’ll find that a certain selection of aggressive game veterans will find
you as soon as you open. These are connected gamers with ties to the
community or who are alert to exactly this sort of thing. Some of them
will find you and word will spread to their gaming groups. They might
find you if you hide in a secret members-only clubhouse and require a
secret handshake to get in.
I’m not talking about those guys.
I mean the other 90% of your customers—the ones who will make your
business viable. Once open, regardless of how successful you are at
retaining your customers, you will lose customers over time. You must
constantly make new customers to reach your break-even initially and
then to stay above it once you get there.
That means you need a medium by which you deliver your marketing
message to your customers. Potential media include newspaper ads,
television, radio, flyers, signs, billboards, movie theatre ads, direct
mail, a guy in a costume on the side of the road, Internet banner ads,
etc. You might end up experimenting with several ad media until you
find what works for you, but you need to plan on doing something on a
regular basis. You can’t ever stop bringing in new customers.

What tasks will you do?

You can almost certainly expect “counter duty”, almost regardless of


the details of the plan. Every dollar you spend is a dollar right out of
your pocket. If you’re open 100 hours per week and pay somebody
federal minimum wage for all that time, you’re reducing your income
by over $32,000 a year. At best, you can expect to share that counter
duty with at least one other person.
What else will you do? Marketing and advertising? Probably most of
that. Repair, maintenance, cleaning? Ditto for those? Accounting? At
some point, you have to decide what tasks you can’t do, for reasons of
skill or time or desire, and hire those out. It’s better to farm out the
cheap tasks than the expensive ones, but the cheap ones are the ones
you’re likely to already know. Floor sweepers are cheaper than
accountants. Try to tackle the expensive duties yourself, even if it
involves a learning curve.

What edge do you bring?

Maybe you can hedge your bet by finding a way to improve on an


industry assumption. For example, I assume that it’s in your best
interest to place your orders with distributors instead of ordering
directly from manufacturers (I can explain why in the forum if you like).
If you can tweak my figures so that you can improve the equation on
the side of direct ordering, this might be an edge for you. All things
being equal, greater margins are useful.
A benefit like this could provide more direct profit for you, or you could
reinvest your gains in an area normally too indulgent for casual
consideration, translating your operational edge into a competitive
edge. You might spend this gain promoting a game convention,
expanding your inventory, or something unique that makes your
business model entirely your own.

Business of Gaming Retail #37: Demos for Dollars, Part I

Business of Gaming Retail


The gamble with having a game room is that the increase in gamer activity it generates
will encourage more sales than if you filled that space with more merchandise or if you
had chosen a smaller space and filled all of it with inventory. You're hoping that it'll
"supercharge" the more conventional part of your retail store.

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

Business of Gaming Retail #38: Demos for Dollars, Part II


Business of Gaming Retail
Demos aren't your only option for game room activities.

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?

• Escalate game play. An escalation league encourages sales automatically for


miniatures. Start off requiring a certain point value and increase the point value
each week. A low entry point allows new players to get in on more equal footing.
• Charge a weekly fee. A $2 maintenance fee each week for a summer league is
easier for players to accept than a $24 fee up front. It also places a value on the
games. Players might blow off a free event but show up for one that has some
meaning to them (and, by extension, to the other players in the league).
• Support weekly events with sales or promotions. League rules might grant an in-
game bonus to the winning players. Artillery might gain a bonus to its accuracy,
for example, for players who gain control a specific in-game territory. Support
this with an in-store sale on tanks and artillery pieces for the game. Ideally, draft
out these rules and plan your promotions together in advance of running the
league.
• Set up your points system so as not to exclude losing players. If a player sees 5
weeks into an 8-week league that there's no way he can win, he loses interest.
Balancing bonuses for winners without penalizing losers out of the league is a
difficult task, but the extra player attendance makes it worth pursuing.

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.

These three items--demos, tournaments, and leagues--form the bulk of


your organized play activities. They see the greatest attendance and
prove to be the most effective at encouraging player participation. The
rest of these events round out the toolbox. Use them to break up
regular routines and fill needs as they appear among your player base.

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.

You Kill It, You Keep It

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.