Tuesday, December 18, 2018

Completing the Circle

We're basically finished with the second holiday shopping season at Chandler, and the fifth since I took over Desert Sky Games.  During this time period we've had a number of product category shifts, marketing shifts, pricing scheme shifts, a location shift, and various degrees of reliability built into our analytics.

The above is going to make it sound like we've been chaotically swerving hither and yon in terms of business approaches, but the reality is a lot more boring and straightforward than that, in which the core operations remain as unchanged as possible every time we undergo an adjustment batch, so that we can have some isolation on the adjusted aspects and then actually learn useful information from the sales, profitability (or lack thereof), and logistical experiences that follow.

In that respect, this holiday season has been something of a breakthrough for me because some things that I've been iterating out for up to six years now are finally concluding to where I have clarity on where the market is and where my target audience's mindset is.  The feeling of reaching that apex evoked for me the part of Ori and the Blind Forest where she makes it to the top of Sorrow Pass and picks up the final skill, "completing the circle," and setting off the orchestral score's swell of triumph and exultation as Ori realizes that she is finally ready to save the forest and set all things right.  My admiration for Gareth Coker's composition work on this piece is immense.
I am perhaps understating the importance of gaining that understanding of the market's direction.  Every single day we receive an onslaught of signals and have to compare and contrast those with the revealed preferences indicated by behaviors.  Moreover, there are different stakeholders all moving in their own directions according to their own desires for what happens next.  Publishers, retailers, distributors, media, and of course customers, but within that last group there are subgroups including casual gamers, hardcore gamers, collectors, roleplayers, grinders, cosplayers, indie creatives, backpack/garage dealers, and so on.  And what some of those stakeholders want conflicts directly at times with what others of those stakeholders want.

No, I am not suggesting that I have finally "solved it all" or have some godlike understanding of the hobby game industry that transcends all else; it's surely impossible to have that, and I still have to read, listen, learn, and iterate every day.  What I'm saying is that I reached a waypoint, if you will, a crossroads, at which several major plot threads at once all are resolving, and that has given me a clarity about some things that I have spent literally years in exhaustive trial and error on.

And at the risk of having several of you throw your drinks at your computer screens (or even more likely now, your smartphone screens), I can't spill the beans on most of what I concluded.  At least, not here in this blog article, and not in detail.  What I can tell you is that I am going to start making substantial changes in my business in Q1 2019 that I expect to have stick for a while.

Some tantalizing factoids that will surely stoke speculation:

★ The biggest growth channels for DSG in 2018 have been online sales channels, all of which posted substantial year-over-year gains.  TCGPlayer, Amazon, eBay, and the website.  We have been approached by Massdrop, Walmart.com, and Wish, and I'm assessing whether to spend attention and resources exploring those options.  Software integration is a major limiting factor.

★ The publisher responsible for the lion's share of DSG's revenue has just told the public that it is going to pay players $10 million to move to a digital platform.  While I don't think the sky is falling, I do think there will be short-term market consequences from this.

★ Our marketing game is peaking right now in measurable effectiveness through the Square Retail Loyalty program, and that has opened our eyes to some product lines that are working better than we thought, and some that are underperforming the health level we believed they were at.  Data analytics are really undervalued in this industry and one of the biggest unforced errors I have committed in six years in business was sticking with Light Speed Retail as a primary POS from 2012-2016 and then Crystal Commerce from 2016-2018 despite both being deficient for this purpose.

★ Creating or restoring value, separate from pure reselling, has been a windfall for DSG.  From disc resurfacing to system and controller refurbishing, these have been areas where we can field highly competitive prices while realizing comfortable margins, all within masterable processes with knowable logistics.  There is nothing like this in tabletop.

★ We preach the blue ocean of mainstream customers as the massive market to target that has the greatest potential to sustain our businesses.  However, there is still an opportunity to make money catering to the needs of enfranchised customers.  It comes down to how or whether the business structure is compatible with that.

★ It has never been a better time to be a tabletop gamer hosting game nights at home.  From luxury gamer tables to smartphone-integrated board games to helper apps for wargames to meetup webapps (including the granddaddy, Meetup itself) to high content quality at the top of the tidal wave of releases.  Back in 2012 when DSG first opened I wondered whether we'd be seeing basically "iPad game tables" within five years.  That's not how it played out, but a lot of the assumptions baked into that question ended up emerging anyway.

★ I have consistently underestimated the attraction of "treasure hunting," so to speak, as a thing that gets people to visit the brick-and-mortar storefront.  We spent 2018 doing a number of things that poke this nerve and the patient consistently responded.

★ There ain't no such thing as a free lunch.  We all knew this already, I'm just mentioning it again because it's highly relevant to a lot of what I am about to be doing.

Hopefully the foregoing will give everyone a sense of where my mind is at as I get ready for 2019 to be the year where business transitions align us to a much closer degree with the combination of our resources, our sourcing partners' offerings, and our clientele's revealed preferences.

Tuesday, December 11, 2018

DSG What If? Conclusion and Round-Up

For the past three weeks, I engaged in wild speculation about how business might have unfolded if some of the broader decisions had gone the other way.  I included a happily-ever-after version of the outcome and a not-so-great version, though in some respects the difference was minimal.

But in all seriousness, part of business and really part of succeeding in life is making careful decisions based on the best information you have at the time, and trusting that process and judgment even when the result is an adverse outcome.  Most -- not all, but most -- decisions made that way that turn out to be sub-optimal, can be overcome by due diligence.  Everything is fine.  Nothing is ruined.
It is not lost on me that out of six possible alternate outcomes, I posited that four of them would have me out of the industry, and two of them would leave me dead.  (And there is overlap.)  I don't actually see that as a morbid turn of mind, but more of an acknowledgment that life is short and before you know it, ten years have got behind you, so you have to play to win.

The exercise also gives me a chance to examine how the idea of exiting the industry registers in my state of mind right now.  The past year and a half, thanks to the tremendously difficult store move and its aftermath, have me in a mental state that's different than I've ever experienced before, and that's counting law school.  It's a weird combination of burnout, frustration, and pessimism, tempered with confidence in my systems and my people, and recognition that I can continue to lean on the asset base I've built and use the calendar to my long-term advantage.  In essence, I know I've got sufficient fuel and oil to reach any destination, but the interstate keeps throwing detours.

My mental state is definitely better now than during my grayest years in state government, which at one point had me dreading even waking up for work in the morning.  I worked with good people at the state, but the work itself was godawful.  Today, however much I need a vacation -- and I really do -- I don't dread going into the store at all.  I am eager, even excited at times, to see how I might advance the business today in particular.  Even the grindy dredge work accrues to a purpose.  It's night-and-day different than being a professional bureaucrat.

That's a healthy mental expression.  I am excited about some of the upcoming category moves I plan to make.  I am excited to present Hybrid Theory: Video Games at GAMA 2019 in Reno in March.  I am excited to experience the rest of the 2018 holiday shopping season, which kicked off, more or less, over the weekend.  I am excited at some of the structural refinements I'm lining up for the main storefront over the next 60 days or so.  I'm excited to see more of the store's debt burn away as we wind up the year.  I have some big moves on deck that I don't know yet if I will get to make, but I'm ready if the shot opens up.

I am not that excited, or confident, about where the tabletop industry is today, and I think the What If exercise really brought that into focus for me and helped me recognize how much of my pessimism is rooted in that side of my business.  It's not just a case of the grass being greener elsewhere.  There are always hazards in the video game, pop culture, and comics worlds.  For comics, those hazards were so substantial that I didn't believe DSG had a long-term value play compared to the focused stores, and I exited the category.  But all three of those businesses address a far larger mainstream audience than tabletop does, which is critical.  Tabletop is narrow.  In the end, to paraphrase from either Gary Ray or Paul Simer, I forget which: Being focused in the world of tabletop for your business is kind of like depending on the only person who knows where you live to keep bringing you food.

For the sake of context, here's everything that's happening in my major business categories, in relevant part where DSG is concerned:

Magic: the Gathering - Late last week Wizards as much as announced (for anyone who cares to follow the $10 million in money) that Magic Arena, the digital app version of MTG that's still in open beta, is the horse they are betting the entire company on all of a sudden for some reason.  Quick backpedaling assured all of us that paper Magic and Magic Online the Least Worst Option Available are both still going to be supported... for the next few hours, surely.  Paper Magic has weathered greater threats.  Don't know don't care where Magic Online is concerned.  Players are wondering out loud whether to dump their collections, but most seem to be hanging on.  This is smart as the possibility of the Arena move actually working would result in card values increasing in all channels.

Video Games - The Nintendo Switch and Classic Minis are no longer unobtainium at mass retail, and that's letting them mature nicely into a healthy used market.  The Playstation 4 is still winning this generation on exclusives, but the Xbox One X has been the best-selling system of 2018 and hosts the best version of anything multiplatform, much as the 360 did last go-round.  GameStop just reported a half-a-billion-dollar quarterly loss, mainly owing to a slowdown of their used software business and meaningless increases in every other category.  The digital sunset for new content is still a decade or more away, as players continue to like having guaranteed access to their games on a physical slab.  Right now only platforms that are exclusively digital, such as iOS, are irrelevant to my purview.

Comics - I do continue to follow the industry.  I don't think anything has changed since last month when I posted my wrap-up (link a few paragraphs above) but 2019 looks like another banner year for mass-market comic properties, so for the stores that have fully tied their fortunes to that wagon, I think you're gonna be okay at this time next year.

Pokemon TCG - Booster packs are still hot, but the rest of Pokemon TCG product has collapsed utterly.  Even singles mean little, because deckbuilding at the competitive level has stratified to a few solved strategies and the players who need cards for those either rip off kids, buy the singles outright, or enjoy an eBay full of booster boxes at a nickel over wholesale.  If it weren't for the good work being done by our league coordinator, Brian, at keeping things fun and inclusive, I'd cut bait.

Miniatures That Are Not Warhammer - It has never been a better time to refrain from carrying these.  There is so much Kickstarter trash out there these days, and so many games that are hype hot out of the gate and then never garner a following, that I'm not sure there's a margin you could promise me that would get me to buy into more of them.  In 2018 alone I sunk blood and treasure into Star Wars Legion, A Song of Ice and Fire, X-Wing v2.0, and Guild Ball.  The only one still sustaining activity, Guild Ball, is disastrously difficult to stock reliably.  I can't even lay the entire blame at the publisher's feet, as a major production run of theirs was destroyed by a typhoon on its way out of China.

Warhammer - This game is in a mixed place right now.  Age of Sigmar has a real following this year, which it didn't before.  Kill Team was a success this year, which it wasn't before.  Shadespire Knight Boat or whatever they keep renaming it, has proven reasonably popular and benefits a lot from being playable on smaller surfaces.  And 40K is 40K.  On the flip side, the back catalog may as well not exist, and a depressingly small number of kits being released these days actually provide much in the way of new models.  There continues to be the perpetual mercantile roadblock with Warhammer that once someone owns their army, they don't have to keep buying booster packs to add to it, usually.  I have been studying the Games Workshop company stores and learning useful things about their logistics.  At the start of this year, Warhammer wasn't working well for me, but depending on some of those moves I vagueblogged about above, there may be opportunity here in 2019.

Board Games - Obviously this one is the news of the season.  In 2016 there were 3600 board game titles released, an average of ten new ones every day (though actually clumped around the Essen, Gen Con, and Origins conventions).  In 2017, industry figures suggest we repeated that number.  I am reliably informed that as 2018 draws to a close, that number has jumped to a staggering five thousand new titles.  Over a dozen a day.  Folks, this transcends mere saturation and amounts to utter supersaturation.  There is no way board gamers, even devoted and fanatical "alphas," can ingest that much content.  And verily, finally, they are not.  The popping of the bubble is underway.  The best board game retailers I know are reporting a noticeable plateauing and regression this holiday season.  If a new board game doesn't sell meaningful numbers on release weekend, the prudent retail move is to dump it, unless you know for a fact it has enough money behind it to grow legs, however briefly, such as an Asmodee Group release.  Otherwise, it's never going to get going, it's already yesterday's news.  Or else it's Kickstarter trash and it was effectively dead before it ever shipped.  This is not a healthy place for a category to be.  It's nice that the few hits we are seeing are astoundingly good -- they have to be to move the needle now.  It's less nice that games that would have been the best thing on the racks in 2011 or 2014 are completely lost in the static today and we can't help but miss out on them.  (And I say that as a player, moreso than as a retailer.)

That brings us up to the present, and we're in what amounts to the matinĂ©e of the shopping season and we'll get into the bulk of it sometime next week.  This is the perfect time to have max selection from stores as most FLGSes are loaded for bear.  Unlike last year, this year DSG is ready, at least as ready as I reasonably expect to be, and I'm excited to see what happens.

Tuesday, December 4, 2018

DSG What If? Part 3: Never Partner

A third installment approaches!  The DSG What If hypothetical series continues as I examine what would have happened if I had gone into this business without the earlier business partners who have since left the company anyway, and how things might have played out.

My purpose here isn't to revisit dirty laundry, but our differences in business approaches.  Sometimes personalities can clash but business goes on anyway and perhaps even thrives due to the heightened tension; other times a personality mismatch is enough to sink even a glorious ship.

Part 3: Never Partner, or "What if DSG had never included the earlier business partners?"

I would not have started this thing solo, so I can dispose of that question up front.

I also won't spend any time on the earlier minor partners in this article because they were basically purely supportive of the business, and just wanted us to move forward prudently.  They each cashed out in their own time and for their own reasons.  I am grateful that I was able to work with each of them and  I am glad we had them in the fold during that tentative early time period.
The major partners who left DSG were Mike Girard and Patrick Hug.  And their business objectives could scarcely have been more different.  I had my own business prerogatives but also tried within my role to synthesize our operations with what they wanted.  As managing partner, after all, part of my job is political, building consensus.  This is not as much of a challenge anymore as the remaining partners are the ones who are almost entirely in sync on objectives.

Girard's vision for DSG was almost entirely that of a TCG store, and later a hybridization into comics.  He had some prior employment connections with publishers of deckbuilding games, and there was considerable overlap between those types of games and Magic players.  But beyond that, he was indifferent to the rest of tabletop, and indifferent to video games entirely.  Before you read that as purely critical, observe that I've discussed on this very blog that for all the best practice preaching of diversity, if we had committed to Magic and only Magic from the moment we imagined DSG, due to the way the industry played out, we probably would have been better off.  Board games are a category I loved that largely did not love me back until we got to Chandler, and still to this day are not the meat and potatoes of our revenue mix.

Hug's vision for DSG had broader take on tabletop, and a broader take on pop culture overall, and in fact I'm not even sure where his limit really is, because later on down the line he dove into art prints, cosplay workshops, and on and on.  You know I like me some perpendicular thinking but in the end I don't think we had the shared infrastructure to push into some of those areas.  What I mean is, to use a contrasting example, if we wanted to sell sports cards, a bunch of work is already done.  We already source through the biggest sports card distributor, and we already carry card supplies and storage merch.  Knowing the sports card market is a bridge much farther, but given some discretionary capital to seed things up, we could do it.  Until the day I liquidated the old art prints from DSG, I don't think we ever really had a professional presentation and solution for the product, nor were we anywhere near a sustainable volume.

Hug and Girard shared an affinity for convention booth vending, which I wanted nothing to do with, and of course I was more than happy to just leave that to them.  You would think our Comicon booth in 2013 would have been outta sight.  For reasons I can't even remember, neither of them ran it.  They had DC, our assistant manager at the time, run it.  From 2014 to 2016, Hug ran the booth, crossing over two years with the 2015 to 2017 that I had Dustin, my comic manager, available also to do so.  DSG no longer vends conventions or festivals, and won't do so in the future for as long as I am required to do anything to make it happen.

We held an Investor Dinner in March 2012.  A great assortment of our friends and loved ones showed up and listened to Girard and I pitch the business.  The two of us brought cash, materials, and open credit card balances, but that wasn't going to be enough.  We needed additional cash positions to be able to launch with some real momentum.  That was what we sought at the dinner.

(Cue the wormhole, approach in the runabout, don't cause any paradoxes!)

At the Investor Dinner, Patrick Hug listened with interest, but ultimately said, "Thanks, but no thanks."  Game store retail is a high-risk investment, and he figured that was risk he didn't need.  He never bought in.

We did enroll a few other cash-only investors, but with a substantially smaller resource base, DSG started in a suite around the corner from its original Gilbert location.  Same plaza, but 1500 square feet instead of 2400, and cheaper rent.  Not nearly as visible from the street.

Given the framework, Girard got a lot of what he wanted, for the simple reason that we didn't have the resources to do it any other way.  The vintage arcade never occurred, but the console game approach was reasonably easy to get underway, despite Girard's lack of interest in it.  By the time he became conversant with the pricing tools out there, though, it was just wheeling and dealing another thing for him, which he liked.

Security was rote; there was no product that customers could touch.  Everything was displayed behind the counter or under it, and the singles inventory started off in gem cases with the innovation we brought from our traveling survey of stores, and eventually moved to a fully electronic filing.  It was trivially easy to run the store with a single staff member on most days.

A small space with room for about 50 tournament players... sound familiar?  In fact, that suite happened to have a second restroom in it, so our fire capacity was higher, more than we could physically seat.  We made Advanced in a weekend, same as with the store's original opening, and when Advanced Plus came around, we already qualified.  And this was during the years when it really meant something in terms of product access.  Magic, Pokemon, and even Yugioh tournaments happened on the regular.  I'm not a fan of the latter, but handling those players was Girard's problem.

Initially, the store was not open Sundays, in recognition of the preferences of the Latter-Day Saint community of Gilbert.  Back in the original timeline, we ended that in year two as business demanded all seven days.  But in this timeline?  Sundays just weren't important.  And with the crucial dark day and the small footprint, we were able to keep payroll costs at a bare minimum for years without burning out ownership.  Year in and year out, there isn't that much Magic business that a store can get on Sundays that it can't get on other days, prerelease weekends excepted.

With Magic as the primary focus and no board game boutique aspirations, we never signed on with Light Speed Retail, instead starting with Crystal Commerce and staying with it.  It would be four years before Red October of 2016, and though it's hard to imagine now, up until then the system mostly worked pretty well.  With TCGPlayer, Amazon, and eBay integration functioning about the way they were supposed to, the singles business dependably brought in money.  There was a lot of moving sand from one pile to another, and Girard had his hands full with semi-reliable part-timers sorting and grading, but it got done well enough to make rent, and a little better than that.

We added comics in late 2013, just like in the main timeline.  For lack of any other sources of comics in the area, it paid for itself well enough, and used up a bunch of wall opposite the counter nearer the front entryway.  Girard pressed to have comics replace video games because it was something that interested him more.  By this time I was showing up one or two days a week to do the admin, and barely working on any other projects, so I didn't put up much of a fight.

Unfortunately, that was the exception and not the norm.  Just like in the real timeline, there are differences of approach and philosophy and business purpose that cause conflicts.  Mike Girard is good with people and has a proven willingness to grind long hours when necessary.  That goes a long way.  However, he has near-zero tolerance for administration and finance.  There was perpetually a doubt in his mind every time I reported on some cost we encountered, especially if he was sure we could duck that cost for a while and never pay it.  Any time I took a hard line on some regulatory matter, he brushed it off.  It went on that way.  He preferred to ask forgiveness, whereas I insisted upon asking permission.  I began to worry that my investment could be lost by means of enforcement from some entity.  But I also knew Girard didn't have the scratch to buy me out.

When I said Girard was good with people, I perhaps understated the matter.  He was really good with people.  Girard reached into his long history of game design friends and contacts with the likes of Decipher, Upper Deck, and Cryptozoic, and before I knew it he had a cash offer from some inbound investors to buy my stake in DSG and divide it amongst themselves, as well as the stakes of a few of our silent partners who had only bought in to support my side of the business.  I would have to paper the deal and make one final filing for the existing LLC, and they'd replace it with their own LLC and I could walk away.  They offered me $70k, which I knew was less than the value of my DSG equity.  We had Alpha power in the safe worth a chunk of that number by themselves.  But I also knew this represented a substantial "profit" on my initial investment, and I had been paid my part-time modicum for working up to that point.  It was a clear +EV exit.

I took the money, conveyed my share, and that was the end of my ownership of DSG.  I had been bought out.

I didn't have the same itch for the tabletop business after that, but I did enjoy me some video game collecting, for good and sure.  After killing off a bunch of debt and leaving state employment for unrelated reasons, I decided it was time to try something I could hang my hat on.  I opened my own 1200-square-foot video game store in a suite only a few doors down from DSG.  With no product crossover, both business enjoyed the overlap of customer traffic.

I brought in some vintage arcade games for flavor and a local coin-op collector named Mike found my video game store and liked what he saw so much that he bought into my company.

The DSG lease ended in August 2017, and they left.  Girard said they had found a place in Tempe on Apache Boulevard that was more than double the space for almost the same rent.  I wished them well and saw them on their way, but I wasn't going anywhere, with three years still left of my lease in Gilbert... and various lengths remaining on my leases in Ahwatukee, south Chandler, north Mesa, and Queen Creek.

After DSG departed I let a local player named Mike Griffin talk me into adding Magic to our product offerings.  Just as an experiment, of course.  Griffin offered to bankroll the Magic stock as his buy-in as a business partner, and so it was done.

(♫ Let's do the ♫ time warp ♫ again! )

After the Investor Dinner, we met as principals and were stunned to learn that one of our founders was already jumping ship.  "This isn't what I wanted," Girard said, addressing me and Hug.  "You two aren't talking about a focus on cards.  You're not talking about a focus on the secondary market.  You've got this vision of a high-end board game lounge, and I don't think it's going to happen."  Thus, Mike Girard withdrew from the DSG formation and Patrick Hug stayed the course.

Of course, the big difference in this timeline is that we didn't have an owner to run the store.  The early days ran as a patchwork of owners and hired staff.  For lack of anyone other than me knowing the slightest thing about video games, and me being present only intermittently, the category never sustained.  Without emerging as competitors with a Magic focus in the area, we never had the traction to fend off Manawerx East in Tempe.  Nope, if DSG was going to succeed, it was going to be as a board game lounge, sticking with the original plan and putting all our focus behind it.

Well, Girard was right, it didn't work, and we closed the store in February 2015, executing the kick-out clause in our lease.  And that was that.  The investment ended in loss.

Tuesday, November 27, 2018

DSG What If? Part 2: Never Chandler

Time for the second of my whimsical hypothetical series that started last week with Neverhammer, and now continues with an even broader-range possibility.

Last week I spent a lot of time on the butterfly effect and not a lot of time on logistics and the business structure.  This time I want to move in the other direction and we'll see how this article works out.

Part 2: Never Chandler, or "What if DSG had never moved its main store to Chandler?"

We first looked at 3875 W. Ray Road waaaaaay back in early 2016, believe it or not.  Nothing came of those forays at the time, but it opened the relationship with the McRay owner/landlord that ended up making the move possible when the Gilbert lease finally expired in mid-2017, and obviated the matter of what we would do with the DSG Tempe location, formerly Tempe Comics, when its lease expired outright a couple of months later.

Tempe Comics was located on Apache Boulevard halfway between McClintock and Rural roads, about two miles southeast of the ASU Main campus.  The light rail passed immediately in front of the store.  Abundant bus options existed.  The rent costed next to nothing.

And despite all that, you need to believe me when I tell you that it was about the worst location we could possibly have had, and I would never on my life have signed a new lease for it.  Nobody who had lived their entire life in this part of the Valley would have.  The Mesa Comics / Tempe Comics owners who leased that spot did not have that same amount of background, and were apparently unaware of factors that made that location less viable.

See, regardless of what looked like useful geography, there was no close, convenient, or even useful freeway access to the store.  This is a car town.  Freeway proximity is gigantic.  Moreover, the light rail was a double-edged sword making getting in and out of the plaza troublesome from the east, and it was already bad from the west because of the train tracks and peculiar configuration of the westward neighborhoods and plazas on the south side of Apache.

But that's not all.  It's in Tempe's highest-crime area, which we got to experience firsthand with our Easter 2017 burglary.  It's next to halfway houses, behavioral health adult foster homes, homeless shelters, trailer parks and so on.  Don't get the wrong idea, I'm actually not saying the people living in those demographics are bad, or even that they are bad for business.  I am saying that they are bad for the luxury hobby tabletop game business.  If we were operating an eatery, convenience store, salon, or any of a number of other small businesses, we would be delighted to serve that customer base, as our offering would be much more closely aligned with their needs, and we could have thrived.

Due to the aspects described above, there is virtually zero accidental shopping traffic in the Tempe Comics plaza.  It's the polar opposite of, say, the San Tan Village Mall.  And that will never change, not in our business lifetime.  In this weblog I have described and explained in exhaustive detail the need to reach a blue ocean of mainstream customers. Desert Sky Games and Comics Tempe was never going to be able to do that.  Ever.  No matter what we did.  Because of attributes inextricably entwined with its location.

Accordingly, we knew it was a matter of running out the clock on DSG Tempe and fleeing for greener pastures, and that informed our decision in summer 2017 to sign our lease in Chandler.

(Cue warping noises, swirlies appear on screen, a dimensional aperture marks the breach, ascetics furiously calculate while technicians burn incense in prayer, and I see a glimpse of what might have been.)

Accordingly, we knew the cost and risk of Chandler were great, while a realignment of our business in Tempe took a lot of that risk away.  That informed our decision in summer 2017 to stand pat at DSG Tempe, exercising our option to extend the lease through November 2019, and allow the DSG Gilbert lease to terminate out on time in August.  But all decisions come with costs.

Tempe was 3600 square feet and that is enough room to do a lot of things, while being roughly half of what we would have ended up with in Chandler.  But despite space to do a lot of things, we no longer had the audience to do a lot of things.  And that meant cuts and reinvestment of resources.

Warhammer and miniature wargames overall were the first to go, and that makes this scenario so much different from the one posited last week.  All that about demographics?  How much do you think you can talk a minimum wage worker, living in a double-wide, into buying a bunch of plastic soldiers for $150 and then spending another $75 on glue, primer, paint, and varnish?  Then another $50 on a rulebook for that army.  And then another... oh, let's just say $300 on more models, to make that army competitive.  And here's the cinch: We wouldn't have had a choice.  Games Workshop provides its trade accounts with a five-mile exclusivity, and DSG Tempe was less than two miles away from Game Depot.  So right away, we'd have liquidated a bunch of plastic and given away some game tables.

Board games are something that I never wanted to get too far away from in this business because it's a part of tabletop that's elemental to the definition of what tabletop is.  But again, less than two miles away from the second-biggest board game store in town?  One that had been open for more than thirty years?  And facing a local shopper demographic that would surely have used us as a destination store for tournaments, much of which is irrelevant to the boxed game consumer?  Nope.  I am a board game player personally, but I saw the necessity to exit the category.  Unlike Warhammer, where we pulled the plug before we even got started at DSG Unified Tempe, for board games we kept things going for 90 days to see if a community for it would materialize.  None did.

Comics.  Ah, comics.  I've probably spent more ASCII on those in the past couple months here on the Backstage Pass than any other topic.  But our DSG Tempe plan flipped the script.  We had a whole bunch of cheap floor and with minis and tabletop out of the picture, not very much to do with it.  Offering a massive comic back-issue library was simplicity itself, and the store's location was within the expectations for typical comic book treasure-hunters.  With Critical Threat Comics at ASU closing down, we captured the Tempe comic reader base, for the most part.  Ash Avenue continued serving its eclectic niche, but Monster Comic Books bowed out a year sooner, 2017 instead of 2018, when DSG Tempe ascended in the category.  With plenty of halo miles between DSG and Samurai Comics, the two businesses continued to coexist enjoyably.

We stuck around in the various anime card games but just like in the main timeline, only Pokemon ended up being worthwhile.  The rest went to the dustbin.

That left Magic, and Magic was an interesting case for us at DSG Tempe because if there's one thing you can do with a lot of cheap square footage, it's max out the online business.  Not that we didn't put resources into it in Gilbert and then Chandler in the main timeline; as of this writing around 80% of all singles sales DSG makes are through TCGPlayer, despite those buyers paying a 20% higher price than our local market.  But with little to do in that space, little danger of being unable to pay for that space no matter what business we transact, and all kinds of physical space along the main axis of the room, it made sense for us to use Gilbert's fixture base to create an entire sectional office and mini-warehouse of sorts.

The big benefit of online Magic singles sales is that it scales well with personnel.  Even the existing tool base, imperfect solutions such as Crystal Commerce, TCG Pro, ION, eBay, Amazon, and so forth, functions adequately for this specific business structure much of the time.  We have user permissions.  We have logging.  We have integration.  We have pick and pull framework.  The storage situation is solved.  Frankly, I could do a lot more in the main timeline than I presently do, and have it mostly snap right into place.  But that would take space away from the game room, which we aren't really needing to do right now.

With comics and Magic both on cruise control, I had a decision to make about video games.  I don't want to be in business and not be selling video games, but that part of town is saturated for the category: in one direction we are two miles from Fallout Games, which is a great store; in another direction, three miles away from Gaming Zone, another great store.  A mile north and three miles east there exist smaller, inconsequential video game shops, and there we are.  Aside from comic back issues, and especially with the crime element, DSG Unified Tempe wants product largely off the floor and behind counters. We run video games, but it doesn't take off until the branch stores in Payson and, would you believe it, Gilbert open in late 2018 and early 2019.

Without any particular need or urgency to move on in my career, I happily guide DSG through the opening of a series of branch locations featuring Magic, video games, and comics.  Around 2024, I drop stone dead to heart failure, and my family has the asset value of the company plus a sizable life insurance disbursement to keep them taken care of for decades to come.  I never believed in ghosts until I became one, and I delighted in haunting people who defraud others and consider it to be nothing more than "wheeling and dealing."

(The warp rift opens.  A version of me jumps out, but... what is this?  Silk shirt, fit and trim body, smile on his face, thousand-dollar watch?  "It seemed like you messed up.  But you didn't!")

Accordingly, we knew the Chandler option was an all-in plan, and all-in plans have this disturbing tendency to crash the entire enterprise if they come up short.  We imagined a scenario that would finally set us free, and lo and behold, it did.  We renewed Tempe and let Gilbert finish out, and never moved to Chandler.  Abandoning the entire southeast Valley seemed like a colossal mistake, and the fans of other area stores, especially Amazing Discoveries, didn't let us forget it.  But what they failed to do was to see two moves ahead.

At first I thought that this rift was going to show me a different version of the Unified Tempe outcome.  But in reality it just skips to a later point in the story.

Magic online became big business even faster than in the main timeline.  I ended up Grand Prix vending, something I don't see much value in doing in the main timeline, purely out of a need to fuel the massive singles throughput that the online channels slurp up in their eternal hunger.  Before long my staff solely for online sales grew from four, to six, to ten, and we're now perpetually hiring as it has caught up to the rate of attrition.

Having massive singles pull is even more powerful when you're in a central location.  DSG Chandler has some amount of that in the main timeline, but the US-60 freeway is a psychological barrier and until we do something on the west side we'll never truly reach that market in terms of local players.  When you're right in mid-Tempe, that barrier isn't a concern, you're only truly far away from Surprise, north Scottsdale, and San Tan Valley.  The closer Magic stores starved out first due to our relentless growth and our ability to discount at will thanks to paying bottom rent.  Further to the east, AD had enough support from Tucson to keep going, but the rest had to turn to other games and product lines to keep afloat.  The reality struck all that the Valley actually had a Channel-Fireball-scale singles vendor, one that had literally nothing better to do and nowhere else to focus.  More than one competitor grumbled under their breath and wished that Bahr had wasted more time and money trying to grow other categories.  Nope, sorry, this time I went all in on Magic and it paid off.  From dust we are and to dust we shall return, and DSG grew out of the consequentia of my backpack dealing in MTG in the late 2000s, and like riding a bicycle, you never really forget how it's done.

By late 2018, many of my fellow retailer peers were looking to get into video games, and I reached a pivot point.  I realized the day-to-day operations at DSG Tempe were well handled by the managers and staff, except that video games now were the fiddliest things and I had not been able to find an expert to manage the category.  I could always just hook a brother up and bail out?  I realized this was the opening I had sought, a chance to step away from the wheel and let it glide, and return to the professional workforce.  I sold the entire video game business to a store farther east, and now I just show up at the store every week or two to cut the checks and take a look at any sweet high-end cards that have come in.

Passing the bar exam again was also like riding a bicycle, and in this hypothetical timeline I was back in the legal industry for good by the beginning of 2020.  It wouldn't have made sense to do it in any other scenario imaginable, but Griffin and I renewed the lease in Tempe for another two-year stint with two years of option.  If Magic died in the meanwhile, we could just push it all into a lake.  Meanwhile?  Griffin is back in software and spends two weeks every spring living in a suite at the Wynn, and I get to abandon Arizona entirely for the second half of August and sit on a beach in Maui with my family.  I still die in like 2024 though.  Actuarial science is a harsh mistress.

...

So there's the hypothetical for Never Chandler.  The great thing from a "what if" perspective is that the progression seen in this hypothetical is not off the table entirely in Chandler; we just get some additional options, such as true accidental shopper traffic, the ability to have a Games Workshop trade account still open, and slight economic pressure as we're still paying for the move and our rent isn't quite as cheap as it was in Tempe.  I don't plan to be back in comics in the future as I am happy with the deal we made with Samurai Comics, and I don't plan to be out of video games as that is the industry where I think I can monetize a lot of technical skill and expertise.  But putting overwhelming levels of attention into Magic?  Like, more than the considerable amount it already gets from me?  If I ever start getting my autistic hyperfocus tunnel-vision pointed in that direction, clear the decks, because things might be about to get really interesting.

Tuesday, November 20, 2018

DSG What If? Part 1: Neverhammer

This article kicks off a series in which I examine a critical business decision from DSG's past and speculate on what might have happened (for glory or for agony) if that decision had gone the other way.  This is pure entertainment; I don't expect any other store owners to enjoy any particular benefit from the what-may-have-been, at least for the first installment.

Part 1: Neverhammer, or "What if DSG had never gotten into Warhammer?"

Desert Sky Games started in 2012 as a Magic: the Gathering store that also had board games, other TCGs, a smattering of video games and toys, and a small vintage arcade.  In November 2013, we added comics.  In July 2014, Mike Girard separated from the company and I took over main operations, promoting my then-assistant-manager to the manager spot, a move that did not really pan out as he departed a few months later anyway.

Upon my assumption of duty in 2014, the store had been posting sub-$6k weeks of sales, and we were on the brink.  Our chance to exercise the kick-out clause in our lease was almost a year away, and I genuinely did not know if we could make it that long.  My immediate order of business was to cut off all resources into anything I didn't think would profit out soon enough to keep DSG alive.  I thought at the time that video games had too long to go to ramp up to economy of scale, and dropped the category.  This was a mistake, it would have been more correct to drop comics or, alternatively, to keep comics and Magic and video games and drop the rest of tabletop.  In fact, hold that thought.

Khans of Tarkir was awesome, and I ran things very closely myself from November through the crunch, so DSG survived the winter of 2014 and by spring 2015 we were starting to see signs of life.  Patrick Hug wanted to leave his job and manage the store, and I wanted to get back to administrating, so the two of us attended the GAMA Trade Show in Las Vegas in March and strategized what to do about our product mix.  Both of us took notice of Games Workshop's very aggressive new-account show deal, which at the topmost level got us into about $18k worth of retail product for $3k cash up front and $5k in 90 days.  Even if it had been $8k up front, that's awesome margin, quite a bit better than GW's normal short discount.

I was apprehensive about miniatures for a few reasons.  I knew Brock Berge had his magnificent store Empire Games only eight miles away, and I had no intention to run my head into the wall attempting to compete with him.  I remembered from the Arizona Gamer era and from when my friend RJ Harris was managing Games Workshop's mall store at Arizona Mills that the miniature wargames product category, especially Warhammer as a brand, was incredibly insular.  Most people who aren't in the wargames hobby already have no intention of being drawn into it.  Games Workshop themselves told their stockholders that their target market was "people who buy Warhammer;" to wit, established customers.  That didn't suggest that we were going to broaden our reach into the blue ocean of mainstream customers.  That suggested we were going to fight over the same dudes that were currently playing at other stores.

Well, in the end the numbers won out; at $8k for $18k, even if we had to blow the bottom out on clearance we would surely make back our investment.  Warhammer was coming to DSG in 2015!



(Cue warping noises, "Dark World" theme music begins, the dimensional rift opens, and I see a glimpse of... my parallel self?)

Well, in the end the numbers weren't enough; we figured the better part of ten grand would be better spent on collection buys and multiplying our way far deeper into Khans of Tarkir, Modern Masters 2015, and Zendikar Expeditions.  So that's what we did.

We jumped off Light Speed and instead of bothering with RMS ComicSuite, we went straight to Crystal Commerce a year sooner, and had 18 months on the platform before Red October ruined everything, rather than only six months.  Crystal Commerce's capability to push volume of Magic cards was unparalleled, at least at the time.  Shifting forward the known analytics from summer 2016 through the move, and assuming they would have occurred roughly the same way starting in summer 2015 instead, and multiplying money into the engine, our Magic business became an absolute monster.

Without needing paint and tools, we never bought into any other miniatures games either.  Tabletop ran reasonably well in 2015; in fact, that holiday season was the last time it posted big for DSG, but starting in 2016, with a year and a half left on our lease, we didn't see any point in continuing to chase after shrinking margins and shrinking market share.  Not with Magic booming for us beyond all booms.  We closed out the rest of tabletop in early 2016 and replaced it with... video games!

Yes, by then I had met people who had stayed in the video game business and made it work.  I wanted to be back in the category and thought I couldn't make a go of it, but with their guidance we brought it back.  But this time, I had more space to devote to it and more money to push into buys.  Our video game business grew dramatically throughout 2016, rather than the more gradual ramp we experienced.

Brock still closed Empire Games, because Brock does what he wants.  But rather than DSG moving into the empty space in the category, I wanted to focus on what we were doing well.  Patrick Hug disagreed, so just like in the original timeline, he departed the company in mid-2016 so he could open his own store in east Mesa pushing comic art, cosplay, and Warhammer.

Prime Time still sold out to Amazing Discoveries in August, but with DSG's Magic business far more robust and closer in volume to AD Tucson's, the eventual permanent AD Gilbert location in 2017 ended up a few miles further northeast, more closely replacing Mesa Comics and completely cornering out Hug's store, Apache Comics, True Believer Comics, and San Tan Comics.

Games U opened on schedule in late 2016 and had almost zero product crossover with DSG or ADG.  All three stores had ample room to capture wide swaths of their addressable markets.  All three owners prospered.

By late 2016, I was ready to exit the comic business.  We weren't going to be the best in the category, and the forward thinking was that we could wind them down in an orderly fashion.  This positioned DSG to move into the final year of our lease as a Magic and video game store entirely.  Profitable, easy to run, low labor, with more than enough room in our existing facility, we were able to hammer out a lease extension rather than moving.

The DSG Merger of 2017 never happened.  Mesa Comics folded into Tempe Comics and became the largest Magic and comic business presence in Tempe and the ASU region.  It finally became profitable and renewed its lease in November, and is still open to this day.

Desert Sky Games opened a satellite location in late 2018 in a small suite at McRay Plaza in Chandler, with this location focused on video games and with Magic as a sideline.  The Payson satellite location is slated to open in 2019 under the same structure.  I returned to my writing pursuits, as the Magic-and-video-games scope of operations proved comparatively easy for my managers and staff to handle.  They work shorter hours earning more money and greater benefits.

By mid-2018 there were enough safe havens in general tabletop for me to add board games back to the two existing locations.  That just about completed the product mix, and left me with one primary task on my desk, which was templating operations for an eventual sale to a national chain entity.  When the offer came in just north of seven figures, I pulled the trigger and left the game industry to go build cabinets and enjoy spending time with my wife and kids.

(The warp rift opens.  A haggard, bleeding version of me leaps out and grabs me by the collar.  "That's not how it went!  You assumed everything would work out logically!  People are illogical!")

As I was saying, in the end the numbers weren't enough; we figured the better part of ten grand would be better spent on collection buys and multiplying our way far deeper into Khans of Tarkir, Modern Masters 2015, and Zendikar Expeditions.  So that's what we did.

Our Magic business grew as we moved to Crystal Commerce and started pushing volume singles.  We did well, but others noticed.  And anyone who knew enough to watch what we were doing, or who was already doing it, took the easy route and said "Me too!"  Mesa Comics still added Tempe Comics.  Prime Time never sold out -- they were ready to, but nobody walks away from a heater.  Amazing Discoveries still had designs on the Valley, so they just opened where they wanted, in a plaza that was easy to reach from the I-10 for those drives from Tucson and Casa Grande.  Two more card-focused stores opened south of US-60 and east of I-10.

The saturation of card stores was a plague on the east Valley.  Tournaments almost never fired.  Margins shrunk.  To get any kind of buys, we had to pay ridiculous percentages, to the point where TCGPlayer Direct sales would be losing us money.  To get any kind of sales, we had to be on the low side of Market, and Mid was a silly dream.  The only stores in town able to do proper business were clear on the other side of the valley: Manawerx and Play or Draw got very healthy.

Tabletop entered a trough cycle.  Asmodee had not yet consolidated, nobody was protecting their brand, and anything you wanted was available on Amazon for a nickel over wholesale.  After a reasonable 2015 holiday season, I closed out the category just to make enough cash to buy into video games.  My initial forays were highly resource-limited, and the category didn't see much movement.  Early 2016 had me skip the GAMA Trade Show entirely.  What was the point?  The only thing that sold dependably for us was a commodity now.

Brock still closed Empire Games, because Brock does what he wants.  Patrick Hug wanted to move into Warhammer or else close.  We looked at the trend lines with all our business converging on a saturated Magic market, and decided it made more sense to wind up operations and walk away.  Our lease gave us the option to do so after a certain number of rolling months under a given revenue level.  In order to avoid losing the kick-out clause, we couldn't make too much money in a closeout sale, so we had to bleed down the asset base gradually, over an excruciating summer.  By the time Red October rolled around and Crystal Commerce stopped working, we barely even cared.

Our extended liquidation sale stepped on the east side's air hose, though.  Mesa Comics and Tempe Comics both closed, as well as several of the smaller outfits on our side of town.  Obviously, the merger never took place.  Griffin got back into software, Girard returned to game design, and Erik Miller consolidated his resources out in Apache Junction and survived the famine unscathed.  Play or Draw ended up opening a massive branch facility in late 2017 near Southern and the 101, and rumors swirl that they have a lease offer on deck that would achieve the impossible, a sustainable store in northern Scottsdale.  Investors from Las Vegas have contacted them about expanding into Nevada in 2019.  Joe Weber drives a Lamborghini now.

Desert Sky Games concluded operations on Black Friday weekend, closing to the public for the last time on Sunday, November 27, 2016.  The building was empty 48 hours later, and we turned in our keys on Wednesday the 30th.  Joe picked up the rest of the Magic stock from my garage, paying for it with a briefcase full of blue Benjamins and carting it up the freeway to POD Tempe.  The five DSG owners walked away with a disappointingly modest profit over our original investments, which did not account for the lost opportunity cost of investing that money someplace better for four years.  But at least we had enough scratch not to have to work for a few months, and we enjoyed a great Christmas with our families.  One of the other owners and I decided to pool our proceeds and rent a dirt-cheap commercial front and open up an arcade and pinball restoration business.  This occupied our attention as soon as New Year's festivities wound down.

Mike's Arcade and Pinball opened to the public March 30, 2017.  I administer the store part-time while serving as an adjunct professor at a nearby community college.  The other Mike is the primary technician, and we brought back a couple of DSG staffers to operate the storefront.  We broke into the black in late 2017 after a series of great container pin flips.

(The warp rift opens.  It's the original timeline.  I leap through.)

Of course, I can never know exactly how things would have played out, I can only speculate.  And yes, I took some deliberate artistic license with this article, and I'm about to do it several more times.  But DSG not only did get into Warhammer in 2015, we stayed in the category despite three near-misses that could have taken us out of it.

Once, a few months after Hug left, I fired our main miniatures employee for unrelated reasons and had a sharply reduced expertise base.  I contemplated cutting bait, but the game was posting decent numbers at the time and I didn't want to forfeit that.  A second time when Games U was preparing to open, we contemplated a buyout deal that took DSG out of Warhammer, a deal that just never came together.  And then one final time in early 2018, I was ready to kill the category on metrics.  Sales had fallen off catastrophically since the move to Chandler, and I figured the players had spoken.  As it turns out, they had a little more still to say, and with a substantial amount of effort from staff members championing the category, Warhammer stuck around and started working its way back up the scoreboard again.

In an oblique way, taking the two sides of the hypothetical as being at least plausible, DSG staying in Warhammer was responsible for DSG Chandler existing at all.  For better or for worse, whatever happens from here on out, Warhammer made the Valley's largest game store possible.  Not bad.

It is also not lost on me that both versions of the hypothetical have me out of the hobby game industry entirely when those timelines reach the present day.

That would have been pretty cool.

Tuesday, November 13, 2018

End of a Five-Year Crossover Event

[EDIT: This post was mostly written in advance of publication but Monday morning we learned the extremely sad news that Marvel's legend himself, Stan Lee, had died at age 95.  Stan will be missed to the core and True Believers everywhere mourn his passing.  I take some comfort in knowing that whatever happens to the comics industry from here on out, the last time Stan Lee saw it while alive, comic shops were still everywhere and people were still reading and enjoying comics just as he intended.]


In November 2013, Desert Sky Games became "...and Comics," and we forged our ground into the new world of periodical media, superheroes, adventures, indie mystery, and so much more.

Our game store in Gilbert went full-blast hybrid.  It later hybridized even further, into miniature wargames in early 2015, and back into video games in early 2016 (after largely abandoning them earlier, a business mistake if there ever was one).  We had, at various points in time, manager-level positions devoted almost entirely to comics and media and maximizing our reach with our collecting community in the category.

In November 2018, Desert Sky Games and Comics returns forevermore to being "Desert Sky Games," now in Chandler.  Yup, we've gone ahead and closed out our comics business, with an intention to add resources to games and refocus on our core competencies.

This was a good time to do it: we had happy boxholders so there was still value to convey, we had a friendly/ally store nearby in Samurai Comics that was able to take over where we left off, and our Diamond account had no pending invoices on terms left due so we were at liberty to walk away.  We were never going to get another chance to do this as clean as we just did.

Longtime readers will remember that DSG almost left the comic category in late 2016.  After setting forth the case for why we got into comics in the first place, we had some analytics turn sharply south and I believed it was as good a time as any to wrap the category up.  I even addressed the situation a second time to make it clear we did not see this as "nurp nurp comics suck" but instead just recognizing the direction we thought the comics industry was about to go, and realizing we weren't positioned well for it.

That direction, as I've discussed in e.g. my Commitment Quotient article earlier this year, suggests that stores that are committed to comics first, are going to be the big winners in the sunset cycle of the category.  I'm not talking doom and gloom here; as I stated in one of the 2016 articles, comics aren't going to "die" even if the monthly 24-page comic magazine ends up falling into disuse.  What's happening is that as mass media and consumptive media mature, comics mature with them, and we're going to see a gradual and vast consolidation as the format itself stratifies as a key configuration of the collectible long after it ceases being strictly necessary.  The business world is going to converge to where the two major players will be comics readers much as they are now, and comics retailers with high expertise, broad coverage, and platinum-grade brand appeal.  Nobody is going to be able to do this as a side gig anymore.

When the Mergesplosion of early 2017 occurred, and we gained a large location with a comic customer base already present, we held off on exiting the category mostly to see what would happen.  As 2017 neared its end, we moved the Gilbert store to Chandler and we let the Tempe lease expire and we could have exited comics then, but once more we decided to hold off and see what would happen.  Now, after another year of business with no other changes and nothing to distort our analytics, no wild cards still yet to be drawn and counted, we decided, in the words of my accountant, that "staying the course for one more year was no longer the thing to do."

I have enjoyed being in the comics biz quite a bit.  There's something about the comics category that lets a store be out in front of pop culture like no other category does.  Even when games are at their most cutting-edge, they can't approach the high topicality and immediacy of comics.  Great new stories, blockbuster summer movies, characters we've loved all our lives -- these are part and parcel to the world of comics, and with us being fun merchants, the category felt like a natural fit.  However there's always more to business than just the front-facing part visible to the client.  Much of the logistical, nuts-and-bolts upheaval took place backstage.

This isn't the last of the consolidations DSG will be making in the months ahead, but it's one of the biggest.  Brock Berge of Empire Games (and the Berge auto dealership empire), a savvy retailer if I ever knew one, once explained to me that there are only two ways to succeed in retail: sell some of everything or all of something.  And the mass-market like Wal-Mart and Amazon already have the some-of-everything option on lock-down.  The path to success still open to small business is to sell all of something.  We preach diversification in hobby game retail, but it can be dangerous to diversify too far beyond a closely overlapping set of supercategories.

I can say with confidence that we should have been out of comics in 2016 as planned, but I'm OK with having played that out a little further because now we know for absolutely sure.  I can say with confidence that getting out of video games in mid-2014 for lack of various resources to devote to them was a serious mistake.  Other more granular consolidations become a bit easier when we have a clearer look at the shape of our all-of-something umbrella.  For example, we recently discontinued support for all the anime trading card games again.  Yu-Gi-Oh was already "packs only" but we had event support and went a little further for the likes of Dragon Ball Super, Force of Will, and Cardfight Vanguard.  No longer; it's all gone and never coming back now.  We wanted to see if our presence in the Chandler market as a dominant card venue would solve those games and it did not.  The player bases for those games want something different and it's not a direction we are interested to go.

In terms of other games and hobbies, everything is pretty much locked in for the holiday season, but there are going to be some serious shifts after the first of the year based on what we see with another December worth of comparative analytics.  Next week is Thanksgiving and Black Friday, and while we aren't going to be blowing the doors off of everything, we have a few special treats in store that we know some of our clients will love.  See you then!

Tuesday, November 6, 2018

Shoestorm

Wizards of the Coast and Hasbro have really been on the warpath lately.  I have written several blog articles over the past few months as each successive shoe dropped.

Today's boot blast was Ultimate Masters, the more-or-less final set in the Masters series, releasing December 7th at a staggering $14/pack MSRP and $330+/box price tag, with each box containing a superpremium topper foil card out of a random set of 40 possible.

The number crunch tells us the ten fetchlands will not be in the set, guaranteeing it won't be as successful as Modern Masters 2017.  Beyond that, we're mostly in gambling territory.  Nobody is quite sure how this product is going to work out.

Three hundred bucks a box, fourteen bucks a pack, somewhat less at mass market (thanks Obama) might just be well beyond the budget of gamers.  The math is somewhat known on this.  But this product is targeted at whales, so maybe that doesn't apply?

The box-toppers are a selection of roughly ten outstanding cards, twenty great cards, five really good cards, and five woofers.  So the odds of a topper having value in any given box are good.  It's basically an anti-jackpot.  Roughly one-eighth of the time, you'll miss.  That seems good for stores opening boxes for singles.  Or players, for that matter.

Last year at this time, Iconic Masters came out and the greater Magic pundit culture dumped all over it.  Here we are a year later and I sell as much of it as I can get at full margin.  That's not as good as Modern Masters 2017, which by the aftermarket box costs about 150% of MSRP as of this writing, but it makes for decent business.  Another local dealer broke open a pallet of Iconic Masters that he picked up off the distress wire, and I think I would have done the same if it had been offered to me.  The singles value is there, never mind what Rudy Battistic wanted you all to think so he could buy in low.

Earlier this year, Masters 25 was promoted as "the Masters set you've all been waiting for."  Unfortunately, we discovered what happens when the reprint base is tilted too far toward scarcity and not enough toward utility.  Masters 25 sells very well for us today, but it joined its predecessor as a regular guest star on the Massdrop show throughout this summer.  Over time, Masters 25 will be just as demanded as most of the Masters series.  Card for card it lines up extremely well against, say, Modern Masters 2015 or Eternal Masters.   But for now people haven't felt the urgency yet.

With Ultimate Masters, given the price increase, the contents, the Wal-Mart factor, everything, it's almost as if Hasbro is daring people not to buy it, knowing they will.  "Here's the last Masters set.  Buy it or don't."  They know most Magic players are addicts, and it's never good money to bet that the crackhead is really gonna stay off the crack this time.

If I want 200 boxes of this, I'm looking at an invoice approaching forty thousand dollars at wholesale.  That's more than I have ever spent in one shot, that I can remember offhand, on any single product or release in this business.  If I buy only 60 or 70 boxes to hedge, how many sales am I missing?  It's a hell of a gamble.  If I do it right, I get to kill off a substantial amount of the store's remaining debt.  If I do it wrong, the debt gets bigger.  What's the right play?

I'll let you know when I figure it out.

Tuesday, October 30, 2018

Tea, Earl Grey, Hot

I've frequently asserted that we are three Star Trek technologies away from essentially saving humanity forever:

Replicators - ending starvation and poverty;
Transporters - trivializing the cost of transporting anything or anyone; and
Holodecks - allowing anyone to experience virtually anything as if real.

If you want to add a fourth, something like Matrix-style brain uploads, presumably to allow later re-download into a fresh "shell," that would effectively confer immortality as well.  Humanity would never again suffer for want nor lose our loved ones to the scourge of death.

I will physically die before these come to pass, and that's a shame, because I want to, you know, not die.  But I am comforted in some small measure knowing that at least one of these technologies is well into development, and by that I mean the baby steps being taken toward replicators, by means of 3-D printers.

This isn't an article about 3-D printers.  You can find out more about those elsewhere and honestly I don't care that much about them as I have only marginal use for their output.

This article is more of a quick riff on what 3-D printers mean for my industry, for the greater toy and game industry overall, and when we might feel that effect.  In particular, for miniature wargames, where they are seeing their first pronounced adoption.

First of all, I am reliably informed that the output of the best 3-D printers on the market is substantially lower resolution and quality than anything Games Workshop is squirting in Nottingham or what WizKids is freighting out of Shenzhen.  There is no threat to the meat of our current product offerings; available minis are simply better right now, and to replicate their quality would cost considerably more at the consumer level than just buying what's already in mass production.

However, 3-D printers are already highly relevant for terrain, necessary wargame components where resolution is less important than quantity and coverage.  Wargamers the world over are making copious terrain at the cost of electricity and filament and capital equipment depreciation and even though it feels like one of the "craft" elements of the category is going to get lost in the transition, the end result is more people being able to engage, which I favor.

It's only a matter of time before it goes farther.

Resolution is hardly essential for printing coarser toys aimed at younger audiences.  Right now such toys are typically produced in China for a tiny fraction of what it would cost to 3-D print them, so there's no urgency upstairs at Hasbro or Mattel, and there shouldn't be.

What about parts and hardware that are out of production?  3-D printers are starting to become a bigger and bigger deal in the pinball and arcade restoration hobbies, where there are parts that are literally antique and have not been produced since Jimmy Carter was still calling the shots in Georgia.  As tensile strength improves we're seeing the technology used for vehicle parts as well, though mostly low-impact hardware so far, and not motor components.  Yet.

This is setting up an eventual showdown in the world of intellectual property.  The cost continues to drop to make ever-newer objects via 3-D printer.  Nobody cares about the old pinball machine parts because they are (mostly) out of patent, out of copyright, and the addressable audience is niche.  What happens when some hot toy or game or gadget is being duplicated immediately, and not just in bootleg-producing factories in southeast Asia, but by consumers in their living rooms in a nigh-unenforceable tsunami of, well, piracy?

Has anything like this happened before?

Turns out...

So, here we are a decade and a half later and the music industry is changed forever in the wake of it becoming possible to effectively infinitely duplicate its copyrighted core product in an ordinary household using consumer-grade gear.

The situation was so drastic, so sudden, and so immediately obvious once the technology hit a threshold that was "close enough" -- by which we mean garbage-bitrate MP3s on peer-to-peer client programs -- that the number of people paying full price for the "real thing" plummeted and never recovered.

Unless your daily bread came from the music industry both then and now, I can't imagine you see things today as worse.  The consumer landscape for music (and movies, for that matter, which followed suit a few years later as computing horsepower and internet bandwidth caught up) has never been friendlier or more cost-effective when done legally than it is now.  I wrote about this recently here on The Backstage Pass; the value now is in being legit and letting someone else do the heavy lifting and bring the content to you.  It is a time of immense plenty even without piracy.

So it will be in the post-Replicator era.  There won't be as much money to be made in selling plastic bits as such, but they'll still find a way to monetize the Delivery Of Game Entertainment Content.  Maybe it will be some sort of analogue of music or movie streaming.  Meepleflix.  Muluu.  Amazon Prime.  Whatever.

Presently, my daily bread comes from the Selling Game Things Industry.  And if we reach that tipping point with 3-D printing where the toboggan ride down must inexorably begin and set off the chain reaction that will eventually resolve, well.  Let's be honest here, even if we're not talking about wargames but just focusing on regular tabletop: Printing up a bunch of meeples and a game board ain't exactly gonna be a challenge.  I know the outcome will ultimately be better for the consumer when the dust clears.  I just have to look out for that whole part where the floor falls out from under my livelihood.  Nobody wants to be the last person standing when the music stops.

Anyone who wants to get busy on the whole brain-upload thing, I'd appreciate it.

Tuesday, October 23, 2018

Getting Ready for Holiday Shopping

Last week, about a dozen game store owners from around the country gathered in Arizona for a business conference.  We had a delightful time touring area stores, enjoying lunches and dinners at great eateries, basking in a stretch of spectacular weather, and then, on the last day of the event, tearing down DSG's retail floor and rebuilding it to appeal to holiday shopping.

I am humbled beyond words that these friends and peers of mine would give so freely of themselves and their expertise and time and labor to help make my store better like this.  And make no mistake, it is better, even though it turned some of our process and routine on their sides.

We had some prerogatives to follow, based on the categories and how they performed over the initial year in Chandler.  For 2018, we need to see a good holiday season.  It will shape some of our decisions for years to come.  Every category has its own business attributes and objectives.  If we get to the Year of Our Lord Two Thousand Nineteen and we haven't seen the kind of results we need out of a category, it's probably time for us to move in another direction, because after six-plus years in business it's unlikely that there's yet another approach we should have been trying, and more likely that it's a product category that we are just not positioned for.  Market saturation, lack of expertise, branding, whatever else is causing the suppression, it's obviously here to stay and we're wasting treasure we could be using to make Magic and video games better.

Indeed, Magic and video games are proven at this point, nothing that happens is going to stop us from continuing to invest in those categories this coming year at least.  We're approaching a healthy spot with Pokemon and we're going to continue working with our event champion on that because he seems to have a really good handle on it.  Other TCGs are a mixed bag lately so we'll see what happens.  Living Card Games are dead, and it's a shame that they are.

We see comics, minis, and RPGs as categories that appeal to people who are already deep in the hobby, who mostly already know what they are looking at when they stand in front of a store shelf.  Developing those categories mostly consists of bolstering what we already have and making it easier to shop, so that's the plan.

But board games, that's where we reach into the vast blue ocean mainstream of visitors, above and beyond the devoted board game faithful.  That's where our greatest growth potential is, that's where the size and scope of our store have the best chance to make an impression.  Board games did reasonably well for us in late 2017 despite the store suffering a bit from the move and whatever other factors.  We let the category lie fallow for most of mid-2018 because the key new releases don't tend to hit until late in the year and it wasn't tough to keep essentials on the racks at maintenance stock levels.

Now that it's coming up on that time again for the year, board games is our opportunity to "take a level."  It's our best chance to take the folks who wander over from the mini golf place next door and make them gamers.

With those guiding objectives in mind, my retailer friends cut loose on my retail floor and recombobulated just about the entire thing in the space of one long afternoon and evening.  Here's what happened.

Right from the entry you can see clear through the entire area, to the D&D racks at the back.  This is also highly visible when the store is closed for the night, so anyone who missed us can at least instantly see a ton of what we do: board games, video games, minis, and RPGs.

We put the kid-oriented and family-oriented games together and adjoined the all-ages comics to create a corner of the floor that caters to youth players and readers.  It's also close to the arcade so it's where they are likely to be walking toward or through anyway.
Light-hearted board game fare appears together with familiar titles and styles.
Deeper strategy titles are easy to locate and right in the center of the floor.
Demo tables!  I have some specific titles coming in to fill in the tables that aren't prepped yet, but Splendor is a perpetual winner so we'll likely keep that one set up.  Our pace of business is such that teaching an entire game is probably not realistic.  What I hope to be able to do with staff is speak competently to how the game plays.  "You try to collect the right combination of gems, and new gem cards come in to replace them, and when you have the gemstones these four nobles are looking for, they will come to you and you score their points.  So you can focus on scoring gem cards, scoring nobles, or combining the two, based on what gems come your way."
I had art prints on one of the RPG racks and while I think those are cool to have, I don't think DSG was well positioned to sell them.  Those are making their way up to a friend's store in Colorado where he will experiment with them and see how that goes.  Our two RPG racks now are going to be spiffed up a bit to where one of them is all-D&D-all-the-time, and the other features other RPGs as well as comic trades and accessories (the comic section adjoins to the right).
We experimented with a combined paint rack tower and after a few Tetris attempts we realized it wasn't as shoppable as we thought.  But the rearranging got the paint out of a corner alley where it was even less shoppable, so we didn't want to put it back the way it was.  We found an answer right out of the old DSG Gilbert location: now that Warhammer and the D&D minis are spread out across multiple aisles, each aisle caps nicely with a paint rack.
Party games are one of the better-traffic categories we have for tabletop and they appeal to mainstream shoppers.  We found it possible to combine it all here in a mid-floor rack rather than having it off to the side blocking the throughway to the game room.

Anyway we have a bit more work to do to bring this project home, including bringing sleeves, playmats, and card storage out onto a gridwall rack that we didn't have before.

What did we lose?  That square footage had to come from somewhere.  With no prerelease on the horizon until January and the end of the PPTQ program for Magic, we took advantage of not needing as much event floor.  With some careful adjustment there we actually don't lose much seating either.  Basically the "gate" area between the main room and game room is still kind of a mess as we figure out the best way to situate everything.  In the long run, with two new stores opening for every one that closes, we need to add shopping strength more than we need to add event strength.  (Our event strength is also already pretty good, possibly wastefully so.)

It's October 23rd, and that means we have just a touch over two months to see what happens.  Already over the weekend we saw the sales mix get a little more variety, in what was otherwise a slightly below average frame.  We have a lot of inventory on hand already and more already scheduled to arrive in the weeks ahead.  It's go time.  Store looks ready.