Fraud Online and its effects on Customer Service

One of my tasks on a regular basis is to check our Spam Folders for potentially mis-categorised customer e-mails.  It’s an annoying task, but a necessary one since occasionally, a customer e-mail (or other important business e-mail) is flagged as Spam.  Most spam e-mails are easy enough to notice by their header, however we’ve noted an interesting and annoying new trend.

There recently seems to be a series of e-mails purporting to be a customer from another country.  This customer wishes to buy some unnamed product from us and want us to confirm that we do ship internationally. Sounds like a real customer e-mail doesn’t it? Well, here’s the relevant text from the first e-mail of that kind we received:

My name is XXX from XXX ,i will like to purchase some order from your store to our store here, but before i proceed to advise the needed items,i will like to confirm the terms of payment you accept either Visa or Master card, and if you do ship to Australia as well,urgent response needed from you asap,so i can forward you my order list.

The other e-mails are all along the same kind, requesting information about Visa / Mastercard payments and if we ship internationally.   The English can be better or worst, depending on the e-mail and they sometimes even ask us to confirm our website.  If you’re thinking that the bad English is a warning sign, I agree – but I’d also caution that I’ve had legitimate customer e-mails (and orders!) with English that was worst than that.

The first time this happened (the above e-mail); I was curious to see if it was a fraudulent e-mail so I replied to it.  Now, to cut a long story short, after a couple of e-mails discussing quantities and cost of shipment, this is what I received:

“Also I want you to help me Charge another $710.00 from my card for the freight forwarder who will be coming to pick up my ordered items from you

The $710.00 that will be sent to the freight forwarder is for the shipping of my order and other items i ordered from different part of the country which is to be picked up by him and should be deducted from my credit card.Also, I’mcompensating you with the sum of $100.00 for the transfer fee and for your efforts

Please  do get back to me if you are in the office right now so that i can forward my credit card details to you, then you can charge the funds to him via western union or money gram.”

And there’s the con.  Swing a few thousand dollar order in front of you; have you commit a few hours of time into putting together the order and then aid a little sweetener to make you go out of your way.

Obviously, I didn’t go through with this, and on letting the fraudster know of this; I never received another reply.  This is what I would think would happen if I had gone through with it – you would charge the card (stolen most likely) and, having received the funds, would then wire the money to the address.  The ‘freight forwarder’ would then have the newly wired funds free and clear, while you would be stuck with a chargeback (and unwanted goods) when the Credit Card charges back the unauthorised charge from the stolen credit card.

So, attempt no.2 on online fraud that we’ve encountered.  It’s a prety good con; after all, it’s not as if there’s a huge resale market for our games normally.  Having me wire hard cash out though; well that can be used anywhere.

One effect this has had on our operations is that I’m now more reluctant than ever to reply to customer e-mails in our spam folder.  If your e-mail even looks like it might be a fraudulent e-mail (as above) and it is in my spam folder,  I won’t be replying to it.

Second Chances – the board game dump pile

Recently, FFG has been re-releasing a lot of 2nd tier games that they either picked up from others or are attempting to revise and regenerate interest.

There’s Battlelore of course with its various  new expansions that are coming out.  It was a hugely popular game when it was first launched, but due to lack of support from DOW, it died a slow death.  These days, it’s in a strange limbo, with expansions coming out but the base game out of stock for months.

They also just announced an expansion for Micro Mutants : Evolution ; a game that is again out of its base game.  The base game had some great reviews, but again, it’s a game that has been out so long that demand has grown low.

Then there’s Tannhauser, a game that has so much going for it in theme but failed to sell well due to clunky rules, bad design and overall lack of interest. We had multiple copies of the base game that we finally got rid of this year, and we are not carrying the readily available base game (though amusingly enough, we have a few expansion in-stock).   The revised Rulebook is coming out this month which is supposed to fix the game.

All these games have a lot of potential for sales – Battlelore has a great basic game system, and with more push might become as popular (if not more!) than Memoir ’44.  Micro Mutants has a great base game system that’s popular, and so the expansion might be too.  Certainly, there’s a lot of copies of the game out there.  And Tannhauser still has a lot of potential.

So there’s definitely potential for sales here.  However, there’s also a danger of the games not being picked up; as they get drowned out by the myriad newer and more exciting games out there.

It’s a danger for us retailers to buy on hope like this.  If a game doesn’t sell, we are stuck with the games eating into our inventory capital. Do this too often, and you’ll find yourself with older and older stock that no one wants.

On the other hand, missing the marginal sales on games like this is just as dangerous; especially for an online store.  If you don’t have the games, customers will go somewhere else – and do that too often and you’ll find yourself with no customers.  It’s not like a retail store where a customer, not seeing the game, might just enquire about it directly with the retailer.  We get one chance quite often, with very few second chances.

So, as a retailer, we have to make a decision if we are willing to give these games a second chance.  If we do, when do we cut our losses completely and run? It’s a tough question, and I’m not sure how to answer it truth be told.

My Task List

As a mental reminder for myself (in no particular order) I put together my task list for non-day-to-day projects for the next few months

  • Finish change-over of Bookkeeper
  • Provide accounts once done to Accountant for taxes
  • File Annual Reports and other corporate papers
  • Apply for and review terms of a consolidated loan
  • Complete Policies & Procedures Manual
  • Complete new e-mail set-up and template customer e-mails
  • Hire & train an employee for vacation
  • Locate a supplier for storage boxes & zip-lock bags
  • Locate new supplier for shipping boxes
  • Chase up with all conventions about vendor locations and confirmation of space / timing
  • Switch hosting and upgrade site and test, test, test!!!
  • Set-up video on site and test to see effectiveness

That’s on top of all the daily work load of course.

Industry Size 3 – Actual Numbers!

I started writing a blog post about China (specifically, a comment about a 3% rise in the Yuan) which I wanted to use to discuss margins.  And then I came across the Canadian Industry Statistics Benchmark Tool for SMEs.   I finally found some of the information I’ve been looking for forever.

All information is from 2006; the last time this was compiled, so it’s a tad out of date now.  Still, I’ll take it.  So, numbers that jump out at me – in 2006 there were 1, 328 Canadian Hobby, Toy and Game Store retailers.

Canadian Hobby, Toy and Game Store retailers have an average net profit of 2.4% with average annual revenues of $323.6 thousand.  Of course, 75% of all small Canadian Game Store retailers in Canada made $345,000 or less, so in this case, it’s the top 25% who are making the numbers look better than they are.  I’m wondering if a few stores, or a few type of stores (i.e. model kits, children toy stores, etc.) have adjusted those numbers up.

Of the top 50-75% of all retailers (where we sit); revenues range from $153 – 345,000.  Average total revenue is $234,200 with direct cost of sales equaling 57.4%.  Operating expenses (indirect expenses including labour, amortisation, rent, interest etc.) made up 40.3% for this group.  That left 2.3% in net profit.

Interestingly enough, total Labour Cost for this group was $34,300 with a net profit of $5,400.     So as an owner, if you owned this business, you’d make (if all the labour cost went to you) a total profit of $38,700.  That’s significantly more rosy than my own experience, but we’re still growing.  Still, no one’s making a fortune here.

The other interesting fact that we see is that Inventory is about $57,000 or a turn rate of just over 4.   It certainly looks like I need to continue increasing the capital / profit allocated to inventory.

Eyeballing these numbers, and our own, it looks like we’re about average – our operating costs are lower but our direct cost of goods are much higher.  We also spend a lot more on advertising / marketing and sponsorships than most of these companies do (4,100 for the other stores).  Again,t hat’s an area that I’ve been debating the use of – I feel it’s money spent well in the long-term; but in the short-term it’s a lot of funds.

The Year So Far

When we were going into this year, I ran up a budget and forecast for revenues.  I projected and planned for a 50% revenue growth rate for this year – our 3rd / 4th year for sales.  It was an aggressive projection, considering my lack of budget but I wanted to push myself and the business.

The Actual Numbers

Currently, we’re coming in at about 38% growth in top-line revenue which includes shipping, taxes and product revenue.  However, Product Revenue has gone up by 38%, Tax Revenue by 43% and Shipping Revenue by 105%!

Those numbers are reflected in our purchases by returning / new customers.  We’ve only seen a growth in returning customer revenue by 28% while new customers have grown by 70%.

Analysis

Obviously, we’re attracting a lot more new customers than we planned for – or at least, customers who register as new visitors to Google Analytics which is slightly different.  Generally speaking, we’ve found that new visitors are here to purchase a single (or only a couple) of games and thus pay shipping.  This ends up being reflected in our Shipping Revenue increase.

On the other hand, we’re under our growth target for Returning customers.  We obviously aren’t drawing back as many customers as we had planned for; though we might be affected by the lack of good board games released in the period (Jan – mid-May).  Hopefully, with the introduction of our Rewards Program, we will see a change in this number and a much higher retention rate.

Since I prefer to run the company (as far as possible) in the black, not hitting our growth projections means that a number of projects I’ve been playing with have to be put on hold.  Hopefully, a few alterations we’ve made and will be making will push us back on target.

Industry Size : So what?

Looking at a number of different factors recently, including our previous calculation on Industry Size, I’ve begun to wonder about the long-term future of Starlit Citadel.

There’s no doubt that we can grow the business to support a single individual (we’re  there already if at a minimum wage amount).  Probably even one or two employees.  However, the difference between us and our major competitors down in the US is vast – many of them seem to have 8 to 10 employees and a lot more stock.

The major differences between us seem to be:

  • Much larger market size (at least 10 times if not more)
  • Lower cost of doing business (between 50 – 100% on nearly everything we’ve tracked)
  • Much greater depth in stock quantities
  • More product lines (i.e. CCGs and miniatures)

Of the four, the first two I can’t change (without of course moving to the US).  The third is something I’ve been considering doing but would require a much larger space.  The last is actually something that I’ve played with as a potential growth area for us.  Moving much more aggressively into CCGs and Miniatures.

Of the two, I’m leery of CCGs due to the extremely low margins.  On the other hand CCGs have very few SKUs which will make it easy to enter and test.  Miniatures while having a better margin also have a ton of SKUs and make it much more difficult to get into.

There’s also one last factor to consider – I know CCGs since I used to play them.  It wouldn’t take me long to get back into the flow of things if needed, making buying easy.  I have  never been a miniature player so I’m not even sure where to start there.  In both cases, I think we need to wait till I’ve built up more capital.

The Business Environment in Canada

With Alison stepping down from the company on an active basis completely, a number of documents needed to be updated and amended, including a lot of credit card and banking information.  In point of face, we actually had to reapply for most of our documents, a rather frustrating experience.

Theory ran into reality whilst dealing doing our applications and I found out one of the many reasons why Canada (and Canadian businesses) are just not as competitive as the US.  The business environment stinks.

Now, Starlit is an incorporated company.  Incorporation for us cost about $1,800  or so (plus yearly fees of about $500 for registering papers, etc.) so it’s not a cheap process.  The technical advantage of a corporation is that you; as a shareholder and director, are supposed to be insulated from losses in the business in the even of a bankruptcy /etc as the corporation is considered a separate entity as its own.  So, it generates it’s own credit report, has its own credit references and business assets and liabilities and the like.  There are also a few other advantages of course (tax and shifting ownership easily being two of them); but this is one of the major advantages.

Of course when you launch there’s no real history, so the guarantors (i.e. directors  / shareholders) are the best method of seeing if you’re a corporation that will last.  So you stand as guarantor for the company while the corporation in theory – builds its corporate history.

However, what I learnt in the last few months is that in practice, it doesn’t matter.  Unless you’re an extremely large corporation; the banks (and co-operatives and other financial institutions) will always want you to undersign any loans (of any amount) taken out by the corporation.  It doesn’t matter if it’s a line-of-credit for seasonal purposes or you’re just consolidating loans to pay a lower interest rate or if your P&L is showing growth and profits or just a simple credit card.  You, as a director, must always undersign the loans and have a great credit score, personal assets and income.

In effect, it doesn’t matter what your previous dealings with the entity was – the underlying truth is that you must be solvent; not the company.  This is particularly frustrating when you realise that we’re talking about entities that have been doing business with us for the last 3 years – they know we pay on time and never miss payments.  It still doesn’t matter – the first and most important test is our personal finances and whether or not we are willing to undersign for the business.

Now, here’s the real irony.  Most of the business loans and credit cards offered to us was actually worst than what I could acquire personally.  There are a ton of personal credit cards that you could get with extremely low interest rates and reward points for extremely low  fees (if any!); while on a business level you pay through your nose.  And the paperwork is much, much simpler.  Since you’re undersigning for it either way, what’s the actual difference?

It’s a frustratingly idiotic way of doing business, and frankly, one that I am fed up with.  It also renders the point of having a corporation moot – and makes decisions on taking out loans much, much more difficult.  It actually makes it more sensible to self-finance rather than go through the financial institutions since I (or any other small business entrepreneur) would be running all the risk anyway.  So why should we pay (interest) to the financial institutions if we don’t have to?

May 2010 Newsletter

May Newsletter


Contest Winner Announcement

This month’s winner is Jeanette with her review of Kahuna. An older 2 player game, it’s great to see this fun design get it’s share of reviews. Congratulations Jeanette!

Ongoing Contests
The monthly review contest is continuing this month and the winner of each monthly review contest will receive a $20 gift certificate. In addition, we are now awarding 50 Citadel Points to each approved review. Lastly, the winner is enterred into the end of the year draw for the Grand Prize of $250 of board games!

So start writing your reviews now and start collecting those points.

Site Updates
We are in the process of switching the site to a new hosting company and upgrading a number of features on the site including faster load times. There should be minimal inconvenience for all customers when we do so as we are doing extensive testing on the new host before the switch.

The Customer Rewards Program launched in March continues to evolve. We have now added a new way of gaining points – writing reviews. We are also planning a Citadel Points Only Sale in August of 2010 where customers will be able to redeem their points at a high discount rate. Watch out for additional announcements on the newsletter and blog as we continue to tinker with the program.

Upcoming Games
We’ve got a lot of interesting new games coming this month including some long awaited expansions like Race for the Galaxy : the Brink of War and the Dominion : Alchemy Expansion. Other great games arriving include Neuroshima Hex! Duel and Summonaria.

Site Down : the Explanation

So.  The site went down over the weekend and through to most of Monday with intermittent times up.  For that we apologise to you; our customers.

It took us a while to figure out what was happening – at first it seemed like the site just wasn’t loading properly, so we had to get the hosting company to adjust the bandwidth and memory used for the site.

Later, we got a second error – too many open connections at the same time.  At that point, we upped the number of allowable connections – though we were beginning to truly wonder since our visitor logs were showing no change.

Then the hosting company decided to shut us down as we were just hogging up bandwidth and resources.  At this point, began a huge hunt through the log files (individual log files for each visitor) to figure out the cause.

It was Cuil.com.  No, they’re not getting a link.  More like a kick in the ass.  They were trying to index our site, which is cool and all.  But they were ignoring all normal Robots.txt (the file that tells the Robots what to do) instructions and basically conducting a DNOS attack on us.

Idiots.

Currently they’re entire IP range is banned from out site.

So. On our most profitable days (i.e. the beginning of the month) our site has gone down due to the inability of the ‘next Google’ to actually manage their robots.