The Distribution Chain for Gaming

An interesting conversation was started in Fortress AmeriTrash recently about how the distribution chain works and how it’s failing small publishers.  To summarise the points as I saw them:

  • Distributors demand pricing at 40% of MSRP with Free Shipping from Publishers.  That works out to Publishers receiving 35% of MSRP.
  • Distributors then generally sell games at either 50-55% of MSRP to retailers
  • Since distributors do not actively market / sell these games to retailers, you are basically paying distributors to ‘sit’ on your stock and ship it out to various retailers.
  • This system benefits retailers and distributors more than publishers; and potentially just distributors.
  • As such, publishers should look into either selling directly to retailers & customers or establishing a co-op distributor.

Since I came across the article rather late; I thought I’d avoid adding flames to the fire by posting further there.  Instead, I’m going to do highlight this from my viewpoint.  Here’s a few things to keep in mind about my business.

  •  I currently re-stock on a weekly basis from distributors
  • We carry approximately CAD$40,000 of inventory (at cost!) of board games & accessories on about 1,500 active SKUs.  Minimal RPGs & miniatures.
  • Generally, we order / stock between 1 to 2 copies of a game unless it sells well

Direct to Retailers Model

Now, let’s take a single MSRP $50 board game. Cost from a distributor is $25.  Cost from the publisher to distributor is then $20.  So, figure the publisher gets $17.50 (at the 35% COGS above) for each game sold.

To increase profitability for the publisher, let’s say they sell at 45% MSRP – or $22.50. However, if you figure shipping cost is about $15 per order, the new cost to the retailer is $37.50. To get it to $25 again; and assuming shipping costs doesn’t change much for increasing the number of games; you’re looking at purchasing 5 games (i.e.  product cost + shipping = ($112.50 +$15)/5 = $25.50).

Of course, you might notice the problem here – to keep profits the same, the retailer now needs to buy a lot more games; in much longer intervals.  If you manage to get a turn rate of 4 (i.e. 4 copies sold a year)) which is the desired amount, you’re looking at purchasing once a year at best.

In addition, with each game costing $127.50 to stock, your total number of SKUs  drop dramatically on the same inventory amount to 313.  Of course, this number is not entirely true since you have multiple products that can be purchased from the same publisher and some other items that are much cheaper / more expensive to ship and buy.  Still, it gives you an idea of the vast change this forces on retailers.  You will see less diverse selection but potentially, much deeper selections.

Worst, this change would actually make it harder for new publishers to break in.  If a retailer has to commit to5 – 6 games (a full year’s stock) for each order; they would have to be nearly certain the games would sell.  Which means purchasing either highly rated games or games from well-known publishers.   Retailers are much less likely to take a chance on an independent published game which managed to make its way into the distributor channel where we could add the game to an existing free shipping order.

Lastly, remember – I’m a pure board game retailer.  A generic game store, with $40,000 worth of inventory spread across 4 product lines is going to have only $10,000 to dedicate to board gaming.

Co-Op Distribution

Now, the Co-Op Distribution model might actually work out well.  My major concern here would be the types of games available – you’d need a critical mass of games to make it worthwhile for retailers to open an account and order regularly.  The best option to make it work would be to get some of the main publishers (Rio Grande Games, Z-Man Games, FFG, etc) involved and stocking.

New & Restocked Board Games : October 28, 2010

New Board Games
Charon, Inc.
Illuminati: Mutal Assured Distraction
Mines of Zavandor
Munchkin Quest: Portal Kombat
Red Dragon Inn – Gaming? I’m In!

Restocked Board Games:
10 Days in Africa
Alhambra
Alhambra – Big Box
Ants! For Queen & Colony
Arkham Horror : King in Yellow Expansion
Arkham Horror Lurker at the Threshold
Arkham Horror: Black Goat of the Woods
Arkham Horror: Dunwich Horror
Arkham Horror: Kingsport Horror
BattleStar Galactic Pegasus Expansion
Battlestar Galactica
Call of Cthulhu : LCG Core Set
Carcassonne
Carcassonne: the Castle
Carcassonne: the Tower
Cthulhu Dice
Cutthroat Caverns
Galactic Emperor
Genoa
Hey! That’s My Fish Deluxe
Hotel Samoa
Incan Gold
Lost Cities
Lunar Rails
Mr. Jack Expansion
Munchkin Bites 2 Pants Macabre
Munchkin Bites!
Munchkin Boxes of Holding
Munchkin Quest
Mystery Express
Neuroshima Hex: Babel 13
Neuroshima Hex: Duel
No Thanks!
Notre Dame
Nuns on the Run
Pandemic
Pandemic: On the Brink
Pirates Cove
Puerto Rico
Risk: 2210 A.D.
Settlers of Catan
Stone Age
Thurn & Taxis
Twilight Struggle (’09)
Two By Two
Ubongo
Unspeakable Words
Year of the Dragon

The End Game – Exit Strategies

When opening a game store, one of the premier concepts behind running a business – the exit strategy – is rather obtuse.  The main options to exit a company voluntarily include:

  • IPO
  • Acquisition (Friendly or Unfriendly Buyers)
  • Liquidation

IPO

Let’s start with IPO’s.  Yeah, ain’t happening – there are two companies in the board gaming business that are public; Hasbro & Games Workshop.  Neither are pure retailers like we are; and I don’t see any pure retailers in that arena.  So the only way to go this route would to grow large enough to purchase / create our own distribution and publishing arm.  I’m not seeing it.

Acquisition

Acquisition’s either by a friendly or unfriendly source; but it basically means the purchase of your company by another.  This is a potential route to go down; but it relies on finding either a company that has sufficient capital or an individual or group of individuals.  Your best bet here would actually be former competitors or customers.

The great things about acquisitions is that you might actually gain a higher amount than straight liquidation.  Unfortunately, your purchase multiple probably isn’t very high as neither option generally have that much free funds.  So you might be able to negotiate a gradual buy-out.

Liquidation

That really leaves us with option 3. Liquidation – sell everything at whatever price you can get and hope to recoup your losses.  This is the most likely scenario and one that I’d suggest planning for.  One of the aspects of liquidating the company means ensuring that the company keeps a low profit / cash balance and pays it out on a regular basis to you / the shareholders rather than one lump sum.

Unfortunately, a pure liquidation means that all those contacts, all those loyal customers, all the extra work you’ve put in to build the company; all the company’s brand equity is valued at $0.  It’s a rather depressing but realistic view on owning a game store.  There are no big pay-days; so you best make hay while the sun still shines.

Mini Reviews

Lots of board games have been played recently, unfortunately I’ve not had time to write full reviews for them or I’ve not had enough experience / plays to give a full review.  So here’s a ton of mini-reviews for the games.

Parade: Light card game that has players drawing and playing cards down onto a line of cards (the Parade).  Cards that aren’t protected by the card played must be taken by the player if they are either lower than the card’s number or the same colour suit.   Points on the cards are negative points, though players only receive -1 point for each card that they have a colour majoirty in  Parade’s an interesting take on the set collection game that takes a game or two for you to get an idea how it plays, but it’s fun even if it is light on theme.

Hansa Teutonica: Supposedly about developing a network of trade merchants in Germany, however, truthfully the theme is extremely low.  Mostly, it’s a game about route building and area control, where players build routes on the board to unlock additional abilities (workers,additional points, increase refreshed, etc.) and score points.  It’s actually quite a fun game that is highly conflict oriented in the Euro-game way.

Terra Prime: A science fiction, exploration and colonisation game; Terra Prime’s an interesting game.  It’s very much a Euro take on an AmeriTrash game, with somewhat simplified rules and quick gameplay.  It’s not a bad space exploration game, though I’m going to have to play it a couple more times to make a full judgment.  Perhaps the most disappointing aspect of the game is the quality of the pieces – we had cardboard tokens literally coming apart on us as we punched it.

Zombie State – Diplomacy of the Dead : Okay, let’s get my biggest grouse out of the way – the graphics are horrendous.  Seriously – the board uses a ton of non-primary colours that contrast very badly on the world map.  This game desperately required a graphic designer.  Note however that while it uses a world map, this is not a Risk-clone.  In Zombie State, players are fighting the Zombies; not each other.  In addition, you are limited to your own regions (which are hard enough frankly to keep populated).  However, there is some minor conflict by careful planning by sending the Zombie hordes into other player regions or via foreign aid.  There’s also a tech tree and lots and lots of zombies.  It’s actually quite fun, though gameplay takes a lot of time – figure about 4 hours for a first game with 3 players only.

Castle Ravenloft:  Now in sharp contrast – this is a game that got the visual presentation right.  Actually, more than right – this game’s miniatures is absolutely gorgeous.  Now, not having played D&D since Basic, I can’t say anything about how simplified or not this is compared to D&D 4.0 but compared to Descent, it’s incredibly simplified to make gameplay fast.   There are only a few characters and the dungeon is all randomly generated.  It’s a great light adventure game for those looking for something that sets-up and teaches faster than Descent, but there is rather a lot of randomness in the game (dice rolling for combat, random dungeon creation, random monsters per dungeon, random events, etc.)

Anima: the Shadow of the Omega: In contrast to all the great games we’ve played and discussed, this isn’t a good game.  No, seriously it’s a bad, bad game.  The game is entirely too random, with almost no real control over what characters you get, what events you face and what quests you are required to complete.  Other than pretty pictures on the cards, the game just doesn’t play well and takes too long anyway.

Office Move : Larger Space, More Efficiency?

Well, we’re done.  Beyond a bunch of sorting of boxes and moving the various pre-orders out to their new shelves, the new office / storage space is fully up to speed.   The new space, as those who have visited might notice is about 3 and a half times as large, with nearly double the shelving space already set-up.

What the new office provides us is:

  •  dedicated shelving for boxes & packing materials

Until now, we’ve been stacking boxes near our build location.  This allows us a better and faster review of what box sizes we have, ensuring we don’t run out of boxes as often and making packing faster.

  • dedicated pre-order space.

Previously (and right now till we find the time to actually pull pre-orders) we’ve left games that are part of pre-orders on the shelves, relying on the automated inventory tracking to ensure we didn’t ship them out.  With the new shelving space, we’ll be able to more quickly pack and ship pre-orders when the backordered games come in.  In addition, keeping track of stock will be much, much simpler.

  • More shelving space

With the new shelves we’ve built and will be able to build, we can expand quite a bit more.  That gives us a lot more options of what games we can stock and makes finding games and thus packing faster.

Overall, we’re very happy with the new space.  We had a few other options, but the closest other location – a full warehouse space – had no heating.  Considering we live in Raincouver, it’s probably  not a good idea to leave potential humidity problems to chance.

It is obviously a lot more expensive and while we don’t need all the space, I’ve learnt my lesson from the previous location.  Better to have a larger space that you can grow into than a smaller location that you’ll have to move out of in a year or two.

New & Restocked Board Games : October 21, 2010

New Board Games
Cadwallon: City of Thieves
DUST Tactics
Kings and Things
Rowboat
Scrabble Wood Premium Edition
Talisman: Sacred Pool Exp
Warhammer : Invasion LCG Redemption of a Mage

Restocked Board Games
10 Days in Europe
Blokus Classic
Carcassonne
Clue Reinvention
Cosmic Incursion
Elasund The 1st City of Catan
Humans!!! 2 – Sea Food
Leonardo da Vinci
Lord of the Rings (Silver Line)
Mr. Jack
Mystery Express
Railways of the World
Scrabble Deluxe 60th Anniversary
St. Petersburg
Twilight Imperium 3E Shattered Empires
Wasabi!
Washington’s War
Zombie Dice
Zombies! (Second Edition)
Zombies! 3 Mall Walkers 2nd Edition
Zombies! 8 – Jailbreak
Zombies! 9 – Ashes to Ashes
Zombies!!! 2 Zombie Corps
ZOMBIES!!! 6 : SIX FEET UNDER

New & Restocked Board Games : October 15, 2010

New Board Games
A Game of Thrones LCG Mountains of the Moon Chapter Pack
BUGS
Chez Geek – House Party Edition
Code 777
Gosu
Call of Cthulhu LCG : Screams from Within
Great Dalmuti
Lemming Mafia
Lifeboats
Inca Empire
Invasion from Outer Space : the Martian Game
Nuclear War : Weapons of Mass Destruction
FFS Plastic Stands
Poo!
Power Struggle
Rattus Exp – Pied Piper
SmileyFace
Two By Two

Restocked Board Games
Ten Days in the Americas
A Game of Thrones: Rituals of R’hllor Expansion
Age of Empires III: Age of Discovery
A Touch of Evil: Hero Pack 1
A Touch of Evil: Something Wicked
Bang! Dodge City Expansion
Bang! Wild West Show
Battle Line
Betrayal At House On The Hill
Caylus Magna Carta
Chez Cthulhu
Citadels Card Game
Command & Colors Ancients #3: Roman Civil Wars
Cthulhu Dice
Dominant Species
Ghost Stories
Hotel Samoa
Jaipur
Killer Bunnies Odyssey Combo Pack Animals, Crops & Land Starter
Killer Bunnies Odyssey Combo Pack Elementals, Energy & Technology Starter
Leonardo da Vinci
Martian Rails
Martinique
Munchkin Boxes of Holding
Munchkin Cthulhu 4 : Crazed Caverns
Phantom Leader
Railways of the World Card Game
Reef Encounter
Risk: 2210 A.D.

Saboteur
Shootin’ Ladders: Frag Fest
St. Petersburg
Stone Age
Such A Thing
The Three Musketeers the Queens Pendant
To Court the King
Tobago
Twilight Imperium 3rd Edition
Warhammer : Chaos In The Old World
Zombie Ninja Pirates
Zooloretto
Zooloretto: Polar Bear Expansion

Best Practices : Make Friends (4)

There is a lot of reasons why you want to make friends, some prosaic, some highly practical but here’s the most important few in my view.

An Ear to Lean On

Being an entrepreneur is a lonely job. A lot of your work is done behind the scenes – legal, admin, accounting, marketing – most of which involve sitting around by yourself reading / filling up forms / working on the computer.  The people you deal with on a daily basis – your customers, your employees don’t necessarily want or need to know the grinding headaches of your job.

So having friends who are willing to listen to you talk about your business is useful, if nothing more than a way to vent.

An External Check

One of the advantages of telling others about your goals / plans is that you have an external check.  Of course, you could take the more formal route and get a board of directors and a plan; but an informal set of ‘peers’ who query why you only did 30% instead of 50% growth is just as good at times, if not better.

Advice & Ideas

Another reason to talk to people is sometimes, they provide great ideas.  Sometimes it’s their successes (especially if they are other entrepreneurs), sometimes it’s advice in their area of specialisation (accountants & lawyers in particular).   Of course, don’t expect anything detailed when it comes to advice, but sometimes having them point you in the right direction is all you need.

A Helping Hand

Sometimes, you just need help – whether it’s running games at a convention, packing up for a move or holding the fort down for a few minutes while you grab lunch.

New Contacts

Everyone has their own network of contacts, from their past and their activities.  Mine’s a rather eclectic group of sword-fighters, musicians and professionals.  When you launch a business, you never know when contacts or those of your friends can come in very useful – a place to host a party, a graphic designer for your cards, etc.

The different kinds of Gamers

After VCon, I was thinking of the various customers we met face-to-face and started breaking them up into various segments of the market by buyer / gaming behavior.  I thought I’d share it with you, since it was a kind of useful for me to review against the games I brought.  I’m writing this with relation to the con itself, though obviously the groups are probably true too on an everyday business.

Casual Gamers

These are individuals who will play board games, but aren’t seriously into gaming in any form.  They might pull out a game once in a while, during special events or parties, but generally dedicate very little of their time to gaming.  They drop by to see what’s new, to browse and are more likely to buy on impulse; whether because the theme, the brand name (e.g. Starcraft) or a good sales pitch.  You’re unlikely to see them again if they walk away from the booth; except maybe next year.

Social Gamers

These individuals play board games semi-regularly; generally at least once or twice a week.  They play board games for the high social interaction, for spending times with their friends and more concerned with theme and interaction than balance or ‘elegant’ rules systems.  Both light, casual games and party games sell well for this group.   Steve Jackson has zeroed his sights on them, and has made quite a business selling games aimed directly at this group.   However, as the group enjoys the experience more than the game itself (if you see where I’m coming from); sales are sporadic but consistent.

AmeriTrashers

There’s a fine line for me between a Social Gamer and an AmeriTrasher and I draw it as the level of depth of the game.  Generally, Social Gamers like games that are simpler – easy to pick-up, easy to teach because of their large circle of social gaming friends.   On the other hand, AmeriTrashers like in-depth games and I would say almost prefer them in general.  Fantasy Flight Games rule here with this group – if the theme works for them, this is the group that will buy from them.  Sales from this group can be quite good, depending on releases of great new AmeriTrash games.

Lapsed Gamers

Lapsed Gamers can come from one of the many groups here, though mostly from AmeriTrashers and Gamer Geeks.  They want to play, enjoy playing board games but for some reason they haven’t been able to do so in a while.  It might be a lack of time, money or company but the biggest barrier to gaming for them isn’t price, just life.  They might buy a game from you for old-times sake, or maybe a 2 player game to play against their significant other, but mostly they’ll look wistfully at the games and then move on.  Your best sell might just be boardgamegeek.

GamerGeeks

These are your regular customers, the one’s who place orders from you every few months.   Size of the orders varies of course, but gamer geeks make gaming a part of their lives – fitting it in whenever they can.  Generally, they’re gaming at least once a week if not more.  Mostly Eurogamers, though they’ll play anything good and can often be on the hunt for ‘the latest game’.  Amusingly enough, at a con they might not buy much from you at all – after all, they’re already regular customers and have gotten everything they’ve wanted!

So that’s our list.  It won’t be 100% accurate, and everyone falls into one group or another at one point in time (I vary between Lapsed & GamerGeek a lot!).  Still, it’s a nice little mental map for me.  How about you? Do you see yourself in that group? If not, am I missing someone / some group?

New & Restocked Board Games : October 7, 2010

New Board Games:
Betrayal At House On The Hill
Dominant Species
Dominion: Prosperity
Hansa Teutonica
Mr Jack Pocket

Restocked Board Games:
10 Days in Asia
10 Days in Europe
Arkham Horror
Axis & Allies: Pacific 1940
Aye, Dark Overlord (09 Ed)
BattleStar Galactica Pegasus Expansion
Catan Traders & Barbarian 5&6 Expansion
Catan: Traders & Barbarians
Chaos
Chez Cthulhu
Chrononauts The Gore Years
Dungeon Twister 2: Prison
DungeonQuest
Egizia
Ergo
Gipf Project Set #3
Gloom Card Game
Gloom: Unfortunate Expeditions
Gloom: Unwelcome Guests
A Game of Thrones : Illyrio’s Gift Expansion
A Game of Thrones : A King in the North Chapter Pack
A Game of Thrones : Refugees of War Chapter Pack
A Game of Thrones : Return of the Others Chapter Pack
A Game of Thrones : Scattered Armies Chapter Pack
A Game of Thrones : Secrets & Spies Chapter Pack
A Game of Thrones : War of the 5 Kings Chapter Pack

High School Drama: Varsity Ed
Imperial 2030
Munchkin 4: The Need for Steed
Munchkin Bites 2 Pants Macabre
Munchkin Bites!
Munchkn Cthulhu 4 Crazed Caverns
Nuclear War Card Game
Nuns on the Run
Parcheesi: Royal Edition
Qwirkle
Revolution!
Ricochet Robots
Run for your Life, Candyman!
Saboteur
Say Anything
Shadow Hunters
Shadow Hunters: Expansion
Standard American Board Game Sleeves
Standard USA Game Size Sleeves
Stoner Fluxx
Tannhauser Boardgame
Thunderstone: Wrath of the Elements
Wasabi!
Warhammer: Invasion LCG Fall of Karak Grimaz
Zombie Dice