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.

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.

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 Bestsellers List for September 2010

As usual, for our records, here’s the bestsellers from the month of August 2010.  New bestsellers list for September can be found on the site.
Castle Ravenloft : Dungeons and Dragons Board Game
1. Castle Ravenloft : Dungeons and Dragons Board Game

2. Dominion

3. Zooloretto

4. Citadels Card Game

5. Dominion : Intrigue

6. DungeonQuest

7. Glory to Rome

8. Pandemic on the Brink

9. Ticket to Ride

10. Twilight Struggle Deluxe Edition

VCon 2010 – a combined Steampunk event

This was our fourth year at VCon, and as always we had a blast.  VCon this year was a combined event with VSteam – a Steampunk group that has been growing in popularity in Vancouver.  It’s a great sub-culture, and this year, people were out in style with a variety of costumes from the period.

The first day (Friday) was a tad of a mess, with tables not arriving and most people scrambling to get set-up.  The vendor’s room looked to be about a time and a half in size from last year, with twice the number of vendors.  Can we say cozy?  In addition, whilst the games room was right next door, nearly all the other events were held in the hotel next to us – so there might have been fewer visitors than there could have been.

This year, we agreed to run a pair of games table as well.   However, with over 8 tables of other games going on at one time, we never really had enough people to fill both our tables except on Sunday.  Throughout the course of the 3 days, we ran Ascension, Small World, Thunderstone, Arkham Horror and Aye, Dark Overlord! with a repeat of some of the games throughout the week.

With around the same number of guests (I believe) but nearly twice the number of dealers, overall sales were lower for us this year than the year before.   Still, the dealer’s room for congoers was definitely more interesting, with a variety of clothes, jewelry, art, booksellers and costumes to catch their interest.

I’d definitely like to thank the many volunteers who dropped by this year to help out, with our tables in the vendor’s room and the games room, it certainly was extremely useful.  Overall, VCon continues to be our favorite con to do and we’re looking forward to it next year.

October 2010 Newsletter

Review Contest Winner

This month’s winner is Murray C. with his review of Small World. In his words “I got a great first impression from Small World, even with in the two player game. This is a game of conquest, but the winner at the end of the game is the one with the most money.”

 

On-Going Contest

Don’t forget, we are also 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!

Read more about the Contest

Site Updates

We are moving on October 9 / 10, 2010 to a new location near Gastown. The address and Google Map is 311-Rear West Cordova St.

Our coupon codes system is still down. We are now doing a complete wipe and reintallation of the site on a development server to hopefully remove the problem. Our apologies on this delay!

Lastly, look out for a quick Con report of VCon that just finished last week. Overall, it was a great event that mixes a wide group of writers, gamers and readers together. It continues to be our favourite convention to go to locally.

Read more on our blog

Upcoming Hot Games

Content Image Inline
A ton of great new releases are arriving in the next few months including Dominion : Prosperity, Showmanager, Power Struggle the reprint of Betrayal at the House on the Hill and Jerusalem.

More Pre-orders