One of the most common questions or queries about our future for the business is whether we’d open a retail store or a game cafe. Truth be told, both ideas are one’s that we have tossed around. There are significant advantages to developing a physical location (beyond the warehouse) but there are significant disadvantages too.
Running a physical store requires a whole series of different processes than an online store. SKus have to be priced (everything), a point-of-sale system needs to be added and preferably integrated with your online store inventory. You need to redo the shelves to add enough space for the disabled, adjust them to allow for proper showcasing of products, review the way games are shelved for traffic flow, train staff differently and of course, events.
Now, for a game cafe you have the vents, all the food & beverage requirements including the laws that pertain, the game library that has to be up-kept and if you’re selling as well, all the above. Not to mention, you have to worry about ‘turning’ your tables fast enough to continue to generate a decent revenue from the floor space.
None of these processes have anything to do with the upkeep our online store (adding products and descriptions, images and inventory), the pulling, boxing and shipping of orders and the marketing involved in running an online store.
As many have pointed out, warehouses are cheaper to run than retail stores. We’d expect to pay at least double what we currently pay for our lease amounts and then you face an interesting question – do you move the entire operations to run out of the retail store or do you run them seperately in 2 different locations? If you are large enough (see Chapters), you have multiple locations – but if you aren’t, it might make sense to defray some of the cost of holding all that stock by running it all in 1 location. However, now you’re selling product that is priced to be competitive online (i.e. lower margins) on a higher per square foot location. That means you need the retail portion to make the difference in the retail cost, at a lower price point.
In addition, remember how I said the shelving needs to change? Creating shelving for everyday consumers is very different than for a warehouse – for one thing, we can squeeze and/or build up much more easily and effectively than retail stores. So you’re less effective in using the space that you do have.
Anothe rmajor cost is the increased cost in employee time. Shipping and running the online business is a full-time job. Having customers come in, browse and play at events means you need a second pair of eyes and hands – just to keep yourself from being shop-lifted to major losses. Again, higher costs.
Opportunity cost is the cost of not doing something. If I spend the $60 – 100k launching a physical store, I’m not spending that money on something else like growing the online store. The question the becomes one of ROI – even if I could make the game cafe profitable, what if it’s only 2x the return when I could spend the same amount of money and get 4x the return?
In the end, we are still a distance away from building out to a physical location. We’d need a significant amount of funds that are not available. In addition, being an online store provides a lot of hidden benefits (beyond the lower cost) that I currently enjoy. More on that another week.