On Fortress Geek

I know we mentioned we aren’t going to be cross-promoting the new website, and we won’t be.  However, I figured the readers of this blog probably wanted a bit more detailed explanation than what they saw in the newsletter about why and how Fortress Geek came about.

Why Not Grow Starlit Citadel?

I’m sure that’s a thought in some people’s heads.  The time and energy we devote to the new site could potentially be pointed at Starlit Citadel after all.    Except… not really.  Over the years, we’ve tried a lot of different advertising methods and a lot of different venues.  The ROI on most of those venues / advertising methods have not been great, and we’ve slowly trimmed them out.  Sure, we could potentially do more Video Reviews – but they are such a high-level marketing tool that their returns are often months, if not years ahead.  Other marketing tactics that have been contemplated all require years of long-term investment to see a return (working with schools & teachers, setting up demo programs in communities, etc) and are a lot of work to even get started.

Furthermore, Starlit Citadel is growing.  It’s just that the rate of growth has slowed down (you can’t grow at 100% forever after all – compound effects come in after a while. Not to say we did 100% btw).  That’s not surprising – at a certain point, we will reach saturation in the gaming business and growth rates will be eked out at the margins (3 – 5%).  That’s fine, but not very exciting.  At a guess, we’re probably 3 – 4 years out before we see that, but I have to start planning for that now.

A New Business

One of the lessons I learnt while owning my own business is to make sure you are actually interested in the business you are promoting.  There’s a certain level that professionalism and drive will get you, but to make a business really successful, you need to be passionate about it.

When I first started looking for a new business idea, I wanted a business that I could actually get behind and push.  One that I had no problem seeing myself promoting for the next 3 / 4 years before it became profitable.  At the same time, I started noticing the various cool stuff we brought into Starlit Citadel never sold – necklaces, chainmail dice bags, the posters, etc.  I figured it was because it was close, but no cigar for our current crop of customers.

Being a dyed-in-the-wool geek, I figure why not expand into more Geek related businesses? After all, there seemed to be a gap in the Canadian marketplace and we already had the logistics infrastructure in-place.  Thus… Fortress Geek.  We first started building the site in September 2012 but had to put everything on-hold when Christmas came.  In addition, we needed more space – both for Starlit and for the new stock in FG.

Same- Same?

So, what makes FG different? I have a few ideas and we are working hard on making some of them come through.  Right now, the site is pretty similar to every other geek site out there – there’s nothing special to it.  No USP.  It’s one of my major concerns, and one we believe we know how to tackle.  However, to get there it’s going to take a few more months and require us learning a few new skills.  Hopefully, some of those skills will show up in Starlit too, but we shall see.

Amazon the Giant

I recently was contacted by Amazon to list on their site.  It’s an interesting proposal that I decided not to go ahead with for a number of reasons.  Many of the same reasons for not listing on Amazon hold true for eBay too if you think about it.

a) Lack of transparency

One of my first questions was; can you give me details on previous sales for a few games (like Settlers of Catan) so I could get an idea about my potential gains.  Unfortunately, they wouldn’t share even that basic information.

b) Lack of control

When it comes to listing on Amazon’s site, there are some major advantages.  You get a major boost to sales in the short-term (possibly) as you tap into their marketing budget, their current customers, their design team, etc.  On the other hand, you have no control over any of this.  They are optimising the site all the time – for Amazon.

c) Giving them data

Amazon has a history of using sales data to decide which product category to next enter in their quest to sell everything under the sun.  Now, obviously they already sell a lot of our board games in the US but haven’t done so yet in Canada.  And as usual, when they enter they generally ‘scoop’ the bestsellers and then leave the dregs for everyone else.  And remember – the entire product page is designed and controlled by them, so its easy to tweak the design to give them the best overall profit for Amazon – whether it’s by selling more of the product directly or more via 3rd parties.

Also, we’d be helping them build up their website as we list all our products.  Kind of silly to do all the work for another competitor eh?

d) Lower Margins

Amazon takes 15% of every sale.  So if we sold games at our usual price, we’d take a 15% haircut immediately.  Not a fun thought considering how small a margin we already have.  If we increase our prices by 15%; then we have to keep 2 databases.  Not to mention the fact that they’ve got a strange system for Shipping Costs where each individual item is priced to ship individually.

e) Competing on Price Only

Since there’s very little to differentiate one 3rd party seller from another in Amazon (beyond some basic review mechanisms); you are basically competing on price and price alone.  Not something we’re that interested in doing.

f) Multiple Databases

Not to forget we have to start managing multiple databases instead of the single one we have.  As it stands, keeping stock up to date is a problem, having to do that for 2 sites / series of orders is just painful.

g) No Repeat Customers

Lastly, one of the major things that keeps us as a business afloat are our repeat customers.  With the Amazon system, we lose out on the repeated sales from customers.  We have no way to contact them (e-mail newsletters, twitter feeds, blog posts, etc) to let them know about new products / features / etc; nor does Amazon want us to.  Those customers are ‘theirs’ and thus creating / building customer loyalty to us is extremely difficult.  As such, each product search / page is a new battle for the same customer.  Now, I’ll admit the cost of acquisition of the customer is much lower as it’s all borne by Amazon; but it also means that you never have your ‘own’ customers.

Conclusion

In the end, joining Amazon works for some businesses but not for us.  It’s just not something I’m that interested in.  Could we get additional sales? Probably.  But with it comes numerous headaches and a very transactional nature of business.  In addition, we end up ‘tangoing’ with a big-boy who at any time could shut us down.  There are numerous horror stories of companies that rely on a 3rd party for the majority of their sales that go out of business due to changes / tweaks in the 3rd party’s policy’s.

Musings on Kickstarter

The introduction of Kickstater to board game publishing over the last year or so has caused some major changes, with a lot of new independent games being published and dispersed.  It’s also caused a lot of consternation among game stores, and for myself.  I’ve been trying to figure out why I dislike the entire system, and what my concerns are about such a program.  So, here we go:

Present Concerns

  1. Additional work: Scanning through and researching all the board games available on Kickstarter just adds another task to an already busy job
  2. Additional capital: I’ve spoken about this before, and it’s a real concern.  Having to find additional non-working capital to purchase these games is an issue.  The delay between payment and delivery creates a significant ROI requirement, which is not helped by…
  3. Lack of Retailer Support: The few times I find a project worth backing, there often isn’t even a Retailer Support level.  So we either have to contact the publisher to create one (and check back if they do — which isn’t even certain!) or we buy at MSRP.
  4. Lack of Online Retailer Support: I’ll add an additional caveat that there seems to be an even higher level of elitism among Kickstarter publishers than among normal publishers with many of the ‘Retailer support’ levels only available to B&M stores.
  5. No recourse: If and when (because there will be a when) a Kickstarter project is never fulfilled, there is no legal recourse.
  6. Varying demand: Of course, you never know if a game is going to be a hit.  However, with the traditional distribution channels, I can hedge my bets by ordering 1 or 2 copies initially.  That’s all that will sell for many games.  With a Kickstarter-backed project, I have to take 4 to 6 copies and then pray that they all sell — knowing that the customers who really wanted the game might have already purchased it themselves through Kickstarter.

Overall, these concerns have made Kickstarter a non-starter on a corporate basis.  I personally still support some projects, but those are my personal funds.

Future Concerns

While I know I lose some sales and some customers to Kickstarter, it’s not a big issue.  It’s a secondary competitor — one that has a leg-up in terms of getting some product faster, but no more dangerous than any other competitor.  At least, presently.  It’s what might happen in the future that concerns me the most.

Scenario 1: Kickstarter is the financing method for publishing all games

If Kickstarter becomes the financing method for all companies (and there are some indications of that with established publishers like Queen Games and Steve Jackson Games using it), then we will see a major change in how business is done.  The concerns then become:

  1. How much of our customer base are we going to lose?
  2. What percentage of games will sell exclusively through Kickstarter / direct distribution?

Greater Risk

Here’s the thing —  as an online store we might actually be more at risk than your general B&M store.  A core group of our customers are avid boardgamers: Gamer Geeks.  These are customers who are looking for the hottest new games, often with the highest amount of bling and exclusivity. Exactly. This is the same group that are most likely to finance a Kickstarter project.  If we lose a significant number of our Gamer Geek customers, we’ll definitely be struggling.

No More Distribution

There is, frankly, a lot to be said about cutting out the middleman.  If a Publisher can sell the game direct to customers through a system like Kickstarter, then their profits increases significantly.  For them it is better, financially, to sell 1/2 as many games directly to customers than the full amount through regular channels.  If you assume most games are priced at about 8 – 10 times the component cost, then the publisher of a $50 game would make approximately $45 per game selling direct, compared to $15.  I’m not including shipping here, which will push the profit from direct sales down somewhat, but you can still see the attraction.

So what’s to stop publishers from blocking all sales to distributors & retailers? If you realise that 80% of all your demand has been soaked up by Kickstarter, why not just sell the rest direct on your own website? Or just not print more than your Kickstarter funding covers and then put up a 2nd Kickstarter for ‘unreached’ demand?  Suddenly, the retailer and distribution chain disappears.

Lower Margins

Here’s another variation on the above: publishers do allow retailers to purchase; however, they reduce the retailer margin.  An example would be the Ogre Kickstarter where the retailer support level was $200 for 3 games  – or about a 33% discount compared to the usual 45%.  That doesn’t sound like much, but most stores only have a profit margin of 3 – 5%.  A reduction of over 12% in their margins would put most of us in the red.

All the above has the potential to create a major disruption in the publishing channel.   And it doesn’t even have to be all publishers. If, say, 50% of the major publishers start doing this, game stores and distributors will be majorly squeezed.

Scenario 2: Balanced Use

The above is a doom-and-gloom scenario.  What’s likely to happen is something less extreme.  Publishers might use Kickstarter for new and/or risky games where they aren’t certain of their return.  For reprints and classics, they will likely distribute through their normal channels, using the funds from their first print run to do so.

This likely means that retailers and distributors will see reduced sales of new games, and will be much more likely to stick to classic games and bestsellers.  When they do pick up a Kickstarter game, it’ll be a minimal number, since they will know it’s ‘sold through’ already.

Hmmm… maybe we should ask BGG to add a new category to all games: Kickstarted: Yes / No.

In the end, I expect at the retail level we’ll see a lot more breadth of games (more games) but much less depth (numbers printed).  Publishers will likely do smaller print runs in an attempt to ensure they get their Kickstarted games funded, and a large number will be pre-sold.  Retailers will thus have much fewer copies to purchase, and those that do arrive will disappear really fast if they are good games (see Belfort as an example – note, Belfort wasn’t a Kickstarted project as clarified by Michael below) .

I’d also expect there to be much faster discounting of games in this scenario, as retailers attempt to move products before they go stale.  If Kickstarter increases the total number of games by say, 30%, an already busy release schedule becomes even more packed and retailer inventory budgets get squeezed further.  This scenario would be a change, but not a major change.

Scenario 3: A Vicious Cycle

Another possibility is a slow decrease in support for Kickstarter projects in general, and board games in particular.  I would not be surprised if game stores start becoming much more focused on casual gamers:  customers who aren’t as interested in new games, and whose gaming budget might be only $100 – 200 per year (instead of per month), and who are thus quite happy to play / buy the bestsellers of yesteryear.  When it comes to serious gamers, the focus shifts from supporting board games to supporting CCGs and Miniatures even further.  Both of these categories are significantly harder to fund via Kickstarter due to their higher production costs and need for ongoing expansions.

If the above scenario plays out, we might even see the following vicious cycle occur:

Publishers put games on Kickstarter -> retailers buy fewer Kickstarted games -> publishers aren’t able to sell as many games, and are increasingly reliant on Kickstarter pre-orders, adding more new games to Kickstarter -> retailers further reduce support of board games.

If that happens, I’d expect that only a few online stores who either (a) bite the bullet and support Kickstarter projects or (b) lower their pricing significantly to make up for the lost Kickstarter ‘perks’ will stock a significant breadth of board games.  What you see on the regular B&M store shelves will increasingly be the current winners — FFG, DOW, SJG, Rio Grande, etc. — and getting on those shelves will become even more difficult for independent designers, if not impossible.

Final Words

Of course, all of this is dependent on the Kickstarter bubble not blowing up completely as bad products outweigh good ones and customers walk away from supporting the majority of products. If this happens, then not much will end up changing in the end.