Grow or Perish

Grow or dieOne of the aspects about any business is that to a certain extent, you are always forced to grow.  Standing still (in terms of revenue at the very least) is death.  Every year, your costs go up (unless you are lucky / down-sizing for some reason).  A real world example – our product shipping cost has grown by a good 4% in the last 2  years due to the fact that we have to buy from Canadian distributors rather than US distributors.   As mentioned, our portion of real estate taxes doubled in 3 years.  And that’s just the tip of the iceberg.   Every year, costs go up.

As a business, you need to grow your revenues at least enough to cover the increase in costs.   That means you need to see a 2% increase at the very least (based off CPI)/ Most of the time of course you want to grow even more than that.  Unfortunately, for most of us, growth like this requires more than a wish and hope, it also requires spending more for advertising and often, working on new plans and streams.

For us, over the last few years it’s been about growing new product lines outside of board games.  Increased competition by gaming stores (both physical and online) means that the pie is being fought over ever more, and exclusives level the playing field in terms of stock availability in many ways.  Even with the gaming market growing, it seems that the increase in game stores is on-par and we no longer see the aggressive growth numbers we were used to seeing from our gaming categories.

It’s one reason why we’ve invested so heavily into other items like Pop! figures, geeky clothing and the like.   Don’t let that statement fool you though, gaming is by far our biggest category (so big that on our backend we split products up so that we can better track the types of revenue) and even low % growth is still significant.  Still, knowing that we have to grow is always on our mind and it’s been something I’ve been pondering more and more recently.

As I’ve mentioned, our lease is coming to an end next year and while we have an extension option, there’s been some significant consideration to opening a physical B&M store.  We have had more than a few customers want to browse our inventory and when we ran our Open Houses, we had significant interest.  Having a full B&M store opens up the option of doing events as well and snake & drink sales.  Presumably, many of our impulse purchase items would also see an increase in revenue, potentially significant enough to recover the difference in cost.

The biggest hurdle is capital. Having invested a significant amount of capital into inventory for our various other categories, we don’t have a lot of left.  That means opening the store would be on a shoe-string budget for things like tables, new bookcases, etc. There’s also a chance that sales don’t grow like we expect or at the rate that we expect, burdening us with significant fixed expenses and not enough revenue generated.  It’s why I’d love to be able to go into it with a significant capital cushion, which probably means looking at some form of external financing.

Of course, we could just continue doing what we are doing, taking on some additional side projects like the Kickstarter fulfillment; but we risk very slow growth in that case.  hat though might not be a bad idea – pay down debt, earn a little bit more money and continue onwards. Unfortunately, it’s also boring…

 

 

Mixing Business Models

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.

New Processes

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.

Higher Costs

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

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.