Opportunities in the Board Game Industry

A recent post on a forum asking if it was a good idea to start an online game store had me thinking.  The simple answer is no (definitely not in America, not so great in Canada either really).  However, the fact stands that there are a significant number of opportunities in the industry currently which don’t involve direct retail of board games.  I figured I’d detail some of them here (at least from my view point).  Note that I don’t, in most cases, have direct experience so it’s an outsider perspective.

1.  Game Reviewer

Firstly, let’s start by saying that there are only a few reviewers out there who do this full-time.  This is a long-term play as you need to build up enough of a fanbase that they would be willing to pay for you to continue development & publication.  It took us nearly 4 years (over 100+ videos) before we ran our successful Patreon campaign and even then, at $400 per video which came out every 2 weeks, it wouldn’t really be enough for most people to live on.  However, we also only published a video every few weeks and focused on significantly higher production values than most game reviewers, so if you had the time, ability and funds to do this for a year (or two), it should be possible to make a full-time career from it.

The advantage of this is that you’d be playing games constantly unlike other parts of this business.  After all, part of your business is playing games  The negative is that it takes a lot of time to create a video review, so you’d be on a constant ‘mill’ of content development.

2. Game Accessory Retailer / Manufacturer

An interesting area that has cropped up is the development and sale of game accessories.  Whether it’s sleeves, tokens or inserts, there does seem to be some demand for this.  My guess is that the actual margins on producing and selling multiple tokens is quite high once you get past the set-up cost.  The negative is that you are targeting a small portion of an already small market, so I’m not sure there’s enough of a market to generate a decent income.  On the other hand, if you can combine this with sales to publishers for their prototype designs, there could be a decent business here.

3. Publisher

This is probably one of the two areas that I’d certainly look into more significantly if I had the time and capital.  With Kickstarter available these days, capital requirements are actually significantly lower than previously (I’d guess between $3-5k per game for artwork, design and testing and prototypes to be sent to reviewers).  Risk is significantly lower as you are able to crowd-fund the cost of publication to start.  The major disadvantage (beyond the significant time investment to find and playtest games) is the time-lag.  It seems to take between 8 to 12 months to produce a game and most backers would prefer to see the delivery of their first game before you begin Kickstarting a second game.  As such, until you’ve developed a significant following (and/or have a decent hit for a game), your income is likely to be pretty low for the first few years.

4. Game Publishing Management (ala Game Salute)

Game publishing management is something I haven’t seen since tried since Game Salute.  Rather than being a full publisher (purchasing rights, developing the art, etc.), that there might be a space in the market for someone to work as a contractor to aid in the marketing, design & manufacturing and importing of the game.  Certainly it’d require quite a bit of knowledge in this area and and it’d be tricky to work out compensation.  If you charged an hourly rate, you might not be as attractive to a new publisher, but if you did it on a commission basis, you run the risk of a failed Kickstarter (or low funding Kickstarter) since you aren’t personally choosing / editing the games yourself.

5. Distributor

This is really only for those with a lot of money and probably not in the USA. I know at least in Canada, we could probably do with a well-funded West Coast distributor and I’m sure there are significant opportunities for distribution in other countries.  When I say a lot of capital though, I’m talking in the millions.

6. Game Cafes / Restaurants

The hottest trend in retail is game cafes & restaurants.  This seems to be quite profitable if you could can locate a good spot that is large enough and can be staffed regularly.  This is the other area I’d recommend putting money into if you had the desire to get involved with the game industry.  Unlike publishing though, this requires significantly more retail.   From my estimatation, you probably need at least CAD$30k to barebones launch a business and I’d really not want to get involved without at least $60k.  Comfortably, you’d be better of with $100k.

7. Rulebook reviewer / editor

If you’re reading this, you know how many bad rulebooks there are out there.  If you have the skillset to write good rules, this is probably a good market to get into.  This is however (like being a cover artist / board designer) something that is very skill dependent.

8. Game Designer

Unless you become a publisher yourself, most game designer’s aren’t able to make a living just designing board games.  On the other hand, you don’t have to put up a lot of money for this and who knows, maybe you’ll design the next Pandemic / Catan / Scythe and end up raking in royalties forever.

9. Comprehensive Board Game Website (competitor to BGG)

Everyone thinks the design on BGG is horrendous.  They’ve been working on a version 2 of the site forever.  So far, no one has come up with a serious competitor to the site but considering the sheer volume of advertising / marketplace sales and industry information there is, I would have to say there’s a significant revenue source here.  Of course, this requires specific skillsets, a decent capital bank and reliable servers, but I’m sure there’s a business case in here somewhere.

10. Kickstarter Fulfillment

We do this as Starlit Citadel Logistics.  There is certainly money in this business, but it is fast getting extremely competitive in Canada & the USA.  Outside of those countries, South America and Asia seems wide open and potentially Europe (or at least, there’s no leading player in Europe from what I understand).  The biggest barrier to entry in this area is shipping cost.  Many of the established players are able to get significant volume discounts from the courier companies and as such, unless you have an existing business that does a lot of shipping, this could be a major disadvantage.  Other things to watch out for in this business is that income is not predictable – you could do 3 Kickstarter’s in a week and then nothing for a month or 3.  Lastly, most Kickstarter’s break out (from what we’ve seen / been told) into the following volumes – 60% USA, 10% Canada, 20% Europe & 10% everywhere else.  If you assume most Kickstarter projects fund at the 1000 backer level, there’s only a small number of shipments everywhere but the USA which means you’d need to get a significant number of projects signed up to make a decent living.  Then again, there are always the mega projects (Kingdom Death anyone) that help pay the bills for months…

 

Distribution Challenges for the Gaming Industry in 2016

My initial title for this post was ‘market failures’ but I realised that that wasn’t entirely accurate, even if it is a better sounding title.  What I wanted to talk about was the increasing fragmentation of the market and the complicating of the supply chain that we are seeing.

Vector illustration of red exclusive stamp on white background
Vector illustration of red exclusive stamp on white background

Exclusive Distribution & Monopolies

Exclusive distribution agreements aren’t new, I’ve written about them previously.  Right now, the vast majority of our products (a good 70% of game sales I’d say) are under exclusive distribution agreements.  Our biggest problem with exclusive agreements is the fact that it can be often difficult to locate who has the exclusive agreement in a country and just as importantly, be able to purchase the product in sufficient quantity to make it worthwhile.  A few great examples?

  • Qwirkle is the only game that sells for us from their distributor in Canada.
  • Celestia and Haru Ichiban are carried by Le Valet who at least have some other ‘good’ games, albeit at a higher markup

As many of you know, shipping in Canada is expensive.  Most places cost us at least $30-40 to ship a parcel at any ‘size’, sometimes much more.  Excluding any minimum’s that a publisher might have (and some sell by case quantities only!), that means to keep shipping cost at only 5% of an order, we’d need to put a $600 order with the publisher.  However, many of these publishers have maybe 5 to 6 items (sometimes even less!) which would sell in our business.  When this happens, we often end up deciding to either / or /and :

  • restock very, very slowly
  • not carry the product / product line
  • increase the price of the product to save on our margin

Geographic Boundaries

Geographic boundary restrictions (essentially stopping us from purchasing from the USA) is another extremely frustrating restriction.  It used to be that we could purchase almost our entire catalog from the US.  Over the years, it’s now slipped to about 30% of the gaming catalog.  This can often lead to some extremely frustrating instances such as:

  • Monikers which signed an exclusive agreement with On the Right Track. Who don’t carry the expansion but we can’t purchase the expansion as the publisher can’t sell it to us due to geographic restrictions.
  • Forbidden Island whose US MSRP is $19.  The lowest Canadian price we can get from a wholesaler? CAD$18.

Non-Gaming Distributors

This one amuses me and frustrates me.  For a while, CV was only purchasable from Pierre Belvedere as they had an exclsusive agreement for it in Canada.  Their main business? Selling calendars from what I recall and various kitchen ware items.  They were a distributor, but there was literally nothing else that was worth buying from them.

We recently had a request from Raincoast Books to buy Osprey Games from them. At least, in this case, they are in Vancouver so we’d save on shipping; but really? Again, see above about hitting minimums and shipping costs for why we generally try to stay away from this.  When a game ends up with a non-gaming distributor, it often becomes dead to us because there’s no way to hit a minimum threshold.

Direct from Publisher

I don’t categorise direct from publisher sales as onerous just by existing, mostly because in many cases, these publishers might not have a choice.  Unable to get into ‘normal’ distribution, they’ve decided to sell direct to retailers who are interested.  What I do find frustrating are publishers who don’t understand the normal discount thresholds for sales.  A recent trend has been for publishers to offer discounts of 25-30% off MSRP and charge for shipping.  At those levels, not surprisingly, most retailers would not bother carrying these products.  If a game is selling at $30, then a 30% discount indicates a gross profit of $9. Add in shipping cost, our gateway processing fees and the time taken to handle the order and we barely make anything on such an order.  No surprise that in those cases, we often decide to not carry those products at all.

The current discount rates seem to vary between 45-50% with some particularly aggressive groups as low as 40%.  Not surprisingly, most retailers don’t even both with those at 40% so if you are offering discount rates at 30%, expect that we won’t be purchasing from you at all unless you hold an extremely, extremely in-demand game (see Cards Against Humanity).

Direct to Consumer Sales

Firstly, let’s be clear – a publisher has the right to decide who to sell to or not.  If a publisher decides to go direct to consumer (via Amazon and their own sites) or Kickstarter only, that’s their choice.  It’s not our area to decide their business model.  In fact, when you have a product that is in such demand, it makes sense to keep more of the profit for yourselves.

However, there are numerous publishers who don’t just sell direct to consumers exclusively, they also sell it at a discount from their own MSRP.  Tasty Minstrel Games is an example of a publisher whose games we have had to cut back on significantly due to regular periods of them running regular sales on their own products. Kickstarter’s that roll previous games into the current promotion fall into the same annoyance area if they provide a discount on those games.  If they don’t, it’s not a huge problem normally.

Big Box Store Exclusives

I doubt I have to expand on this much.  The major issue about such exclusives is the perception that it creates that we aren’t ‘real’ stores because we don’t carry X.  When the question becomes ‘Why don’t you have X’, and our answer is ‘because they won’t sell it to us’, it rarely ends up being a good conversation.

 

Over the years, we’ve grown the number of distributors we’ve had to work with from a small 4 distributors to now, over 12+ major distributors who we order from once a quarter.  That’s not including the occasionally publishers who we order a single game from.  This business has grown in complexity significantly it seems and I sometimes wonder how someone who is new to the business keeps up.  At least we’ve had a few years worth of experience to help us.

Warehouse or Retail Store?

Game LibraryWe are coming up on our end of the lease fast and while we’ve made the decision that we will be moving to a new location as our rents have now increased to a point that we no longer think it’s worthwhile to stay, the question we are still working our way through is whether to go full retail or stay as an online store.

Warehouse

Continuing to run a warehouse makes a lot of sense in many ways.  There are some major pros including:

  • well optimised polices and procedures
  • ability to take on more and larger Kickstarter projects
  • potentially branching into other non-related product lines in ways that don’t create confusion among our customers (e.g. selling sporting equipment on a new website)
  • lower cost (we can get warehouse spaces for cheaper than what we are paying right now, so we’d actually drop our cost!)

The Cons though are somewhat more nebulous

  • new location likely to be less central significantly
  • growth has to come from new categories as our gaming category has slowed
  • potentially being locked out further by publishers
  • it’s boring…

Retail Store

Going with the retail store, things get a bit more interesting for the future, with some of the pro’s including:

  • new revenue streams from snacks & drinks & events
  • ability to access and run events / games likes Magic the Gathering and miniature games
  • increase in sales to casual drop-in’s and potential increase in sales from impulse buying of our geek products
  • significantly more options for PR and social media outreach

However, there are some major cons:

  • significantly higher lease cost (we’re looking at least another $4,000 a month at a minimum, more likely $5-7k).
  • new staff and staffing hours would be required.  Approximately $3k more in terms of staffing cost per month
  • loss of revenue from Kickstarter projects.  We probably could handle the smaller projects still, but the larger projects would be difficult (i.e. we couldn’t quote on projects over a few hundred games just due to lack of storage areas for them)
  • new capital requirements for shelving, gondolas, POS systems, etc.  At least another 5 – 10k depending on how nice we want to go.
  • potentially sub-par location.  We need a minimum of 2,500 sq ft and are probably looking at 3,000 up to 5,000 sq ft.  There just aren’t that many locations of that size in Vancouver, especially in retail and for the prices we can afford which would raise the total rent even higher
  • too close locations are another major issue as there are so many game stores right now, finding a location that isn’t too close to an existing store is another problem.

There’s also a rather concerning trend in real estate pricing.  In general, commercial pricing seems to run 2 – 3 years behind retail pricing, so if there is a drop in sales in retail pricing, we might expect a price drop in a few years which means that any lease we sign right now might be on the high price.

Asmodee to acquire F2Z Entertainment

The Great AcquirerSo it looks like F2Z Entertainment is about to be purchased by Asmodee.   For those of you who don’t know, F2Z owns Z-Man Games & Plaid Hat Games, which means they own the IP for Pandemic, Mice and Mystics and Dead of Winter.  In addition, they have the rights for Carcassonne in English & French and the french Catan as well as distributing a ton of Asmodee games in Canada as well a a bunch of other things.

As many of you know, I’ve written about the exclusive arrangement with F2Z that came into play a few years ago. Let’s be clear, distribution in Canada in general is significantly more expensive than the US. Our costs of FFG games from Lion Rampant is at least 15 – 20% higher than it was when we purchased from the US directly so it’s not just a case of F2Z. It’s a systemic problem.

With the acquisition, I don’t know if it will improve.  There are a few scenarios that are likely to play out, in order of short to long-term:

  • Once the acquisition is completed, I don’t expect any major changes for a few months.
  • At some point in the 6 months after the acquisition, I expect there to be a MAP program to be put into place just like the FFG program.
  • I also expect a number of new reprints of good selling games will begin production, so expect there to be a significant increase in-stock for these items in 6 – 9 months.
  • Distribution via F2Z might actually shut down in the next few years as contracts expire and Asmodee moves to using distributors completely, reducing their repetitive cost of managing both a distribution and retail arm at the same time.  This might bring actually have the advantage of providing more funds/ need for opening a 2nd warehouse in the West which would lower our costs.

Outside of that, I expect everything else to be business as usual.  It’s unlikely Asmodee will try to undertake the same kinds of policies that they’ve taken in the US (i.e. restricting sales of products to only a few online retailers) due to our differing laws, but you never know.

Overall, I’m actually cautiously optimistic that this might be good for us in Canada.  In the long, long term there’s some concern that Asmodee will use it’s new leadership position to drive margins even further down, but I do not expect that to happen anytime soon.

 

Spinning wheels

Posts on the business side have been particularly quiet lately.  There’s a lot of things going-on behind the scenes of Starlit Citadel, but most of it would be dead boring to those not involved in it.  For example, the last few months have been a huge struggle getting our database from the site-merge between SC and Fortress Geek sorted out.   Hours and hours of combing through data, checking over products and finally, the final site-merge which has still left numerous bugs in the other site.

None of that is of interest to people outside, beyond the occasional bugs that crop-up on the site because of the work we’re doing.

On top of that, our Kickstarter Logistics program has seen significantly more traffic (read, I’m giving a lot more people more quotes).  Not a huge amount of additional business and what there is, is months down the road.  However, it is important to get done and I’ve yet to train anyone else to take over the answering of those e-mails, so I’m stuck dealing with it.

All of which mean posts on the business side have been of the lowest priority.  Hopefully in the next few months I’ll have a little more free time to get back to posting.

2015 In Review: Industry Changes

I occasionally write these posts about the year before, talking about how the year went or not. I sort of didn’t do a massive review for 2014 last year, more discussing what would happen in 2015 instead. This year, I’ll try to get back to doing my usual year in review post.

Exchange Rates

Probably the biggest thing that affected us this year was the increase in the exchange rate.  We’ve gone from around CAD$1.15 to CAD$1.40 in a year with the resulting explosion in prices. For a long-time we held our calculation on the pricing at $1.35 but we’ve had to alter that recently, with the expected resulting price increases over the next month.  Worst, it means to carry the same volume of product (i.e. same number of items); our inventory numbers have just increased by 22%. In the last 2 years, that means we’ve seen an increase of 30% in our inventory cost which as you can guess with a store like ours is a significant bump in inventory.

Out of Stocks and 3rd party sourcing

Another thing that didn’t help was the lack of product for a number of hot games. As usual, Dead of Winter was out of stock for large periods of the year. Same with a number of hot products like Codenames, Pandemic: Legacy and more.  In an attempt to keep stock in-place, we started sourcing from 3rd party websites and managed to keep some of these items in-stock, even if at a much higher price than we’d prefer.

MAP Policies & Acquisitions

Mayfair made a bit of a splash with us late last year with their sudden attempt to implement their MSP policy. Interestingly enough, they just lost their Catan license, which makes them somewhat less relevant as a business for us. Certainly, if we exclude Catan the only games that actually sell regularly for us is Caverna and Patchwork.

Of course, last year was also the year of the acquisition with Plaid Hat joining F2Z (who own Z-Man already) and just at the start of the year, the lost of Catan’s license to Asmodee North America.  I won’t reiterate my discussion about the ANA announcement either, though that obviously was an interesting addition.

Convention Coverage

Perhaps one of the newest additions for our convention coverage was the addition of the Calgary Comic & Entertainment Expo last year. We’d have to call it a success and we’ll be back this year for sure.  In addition, we added Yukomicon to our list of conventions we do with Starlit Citadel last year and we probably will be looking at expanding our convention coverage across more countries next year.

Fortress Geek & Product Range

One thing that readers of this blog might realise is that we’ve been expanding our second business, Fortress Geek; aggressively.  It’s actually growing quite well, but for a variety of reasons (mostly backend and long-term); we’ve decided to integrate both sites.  That’s been.. a mess… but it’s mostly been taken care of, just not in-time for Christmas which was sad.  Still, we’re hoping that the introduction to the site will see a wider spread of sales for Starlit Citadel, diversifying us further.

In the meantime, we’ll continue to push Fortress Geek as a separate site.  There are a few business reasons for that, but it’s also a matter of selection. I expect we’ll be stocking some stuff in FG that just would never make it / sell well in Starlit Citadel.

Overall

2015 was a good year for many reasons. We’ve worked out some backend issues, implemented a series of procedures that have significantly expanded our ability to grow and streamlined processes while continuing to grow our business.  On the other hand, there’s been significant challenges in terms of our stock and stock management and it’s probably the biggest area that I need to work on.  Our old methods of dealing with stock just no longer work, at least at the level that we need it to with the worsening exchange rate.

Sucking the cashcow dry

Mayfair Games has updated the Settlers of Catan game with a new, 5th edition  Guess what they changed? A few graphics and a difference facing on the box.  What else did they do – they increased the base price to US$50.  Why? Because they’ve got a hit game and can reap in all the money they want / can and as they move towards a mass market, their regular competition of Monopoly and Risk provide recycled games with lousy components too at a high price. Why wouldn’t they do this?

On the other hand, you get more puzzling examples of this in the industry all the time. Take the entire Tash-Kalar debacle. When first released in North America, it was priced so high even the developer spoke out against it.  Now that it’s been re-released, it’s significantly cheaper – but the initial buzz has faded away and sales are much slower.  What could have been a good, on-going game when first released has become just another has-been game.

Cards Against Humanity is another prime example.  They’ve refused to sell to most retail stores forever and last year, promised to start a retailer program.  As far as I know, only a select few stores have been allowed in on the retailer program, leaving the vast majority of retailers in the cold.  What are they up to? Same thing – sucking the cash cow dry.

That’s not to say it’s just publishers who do this. Let’s be clear on this – most brick & mortar retailers these days are expanding and running Magic the Gathering games like crazy, desperate to get as much money as they can from the blockbuster sales the game has been doing.

If you look at these example, the big difference between all of these is control.  Mayfair Games controls Settlers of Catan and can update and sell the game at any price that they want, for as long as they want.  Same with CAH.  However, with Tash-Kalar; the designer pulled the IP away and made a new version since he had the control (eventually) while with Magic, retailers don’t control the product or the distribution, just the price. So you see a price war driving prices down.

An old-timer perspective

I wonder how those who have been in this industry for 20 / 30 years feel sometimes? I know in the last 8 years, the changes that we’ve seen have been immense ourselves.  More direct competition from retailers, more direct competition from publishers and distributors.

We’ve started seeing more and more publishers selling direct – whether on Kickstarter or via Amazon or their own online stores.  It’s pretty much a given that if a game goes through Kickstarter, it is not going to do that well for us.  Sure, we might sell a copy or two if we’re lucky but the vast majority of products that come through Kickstarter are dead-on-arrival.  (As an aside, the various Kickstarter publishers who spam us about their product and supporting their Kickstarter – you’re just annoying me).  Publishers who are on Kickstarter and seriously discount their product are just another competitor, sometimes the worst kind because where a retailer has a ‘floor’ in terms of the product cost (generally about 50% of the product price), a publisher’s floor is often significantly lower (about 80% of product price).  That means they can (and in some cases, have) sold product below the cost that we can acquire the game at.  No surprise that publishers who do that  are added to a list of publisher products that we will stock significantly less of.

Anyway, it’s just interesting to see how the industry has both grown significantly and how many new players have come on-board and how many have left.  New retailers pop-up every few months now it seems all across Canada, jumping on the giant cash bandwagon that they envision the industry is.  And there’s no doubt that the industry has grown. At the same time, other; older retailers have dropped out of contention – whether because they’ve never been able to make money (and have been eating losses for a while) or just that their margins have become so tight, it’s time to move on.

In addition, new formats for gaming have sprung up – gaming cafes and gaming bars are everywhere it seems. There’s no guarantee these guys will last, but a few seem to have become breakout successes like Mox Boarding House or Snakes & Lattes or the Stormcrow in Vancouver.

On top of that, we’ve now grown to a point where Youtube reviewers who are paid to do reviews are viable.  There’s our very own sponsored reviews of course, but there’s also others like Shut Up & Sit Down or Rahdo or the Dice Tower.  The options keep on increasing, and the quality and options seem to be expanding at a very decent rate.

Lastly, talking about communication – we’ve got even more avenues for getting information than ever.  There are a slew of gaming sites and reviews, though BGG continues to be the main website.

All these changes and more, all in 8 years. I wonder how others feel about it?

The difference $20 makes

One thing that’s particularly interesting for us is the way sales on Fortress Geek and Starlit Citadel differ, particularly in terms of the average item ordered.  On Starlit, quite a few products used to sell in the $30 – 40 range.  On Fortress Geek, that price drops significantly and most products that sell are in the $12 – 25 range.  So, a $20 difference.

What does that mean?

We do 5 orders a day on Fortress Geek, each at say $15 on average.  Revenue = $75

We do 5 orders a day on Starlit Citadel, each at $35 range.  Revenue = $175

Assuming we make 40% margin on both, gross profit fir FG – $30 and SC – $70.  If our margin on SC is only 20%, the gross profit is still $35.  Same number of orders, but higher revenue and even with a lower margin, we still make more gross profit.

Of course, cost of goods isn’t the only thing that counts towards gross profit, but it illustrates the point effectively.  On the other hand, it’s easier (in some ways) to sell a product for $15 rather than one for $35 – but online, the difference is marginal.

Changing Marketplace

Why bring this up? Well, partly because of the changing marketplace we see in board games too. We’re seeing a giant split in games, with some of the most popular games in the $10 – 20 range (Sushi Go, Love Letter, the Android: Netrunner Packs, etc.) and a gulf till we hit a lot of the more popular ‘big’ games (Imperial Assault, Mage Knight, Caverna).

Interestingly, the games in-the-middle have stalled for the most part, the one’s in the $40 – 50 range have stopped selling as often – Ticket to Ride, DominionSmall World .  There’s not been a breakout hit in that price category in the last 2 years for the most part unlike previous years, which has meant that we are often processing more orders than ever (for the smaller games) and yet not really making that much more.

It’s a weird thing, and just an artifact of the industry which has been gearing towards ‘bigger’ games or ‘micro’ games.  Of course, this could change very easily with the next set of releases.

Industry Report 5 (2011 Numbers)

I just checked into Statistics Canada and their 2011 numbers are finally out.  I thought I’d share some of my thoughts on looking it over, comparing what I have from the 2008 numbers to the new 2011 numbers.  This is a 3 year difference, so this should be interesting:

 

1) Number of Businesses

Interestingly, the number of businesses (or businesses reporting) are down from 1,413 to 1,329.  That’s a drop of about 6%.  No idea if this is just a reporting issue or a drop in industry size, though at a guess it’s a reporting issue.

 

2) Better revenue

Average revenue has jumped 330.5k from 320.3k.  I don’t know if this is just a reporting issue or just an overall increase, though from experience I’d say overall.  That’s an increase in average revenue of 3.2% , which if you think of it over 3 years is barely a 1% increase.  That’s horrible because it doesn’t even keep up with inflation.

Where you see the biggest gains seem to be the top quartile of all stores, where revenue jumped by over $40k compared to the 2008 numbers.  In fact, for the bottom half of the stores, the average revenue was actually lower than 2008.  I’d guess that it’s because more new stores are reporting numbers rather than that old stores are failing, but again; complete guess.

3) Better Margins & Profitability

Margins have improved overall, from 41.8 to 42.3%.  Profitability bounced up to 3.2% overall which is a huge increase from the 2.6%.   Again, remember these numbers are averages.  There certainly were a lot more profitable businesses in 2011 – 69% reporting were profitable compared to the 60% in 2008.  Of those profitable businesses, in the Top 50% they average a net profit of 40.1k

4) Salaries

I’m always interested in salaries.  Taking a look at the 3rd and 4th quartiles, wages made up 14% and 18.5% of the businesses expenses.  Taking net profit and wages together, a business owner who worked by himself could assume to make (on average) $38.6k and $202.7k respectively.  Okay, that last number just isn’t happening because an average business in the 4th quartile is making $947.3k in revenue and no single person could handle that much work.  Still, it sure does show the jump between the amount that is spent on salaries between the 3rd and 4th quartiles.

I should also add, that you shouldn’t believe the numbers of the Bottom 50 – their losses are significantly more than reported.  For example, the salaries and wages reported for the bottom 50 are reported on average to be $5.7k for the year.  That’s no way that’s includes the salary paid for to the owners, so their net ‘profit’ of $4.7k is probably paid to the owners and/or they are unpaid labour.

5) Marketing

No surprise as usual that marketing sits at the 1.9% range.  It’s never really moved outside of that band and is about right I would think for this kind of store.

6) Rent

Ah, rent.  Outside of COGs and Labour, Rent continues to be the largest expense.  It’s on average 8.5% for the reported industry expenses or about $28.1k per year.  Of course, that covers a huge range from $4.1k (or about $400 a month) to $75.9k (or $6.325 a month).  Thankfully, not everyone has to pay Vancouver prices or that $400 a month would get you a 150 -200 sq ft location – about the size of a large storage location.

7) Inventory Turns

Glancing at the opening and closing inventory, turns are very healthy on the average at 4.2.  Of course, those numbers are very different for the bottom half which turns at 2.5 times and the top half that are turning inventory 4.5 times.  Of course, the top 50% also have about $131k in inventory compared to the bottom half’s $24k.  The usual rule holds true – you need inventory to sell.

Last Thoughts

Looking at the data, there’s nothing spectacularly different from 2008.  If anything, I’d say the report seems to showcase quite well the difference between the newer small businesses that have opened and the longer, larger, more established businesses.  The more established businesses are doing well but are feeling a squeeze from their expenses (3rd quarter profitable businesses actually reported on average smaller profits than 2008) but a lot more are profitable.  It seems the wealth is spreading around a bit more…

Even among the non-profitable businesses, those businesses were making fewer losses.  Considering this is 2011; I’d say that’s about right from my recollection – we certainly started seeing better revenues and profits around this time.

It’s kind of fun to benchmark ourselves against the players here, though with data being 3 years old it’s not exactly apples-to-apples but it does show our marketing expenses and rent are significantly higher than they should be.  Of course, that’s partly due to our latest move where we went up in size significantly; and it’ll take a while for our revenue to catch up with the space. So, anyone have any thoughts on these numbers?

 

 

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