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?

 

 

3)

Industry Size 4 (updated with 2008 numbers)

If you have been reading for a while, you’d notice that a while ago we looked at the 2006 numbers for the industry (NAICS 451120 – Hobby, Toy and Game Stores).  Since then, they’ve released the 2008 numbers (only 4 years behind!); so I thought I’d take a look at the differences we can see in the gaming industry in Canada.  There’s obviously a lot of other retailers other than pure gaming retailers here included but it’s the closest we have to real numbers.

So here’s some of the things we found interesting:

1) Higher No. of Stores

In 2006 we had 1,328 – now it’s 1,413.  That’s a 6% increase in 2 years.  On a straight line basis, we’d be at 1,587 stores now in 2012.  Obviously, we’re growing!

2) Better Margins

Net profit has gotten better to 2.6% with 58.2% cost of sales.

3) Average total Revenue dropped

From $323.6k to $320.3k.  It’s also interesting to note that the 50-75% quartile has seen a lower low and high value at $143k and $364k respectively.  That means there’s a lot more businesses making less than they were 2 years ago – while the guys at the top have pulled away further with better profits.

4) Wages continue to be extremely low

If you’re at the bottom 50% of the groups surveyed (over 700 stores); you’re looking at most $16.4k in wages (including the ‘profit’ the company made).  If you’re in the 3rd quartile, $39.2k is your total wage.  A bit better than last year for the 3rd quartile, but man is that low for the amount of work we put in.

5) Rent

This is a strange one.  I’m not even sure how to read this – for the 2nd quartile (25-50% of all businesses); their average rent was $8.9k.  That’s $750 a month.  Obviously not everyplace is as insane as Vancouver for retail prices, but still, rent at $750 a month has got to mean a maximum store size of 1000 sq ft and more likely 500-700 sq ft.  I’m assuming taxes and other operating costs are not included in that calculation.

It begins to make more sense at the 3rd quartile at $1,800 per month for rent.

6) Marketing Expense

As a whole, the industry spends about 1.8% of their gross revenue on marketing.  However, the smaller businesses spend a proportionately higher percentage than the larger – it goes from 2.8% down to 1.6% as you shift quartiles.  I guess there’s something to be said about scale and (probably) number of years in business.

7) The Averages are a Lie

There’s a last section that compares the profitable vs non-profitable businesses and it’s enlightening.  At each level, the differences between the profitable and non-profitable businesses are marked; especially when you look at their net profit. Example in the 2nd Quartile, the average profitable business makes a net profit of $19.5k compared to the non-proftiable average loss of $17.3k.  In the 3rd Quartile, it’s $29k to -$29.2k respectively.

So obviously, there are businesses that are doing really well for the owners at each level. If you assume the average wages / etc stay the same for these businesses, then the total wages possible for an owner working by themself in the 2nd and 3rd quartile moves to about $33 and $61k respectively.  A decent salary – though insane hours!

Final Thoughts

All this is old data.  From my experience, we’ll likely see a much higher number of stores in 2010 and 2012 when the numbers finally release.  In Vancouver alone, we’ve seen at least 4 new businesses open since 2008 in the game store industry with only 1 closing in the interim.  It’s also interesting to note how little is actually spent on marketing – in terms of both actual dollars and % of business.

At the end of the day though, all these numbers are just guidelines of where you should / need to be.  Every business is different and learning to adjust to your specific situation is what makes or breaks a company.

The Fickleness of Memory

I’m in the midst of updating our sales list right now, and have once again been reminded just how fickle my memory is.  When deciding what games to put up for sale, I go through a few steps:

  1. Download our entire catalog
  2. Remove all out-of-stock items
  3. Start deleting all games that I know have sold well.
  4. Once complete, I generally have about 700 – 800 products on the list.  I then start verifying sales in the last year.

This is where my memory really fails me.  See, in part (3) if I even hesitate, I leave the game / item on the list so that I can double-check in part (4).  Generally though, I like to think of myself as a person with a great memory.

Then I hit games like Tobago, Labyrinth the Card Game and Chez Cthulhu and Homesteaders and I realise, no, my memory really isn’t that good.  All those games have sold over 4 times in a year – which is very good in our business.

And that’s why we have stats

I’m obsessed with numbers – I run the business with numbers. If I can’t put a number to something, I get twitchy (e.g. how well is the Spiel doing for us?)  It’s not just for my own phobias though, it’s because with over 3,000 plus SKUs, you cannot remember it all.  Thus, numbers and charts and databases that record it all because your memory, no matter how good just can’t process all that information.