Tarred with the same brush (Distribution Issues)

tar_brushA day after we did our post about distribution challenges in the gaming industry, we receive news that PSI has now informed their US distributors not to sell to online only physical stores.  If you don’t know, PSI does the distribution for nearly 30% of the industry (most everyone who isn’t gobbled up by Asmodee like Steve Jackson Games, Arcane Wonders, Catalyst Games, Stronghold Games, Indie Boards & Cards and more).  This is the same day that a post on Reddit titled “My local game store smells so bad that I don’t want to go in” hits 852 upvotes and generates a ton of conversations.

PSI (potentially at the pushing of it’s publishers, potentially by themselves) decided that game stores that reek so bad that potential customers refuse to go in are better ambassadors for the game trade than we are.

Hyperbolic much? Maybe, but since we seem to be tarred with the same brush, why don’t I use it on all B&M stores? No fair, but then who is being fair or reasonable here anyway?

Let’s be clear – there is an issue in the industry where board game prices in particular have hit a point where many B&M stores are reducing or even removing their support of the category beyond fast-selling staples.  There are a lot of reasons bandied around but the reasons that get spoken about are:

  • Alpha gamers picking up the ‘hottest new games’ from Kickstarter releases direct
  • Online discounts on average at 30-40% off MSRP.
  • Mass market businesses poaching gateway gamers from B&M stores (who now can’t / don’t have the chance to convert these customers like they used to).

Here’s the thing.  If you look at the above issues, 2 of 3 of those problems are created / supported by publishers because it works very well for them.  Kickstarter allows them to launch more games with less capital and make more money.  Mass Market sales allows them to generate more sales with a much, much bigger footprint than probably the entire B&M store industry.

That means online discounts (and online discounters) are the only people they will go after to look like they are doing something.   There are numerous policies coming into play to stop this.  In the US, ANA decided to just restrict sales to a few online stores.  In Canada, some have gone with a MAP program (even if it is technically illegal).

PSI’s strategy is to restrict it to B&M stores only.  However, that’s not going to work.  Most of the large players in the online world are B&M and online, so it wouldn’t stop them from purchasing.  Worst, half (at least!) of the problems come direct from B&M stores who find themselves with too much product and are just dumping the product.  Solutions like this are more PR than actual solutions, intended to appease than fix the real issues.  Mostly because the real issues are either extremely expensive to fix or because, perhaps, they aren’t fixable.

Mixing & Matching – adding a new channel

One of the common suggestions I come across is for a retailer to expand either Online or into B&M if they are online only.   It’s an interesting idea and has some merit in that you expand your sources of income by expanding your services and reach.  However, there are some issues that most individuals who make the suggestions have not considered:

Focus

When you launch both an online store and a brick and mortar section, you actually double your workload.  Sure, certain things are shared (purchasing, accounting – maybe); but many of the tasks are very different.  With running any single side a full-time job (and more), you end up having to take shortcuts with either side leading to a lack of focus and efficiency.  It often is much more lucrative to focus on what you do best already rather than doubling your workload for marginal gain.

Additional Cost

There are additional cost to launching either side.  As an online store going to bricks & mortar, you have additional space requirements for  the B&M location, you can’t space your shelves as tightly or pack your games as firmly, you pay more per sq ft generally and of course, you have to pay for additional staff.  As a B&M store going online, you now have hosting costs for the website, additional box & packing material for shipping, additional time cost for shipping and box pick-up and an increase in customer service e-mails.  All of these add on to your work load, and often with minimal increase in revenue immediately.

Inventory Management

One of my constant nightmares is inventory management when you are effectively running 2 stores.  The question then becomes whether you seperate the B&M and online inventory (thus never allowing over-ordering) or you host a single inventory.  Now, hosting a single inventory sounds great – till you realise that it’s possible for a customer to walk up to your counter holding a game that was just sold online.  Now what? In either case, you are annoying someone.

Starting Over

Launching a website or a B&M store might garner you some additional sales from existing customers, but mostly you’ll just shift around how they order.  That might be fine for convenience sake on the customer’s part; but that obviously doesn’t provide you with new revenue.  As such, you end up starting over again having to build up new customers, new sales.  Sure, you might have some of the same infrastructure already but you’ve just added a bunch of cost without the revenue stream.

Competition

Competition is strange.  Sure, as an online store we compete indirectly with every B&M store in the world.  However, the customers who buy from us are often not the customers of a B&M store -they have different needs, different desires and vice versa.  Now, adding a new channel puts you in direct competition and you might find that you just aren’t up to it.  A B&M store might not be able to price well enough, ship fast enough to meet the desires of an online market.  An online store might not be able to provide sufficient events and game space for walk-in clients.  Having to compete on the same playing field generally means adding additional cost & procedures.  And if you refuse to play that game, you might not be successful at all – which then leads to the question of why bother?

Online vs Brick & Mortar

When starting out a game store, one of the first questions you run into is whether to create an online or Brick & Mortar store. There are, in my view, numerous reasons to choose one or the other.

Skill Set

Let’s start with perhaps the most important aspect – skill set.  The skills and knowledge required to run a B&M store compared to an online store are quite different.  In B&M, you worry about shrinkage, inventory, merchandising and upkeep of the physical store.  Online, you deal with website infrastructure, online marketing, inventory and logistics and shipping.  There is some overlap – customer service, purchasing, accounting but at times the information you receive and the processes are vastly different.

Depending on your previous experience and occupations, you might arrive with differing levels of knowledge in each area that would push you in one direction or the next.

Capital

Capital wise, it’s much more viable to start an online store with much lower capital amounts.  Mind you, I am not saying you’ll succeed with an extremely low capital amount but it’s possible to launch an online store that way.  In fact, if you use eBay or Amazon only where the focus is individual sales, you could probably make a small profit selling only a few games.

With a B&M store, that’s just not viable.  At the least, even a small hole-in-the-wall requires a commitment of a lease and inventory to stock the location sufficiently to make it viable.   As such, capital requirements are much lower.  In addition, with an online store it’s possible to create a decent store if you have the skills to do it yourself.

Time Commitment

Here’s another thing about going online.  For the first few ‘months’ of launch, you could potentially work part-time for the company since you are unlikely to have that many orders to ship out.  This is much more difficult with a B&M store as you still need to staff the store even if it is empty.

In addition, you can outsource a large chunk of work with an online store.  Everything from shipping and logistics to marketing & customer service can be outsourced when things are done on the Internet.  Obviously there’s a degradation in quality and a cost, but if you are willing to eat the margin hit, it is viable.

Personality

Here’s one I don’t hear as much but plays an important part.  Not everyone is suited to running a B&M store or an online store.  B&M store’s require a more extroverted personality, individuals who are happy (or least able) to interact with individuals on a daily basis for 8 – 10 hours a day while staying pleasant.  Online stores require disciplined individuals.  There is very little external stimulus to force you to work, so the discipline required is very similar (in fact, can actually be) the discipline required for telecommuting.  If you can’t do one, it’s really going to be hard to the other.

Competition

Local competition in the city you are in can dictate whether or not a B&M store is viable.  If your town / city has no game stores, your local competition is extremely low, making a B&M store much more attractive than starting such a store where there are already 2 or 3 existing (and strong!) competitors.

In addition, the landscape of online automatically places you in competition with the big boys.  You do not get a chance to ramp up slowly, your store is automatically compared to much larger, more established stores.  With competition only a click away, you have to put your best foot forward from the start, leaving little time to work out kinks in the system.  On the other hand, with little to no marketing your online store will never have customers due to the sheer number of competitors.