Retail Gaming Store Economics [LONG]

[dpdx]

Sam - I wish you all the luck if you do decide to go ahead with the venture. The world needs more FLGS.

I drop about $3-400 a year onto game stores. Perhaps my customer's perspective could help shed some light on what you'd expect. Of course, you have one, too, but since I'd like to help, here goes:

- Be visible. Be in the Yellow Pages, and on the Web, and at cons with a little table. Especially if there aren't that many FLGS in your area to begin with, it helps if people know where you are.

- Have a bulletin board, the bigger, the better, for people trying to hook up playing partners for the great stuff they bought at your store. Once people know you have one, they'll come in just to look at it, especially if you or one of the employees keeps it up to date and nearly full. While they're there, they'll buy more stuff.

- If you also sell something else besides games, like comics, or models, you'll get crossover.

- If I'm jonesing for something and you have it, I'll get it from you. That sounds obvious, but a lot of times, stores don't. They either don't have it soon enough (which may or may not be their fault), or they're out of it, or they don't carry it. But if they have a reputation for having something fresh and anticipated when it comes out, people will check there first, and maybe even preorder.

- I really don't mind if you track what I buy from you - in fact, I'd be geeked if you knew I was going to want something, and you sent me an email or called me when it was coming in. You may not have time for that, and that's okay, too. But don't be surprised if I come in and buy something totally different, either. When gamers network, they discover new stuff, and they like to get that, too.

- It might help to sell cool dice.

- Be open for a while on evenings. Those of us with jobs appreciate it.

- Oh, and be in Western Suffolk County or Eastern Nassau, hopefully. I have family there, and it would rock if I could load up when we visit them.

Again, good luck if you do, and I hope you do.

 

[WayneLigon]

- Be visible. Be in the Yellow Pages, and on the Web, and at cons with a little table. Especially if there aren't that many FLGS in your area to begin with, it helps if people know where you are.

Advertise, Advertise, Advertise.

Places to advertise.

Video game store.
DVD rental store.
Alternative music store.
New Age Store.
Local Art Cinema.
Book stores.
Used books stores.
Comic shop

Military Base

Buy an ad in the local high school newspapers, and the local college/university ones. Put up flyers at both these places.

I don't know how much it takes to get an ad in one of these 'welcome to town' packets that the chamber of commerce or whoever sends out to new homeowners, but see what it is. That's a great way to get hold of people that just moved to town and don't know where the FLGS is (especially since you won't be in the yellow pages until the new book comes out).

 

[satori01]

I asked some questions in a related thread which were kindly answered by Ryan S Dancey, first though some quick thoughts:

15k per month is not very much given overhead and start up expenses. POS electronic systems are very expensive generally 2-3k for newer models, ( assuming IBM current prices), also dependent upon your region many metropolitian areas have a "scanner tax" for each electronic scanner you have, in Los Angeles it is I believe around $800 a year.


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Originally posted by satori01
1) What are the Gross Maragins for retailers
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Almost universally in the hobby gaming industry the US retailers get between 40 and 45% off of SRP. Because most retailers can qualify to order directly from WotC and GW if they want to, most "real" game stores get up to another 5% off when they buy direct from the publishers or engage in special pre-release ordering programs and early payments. Call the "average" discount of everything in the game inventory about 47% off SRP.


quote:
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Originally posted by satori01
On the same thread what is the general Gross Maragin for books in general
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On average books have the same margins as games for hobby game retailers.

Bookstores order books at a wide variety of discount based on the kind of book and the size of the order. Fantasy and Science Fiction hardcovers and softcovers usually sell into book stores at between 40% and 45% off SRP.


quote:
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Originally posted by satori01
2) Do the bulk of RPG sales come from small independents or from the major book chains,(Barnes and Nobles/ Borders).
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Half of all of WotC's RPG sales come from bookstores who order product through WotC's book trade distributor, Holtzbrink. Of those sales, 80-90% go to the biggest 10 book chains (including Amazon). Independent book stores don't sell a lot of RPG products, or if they do, they often order from a hobby game distributor to get additional points of margin.

Originally posted by satori01
3B) How strict is inventory/sales ratio and OBO calculations?
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My opinion is that now that the new sales-tracking software is going into the chain stores that they will be astonished at how much money they make from WotC RPGs compared to how little inventory risk they take. Turns on D&D in the chain bookstores are ferocious.

The top-down management of the orders in the system is really a function of persistence and isn't very automated. When a buyer or a salesperson really stays on top of the issue, inventory ratios can be kept quite high. When nobody's minding the store, they tend to get very spotty


Originally posted by satori01
4) Chris refrenced how novelty plays a large factor in the 'saleability" of a product, in a hobby industry like RPG do stores factor more for novelty than sales trend. Are sales trend models for RPGs a steep spike,(initial large sales boost followed by quick decline)?
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The answer to this question depends completely on whether your'e asking about an established top-selling game (D&D), an upstart new RPG, a supplement, an adventure, or some other subcategory.

D&D earns huge sales every year from the "top of the order" products - the PHB, DMG, MM, etc. Other games show a spike when a new core book comes out, but then show successive, smaller spikes as follow on content is reduced.

At the end of the day, most retailers make about half their RPG revenue from selling 50-100 products which have become "Evergreen" which means they sell at high, predictable volumes over a number of years. Exceptions of course for the years that D&D has a new release, and to some extent, when Vampire has a new release.




sorry about the extensive post, but I hope the info helps.

 

[ichabod]

Questions:

• What are typical profit margins?
• What would a normal week of sales look like?
• Are there seasonal trends that I need to be aware of? Does the December Holiday shopping season have a significant impact on business?
• How important is running organized play/leagues?
• How much space do you have/require for open/organized play?
• Do you sell only gaming merchandise, or do you have other products (comic books, models, apparel)?
• What is a realistic level of starting merchandise?
• What am I not thinking of?
• Am I just fantasizing about a crazy concept, and is the reason that game stores are closing all over the place because it is not a profitable venture?

Any information is greatly appreciated.

I ran a local game store in a college town of about 70K for three years. It was a small one man operation, and by the end of it I was making a profit (I closed down because I wanted out of retail). My location had several problems. All of the following is based on my experiences with that store, so keep those assumptions in mind.

Gross profit margins are about 50% of retail, usually a little less.

A normal week of sales was about $3500. Keep in mind small store, no employees.

Holiday season significantly affects sales, at least of games. Comics I can see it not affecting as much, but I never did comics. The summer convention season affects game sales, as most of the US companies aimed releases for Gencon and Origins. That means a dead zone in late winter and spring.

Organized play is extremely important, more so for the more collectible games. With collectible games, organized play stimulates impulse sales. I used to run CCG tournaments for the popular games, with no entry fee, giving away prizes, and I came out ahead because of the increased sales. Even if the games are not collectible, organized play builds customer good will, which will lead to increased sales.

Half my store space was devoted to organized play. I would have had more, but it was a small space. In a large store, you could get away with a smaller ratio.

I sold only gaming material, but I had a wide selection thereof. Board games, CCGs, miniature games, and RPGs. I was leary of comics, as it is a very different sort of business. I did want to branch out, but didn't have the space. Model builders (trains, RC cars) also have crossover with games, so you might look into that.

I don't remember what I had for starting inventory, but my initial business loan was for $40K, and I ran into problems due to undercapitalization.

Game store are tough, as it is a niche industry. The reason most of them fail is the same problem most of the industry has on all levels: it's run by gamers, not businessmen. You can be both, but that rarely happens.

Advertising: generally overblown. Local newspapers and stuff like that when you open up, sure. But after that stick to the yellow pages, flyers, a good web page, and generating customer goodwill to get that word of mouth. You will live and die by your word of mouth.

CCGs: These are tricky. Typical investment to start carrying a CCG is $100, as opposed to $30-40 for a board game or RPG. Warhammer has similar problems, but worse. The inventory you have to carry to really support GW stuff is huge, and you have to have organized play to generate the impulse sales.

Inventory: This is huge, because excess inventory is wasted money. You have to find out what your perenial sellers are, and keep those in stock come hell or high water. There are board games and roleplaying games that just sell over and over again. All the RPGs you carry, have the core books in stock. You need to have a sense of the gaming community to know what lines to carry. For your main lines keep a decent inventory of supplementary products, but otherwise do special orders. Be very careful with the special orders. Keep good track, keep the customer up to date on their orders, and do what you can to get the product in. It's often better to buy the product at a competitor and resell it for no gain than to leave a customer hanging. It's that good will thing.

I never was able to get a good computerized inventory system, but I would have loved to have one. I think one of those would be a huge asset in getting the knowledge you need to improve your inventory and services. Especially now that I have a statistics background.

Another thing: you want to have a good atmosphere. You want your customers to think of it as a cool place to hang out. But for the younger customers, you also want it to be a place their parents are comfortable with them hanging out in.

Last thing: used games. I think a lot of game stores really miss out on this, although it is a bit of work. Giving people a way to turn old games into new games is a good way to generate sales and good will. Stocking old games will provide another incentive for people to come to your store, especially if they're looking for something odd. Plus the lower prices turn them into impulse sales.

 

[Zappo]

Uhm, I don't know anything about economics and I've never worked at a game store. But I did witness the birth and death of a FLGS and being an observant person I can tell the reasons. Or better, the reason. This FLGS was part of a small chain and the central warehouse in Milan apparently used it as a dump of sort.

They always had heaps of junk games that I've never heard. I swear that there was stuff - lots of stuff, from obscure GURPS settings to minis of discontinued GW games - that has been there from day one to closure. And at the same time, I've had to wait two months to get an AD&D PHB (this was before 3E) and new stuff usually was there no less than two weeks later than on the net. They had a bunch of random World of Darkness novels, but not top-selling Dragonlance. Sometimes I felt as if they didn't want my money. The mistakes were so obvious that even someone with no economical or business training could spot them.

 

[Olgar Shiverstone]

Some observations: (not from direct gaming store experience, but from a long time watching general hobby-shops go under, and the fact that my in-laws run a marginally successful specialty retail store).

- You have to know what makes you money. Everything else is essentially a loss leader for your core products. I haven't visited a game store that lasted that had RPG products as their prime money maker: it was either comics, or CCGs, or miniatures, or general board games. My other hobby is R/C, and there are few hobby shops that survive on R/C sales alone -- most rely on the plastic model market to justify their inventory of other high end stuff.

- You have to balance inventory against likely sales. A good POS tracking system helps. To little inventory and you lose sales -- only your most loyal customers are going to wait a week for your to order something, when they camn order it themselves cheaper and have it delivered to their door. Too much inventory, of course, and all your capital is tied up in inventory that isn't moving.

- You need some systems that bring people into the store and make them want to buy -- tougher to do with RPG games that require relatively minimal investment, but tie up a lot of time and space in the store. Much easier to do with miniature wargamers or CCG'ers.

- Service matters. If your employees are idiots, you're losing a lot of repeat business.

- Know when your prime business time of year is. Stock up for it, then have your fire sale and move that useless merchandise.

- Location, Location, Location. It's got to match your target market. If three gaming stores have failed in your area, the fourth most likely will too, unless they've all been making the same mistakes.

 

[Sam]

Thanks everyone for your input. I'm going to do some local market research this weekend about this issue.

Some people have mentioned purchasing directly from WotC or GW versus going through a distributor. What are the pros & cons of buying direct vs a distributor? Will either/any of them take back overstock?

I'd also love to get some more feedback on what appropriate startup funding (inventory and overhead) should be, and what your experiences regarding how long it takes until breakeven/profitability is reached.

--Sam

 

[Sam]

bump

 

[Azure Trance]

Wait a minute. What LGS? Game Corner? Empire Games? Men at Arms? Also if you didn't know, the WOTC store I frequent at Walt Whitman Mall in Huntington is closing down on the 26th (last day). They were going to have a 75% liquiidation sale (drool) but higher ups nixed it in favor of trying to make a profit still. May I ask what town you're from? Oddly enough I didn't even look at your location until I saw the comment:

Oh, and be in Western Suffolk County or Eastern Nassau, hopefully.

I'm like, wait a minute ...

 

[dpdx]

I know you weren't asking me, but I have family that used to live in West Islip, now they're spread out around the Island and through the Tri-State area.