So You Want to Open a Game Store?
So, since the last time I took time to write on Tumblr, the first time I've written about work ever on this blog, I've been asked to write about some other work-related topics.
I promised that Privateer Press would be a topic for an upcoming day, and as a company they are a fascinating topic, and I enjoy putting on the hats of other companies and sharing opinions on what could be done better. That will wait for another day though, because I've been asked to write about something else.
If you're a gamer who has no interest in the inner workings of the industry, in store design, and in profit margins, you can feel free to skip this. If you own a game store, or have ever thought of owning a game store, you may find this to be fascinating.
The topic at question today is that of buying an existing game store. This has come up recently, as there is a store owner in my town looking to get out of the business. So, let's talk about that store a little.
It's located adjacent to a trendy neighborhood full of cool shops. It sees a ton of foot traffic, or should. I have to say it's adjacent to the trendy neighborhood because it's a block to a block and a half too far north to be in my ideal spot. It's a neighborhood I spent a lot of time looking at, because a second store is a goal (so are stores three through twenty to be honest, but I'm young, I've got another thirty years to get there). I looked at that neighborhood for what we refer to as a "Size 2" concept. We have four working models of stores with business plans and budgets written. The current store is Size 2, and I wanted to put another Size 2 store in that neighborhood.
In the same period of time that I was searching retail space in that area I got wind that another store was preparing to open in the same neighborhood. The neighborhood was already a little saturated, and by a little I mean way saturated. Within a few minute drive of this store that was opening there is already a large Magic/TCG store and a mid-size collectible store that does comics, sports and gaming cards, and coins. The area had a lot of competition that didn't make me nervous because Magic is a part of my business, not my primary business, and I don't do comics or those other things at all, so the neighborhood could still benefit from a full-line game store that did RPGs, miniature gaming, and extensive Euro-style board gaming.
My market analysis was done, and it told me the neighborhood was ready, except that someone else beat me to it.
So, when I found out that the owner who had opened that store was looking to sell I felt like it was my due diligence to go and see how his location fit into my plans.
The storefront he opened is 1,010 square feet (according to his landlord). This means I couldn't run a Size 2 store in my current model in the space. The smaller space, coupled with the foot traffic in the neighborhood actually made the store ideal for our Size 1 concept. That concept is designed as what we call our "Build A Gamer" concept. It does very limited organized play, providing space for a single eight player Magic draft and space for either four Warmachine players or two Warhammer players.
The product mix in that concept looks absolutely nothing like my current concept. The 1,000 square feet are focused on teaching people the joy of games not named Monopoly or Scrabble. The store would focus on evergreen games that every gamer should own; Catan, Carcassonne, Smallworld, Power Grid, Ticket to Ride, Alhambra, Puerto Rico. It would introduce new gamers to quick casual games like Munchkin, Fluxx, and Zombie Dice. It would carry the important parts of deckbuilders, base games for Ascension, Star Realms, and Dominion.
It would carry an extensive line of educational games.
I could bore you with product lists, but let's call it a carefully curated list of important products designed to teach muggles to be gamers (yes, I regularly refer to non-gamers as muggles). When a repeat customer came to that store the salespeople would make recommendations that encouraged them to drive to the other store. "It's just twenty minutes up the road, and they have these three games in stock that you'd love."
So, that 1,000 square feet would train new gamers and redirect them to a larger store.
Now, that's not viable for the current owner of the location. He has only one location, and a living to make, so he can't just pass customers off to other people over and over.
So, I looked at the store to try and decide if I wanted to make it location number two.
It turns out that it required more work to modify than it was worth.
The 1,010 square feet is not properly used. There is a long closet hallway area that is currently used to store terrain for use in the store. There is also a storage area that isn't being used for useful storage. In a store of only 1,000 square feet, there's no need of any storage. All of those areas are at the back of the store, and would have to be removed. So, purchasing the store and assuming the lease would mean needing to remove several walls, so that the 1,010 internal square feet would actually be 1,010 square feet. It's about 800 useful feet now.
The current store has an overemphasis on organized play that I believe has hurt their bottom line. Organized play is important, it encourages customers to become regulars, but if we're being honest, organized play is not how I pay my bills. I make more money selling a box of Magic to a casual player who doesn't have a DCI number than I do to eight players in a draft, and I don't have to put in the effort to run that draft.
Organized play needs to be a percentage of your store that still allows you maintain enough retail inventory to sell it regularly. Let's talk about "turns" here, and for the people who may not be aware of the retail terminology in use, I'll explain a "turn". A "turn" is how often a product sells. If a product doesn't turn six times a year in my store it goes away, to the discount rack, to eBay, to somewhere I don't have to look at it. A product that doesn't turn costs me money by siting there, that $20 I spent on a board game that only sells twice a year could have been spent to by a $20 game that turned six times that year. If I got a 50% margin each time I bought it, buying it for $20 and selling it for $40, the difference between two turns and six turns is the difference between $80 in sales and $240 in sales. Products that don't turn cost me money in what I typically refer to as opportunity cost.
Now, there's another factor at play here. How much money do I need to pay my bills? Let's say that I can fill my store with products that average six turns a year, and that I need my store to make $500,000 in sales. This means the average retail value of the inventory in my store has to be approximately $80,000 ($80,000, turned six times = $480,000 in sales, a good enough approximation of the $500,000 I need to make).
The store in question is currently doing something in the area of $8,000 to $10,000 a month, so somewhere between $100,000 and $120,000 annually. Is that enough?
All of the below numbers are annual approximations for illustration purposes.
Money In
Sales Total - $100,000
Money Out
COGS (Cost of Goods Sold) - $50,000
Rent - $18,000
Internet - $900
Gas/Electric - $1,500
Insurance - $960
Water - $420
POS (Point of Sale) - $700
Office/Cleaning Supplies - $500
I haven't even hit every bill I currently pay in the store, and we've spent about $73,000. That leaves $27,000, and I've been very generous on COGS (few young stores with low volume are hitting 50%, and some first year store owners I've spoken too got downright excited when they were finally hitting 55% regularly. It's most likely that we have $22,000, or $20,000 left.
Now, if you want to do those numbers, you have be open when people are shopping. Let's pretend that you can be successful being open from 12 Noon to 8:00 PM, and you can be closed on Monday, but don't be closed on Sunday, that's a family shopping day. There are 52 weeks in the year, and you'll be open six days a week, eight hours a day, so you're going to work 48 hours each week. You're going to do that 52 weeks a year, for a total of 2,496 hours.
If you got super lucky, and nothing ever went wrong, you can pay yourself $20,000 for 2,496 hours...or $8.00 an hour.
I firmly believe you won't succeed being open six days a week, for eight hours a day. If you want to actually target gamers well, you need to be open at 11:00 AM, I do enormous business during the lunch hours of 11:00 AM and 1:00 PM. There is also no single day where you can realistically close and not hurt yourself, so you now count on working seven days a week.
Six years of sales tracking has led to us being open from 10:30 AM to 9:30 PM Monday through Thursday, and Saturday. We're open 10:30 AM to 11:30 PM (the earliest we close) on Friday. We're open 11:30 AM to 7:30 PM Sunday.
Now...if you want to keep people coming to your game store, it has to be clean. Plan on 45 minutes every morning and fifteen minutes every night. So, we're talking about 9:45 AM to 9:45 PM five days a week (that's 60 hours), 9:45 AM to 11:45 PM Friday (we're at 72 hours) and 10:45 AM to 7:45 PM (now totally 81 hours).
You've got $20,000 to pay yourself, 81 hours a week, for 52 weeks...that's $4.75 per hour.
So back to the game store in question.
The store business and trade dress has no value to me, it would become branded the same as my existing store.
The tables set up for organized play are WAY extensive, and many of them would end up being thrown away as they don't match the appearance of the other store. The store currently in that location is using approximately 75% of its useful space (see my above note about a storage area) to support organized play. It's table space. Table space doesn't really generate revenue. We talked about it earlier. I love my regular customers. I love the people I see every Monday, or Wednesday, or Friday. They spend some money, they make new friends, they help me build my store.
I also really love the people who need 15 minutes to pick a new $50 board game and go home to play it.
The store in question isn't doing enough to draw those people.
The walls that aren't removed would need to be repainted and slat walled.
None of the existing retail fixtures match my current look. We're slat wall rather than peg board. We're maple rather than black.
The current space would need a drastic remodel so that 75% of the space in the store becomes retail fixtures, while only 25% becomes organized play.
The current inventory, not counting Magic singles, which is a different topic, has a retail value that is somewhere between $4,000 and $5,000. How much does that retail inventory need to be for the store to make my goals?
That requires we talk about a different bill we haven't talked about at all.
This isn't a first store for me, so even if I was willing to kill myself for $20,000 a year, there another store to consider. I have to spend time at that other store, and I have to pay someone to bill in this store.
We already talked...81 hours a week. It's probably safe to say that my 1,010 square feet never requires a second employee, but 81 hours at the average rate my current employees make means I have $729 in payroll costs. If you've ever paid payroll costs before you know that's wrong though. Paying my employees $729 per week means I also have to pay corporate payroll taxes, processing fees to my payroll company, and unemployment insurance. Before I pay any of those things I've already committed to $37,908 in annual payroll.
Call it $42,000 after all the other stuff.
We're now $22,000 in the hole.
So, what do I have to do in sales in this sample store to make it worthwhile?
Some of our costs don't change.
Money Out
Rent - $18,000
Internet - $900
Gas/Electric - $1,500
Insurance - $960
Water - $420
POS (Point of Sale) - $700
Office/Cleaning Supplies - $500
You'll notice COGS is gone, because we have to figure that differently now, and somewhat in reverse here. Those fixed costs need to have payroll added to them, so we're at $64,980 in costs.
My store is currently running a COGS of about 50%. We qualify for max discount tiers (differnet topic, ask me if you really want to read about tiered discount structures), and do some purchasing in other places that allows us to hang out between 49% and 51%. We could do better if we focused on the secondary markets more; Magic singles are a pretty profitable thing if you want to spend the time to excel at. If I have to pay the above $65k in bills, and my COGS is 50%, I need to sell $130,000 worth of merchandise to cover the bills we've already talked about...
But wait...we didn't buy that product yet. In order to sell $130,000 in merchandise I have to spend $65k to buy it, so now I've spent $130,000 in year one; $65k on fixed costs and $65k on things to sell. The break even point is selling everthing once and having nothing at the end of the year...
We want to have money left, so hopefully throughout the year we're turning things repeatedly, buying them again, and saving some of the leftover money.
This would be the immediate target for a second location.
Money In
Sales - $200,000
Money Out
COGS - $100,000
Payroll - $42,000
Rent - $18,000
Internet - $900
Gas/Electric - $1,500
Insurance - $960
Water - $420
POS (Point of Sale) - $700
Office/Cleaning Supplies - $500
Now we have a profit, and this store is worth the hours I spent buying, merchandising, training staff, stocking shelves...etc...etc...
So...if I want $200,000, and I can average six turns of every product I stock, that means the retail value of inventory needs to average $34,000 at any given time. This is about eight and half times the current retail value of the non-Magic inventory.
The store needs to be completely rebuilt out on the inside and repainted (repainted both to match my existing concept and because the current colors are, for me, super dark and depressing).
The store needs approximately 60 feet of slat wall purchased and hung, and it needs to have approximately eight new 2x4, four-sided gondolas, purchased.
Build out, painting, new fixtures...
$3,500 to $4,000...assuming I do it all alone and don't accidentally put a sledgehammer through an electrical outlet. More realistically, $6,000 to $8,000. I have not yet branded the building or done any signage yet in that figure.
$34,000 in retail inventory...that costs me $18,000.
New POS computer...$1800.
New cash wrap/glass display case...$2,000.
All told, to modify your existing store into a second location would set me back something in the area of $30,000, but not really. If I'm in that location doing all this work I have to pay other people to work store number one....what does it take me? A month? So I have to cover someone 40 hours a week, but also still find time to do orders, accounting, etc...those 40 hours cost me another $360 weekly in labor, so $1500 more?
So before we've ever talked about what the store is worth to you to sell, I'm going to need $35,000.
I'm not fully aware of the circumstances under which this store originally opened. I've been into twice, once in the first month it was open, and once about a month ago. The store opened, in my opinion, a block or two blocks away from the in right spot, with an incorrect product mix, and without enough capital to do all of the things it needs to do.
Beyond that, some design problems were present in the store when I saw it most recently. The walls are darkly painted in a color that is a little intimidating. The windows, which should allow some natural light from the east, were covered in stuff...some stickers in one section, some window paint in various others. There was also product display shelves along the front of the store, covering the windows. The covered windows make it difficult for people to see into the store and see what you do...it becomes difficult for walk by traffic to find a reason to enter the location.
I would have used those windows to display product of popular IPs...Game of Thrones Monopoly, Legend of Zelda Monopoly, Firefly Yahtzee. I'll admit, I don't carry those things in my current location, but the combination of popular IP and well-known game brand would have helped to drive traffic in the front door, and then it's a matter of selling to that traffic. You probe, you figure out what the like, and you introduce them to new games.
Frankly...after running the numbers, and looking things over, and seeing what you wanted for the store on CraigsList, I decided not to make an offer, because any offer I made would have run the risk of being insulting.
The brand has no value to me. The Magic singles have an unknown value. I don't know what's in it the store collection, but I do know that it's going to cost me payroll to have that stuff sorted and added to the collection of singles already in the store, because as Store #2 in 1,010 square feet, and with two other Magic singles dealers within ten minutes or so, this store wouldn't carry Magic singles.
Ultimately, a lot of work with little upside, and with the amount of money I'd have to spend to do what I wanted to do to get it ready, the value of the store for me was about $3,000 (depending on what my Magic Manager said in a four hour examination of the singles collection), and I didn't want to insult anyone by saying that.
It's disappointing to me, because that neighborhood is a good location, your store is a size in which I think the right model can succeed, and I feel like the more healthy game stores we have the better our community is.
Ultimately, it would have been a bad buying decision for me, as for the amount of money it would have taken to do it in your space I can do it in a different space more to my liking.
If you made it all the way through this and still are considering opening a game store, I have consulting contracts available, and my current consulting contract ends when that new store opens in February. :)
