Alternate Business Models

The majority of the articles in this series apply most specifically to a certain set of assumptions about your game store model. Most of them are so fundamental that you never even consider another option. The articles assume that you’ll rent a commercial space. They assume that you’ll sell new inventory. They assume that the majority of your revenues will come from the sale of products. These things are common, but they’re not technically required.

Variant business models have advantages and liabilities over the standard way of doing things. In most cases, the liabilities outweigh the advantages. Otherwise, they would be the primary way of doing things. However, if you can find a way to overcome the obstacles, you might stumble onto a new retail niche that could provide a substantial income at reduced cost or risk to you.

In the case of several of these primary models, you might be best off integrating elements of them into your standard business plan, relying on them for additional revenues rather than sole or primary revenue streams.

Membership Club

Outline: Charge cost or just above cost for your merchandise but require customers to buy a membership if they wish to shop there at all.
Advantages: For one, you have access to revenues (membership fees) without much direct cost. Secondly, by requiring a complete application from your prospective members, you gain full contact information, allowing you excellent marketing potential within your customer base.
Disadvantages: Finding a magic meeting point between discount and membership fees is often impossible. For example, if you give a 40% discount, you’re giving the average CCG player maybe a $160 annual discount, but if you think that they’ll pay $150 or even $100 for an annual membership, you’ll be disappointed. You’ll also deter casual shoppers who just want a single $20 item.

Although the maintenance cost of a single account is low (identification cards, labor costs, etc), there is a cost, and it adds up with enough accounts. You’re also creating a sense of entitlement among your customer base. They paid for the right to be there. They feel that you can’t ask them to leave because of their behavior. Legally, they might even have a point.

Beating the Odds: Some form of a membership club is a good idea, but trying to be the “Sam’s Club” of gaming is probably not going to happen. Membership clubs deserve an entire article on their own, but for now concentrate on small discounts and other benefits instead of large-discount incentives.

All Consignment

Outline: Technology allows you to track not only who owns what merchandise but separate consignment fees, the amount you owe them, and everything you need to handle a full load of consignment inventory.

Advantages: Reducing your largest single startup cost to zero would be a huge cash flow advantage.

Disadvantages: Not having new inventory means that you miss out on some good and easy sales opportunities. You will also probably have a very difficult time getting enough merchandise in your store to achieve that “critical mass” necessary to kick-start sales.
Beating the Odds: “Cheat” on the all-consignment option by carrying select new merchandise. At the very least, you might purchase collectibles like CCGs and open them for singles.

Mall Kiosk

Outline: Sell a small selection of goods out of a mall kiosk.
Advantages: Huge traffic count is the main advantage to mall locations, and it’s a big one. A young demographic and a high discretionary spending amount make for a good combination in potential customers. The cost of a used kiosk is small compared to the potential build-out costs and fixtures costs of a full-size game store. The risk is also less: you’re not committed to a huge lease that could bury you financially if the business fails.
Disadvantages: The typical game store mix doesn’t sell very well in a mall environment. Family games, puzzles, and other games sell better. Unfortunately, the kiosk doesn’t give you much display space, limiting your available inventory to a couple of thousand dollars.
Beating the Odds: In the right place, you might do comparatively well with CCGs. However, a high sales-to-investment figure doesn’t necessarily mean that your sales will pay inventory costs, rent, and a salary. Depending on your rent, you might need to exceed $100,000 in sales from a single game category just to be able to pay for your time.

Conventions Only

Outline: Your store is only open on weekends, and your location is a convention table.
Advantages: No risk. Light inventory costs. You pay rent only the weekends you work. Keep your day job.
Disadvantages: Again, low sales potential is the big killer. Even if there were a convention every weekend within driving range, your potential revenue from small conventions is low. A small con might draw 300 people or less. It’s difficult to do $2,500 in sales from 300 people. You have to store your inventory when you’re not at a convention. You have to transport it back and forth. You have to pay for hotel rooms. The convention season is just that—a season. You’ll have several weeks where you have to choose which cons to attend because there are multiple choices. More often, you won’t be able to find any conventions nearby. The big cons, where you can earn big money, are very expensive in terms of fees and inventory.
Beating the Odds: With a mix of frequent small local cons and a few select medium-sized regional cons, it’s possible to exceed $50,000 per year in sales. If you can keep your inventory costs to 60% or less, pay your small-con fees in product, and minimize hotel fees, you might attain a gross profit of $12,000 or so. That can be a fair bonus on top of your day job.

Game Club Environment

Outline: Game space rent is your primary revenue-generator instead of game sales. Most of your store includes game space, which you rent out per hour or by the time slot.
Note: I see this one constantly. The people proposing it usually have a very clear idea of what they want and a very vague idea of the numbers involved.
Advantages: The goal is to minimize inventory costs. If you carry minimal or no inventory, you can reduce startup costs by $15,000 or $20,000. Reduce your time spent on inventory management and you can afford to devote more time to event management. With less emphasis on inventory, you can devote less attention to loss prevention. Your clerks can handle more sales per hour if they’re not helping customers with product selection.
Disadvantages: Aside from inventory, you have almost all of the costs and problems associated with operating the standard business model, except that you miss out on a large quantity of sales. Unless you charge very high rental rates, you need nearly full-time use of your game space. Unfortunately, game activity is concentrated during a small block of the day. Barring raising your rates, you have a distinctly finite cap on your income.
Beating the Odds: A variation of this theme is to concentrate on high-turn, low footprint competitive games like Magic. Your revenue comes from tournament fees and singles sales. Games Workshop’s games offer a potential for similar operation, but the required inventory costs more in terms of space and money.