What does that mean, anyway?
The three main categories on which your business can compete are price, selection, and service.
Competing on Price
You don’t make a bunch of money on any one product. If you give up part of that money to make a sale, you have to sell more products to make up for it. The goods we sell don’t have a huge market for the most part. Sell 20 copies of Australia: Survival Role-playing in the Outback, and you’ve saturated the local market. You won’t sell more if they’re cheaper.
Competing on price can be done. However, it’s difficult to do at low sales volumes. You have to spend money advertising to get people to come into the door. Otherwise, you’re just giving up would-be profit for no gain. So you have two additional burdens on your P&L: discounts and increased advertising. You might also increase your labor cost to handle the extra sales.
Then there’s that pesky Internet. Online retailers can afford to sell stuff cheap, cheap, cheap. They might operate out of their house, or out of a warehouse, where their square footage rate is a quarter of yours. They don’t need to hire salesmen–just packers, and a packer can handle a lot more sales per hour than a sales clerk can. They have no shoplifters. They don’t have to work 7 days a week, and their schedule is flexible as long as they meet their daily shipping deadlines. Sure, they have their costs and difficulties, but their operations are more efficient than yours. That’s one of the factors that led them to choose that route.
Big-box? You’re not going to undercut them. Their prices are lower on some items than your cost through game distribution. They quantities they sell are vast, and they can afford to make a 10-20% margin because they buy and sell by the truckload. You can’t afford to undercut a big-box retailer.
Besides the competition of professional retailers, you have people hawking stuff on eBay or through Craigslist. These people are not professionals and will let stuff sell for very low prices. You can’t beat them on price, either.
Small independent retailers obviously face some high hurdles if they wish to compete on price.
Competing on Selection
Competing on selection is the luxury of the larger, established store or the store concentrating narrowly on one game category. You might have the best Magic selection in town when you open, but you probably won’t also have the best RPG and board game selection, too.
If you want to do this, let your inventory grow at a deliberate and affordable pace. Prune it regularly. Your advertising message should feature the breadth of your inventory.
New stores facing capitalization difficulties often settle for a small inventory. This move reduces the cost of merchandise, and it also reduces the fixture cost—you don’t need as many shelves to display $10,000 worth of games as you do $20,000 worth of games. A smaller inventory level makes a smaller location possible, which saves money on rent. That’s several real advantages, but a smaller inventory load denies you the ability to compete on selection.
Competing on Service
Everyone claims that their service is the best. Nobody advertises weak service. However, stores with service issues are out there. In some industries, service is easy to measure. It can be a simple percentage calculated by your point-of-sale system. What does it take to offer strong service in a game store?
Return & Exchange Policy
Your policies should be broad and open. Broader policies allow for abuse and increase costs, but the trade-off is greater sales. A segment of your industry can be tipped into making a purchase if they know they can return or exchange something. Most of the time they won’t, and you simply benefit from greater sales.
I recommend that, at low sales volumes, you fine-tune your policy organically in response to specific issues. By the time you have to set up a register just for returns, you’ll have enough experience with it that you can describe a detailed and complete policy.
A service-focused approach lowers or removes the bar to special orders. Taking orders with no down payment, for example, is a good service to offer. Not offering special orders or requiring full payment up front is symptomatic of a store that doesn’t concentrate on customer service.
The ability for customers to earn discounts or other benefits is an attractive and popular service you can offer. Usually these plans involve a discount or free item once a customer makes a certain number of purchases or purchases a specific amount of goods.
Subway’s former Sub Club Card plan, for example, gave away a free 12” sandwich with the purchase of 12 full sandwiches or the equivalent in 6” subs. That’s an 8.5% discount on the face of it. However, their cost on that sandwich sat at around 30%, so it became an effective 2.4% discount. Customers also purchased other items with the free sandwich, bringing the relative cost of that freebie down further. Count in the lost and unredeemed cards, and the cost to the company was less than 1% (fraud raised the actual cost, but at the single-store level you can keep a tight lid on the fraud).
Something like that is a good model to start with: make 12 purchases of $10 or more and get a free game worth $10 or less. Interpret the policy liberally, so that if somebody buys a $20 game, they get credit for two purchases. They’re gamers; they’re going to game the system anyway, so you might as well allow it up front. For each $120 you sell, you’re giving away about $6 worth of product. That’s a 5% discount, minus unredeemed credit.
A better idea is to tailor your rewards plan to your store and customer base. You might give credit not only for purchases but for running tournaments, volunteering at your convention, or bringing in new customers. You might offer extra credit for buying limited-edition or short-discount items to make sure that expensive merchandise doesn’t stay on the shelf.
A Game Room
This one should be obvious. While I’ve seen stores run perfectly well without game rooms, offering play space is a definite service for which you pay a cost in rent. Make sure your potential customers know about it through mention in your e-mails, pictures on your website, and a splash on your print ads.
A Personal Approach
Clerks at Wal-Mart don’t greet you by name when you walk in the door. They certainly don’t know what games you play, what night of the week you game, and what type of character/deck/army you play. If you know these things about your customers, you can form a bond with them that gamers value strongly.
It has material gain, too. Knowing that a player won’t buy the latest D&D tiles set because his DM already bought it for the group means you don’t waste time trying to sell it. You can offer him the new Chessex limited-edition dice that just came in, though, because he’s a dice junkie. He appreciates that you don’t waste his time, and that you point out the cool stuff to him. Each of you benefits from this connection.