Deciding What to Carry

Merchandise, Space Requirements, and Cost

While developing your business model is not the time to get caught up in how many copies of an RPG x or ablister pack y you’ll be ordering. You need to make some rough decisions about which product categories you’ll carry and how deeply you’ll carry them. These are some of the basic decisions that affect how customers view your store, your fixture and space needs, and your investment amount.

The average amounts given for each category’s sales are somewhat deceiving, and here’s how to “un-deceive” them. Each category has a clear brand leader. For CCGs, it’s Magic: the Gathering. For miniatures, it’s Games Workshop’s two main brands. Customer spending for the industry leader is significantly greater than customer spending for other games. There’s no way a Kult RPG player will spend $240 per year for five years—there just isn’t that much Kult product. My average figures assume that the majority of your customers play the main game, and that some play other games, and that a few play both.

Accessories in General

Most of these major categories offer accessory opportunities. When possible, your margins on accessories should be greater than your margins on the items they promote. This greater margin compensates for the lower price of these items. A RPG book might be $30, while a set of dice might sell for $9, and a dice bag for $3.

If you carry the category, carry the accessories. I’m not asking. I’m not suggesting. I’m telling. Accessory sales are your key to a high average ticket price, provide you with a comfortable net profit margin, and give you a competitive edge against mass market stores and book stores.

A customer who has already made the shopping decision to drive to your store, pick up a game, and purchase it will not be deterred if the dice he needs cost $7.99 instead of $6.99, but your gross margin on that item goes from 47% to 54%. He’s not going to put back the $30 book he’s buying and drive across town to save that dollar. Underpricing your accessories can easily cost you $2,000 to $5,000 in annual revenue.

Role-playing Games

Role-playing games have the advantage of high volume with less work than the other two major categories. The downside is that the turn rate for this category is lower than the turn rate of your other two major categories.

RPGs display well on bookshelves, but they are heavy for most wall fixtures. For best sales you’d ideally place them all face out, but most stores make do with some combination of face out and spine out. One good medium is to place the core book face out so that browsers can find their favorite game, and then place other titles to the right of that core book. New books are also good candidates for secondary face out positioning, as are games purchased on sale or something that you wish to promote for special occasions.

The difference between the two methods of placement is substantial in both sales and storage space. The trick is to judge whether inventory or prominence is more important. Carrying $10,000 worth of inventory allows you to offer your customers twice as many titles as $5,000 worth of RPGs, but if the customers can’t find the game line they want or don’t see the specific book they need amid all the titles, you don’t gain the benefit of carrying all of those titles.

I recommend that a new retailer spend between $1,000 and $5,000 initially. $1,000 gets you a good selection of D&D titles and a select sampling of other core books titles. With $2,000, you can pick up the entire D&D line and a broader selection of several secondary titles. With $5,000, you can carry most titles for all of the top 10 product lines.

RPG Accessories

Along with the RPGs you offer, you’ll want to carry dice, dice bags, gaming software, vinyl battlemats, and miscellaneous other accessories. Of these, dice will be your primary revenue-generator—and your primary cost. You need to display dice in something; dice manufacturers offer various-sized plastic bins for this purpose. You can ask your distributor what’s available and appropriate for an order the size you’re placing.

Figure that most of your RPG accessories fit in or on a single glass display. If you carry a very large selection, you can dedicate more space to it, but a typical 4’ glass counter area is sufficient in most circumstances.

You can get a selection of dice cubes and dice bags for as little as about $250, or you can order one of the big displays, carry multiple brands of dice and order the high-end gemstone dice from Crystal Caste and spend up to $2,000. It might be a good idea to invest half as much in accessories as you do in the RPGs.

Collectible Card Games

CCGS or TCGs (tradable card games) offer the advantage of high turn rates with a small footprint. CCG customers spend more money on average than do customers of other games. Your best-selling space in your store is likely to be wherever you keep the open booster box of the latest Magic: the Gathering release. That single square foot could generate $10,000 or more annually.

If you carry CCGs, I recommend that you begin with a minimum of four games, for each of which you’ll want at least one starter box and two booster boxes. That’s a minimum of $750 to $1,000, depending on which games you order. On the high end of the scale, you could carry more booster boxes for the largest product lines and add the basics for additional games. Again, $5,000 is the uppermost I would recommend for a new retailer, but $2,500 is a more realistic maximum budget.

You can fit this inventory in a very small space. A single countertop will work, or a 4’ shelf on the wall. I’ve seen a very attractive display placed on slat wall shelving units, taking up a single section of slat.

CCG Accessories

Card sleeves, deck boxes, and cardboard boxes for storing a collection make up the primary accessories for this category, but they also include glass counters and the occasional dice. You can display sleeves in the boxes in which they often come by placing them on a countertop, but I personally had great success placing them on pegs on the wall. The visible display generated earned its space, resulting in triple the sales of the shelf position they occupied before I moved them to the wall.

CCG sleeves typically come in boxes of 15, and there are many colors, brand and line choices. For a starting collection, you might ask your distributor if you can buy individual pieces instead of having to buy a whole box. If so, you can devote as little as $250 to this category. For a broader selection, you can add more colors and deck boxes and spend $500, my recommended minimum amount. Do not spend more than $1,000 on this category without retail experience and knowledge of your customer base.

Miniatures

While this discussion is mostly about miniatures for wargames, this category also includes product lines like Reaper’s Dark Heaven line. Most of those buyers are painters buying the attractive figures for their hobby or D&D players looking for figures for use in their game. Few Reaper customers play their miniatures game.

Miniature game players spend more than RPG customers but typically less than CCG customers. Games Workshop identifies their average customer as spending $1,500 over an average period of 5 years in the hobby. Most of the spending comes early in the period.

The downside to this category is the space requirement. My store dedicated over 56 feet of wall space, top to bottom, to Games Workshop alone, plus almost 300 square feet of wall space to Reaper. Blisters require peg space on your walls or gondolas. A single 4’ section might support 100 blisters, depending on how high you place them and how large they are. Boxes and books require shelves or special racking for your wall fixtures.

A small selection of Reaper—say, their Top 100 product mix—plus a minimal investment in Games Workshop, Warmachine, and one other miniature game might run $4,000. If you plan to invest heavily in any of the main products or plan to offer a greater variety of miniature lines, you could spend up to $15,000.

Historical miniatures deserve a special note. You could spend $50,000 and the first day you’re open, somebody will walk out empty-handed because you don’t have a pack of left-handed Maccabean javelineers in 15 mm. The product selection available for this category is enormous, and the customer needs are specific. I would recommend a minimum of $4-5,000 if you know the product lines well and plan to support only a few particular games or concentrate on one era. The rest of my columns assume you’re not carrying historical miniatures.

Miniatures Accessories

Paints, brushes, knives, and other hobby accessories add substantial volume to your miniatures sales. Paints form the bulk of this category.

My minimum recommendation is one line of paints and brushes, plus a single brand of hobby supplies, each stocked in small numbers. You might need half a wall fixture for display and spend $500.

If you plan to concentrate on miniatures, you might buy up to three lines of paints, offer more supplies, and stock them more deeply. If you’re buying direct instead of through game distribution, you can often find some very attractive bulk discounts for hobby supplies, but it requires large purchases, and I don’t recommend it for new retailers. Expect up to three or even four wall sections, depending on how many terrain features you offer, and up to $4,000 in cost. Paints get expensive quickly, especially when you’re buying a full rack.
es are rare.

Board Games

Board games are, in some respects, the worst category. Individual spending is low, the games are bulky, and a good selection is fairly expensive. On the other hand, they are easily recognizable by muggles and your product line of broadest appeal. I also include non-collectible card games in this category.

If space were critical, you could concentrate on the card game selection, carrying only a few staple board games like Settlers of Catan, and get by with about $250 worth of product on just a couple of shelves. Stocking an initial 30 or 40 board and card games costs about $500 and takes up 2 standard wall fixtures or a similar amount of gondola or shelf space. This represents my recommended initial investment for most stores. For stores in areas with high foot traffic or stores that plan to promote this category strongly, I recommend about 100 games, including several high-ticket items (there are a few in the $80 range) for a total investment of up to $2,000.

Board games have no meaningful accessory sales.

Using these figures for space and inventory investment gives you some idea of how much space you’ll need for your retail area and how much you can expect to spend on your initial order. Inventory is probably your largest single initial investment, and it’s definitely the largest expense you’ll have throughout your retail experience. Next week: suppliers.

Ready Business Plan For Sale

I’ve created an abbreviated, sample business plan that you can purchase directly. It describes one way you can go from the $100 in your wallet to a full-service brick & mortar store. For $5 you can get a snapshot into what it takes to get into the industry.

Support independent publishing: Buy this e-book on Lulu.

Happy reading.

Sample Business Plan for Sale

I wrote an abbreviated, non-specialized business plan describing one possible way to open a game store. It’s available as a PDF through Lulu.com. It’s not pretty, but pretty doesn’t get you from the $100 you have in your wallet to opening a game store. Meaty, crunchy, specific game industry information gets you there. Go get it here.

Game Store Business Valuation

How Much Is It Worth?

Last week we compared the benefits of buying a new store vs. opening your own store. This month, we’re going to expand on that topic a bit by discussing what you need to look at when you review an opportunity to purchase a game store.

Assessing its Viability

Although you could make virtually any situation work if you threw enough money at it, some stores simply aren’t worth saving. If you have to spend $250,000 to make a store work, why would you? Even if the owner gave you the store, it would still be a bad deal.

Sales

When you first look at an offer, you must know the store’s sales. I don’t mean just last month’s sales or last year’s sales. Ask for a categorized record of sales by month. If possible, look at actual daily sales records.

Look for patterns in the records. Is each category growing slowly over time? That’s good. Are some categories growing while others are not? That could be bad—or a reflection of national sales trends. Is the store faltering? If so, I recommend considering two options.

Option #1 is to stop negotiating. You don’t want to buy a business in distress for your first business. The location could be terrible. Recent superior competition could have opened up nearby. Something else beyond your control could be happening there and you might not be able to reverse the trend. You’re done here.

Option #2 is also to stop negotiating. Let sales drop for three months and see how firm the seller is on his price. In all likelihood, additional cash-flow loss will put tremendous pressure on him to sell at any price. Sure, another buyer might make an offer. If you’re comfortable with that risk, a small amount of patience could pay off extremely well.

When is falling sales a good sign? Steady sales decreases could mean that the current owner is not doing something right. Customer service could be horrible. The store could be dirty or understocked. If you can fix the problem that’s causing the drop in sales, then falling sales will reduce the market price of the store—and that’s to your advantage.

Inventory

The second key item you need to know is the inventory level (always at cost, never at retail). Looking at a flat number tells you nothing. Let’s say the store you’re considering claims an inventory value of $30,000. Is that good or bad?

Remember those word problems in your middle school math books? The answer is “D. Not enough information.”

All products are not equal in value. The current Magic: the Gathering boosters might be as good as cash, but dusty d20 modules might be overpriced at 90% off retail. A computerized point-of-sale system should be able to tell you when the store last sold a certain item. If an entire product line has seen over a year since its last sale, the value of that product line is zero. Sixteen cases of the Young Jedi trading card game are worth less than some Warhammer armies, for example.

Some owners categorize the inventory into different groups. Class A inventory represents high-turn stuff that you know you can sell at full price in a short period of time. Count it at full value. Class B product represents reliable sales over a longer period of time. It might be worth up to 75% of list price. Class C inventory includes lesser RPGs, older miniatures, slower game lines, and oddball accessories that might have been hot at one time. It might be worth half what the POS thinks it’s worth. Class D inventory is the junk that you hope to God will sell one day. It has little, if any, value. While you won’t know which categories each product lines belong to without having any game retail experience, you can estimate based on the store’s sales records, purchase records (no restocks = no sales), consulting with distributors, and even by watching customer activity for few days.

Another point of reference is the rise and fall of inventory over time. Is the store showing a steady increase in inventory? You can tell this by looking at a balance sheet, which should provide information like cash on hand and inventory levels over 2-3 years. You can measure it in the short term by looking at order forms. Pick two consecutive recent months. Count up the total inventory invoices (include standard gaming merchandise from distributors, direct accounts, cash spent for second-hand products, snacks and sodas—all of it.) Divide that amount by the sales for that period. Normal buying cycles might create some variation, but the figure should be between roughly 53% and 63%.

A number lower than the range might mean that the store is cannibalizing inventory to pay the bills. If the store buys $12,000 worth of goods but sells $24,000 worth of product, the store might have a great cost structure, or it might not be spending its money to restock product. Looking at the cost of goods sold will solve that problem for you.

A number higher than the range means that the store is spending more on inventory than sales justify. That same $12,000 purchase on $18,000 in sales means that the store probably sold about $10,000 worth of goods but spend $12,000 replacing them. In the short term, that happens. A new Magic: the Gathering release might cause it. Buying one or more large gaming collections might do it. Adding a new product

4e Leftovers

My regular game group rotates DMs, so I’m not running right now. I’m playing a Pathfinder Adventure Path–Rise of the Runelords. However, I’m already planning my next campaign. It’ll be Dark Sun, and it’ll use the Pathfinder rules and the 3e conversion put out by the folks at Athas.org.

As I abandon 4e and pick up Pathfinder, I find myself liking certain elements enough that I want to keep them.

Minions

In previous versions of D&D, a monster typically had to be near the level of the party to be a threat. As the party progressed in level, that meant more pointless chopping up of high hit die monsters that weren’t meant to be major parts of the encounter.

Minions allow the DM to place more figures on the table, giving the PCs something to hack at without having to tie them up for round after round after the monster has used its one trick.

If you have trouble with the idea of an 8th level monster with one hp, look at it this way. If they were 5th level monsters with full hit points, the characters would be doing a substantial amount of damage relative to the monsters’ hit points with each attack. Typically, when fighting monsters with this function, the PCs can either one-shot them or cut their hit points in half with a single attack routine.

The one hit point simply reduces record-keeping. It doesn’t change how tough the monster normally is—just their toughness compared to PC offensive power. If they were fighting with each other with no PCs involved, you’d have to count a normal hit point total.

Likewise, using an average damage instead of rolling for each attack speeds up combat.

No Vanilla Monsters

I’m combining two things I like here. I like the ability to make monsters unique by giving them powers directly tied to their role or flavor from 4th edition. I liked the round-by-round tactical suggestions from 3e/3.5.

The monster descriptions I write for personal use combine these. Here’s an example from a guard

Round 1 Bleeding cut, 1d8+2 and the target cannot be healed for 1 round
Round 2 Rattling strike, 1d8+2 plus demoralize the target for 1 round
Round 3+Punishing strike, 1d8+2. If the target is injured, +4 damage

These guards are cruel and efficient. They want to cow the PCs back into submission, but they’ll kill them if the characters don’t surrender. However, I’m not going to spend a lot of time worrying about assigning specific feats, skills, and all that. Because I don’t expect them to last more than 3 rounds each against the players, that’s all the detail I need.

I have a barbarian who uses “powers” that reduce his armor class but inflict terrific damage. That makes him very brute-like in 4e terms. A psionic monster of Athas might have a ranged attack like detonate, then activate a defense, and then move into melee.

Elites and Bosses

I like the idea of adding hit points without needing to jack up attack values, saves, and spell lists. It also lets me tack on another power or two, because the monsters will live long enough to use them.

Bloodied

Bloodied is a good marker. It lets the players know something they’re going to ask anyway, and I like the idea of being bloodied triggering effects. You can also create feats around it.

Pushing and Pulling

I love the idea of pushing characters and monsters around the battlefield. It makes terrain and positioning more important. It also allows for low-powered spell/monster abilities. “1d8 damage plus push one square” is a lighter touch than “1d8 damage plus a negative level.”

Shift

Saying “shift” is less cumbersome than using the term “5-foot step.” I’ll keep calling it that. Similarly, “opportunity attack” is slightly easier than “attack of opportunity.”

Specific Feats

Although I don’t have anything in mind right now, I’m pretty certain that I’d adapt some feats without much fuss. I like at least one feat design principle of 4e better—no long feat chains that require characters to all have identical builds if they want the big payoff at the end.

More?

I reserve the right to claim that 4e had more valid points to it. I might not have thought of everything while writing this.

Buying vs. Opening

Which is better for you?

The Choices

You might be interested in this industry because you have the opportunity to purchase an existing game store. If you have read my introduction to this column, you know that’s how I found myself a retailer. I had considered opening a game store for several years, so when a chance came along for me to jump in, I took it. I never regretted it.

If the opportunity to buy a store comes your way while you’re planning your entry into the industry, I recommend that you seriously consider a purchase before you commit to opening your own store from scratch. With planning and awareness, you can overcome most of the negative points to buying an existing store, leaving you with nothing but the good side.

This discussion is a comparison showing how buying and opening differ. It doesn’t discuss due diligence, partnerships, analyzing sales records or other issues. That subject’s not even on the schedule at present, but it might be worth adding. You tell me.

Advantages

Opening a store offers only a few advantages, but those benefits are fundamental and significant.

Cash-Flow

The main advantage is money. While purchase prices vary, you can often purchase a store for not much more than the cost to open a new one. You still need a capital reserve to remain open, but you have an advantage.

When opening a new store, you might have several months pass between signing your lease (and thus paying rent and repaying a loan) before you open your doors and begin collecting sales. When you buy, you can open your door the same day. That puts money in your pocket sooner, and that saves you interest on your loans and lets you get maximum use out of that lease.

Furthermore, sales levels at an existing store are likely to be significantly higher than a brand-new store, even if the existing store has suffered a loss of sales over time. You might reach your break-even in 3 months instead of a year. The difference could reduce your need capital reserve by tens of thousands of dollars.

Easier Financing

It might be easier to obtain financing to purchase an existing business, especially if the business you’re buying has a good credit history. Also, the seller might be willing to finance the purchase. If he does, you merely have to meet his credit requirements, and those are likely to be more lenient than a bank’s requirements.

Business Relationships

You’ll already have accounts in place for utilities, credit card processing, and other business needs. In the case of most of these accounts, you’ll be able to simply notify the company of the new information. Nearly all they care about is making sure they have your name and billing information.

Unfortunately, the largest and most important accounts—your game distributors—will treat your account as totally new. You’ll have to reapply for credit and most of them will insist on putting you on a COD basis until you establish a history. You can compensate somewhat if you have a business credit card, which will allow you to defer payment and avoid COD charges.

Despite this paperwork difficulty, the distributor knows your store. Your sales reps can make purchasing recommendations based on previous sales history. Learn to tell which sales reps you can trust and which are simply out to make a sales goal.

Staff

The store might have staff you wish to keep. Even if you choose not to retain any of the old crew, you might already have volunteers in place to promote various game lines. It’s possible that you can negotiate for the old owner to work for a time as part of the purchase agreement. Having the former owner around could make the adjustment easier for the customers.

Disadvantages

The disadvantages of opening your own store are more numerous than the advantages. One thing common to most of these disadvantages is a restricted range of choices. Opening is definitely the better choice if you want total and immediate control over your store.

Location

At least initially, you’re stuck with the seller’s choice of location. You can bypass that restriction by not agreeing to a lease assignment (in which the seller essentially has you take over the lease for him) or by timing the purchase to coincide with the end of a lease. If you choose this route, you must have your new location up and ready to go or you’ll lose considerable sales and customer confidence during the down time.

Along with the location comes the existing lease. The seller could have signed a horrible lease, and you don’t want to find that out the hard way when the landlord asks you for $6,000 in CAM charges at the end of the year. If you do accept a lease assignment, scrutinize the lease carefully. It might be better for you to approach the landlord independently and ask for a new lease.

Reputation

Until you build your own reputation among the customer base, you’re stuck with all the good and bad reputation the previous owner established. If the store has a reputation for cheating players, you have it now. If customers associate it with bad customer service, you’re stuck with that poor image. It might take a year or more for you to establish a different reputation.

Image

Until you deliberately make changes, you’re using another owner’s selection for your fixtures, uniforms, paint scheme, signage, etc. If you have to change all of these things to make them the way you want them, you might not have saved as much money as you thought. Making changes immediately might alienate some of the existing customers.

Product Selection

The existing store might have product lines you don’t plan to support. Liquidating those lines might cost you some of your existing customers. The liquidation will also take time away from other projects.

Buying a store isn’t easy by a long shot. Easier than opening a new one—maybe.

1e Sucks

At the risk of sounding like a bitter old man, I’d like to offer up some thoughts about first edition D&D. This is something I’ve been thinking about for a long time. If I had so much fun playing it, why aren’t I playing it now?

Role-playing has changed. I’ve changed. The rules have changed. Who I play with has changed. I play D&D every week, and 1st edition no longer fits my gaming needs.

But that’s pretty broad. There are some specific problems I see with 1st edition as a game. Together, these problems, both minor and major, add up to 1e not doing the job for me anymore. I do occasionally yearn for the 1e feeling of play, of total immersion in a fictional setting where combat is one element of many, and exploration of the setting is another major element. However, I’ve never been able to find a group like that, and it’s easy to slip into the habit of going from one combat encounter to another. While that might not be my favorite part of the game, I do enjoy that, too.

In any case, here it is. It’s a longish (13,000-word) rant about some of the issues I have with 1st edition. If you want to comment or e-mail me about it, please do!

Show Me The Money

Finding Startup Capital

I’ve advised many people on opening game stores. A few have opened their doors. Most have not. The largest single cause for not making the jump from the asking-questions stage to the opening-the-door stage is an inability to finance the business.

I refer to a couple of terms from last week’s article, so if you haven’t read that, go read How Much Do I need?

The primary sources of opening money are a) you and your family, b) private investors, and c) bank loans.

You and Your Family

It helps to build up as much cash as possible before you begin, so you’ll probably want to use at least some of your own money no matter what. Cash helps in three ways. First, you don’t have to apply for it. It’s yours. It’s not contingent on a business plan or a credit check.

Two, you don’t have to pay it back. By deleting the line item called “Loan Repayment” from your break-even analysis, you reach positive cash-flow sooner. By starting with money, you’re not repaying interest on your startup capital. Depending on how much you start with, the lack of interest alone could save you $10,000 or more.

Three, cash can help you get a loan. A bank will be more eager to lend to you if they see that you’re taking a risk. It’s far easier to get a loan for $80,000 if you’re putting up $20,000 of your own than it is to get a loan for $100,000 with no cash out of pocket.

I recommend that anyone thinking about opening a store get a second job, preferably in retail, for the six months or year it might take you to open your doors. You get used to working long hours, you learn some valuable skills, and you have a chance to bank up some cash. If the hours are not manageable because of family demands or health reasons, you can quit without losing a six-figure investment.

If you consider family money, I recommend treating prospective family members just like unknown investors. Show them a business plan. Write up an agreement, including your repayment schedule and penalties for late payments. Your professionalism will reassure them and your attention to detail might prevent an unpleasant family dispute later.

Private Investors

Whether you meet them through your current job or through a newspaper or magazine ad, or seek out angel investors online, investors will want to see many of the same things a bank will. Usually, though, they’ll look at the viability of your plan more closely than they will your personal financials.

Although you might find a single investor willing to finance the whole business, it’s more likely that you’ll have to seek out more than one, each contributing a certain amount in exchange for partial ownership. You can set up these “shares” for investments of $5,000 or $10,000, or any amount you wish to establish. You will almost certainly want to include buy-out options for your investors so that you don’t have to pay them indefinitely.

You might wish to involve a different kind of investor, one who brings talent and labor in addition to cash. This investor would be an active partner in the business (as opposed to a silent partner, who provides only financing). When you consider a partner, you have to consider more than just how much cash he brings with him. You’ll want to compare skill sets; if he knows the Warhammer 40k line and you know collectible card games, you’re a good match. Ideally, you want someone whose knowledge and experience complement yours. If you wish to have a partner, you need a clear delineation of duties, expectations, percentage of ownership and rewards.

If you involve investors, the relationship will probably dictate your business structure to some degree. Business format is a huge decision and one size does not fit all. Talk to your lawyer about exactly which structure best fits your needs.

Bank Loans

As a small business owner, you are the business. The bank is interested in ruffling through your business plan and making sure the numbers don’t contradict each other, but what they really want to see is your personal credit. They’ll run a credit check on you. They’ll want your personal income tax records for the past 2 or 3 years. Your loan application will have your personal name on it.

The bank’s reasoning is that when (not if) you fail, you’ll return to the field you’re in now. They want to see how well you can repay them doing what you’re currently doing. That second job comes in handy here, too. If you didn’t spend all that money, then you’ve built up a nice income. That higher income figure should improve your debt-to-income ratio substantially.

If you’re thinking about opening a store, go get a copy of your credit report today. Fix any errors on it. Address any legitimate issues on it. Talk to your banker about whether you should open any new lines of credit or close some off. Between now and the time you apply for a loan, make sure you pay every single bill on time. If you have something bad in the past that’s due to fall off the credit report, don’t apply for a loan until then.

Subtract your cash on hand from your pre-opening capital, because that’s the segment on which you’ll pay the greater interest (in dollar amount, not percentage). If your pre-opening capital is $50,000 and you’ve saved up $8,000, you need a term loan for $42,000. The difference is $425 off your monthly break-even and a total of $2,200 in your pocket over the life of the loan.

How about terms for that loan? You might not have much to say about the interest rate, but you can negotiate the repayment term. If your banker doesn’t offer it up front, ask about a balloon payment. Banks are often willing to calculate the payment rate based on a 7-10 year term but write the loan as a shorter term (3-7 years) with a balloon payment equal to the balanced owed at the end of the term. They have no expectations that you’ll pay the balloon; they assume that you’ll refinance it. That could cut your loan payment almost in half, lowering your break-even by another $840 per month.

Your best bet, in terms of likelihood of approval and interest rate, is a home equity loan. If that’s what you end up applying for, you might want to use the extra cash you make with your part-time job to pay down your mortgage instead. At the interest rate you’ll get from a home equity loan, the relative value of cash goes down.

What about the capital reserve? You prefer a line of credit for that. It can be a BLOC (business line of credit), HELOC (home equity line of credit) or some other option; ask your banker which option works best for you. The advantage here is that you’re not paying interest on funds you haven’t withdrawn yet. In your first month of operation, you might only withdraw $5,000 from your LOC, as with our sample store from last month. That means you’ll make a payment on $5,000 ($200) in month 2 when you withdraw another $5,000. If you took out a loan for your entire $60,000 burn amount, the interest element alone of your first payment would be $500—that’s almost 60% of the payment! The interest rate is often higher on the LOC, but the dollar amount you pay will be much less.

Loan Application Tip

To a bank, loans have a cost associated with them, which mostly represents the amount of labor that goes into generating and maintaining your loan. Because of this cost, banks don’t like small loans. It’s strange, but they’d rather loan you more money than less. If your loan request is close to an even dollar threshold (say, $94,000), round it up. If they only approve you for a lower dollar amount, you’re still covered.

Other Loan-Related Issues

While we’re on this topic, let’s answer some of the immediate follow-up questions.

What about the Small Business Administration?

Here’s a shocker—the SBA doesn’t make loans. You hear about “SBA loans” all the time, but here’s how that works: the SBA guarantees a certain percentage of a loan made by an approved lender if that lender meets certain guidelines in investigating and processing the loan.

A bank originates the loan, but the bank is more likely to lend you money if you meet the SBA’s criteria, because they know that if you default they can still recover most of the loss from the United States government.

How about Venture Capitalists?

Sorry, Charlie. VCs want high-yield returns with an unlimited cap. They prefer for you to take your company to an IPO within a few years. If your business plan doesn’t have the figure “$20,000,000” on it anywhere (and, barring a typo, it won’t), they’re not interested.

That should answer the basic questions about where and how to find starting money. If you have specific questions, drop us a line. Next week we’re going to compare opening a new store to buying an existing store.

How Much Do I Need?

This article is one of the most math-intensive I’m going to write for this column. It’s not that the math is complicated; there’s just a fair bit of it to do. Fortunately, I’ve provided a couple of aids you’ll be able to download.

Also, please understand that I’m making certain assumptions about your business model. If you want to argue why my 60% cost of goods figure doesn’t seem to jibe with distributors offering you a 47% discount, or other details of the math, I’ll be happy to discuss it in the forum.
The amount of money you need is composed of two elements: your opening expenses, which you’ll spend before you open, and your capital reserve.

Opening Expenses

This figure is the simple sum of a long list of items. Here (DOC File) is a sample checklist for your planning. Note that your specific business plan might not call for all of these items. In fact, no store will use all of them–it includes line items for both rent and mortgage, for example.

Administrative & Operating Expenses

Sample costs include

  • Incorporation
  • Accountant fees
  • Attorney fees
  • Utility deposits
  • Rent deposit
  • Bank fees & costs

How do you get these figures? By calling people who offer these products or services and asking how much they cost. For others, you might want to ask other businesses in your neighborhood how much they spend (trying to get a projected bill out of your electric company will probably drive you nuts, but they might be willing to give you a billing history of the suite you’re leasing). You’ll make dozens or hundreds of phone calls before you even open. You’ll want to keep extensive notes for your comparisons.

Sample Store: Sample store incorporates personally, saving attorney fees but still paying state fees. Sample store has no bargaining position with deposits and so pays the full $4,800 in rents and utility deposits. Total for this category: $5,500.

FFE: Furniture, Fixtures & Equipment

Sample costs include

    Tables
  • Chairs
  • Counters
  • Wall fixtures (pegboard or slatwall or a combination)
  • Shelving
  • Computers (include software)
  • Point-of-sale system (it’s software, but it’s important enough for its own listing)
  • Receipt printer
  • Printer
  • Fax
  • Telephone(s)
  • Bulletin board
  • Misc. office supplies
  • Shrink-wrap machine
  • Cleaning supplies

Sample Store: Sample store has been buying fixtures for a year from liquidation sales and is willing to build additional fixtures. However, the owner doesn’t want the store to all look second-hand, so he’s willing to spend $500 on a few slatwall fixtures, planning to upgrade the rest of the store in 2-3 years. Adding up the supply cost, the cost of a cash-wrap, POS system, and miscellaneous equipment he hasn’t obtained yet, the FFE comes to $4,000.

Build-out

Sample costs include

  • Materials
  • Pain
  • Tools
  • Flooring
  • Lights
  • Misc. repairs
  • Signage
  • Contracted work
    • Sample Store: The owner is willing to do some of the work himself, except for the electrical work, for which he has neither the tools nor the training. Also, he knows that commercial suites have a history of building up stop-gap wiring above the drop ceiling, and he wants a pro to make sure the fire hazard up there is minimal. He plans on $1,500 for the electrician (who also replaces the ballast in all the light fixtures, something the owner learns is easy to do and will do himself from then on), $2,000 for flooring and $500 for miscellaneous tools and repairs.

      Inventory

      Your inventory expense is probably the largest single category on your list of opening expenses. It’s also the greatest variable between stores. There’s no easy answer here.

      Here’s a rule of thumb to help until you actually sit on the phone with a distributor for an hour or so and work out an initial order: figure on spending $20 for every square foot in your store devoted to retail. That is, take your square footage, deduct for your game space, bathrooms, office, and wasted space, and multiply by 20. If you use 1,200 square feet out of a 2,000-sf location, figure on spending $24,000. If you only have 700 square feet and you’re going to be using all of it for retail, figure on $14,000.

      That’s a rule of thumb, which means it’ll be wrong for most of you. However, it’ll be close enough for planning at this stage. Like many topics, it’ll get more coverage later.

      Sample Store: Our sample is a large-ish 2,000 square foot store. The owner knows it’s a bit of an indulgence for an opening location, especially with no local competition, but he plans an aggressive event schedule and wants room for multiple tournaments or demos in the game room, which will take up 1,200 square feet. Also, he has to sign a 4-year lease to get the rate he wants, so he’s going to be here for a while. That leaves about 750 square feet for inventory, which means roughly $15,000 in merchandise.

      Note: as a general rule, I wouldn’t spend that much before opening. I’d spend less initially and hold back some of my inventory dollars to spend after gauging customer interest. If miniatures are hot for you to the exclusion of other game categories, you can buy more inventory in that category and maybe add a second line of paints. If you had instead spent 1/4 of that hold-back money on minis, 1/4 on cards, 1/4 on RPGs, etc. most of it would be tied up in slow-moving inventory and you’d be missing sales opportunities in your best category. Despite that distinction, you’re going to be spending this money in the first year, and it messes up the math if we count it under your capital reserve, so we include it here.

      Sample Store: We’re up to $28,500 in pre-opening expenses.

      Capital Reserve

      Before you can calculate your capital reserve, you must determine your burn rate. Your burn rate is the rate at which you spend money before you start to break even. It’s a combination of your fixed expenses like rent and utilities and variable expenses. While technically labor is considered a variable expense, I include it under the fixed expenses category. That leaves for your variable expenses only the cost of replacing the inventory you sell on a daily basis. Our calculations assume that your inventory level remains constant, which it won’t–but we’ve already accounted for your first year’s inventory gain in the calculation above, so we’re okay there.

      Finding Your Break-even—How Much

      Add up the total of all of your monthly expenses. These include

      • Rent (including CAM or triple net)
      • Utilities (electricity, water, phone, Internet)
      • Labor (including tax and payroll service fees)
      • Trash removal
      • Pest control
      • Alarm monitoring
      • Bank fees
      • Insurance
      • Repair & maintenance
      • Advertising

      and others. Include a salary for yourself. A healthy business pays its manager, whether the manager is you or somebody else.

      One tricky amount to include is your loan repayment. You don’t know the amount of the payment because you don’t know the amount of the loan yet. Leave it out at this stage and then revise the break-even afterward to include the loan repayment.

      For the items that you don’t spend every month, like your business license renewal, food permit, GAMA membership, CAM adjustment, etc, add up your annual expenses and divide that number by 12.

      You should also include a “fudge factor.” You might forget to include a line item, something might cost far more than you anticipated, or prices might increase between your estimate and the date you make the purchase. There are two methods for including it. The first is to add a small amount to each line item. Personally, I prefer the other method: add an additional line item to your fixed costs. Call this category “fudge factor.” Make it about 10% of your other costs. For $4,000 in fixed costs, add $400 for your fudge factor.

      The total of all of these line items is the amount you spend each month. Divide that total by .4 (or multiply it by 2.5, which is mathematically identical) to determine how much you’ll need in sales each month to pay those expenses. For your convenience, I have a break-even analysis that I’m willing to share here (XLS File). Fill in the numbers specific to your store as you gather your figures.

      Sample Store: Without going into detail, let’s say monthly expenses total $5,000, requiring $12,500 in sales to pay the bills.

      Finding Your Break-even—How Long

      The trick becomes to calculate how many months you’ll operate at negative cash flow before you start to break even. I’ve done an article on calculating sales based on different factors, but it’s still heavily reliant on my personal experience. For the record, the majority of the plans I’ve seen or store sales records I’ve seen reach their break-even between months 13 and 16.

      Sample Store: With a break-even of $12,500, it’ll take 9 months to reach break-even. Partial months round up. Nine months at $5,000 a month is $45,000 in capital reserve.

      Using an online loan calculator like this one, your loan payment is $865 a month. Let’s add that to our monthly expenses and get $5,865 per month, or a total capital reserve needed of $52,785, which forces us to recalculate again, which will cause the loan required to increase, which…quit. Just use $55,000. I actually use a more complex version when planning, but we’re talking about back-of-the-envelope figures here.

      Sample Store: Opening expenses of $28,500 and capital reserve of $55,000 means this store needs $83,500 to open.

      As you can see, if this store owner has $30,000 available, he could afford everything he needs to open his doors. He’d even have $1,500 left in his bank account. One month later, he might do a thousand or two in sales, but he’d owe $5,000 in expenses before he even thought about restocking the merchandise that sold. He’s bankrupt already!

      Believe it or not, some variation of this scenario is the single largest cause of business failure. The big variable is how long the owner can survive by racking up credit card debt, cannibalizing inventory, not taking a paycheck, etc., before he runs out of money. If you’ve learned the lesson here, you’ve increased your likelihood of success tremendously.

An Introduction To Game Retail

Greetings! Regular rpg.net readers might know me from Freelancing is Not for Free, a column for role-playing game freelancers. I ended that column to address a regular question that pops up at least once a month on RPG.net:

“I want to open a game store. Can anyone help me?”

The answer is “yes.”

What Kind of Help?

Here’s a list of some of the topics I intend to address first:

  • Calculating Startup Capital
  • Getting a Loan
  • Buying vs. Opening
  • Deciding What to Carry
  • Finding Suppliers
  • Fixtures & Equipment
  • The Pros & Cons of a Game Room
  • Pre-Opening Marketing
  • Finding Capital

These topics are important to the decision-making and planning process. You must make them before you open. They take priority because of their urgency to people who want information now.

Later on, I’ll address topics of great importance that focus on decisions later in the process, like

  • Merchandising Skills
  • Marketing & Advertising
  • Professional Organizations
  • Paperwork & Forms
  • Lease Negotiation
  • Planning Store Layout

You use these skills once you’re already open or preparing to open, but in some cases (especially M&A), knowing how you’ll do them later affects your early decisions.

Why Me?

My management experience began in 1987 with Domino’s Pizza. Domino’s at the time was still expanding strongly. Its management program was designed to teach walk-ins how to run a half-million-dollar a year business within six months and train them to buy their own franchise. The corporate training was intense. It involved paperwork, training classes, videos, tests, weekly supervisory review, and much practice. The average manager age at the time was 19, and the average 7-store supervisor was 21.

My market at the time, which included my trainers and the people I trained into management positions, led the nation in profitability.

A dozen years later, I had an opportunity to buy a game store. One of my favorite hangouts was on the block. The owner claimed he wanted out mostly to spite his soon-to-be-ex-, and I’m sure there was much truth to that.

I suspect he also thought the industry was declining. His sales were down, although he didn’t have very clear sales records to help identify where the problem was. That was in 1999. Pokemon was already on the market, but nobody had any. We signed paperwork and I traded money for the keys in May.

Within weeks, Wizards came through with the Pokemon. After that, I had ready cash to cover any errors I made. The timing was partly luck, and partly good decisions on my part.

From the first, I had good advice. The owner who sold to me already had an offer on the table. He even told me what it was and let me see the offer. After much discussion with a friend (another Domino’s veteran and now owner of a $1+ million a year courier service), I offered less.

Yes, I bought the store with a lower offer than an already existing offer. That worked for me because the owner was in a hurry to sell, and I offered him more money sooner. It wasn’t a question of what was the better financial decision in the long run. It was a matter of what he wanted most. Later on, when he offered to buy out the rest of the payments (he held the note, saving me from having to secure financing), I saved another $5,000 because he was spending money faster than he anticipated.

So I’m in the industry. One of the things I learned at Domino’s was to identify what I needed to learn about a business. I set out to find a network of peers and any publications I could find to help me in my education. I’ll tell you about all of those in another article, but let’s just say that they were priceless. It quickened my education and saved me thousands of dollars in errors.

At Domino’s we had the three “key indicators,” or “keys” in company jargon. Keep those numbers low and profits go up. What are the keys in gaming? Product cost and labor. I’ll address each of those topics in separate articles.

Sales rose continuously. I tracked Pokemon separately even before I installed a point-of-sale system, and non-Pokemon sales climbed. While I was happy to put the Pokemon money in the bank, I really didn’t consider it indicative of my management skill. It was, in a way, free money to anyone with a WotC account. The numbers I was most interested in tracking for purposes of feedback were my sales by category. As long as all of those were growing, or the sum total was growing, then I must be doing something right.

They did.

Sales kept going up for every category but historical miniatures. I tried at first because it was a legacy of my store, and I didn’t want to disappoint the guys who had shopped there before I bought it. When I finally stopped trying, several other categories increased more than the loss. I hated disappointing the old customers, but I had bills to pay, and I had other customers who wanted to give me their money.

Leaving the Industry

The plan when I bought the place was to run it about 50 hours per week and write for about 30 hours a week (yes, I’m quite comfortable working 80 hours a week or more). I thought that being around gamers all of the time would help my writing. The stories, the new perspectives, the playtesters, the rules arguments–would all help. On that part, I was right.

In reality, the store took more than 50 hours per week. Worse, I wasn’t very productive with my remaining time because the store needed regular attention even in my absence. The store was not the path to where I wanted to be. Once I realized that, I prepared a sales package that included all the information necessary for due diligence and shopped it around. I sold the store to one of my employees, who took sales even higher next year and then beat that record again the next year.

And Here We Are

Since I sold my store, I’ve written business plans professionally and counseled other would-be store owners. I’ve written a book on gaming retail, which is with a publisher now. I’ve begun working with other would-be business owners in my area, potential franchisors nationwide, and other people planning to start their own business.

These articles should create a slew of follow-up questions because their brevity will force incompleteness on my part. Naturally, I can’t discuss how to adapt each article to every gaming business model. I’ll have the answers for some of those in articles planned for later, but I’m willing to address them immediately in the forum. I’m always available for specific discussion relevant to your situation. If at any time you would prefer discuss your issues privately instead of sharing your plans on the forum, you can e-mail me through the form. I’m here for you.