Business of Gaming Retail
I'm afraid I might ramble. There's much to discuss, and I'm still cementing some ideas.
Sales-building
You have three methods by which to build sales. You can increase the number of customers, increase the number of times your customers visit your store or site, or you can increase the amount the customers spend on each visit.
Most game stores are pretty strong in the latter two areas. They use newsletters, game room events, and other options to increase visits. They rely on good inventory selection, product knowledge, and close relationships with their customers to increase spending.
You must build sales. You lose customers all the time, and some of the factors that cause you to lose customers are out of your hands. Some customers move away. You can't control where the military assigns it personnel and their families. You just have to deal with it. Some customers die. You have no input there. The point is, even if you're great at keeping customers, you'll still lose customers regularly. If you're not replacing them, your sales will decline. I don't need to explain how that ends.
Increasing visits and increasing per-customer spending have finite maximums. Once a customer's in the store every day, you're done. Once you have all of their discretionary spending, you're done. However, that's a theoretical limit. You're not likely to reach those limits in real life.
There's a much more realistic limit: diminishing returns. It can be very easy to bump these figures up a little bit, but very expensive to push them to the extremes. You bring in extra staff to manage large events. You spend money in prize support and advertising your events. You create in-store signs to help upsell special items. You offer discounts when you bundle items together. You can increase your average ticket price from $25 to $40 with a steady, disciplined effort. Pushing it to $60 would be tough.
Increasing customer counts offers potential for sales-building with a much higher limit. You can keep getting new customers until you have all the gamers in your market.
Or you can keep going past that.
Hold that thought. Something else first.
Lapsed Customers
Inactive gamers are a tempting target for store owners. They're already gamers. Maybe they quit gaming because a local game store closed. Maybe they moved to an area without a game store—until you built yours.
Go after them. They're easy pickin'. Once you tap that market out completely, though, you still have the same issue: you need more customers.
Somebody Else's Customers
I've seen many people open game stores intending to take customers away from another store. Maybe they feel (right or wrong) that the competitor is failing to meet customer needs. Again, this market is fairly easy to reach, of varying difficulty to acquire, and finite in number. If a rival store is doing $200,000/year in sales, depending on where you are, you can only get $50,000 or $100,000 in sales—maximum. If the store is giving customers poor service, sales are likely to be low. Most likely, even if you close a competitor down entirely, you won't gain more than 15% of their customer base. You can't survive by cannibalizing somebody else's customers.
Back to New Customers
So, even if you pursue the above methods of gaining sales—recovering old gamers and stealing another store's gamers—you still have to get new customers.
Early-stage stores need new customers before they can pay the bills. Older stores need them to replace avoidable and unavoidable losses. Everybody needs them at every stage.
Time for Another Tangent
The number of game stores is less than it used to be. Game stores suffered from the recession as much as anybody else did. Also, the growth of the Internet has made it much easier for publishers to communicate directly with their customers. They are less reliant on game stores for sales.
However, I think that the industry is not well-served by this trend. Small and even medium manufacturers do not grow the industry. You don't grow the industry by taking gamers away from other publishers, which is a common strategy among these manufacturers. They shuffle money between manufacturers. You have to advertise outside of the industry if you want to create new gamers. Manufacturers tend not to have any viable method of doing that.
Retailers do.
Games (most especially RPGs) sell better when shown, not described. The best ad copy in the world isn't as effective a sales technique as a fun demo. Make a customer laugh in a game of Lunch Money, and you likely have a sale. Make him cry with a tragic RPG storyline, and you have more than a sale; you'll have a long-term customer.
Yay, Math!
Magic players tend to stay in the hobby for at least 7 years and spend about $400/year. Create a new Magic customer, and you stand to earn a good percentage of that customer's estimated $2,800 hobby spending. While these figures undoubtedly change over time, the average Games Workshop customer is allegedly worth about $1,500. D&D customers are probably worth about $1,800, but my figures there might be dated. No matter how you look at it, creating a new customer is valuable.
Customers of any sub-category also tend to spend more money early in their hobby. A GW player needs a certain number of points to be able to play with his friends. Once he builds up 2,000 points of Space Marines (or whatever), he slows down his buying. Likewise, D&D players need to buy books and dice to catch up and then might buy a book a month or the occasional set of dice.
That buying pattern means that new customers tend to be worth more than old customers. If you steal a 5-year D&D veteran from the crappy store down the street, you might only get $400 out of that customer over the next two years before you lose him entirely. A new D&D player might give you $250 right out of the gate and another $200 over the course of his first year.
Next time, I want to discuss strategies for making new customers, including some methods that should not only be part of your business model but should dictate most aspects of your business model.
