Gary Ray, CEO at Black Diamond Games, gives us some perspective in this episode about the local retail perspective of the gaming industry – spoiler, it isn’t easy. How many types of office supplies can a game store expect to keep in stock? How many square feet of carpet will you have to vacuum? Ray shares lots of behind-the-curtain business logistics and fun statistics about his growth in the gaming trade.
What Are The Questions?
Can you tell us a little bit about yourself and where you fit into the gaming space?
- Been running a game store for ten years, and blogging about the inside of the game trade for seven years.
- Gaming is a passion industry – blog was created because it’s important to also give light to the business logistics.
So if somebody wants to start a game store because they absolutely love games, and want in on free industry swag and news and to make games their passion, is that the right motivator to start in retail?
- No. You’ll get all that cool stuff, but you won’t get time to play with anything.
- A lot of smaller game stores make just enough to pay overhead and salaries – when priorities change to needing funds for mortgages, child tuition, can be difficult.
How viable is the retail gaming store business from a long term, life goal perspective?
- The industry has a lot of fluctuation – it’s way different than ten years ago, and will be different ten years from now, too.
- Not very profitable business to start, and the industry is currently under a lot of pressure.
- Referred to as a “buy-a-job” – It takes a lot of money to get the business going – a tight budgeted business would need around $50k.
- There need to be a lot of systems and processes in place for this to be managed. Well-trained employees, HR policies, supply, cost systems, and more, all working together to ensure efficiency and ensure that enough cost is generated to afford expense.
On your blog, you make an interesting point about the difference between being a small business owner versus an entrepreneur. Could you shed some light on that subject?
- The entrepreneur swings for the fence. They innovate, they find backers for big ideas, and they hop from project to project to recover from failures and find success.
- Small business owners step into established fields and aren’t trying to reinvent the game store.
- This country focuses on entrepreneurship, and about the expectation that if you have a degree in business, you’re going to make money.
There’s something that doesn’t make sense to me if we think about the whole game supply chain. Creators and publishers get anywhere from 5-15%, distributor gets around 40-50%, so doesn’t that leave about a 50% margin for games that you purchase to be making gravy from?
- Retailers receive about 45%, at the end of the day will probably (if anything) net 5-8% after costs. Average for local game stores is around 200k in annual gross sales; about 5% of that is 10k profit a year.
- That number is If the games/risks you brought in actually sold.
You shared some general numbers there – could you share ballpark numbers for your store specifically?
- We’re what you would call an alpha store, and in the Bay Area (California) where the prices are higher – in the top 10% in the country, close to a million dollars in sales annually.
- First full year, ten years ago, annual sales were at $300k. First few years turned very low profit that was reinvested in the business.
If somebody pushes through all those challenges and decides to start a game store, where do they start and what should they keep in mind?
- You have to either start with a lot of money, or a lot of experience – either know the ways to save money, or have the money to spend on mistakes in order to learn how to save money.
- If you don’t have a lot of money, then work at a game store to learn about the trade. First year of business, vacuumed a million square feet of carpeting – very humbling and reflective. – Make sure you vacuum some else’s million square feet before you find your own.
When we look into going into the retail business, we think I buy games, I sell games, I pay the rent, as a simple mental model. Can you tell us what surprises are involved in this concept as well?
- In initial business plan, about half of the needed expenses were predicted correctly. Sales projections were on, but expense numbers were way off, and not favorably.
- Utilities cost a lot more than expected, and a business that runs seven days overdue on the bill can have utilities cut.
- Over 100 different types of office supplies had to be kept in stock.
- The biggest surprise lay in how many different tasks there are to do – no one task took more than 10% of work time. It’s not like one person does all the sales pitches, or all the restock, or like you can hide in the back the whole time like a mad scientist..
What can you speak to about business taxes? Those can be a factor that bite you at the end of the year.
- Can be the single most dangerous thing in this business. Hard to predict, and can be detrimental.
- Moved from an LLC to an S Corp (A limited liability corporation to a subchapter corporation) which helped Black Diamond Games, but that helpfulness varies by state. In California, taxes of an LLC are based on gross sales, and Corporations are taxed on net.
- A good rule of thumb with small business is to put money away quarterly to prepare for tax fees.
Ballpark, how many game titles do you carry?
- About 20k – have more SKUs (Stock Keeping Units, individual inventory numbers) than Costco.
- “An inch deep and a mile wide” – about half of purchased titles are one available copy at a time, and often aren’t restocked.
- About 5% of 1000 board games in stock are reliable staples, or high-turn products.
- Goal with board game stock is to facilitate three or four turns, or complete moves through inventory.
Those inventory decisions seem like a lot of work for one person. Do distributors help make those decisions, too?
- The majority of games stores are not going to stray far from distributors’ advice.
- There are about one hundred different suppliers between toy and game companies, and around thirty of them generate 75% of sales, so if they print it, we stock it.
With Kickstarter coming out, and so many potential games to buy, if there’s someone trying to take their game directly to a store and go around the distributor, how might that work?
- The best bet is to have enough overage (extra printed game copies) at the end to go through distribution, who need about five hundred copies to work their magic on your game.
- Consider if you create a Kickstarter page for your game, to budget in money to print the five hundred copies to go through a distributor – but make sure not to overproduce and crash.
- If you do bring your game directly to a store, make sure the store isn’t short changed – include all promised promotional items, etc. Don’t treat the store like the second fiddle.
- Think to adjust cost to include the store in the profits – be prepared to price so that retailers can profit as usual – making about half of what they charged.
There are often challenges in this industry with shipping. How does that impact the retail world?
- From last summer to now have been port closures, and a shortage of games that are typically manufactured in India and/or China.
- Adapted by stocking at holiday levels all the time – requires a lot of capital and strong relationships with distributors.
- Good relationships with distributors means less allocations – if a distributor is short on supply, you’re more likely to still receive your full order and avoid supply ration.
- Gaming is still a social profession, and a relatively small community – have contact information ready, be/build supportive networks and sturdy connections.
How do you create an environment that is welcome to all the different flavors of gamer?
- If you want to draw in the general public and have more than a gamer den, you need to cater to what is coming more mainstream – Magic the Gathering, tabletop games, and board games.
- Have a generally pleasant space – good lighting, helpful friendly staff, and organization. Be aware of happy mediums and try not to alienate.
- Be prepared for the general public – especially during the holidays.
Have there been any times you’ve had to reign in passionate gamers, or set store rules, to avoid scaring muggles?
- Yes. We don’t want to stomp on passions, but we ask for everyone to just be aware of others.
Do you have any resources you can recommend to our listeners if they want to start their own retail store, and get started?
- Once you have a store already, there are great facebook resources.
- Check Delphi for forums about the industry and small game shop ownership
- Don’t worry so much about the game trade as what it means to manage a retail store. Find good business and retail books, and you’ll be in the top 10% of prepared retailers. Why we buy by Paco Underhill, Guerilla Marketing by Jay Leninson.
Where can listeners find out about you and reach out?
- Black Diamond Games website, and link at the top for the blog.
Delphi Gaming forums:
Why We Buy: The Science of Shopping by Paco Underhill:
Jay Levinson on Guerrilla Marketing:
Find out more about Gary Ray:
Black Diamond Games:
Gary Ray’s Blog: