The Future of Games Days & Games Workshop - Part 4

The Future of Games Days & Games Workshop - Part 4

What would Spiderman do?

Today: Nerdtears

Wow - it's been a few days since Part 3. My apologies to everyone who has waited - this was probably the first time I got messages asking for the next post on anything ^^

So, in the unlikely event that you have not yet been hit by the massive walls of text on the subject, here's your chance to be bold, hard and brave:

Boldly run at a wall of text, bounce off hard and bravely run at it again: ^^

Part 1 - Part 2 - Part 3

Also: I don't know why I mentioned this earlier, but if you are interested in this kind of thing, I recommend this article on Wikipedia for further wall-text-climbing adventures.

P.P.: About the Terms of Trade (Part 3)

When I read my own Part 3 again, I felt that one very important implication of how the discount retailers and GW's terms of trade have effected did not really come over very clearly. I will elaborate on that real briefly now. 

Also, I will skip the whole Lord of the Rings discussion as it has been dealt with in the comments to part 3 already. 

I recommend you read the comments to all three articles - very interesting information in there!

Discounters cause rising prices

Slice bread sells well. 

We looked at GW's financial difficulties in the early 2000s. They had a product that sold better than sliced bread (thanks to Frodo & friends) but at the end of the day they made no profit. In contrary, GW wrote losses. 

In order to get back to solid earnings, GW basically had to cut costs and sell more. Cutting cost meant a quite big investment in new machinery, manufacturing workshops and most importantly, new, streamlined development processes. Yes - cutting cost often costs money. A lot of it! Just the investment in their manufacturing process was - if my memory serves me right - in the area of 12m£. Yikes. 

But the good news was that everyone wanted GW products, in particular LotR stuff. So GW sold to any retailer that would buy. And here (and that is my gripe with GW's policy in that time, as discussed in part 3) the terms of trade allowed retailers to basically sell GW's products at any price they wanted. 30%, 40%, 50% discount? Sure! 

So what's so bad about buying at discount? Well, for us, nothing - or is there?

The vicious cycle of discount sales

Let's assume, you are a consumer. No. You ARE a consumer. You can go to GW's website or their hobby centers and buy a product at 100% retail. You can also go to your trusty rusty independent brick-and-mortar store and maybe get 5-10% discount, because they like you. Or you sit on a computer and get the same stuff delivered to your door at 30% discount or more. Shipping free. 

Hm....

Vicious cycle is vicious

YES, I CONFESS! Mea culpa. Mea maxima culpa. This is the reason my hobby room looks like a GW outlet (or rather a GW warehouse :P). I bought like crazy. And so did pretty much everyone I know. 

This caused all kinds of havoc. First and foremost: The small independent retailers who ran their neighborhood stores for decades took a massive hit. And of course, this is not just true for GW merchandise. Video killed the radio star. Internet killed the neighborhood store. And many - too many - went out of business. Attracting new customers? Not without a store.

Secondly, GW's problem wasn't sales. GW's problem was cost and - with that - margin. So, what do you think happened to GW's margin? Up or down because of discount sales? Well, down of course! You sell less at 100% because customers buy from retailers that bought your stuff at around 50% retail. That's half of your potential margin! 

When I talk about margin from here on, I talk about the potential margin for GW. Example: GW produces a box for 5€. It sells it at 105€. The potential margin is 100€. If they sell it to a retailer at 50€, GW's margin is reduced to 50%. Not scientific, but it shall suffice.

The one way out: Price increases.

Let's see how a 10% price increase helps the bottom line. 

Just for argument's sake let's say 100% of the product GW sold went through retailers. Raising the product price by 10% means that the retailer purchase price  and sales price increased by 5% and 5% is increased 'potential' margin for GW. 

In fact 60% of sales went through direct sales (11%) and hobby centers (49%) in 2007. So, 11% would give 100% potential margin, 49% would give something in between 50% and 100%* and 40% retailers would result in 5% more cash on the stash. 

*I don't really know what the profit margin of a Hobby Center is, but with inventory loss (lol, 10-30%! At ALDI we were furious at 0.2%, noobs), salary (OK, that's not that much) and rent (ouch), let's just say the margin is around 75%. Still better than independent retailers, I would think.

So as a totally non-scientific estimation I'd say a 10% price increase buffs the income before taxes by around 5-7% for GW. It's just a gut feeling, but then again, I have a lot of gut :D

Now let's do that 10 years in a row. Because that's what GW did. (Actually longer than that). 10% price increase times 10 years means 100% price increase, right? MÖÖÖÖP! Wrong. For mathematicians: ((1,1^9)-1)*100 = ~135%. Yowser! Good thing our dispensable income also increased by 135%... oh wait... damnation.

Is that true?

Weeeeell, let's look at my favorite retirement plan of all times. Purchasing a Space Marine Company Box. 

I got three of these beautiful boxes!
Best retirement plan investment ever!

In 2000, the Space Marine Company box, consisting of 70 tactical, 20 storm, 10 devastators, 1 captain, 5 command dudes, 1 razorback and 8 rhinos cost the staggering amount of 600 Deutsche Mark. 

Then the Euro came and the same box cost 400€ (I bought mine in 2007, I think. At 50% discount :D). 

600DM / 1.95583 (wow, didn't even have to look that up) = 306,78€. That is roughly a 30% price increase in 6 years. Not so bad, now, is it? (cough)

Since 2007 GW increased sales and raised prices at a faster pace to counter all the 'challenges' they were facing. As we all know, GW's famous one-click-deals don't save you a single cent. Just mouse-clicks. Let's look at what the same box would cost today. 

Drumrooooooll: 685,50€. Yup, that's right. Up another 70%+ since 2007 - and a total of +125% since 2001. Our above estimation seems about right. 

But wait, there's more! 

We all know how price increases are hidden: Don't increase the price of low-sellers such as basing material and increase Space Marine prices by 20% - that should make 10% on average right? 

MÖÖÖÖP (German you're wrong buzzer)

Split 10 units into 5 (or more recently 3) and increase the price by 15, 20 or even 30%. 

We've seen it year after year, I don't even care anymore. 

But honestly, I don't want to add to the endless 'GW's price increase bashing' posts, I want to point out something completely different: The fact, that the price increases for most consumers are even higher than that! 

GW pulls the breaks: No discount for you!

GW is not stupid. They realized their immediate problem - even back then: Online retailers were cutting deep into the financial flesh of the giant called GW. The problem is, having underestimated the Internet and it's effects (see part 3), it took GW years and years to slowly go to where they really needed to be with regards to trade terms and market strategy. (I think they are almost there - more on this in part 6 or 7 or however long this series will turn out to be in the end). 

The solution is (and was) obvious: Pull the breaks - limit discounts, especially on the internet. Period. (Full stop?) But instead of pulling the breaks all the way, going full speed astern, GW trickled in small changes year after year - needlessly prolonging the suffering. 

The first cut is the deepest, the first loss is the cheapest. It took GW almost 7 years to turn their ship around.

So let's look at my personal price increases. As a professional haggler, I bought my Space Marine company box (alongside dozens and dozens of other boxes) at 50% discount. The price of MY box was not 400€. It was merely 200€. Free shipping. Without breaking a sweat, everyone could buy at 30% discount minimum back in the good ol' days.

Very high chill factor.

Today, at current GW prices, it would cost me 685,50€ to buy the same box (+285,50€!). If I support my local retailer, it would cost me 620€ (10% off), and if I order on the Internet, I can still get it at about 550€ (20% off, +/- currency fluctuations). 

My personal price increase is not 125%. It's 175%. 

Call it 'felt price increase' or a price-chill-factor (though I ain't chilling at all).

It's all our own fault

No-one can blame an informed consumer to shop for the best deal. I don't either - been there, done that. 

With the financial troubles and massive investment GW was facing back then, however, I actually can't blame them for what they did as a result of our shopping behavior. 

Only time stores are cheaper than the Internet

We have indulged in cheap shopping sprees, killed our local neighborhood store in the process and forced GW to raise prices like there is no tomorrow. I know I did.

And I am truly and deeply sorry for that. I could have and should have done better as a responsible consumer. (Although, I still positively love my precious purchased plastic pals to pieces though ^^)*. 

As a result (with the exception of Forge World), I buy all of my Games Workshop miniatures and supplies at my local, brick-and-mortar independent hobby store. It's a better deal than buying at full price and it supports the local gaming and painting community!

* This sentence was nominated for most awesomely apt alliteration aver.

It's all GW's fault

Again, as a business person I understand GW's behavior completely - and given the recent financial success - can only congratulate them (don't think this series is over yet, GW! *evil grin*). 

HOWEVER. I don't just blame GW for everything that's wrong with the world. No. I say: This IS all GW's fault. Yes, they know how to run a company. But they did not know how the market worked back then (causing everything you read here and in the other posts) and I am afraid, they still have no clue how their typical consumer ticks - or even who their consumers really are or even should be! (Oh, I am so looking forward to more on THAT - don't you?)

GW has sent us on cheap shopping sprees, made us help them kill local neighborhood stores and paid us by increasing prices. They know they did.

And I don't even think they are sorry.

The worst is over. I think. 

So is it all gloom and doom?

No. 

I think right now GW has finally implemented a system and a strategy that will allow a balanced market with little online sales (no more ebay, amazon & co for retailers!) - except of course for their own web store. I don't blaming them for trying to get the online sales for themselves - I would have done the same to some extend. 

I think if GW had pulled the breaks hard early on and discouraged the Wild West discount-online-sales we would have a much healthier landscape, much lower prices and overall less nerd-rage (probably allowing Facebook comments, but we'll get to that later). Alas we don't. 

Light at the end of the tunnel.

So in summary, if you look at GW's current terms of trade, I would say the worst is over. The US Online market is 100% in GW's hands (surprisingly so, in the land of the free, home of the brave), discount retailers have been cut down to size by punishing them for big online sales and discounts with severely reduced margins and the brick-and-mortar stores that are still around have weathered the storm. And to make sure they don't get touched by Chaos through the witchery that is online sales and discounts, GW's ever watchful eye sends out hordes of Inquisitors to read from the 'Liturgies of Trade Terms'. Hundreds of years of social evolution, however, led to the cutting of margin instead of limbs in case the stores sell too much online. How poetic. :) 

In 2013, in the first time as long as I can remember (which is not that long anyways), GW did not increase the prices on their self-manufactured products at all. Paints & stuff are 3rd party purchases, they went up a little bit.

I think a) GW does not need price increases to generate sustainable income and profits any more and b) they are already on the edge of pricing themselves out of the market. 

End of Part 4 of more parts you can shake a stick at ^^

So, let's see which of the sections I announced in part 3 were discussed today: 

- GW pulls the breaks

- The Spanish Inquisition and other incredibly stupid ideas (The worst is over)

- Honesty shall reign, because snow is black

- Bubble Boy: Me, myself and I

- It's all our fault. 

- 42! All ur bases are belong to me

Not bad! 

Oh, I am looking forward to the next two posts of our more-and-more epic mini-series about the Future of Games Days and Games Workshop. Tomorrow I will spill all my nerd tears from a fan's perspective. It will be one more rough day for GW before we slowly close the series with a positive outlook on the future.

Next: MOAR NERD TEARS!

ETA: next two days. Promised :) 

Comment. Follow. Subscribe

Again, I strongly recommend to read the comments under these posts. I even more strongly recommend to comment yourself! What is your perspective on all of this, so far? Do you agree? Do you disagree? Did I get it all wrong?

Last, but not least a little message from a company that strives to pretty much be the opposite of everything you read in the first four parts 

(yes, that would be us :P)

Best deal in the miniature industry this side of Andromeda

While supplies last!

Part 5 can be found here

And as always:

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