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Insider: Cost of Doing Business, Part 3

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First off, I’d like to thank my respondents for taking the time to answer my questionnaire. If you’re lucky enough to live in or near their location of business, definitely consider stopping by. Below is the list of my respondents and a link to their information. The idea behind this article was to ask actual brick-and-mortar store owners about the costs and challenges of running their businesses.

I think there are a lot of players who think "I have a bunch of cards and I like buying cards at 50-60% of their actual value, a store seems like easy money", however, I hope that the store owners' responses makes anyone thinking that reconsider. Not that they shouldn't continue forward if that is their dream, but if you don't have experience running a small business there's a lot of things you have to consider.

NextGen Trading: https://www.facebook.com/pages/Next-Gen-Trading-LLC/159055334116986?fref=nf

HobbyTown USA: www.facebook.com/HobbyTownUSALincolnNE

Lost Coast Wizards:  lostcoastwizards.com

Ken Froth: Former Gaming Store Owner

How much MTG sealed product do you typically purchase in a given month (excluding prerelease/release months)?

NextGen: 6-10 Boxes on AVG

HobbyTown USA: We typically will keep approximately 18 to 24 of the most recent set and 6 boxes of the other sets on hand at a time.  We usually go through 12 to 24 boxes a week total of in print boxes.

Lost Coast Wizards:  I have a small store in a small area.  I generally go through about 48 boxes of product per month.

Ken: Hard to say any more.  Of course, half or so of all months are prerelease/release months these days, hehe.  I tended to front-load my orders, so I would buy a LOT at the start then let it taper down and re-buy cases as needed.  Depending on how much of a dog a set was, 1-2 cases a week.

What was the most surprising expense/cost associated with owning your B&M store that you didn't plan for?

NextGen: Overstock

Hobbytown USA: I was a part of the Franchise Home Office for Hobbytown before my wife and I purchased the store, so there weren't that many surprises.  That being said, things like rent, business and worker's comp insurance and payroll and payroll taxes are all real things to be aware of and I don't think that many new owners of businesses really understand how much product needs to be sold just to pay to keep the doors open.

Lost Coast Wizards:  I was very surprised to get hit by my county assessor's fees.  I expected taxes but I wasn't prepared to pay that one.  It took actually trying it to accept that loss leaders were a good thing.  Paying out 100% of tournament entry fees as credit works very well for me.  I get some people who pay off credit and go infinite, but many people will pay cash and it forces sales.

Ken: Chair breakage.  A close second, professional accounting.

What cost hurdles did you face when you first started up?

NextGen: Bills. Need to build a decent playerbase to start making profits.

Hobbytown USA: We took out a very large loan to cover the cost of buying an existing store, so that loan was a huge burden for many years.  Cash flow is something that is difficult to manage also.  We are a large hobby, toy and game store and as such, there is an ebb and flow to the seasons of when certain product sells.  Balancing cash flow and inventory versus the demand for product is something that is a constant struggle.

Lost Coast Wizards:  I had a hefty collection to start with.  I was able to liquidate a ton of MTGO redemption.  All in all the costs were steep.  Chairs, tables, large playmats, all the other bells and whistles add up.  I have a cool display wall which I constructed.  That took a lot of capital.  All in all I would say that I started with around $12,000 worth of cards and about $10,000 cash.  I have a small area.  All the dice, sleeves and deck boxes add up to a hefty initial payment.  Even the Point of Sales system will cost money up front.

Ken: None really, I opened the store with my own money as a second job while my wife and I worked full-time at a large company, so the normal monetary issues weren't there.

What day of the week do you typically see the most sales?

NextGen: Fridays and Saturdays

Hobbytown USA: Friday and Saturday are the busiest times of the week for us.

Lost Coast Wizards:  I see the most sales on Saturday and Sunday.  I close for Mondays so Tuesdays are pretty good for me as well.

Ken: Tuesday, because I was closed on Sunday and Monday and pent-up demand rushed in.  But once I went to being open Monday too, I think Thursday and Friday, because that's when most events occured.

How do you keep “up to date” with the latest Standard/Modern/Legacy tech?

NextGen: StarcityGames and the Grand Prix circuit/Pro Tours do a nice job of that. Also MTGTOP8.com Shows the trends.

Hobbytown USA: Forums (QS, etc.), mtgstocks, vibrant community in store.

Lost Coast Wizards:  I read the articles on Channel Fireball, TcgPlayer and look up metagame shifts on MtgGoldfish.

Ken: Watching event coverage, especially SCG and GPs.

What is the preferred format of your store and what challenges do you face keeping it thriving?

NextGen: Preferred format would be Standard, the challenge is how to be better then everyone else.

Hobbytown USA:  We have a relatively robust MTG crowd so we do play a variety of formats.  Standard is obviously the most popular and its popularity is really at the mercy of WOTC.  For other formats like EDH and Modern, being able to offer them as formats for FNM has helped.  Trying to have a once a month tournament for underserved formats helps keep interest in them.

Lost Coast Wizards:  Draft, then EDH, Modern, Standard, Legacy Pauper.  I don't support sealed tournaments currently.  Pauper can fill some weeks and others I will have two players.

Ken: Modern at the end.  Standard was taken over by the store in town that catered to younger folk by running free events and allowing proxies in anything not sanctioned.  Players who keep playing Magic are often willing to play Modern, but those who play for a year or two usually only play Standard before they move on to do something else with their time.

What order (from least to greatest) are the following costs for you (no specific number is necessary, simply an order will suffice); rent, insurance, power, water, sewage, security, taxes, garbage?

NextGen: Garbage/Sewage > Security > Insurance > Water > Taxes > Power > Rent

Hobbytown USA: Garbage, sewage, water, security, taxes, insurance, power, rent

Lost Coast Wizards:  Taxes, Rent, Insurance, Security then Utilities.

Ken: more or less in this order:

Rent has to be number one, any store having it be less is probably doing something illegal..;-)
(Next would be employees)
Electricity/gas (depending on the season)
phone (both business cell phones and land lines)
Insurance
Internet
Accounting services (not each month, but it averages out to this place monthly)
Security
Water/sewage are together in my town
Garbage is also technically related, but I did it with a close-by different business.
Finally taxes.  I don't know if you mean sales taxes, which doesn't actually cost the store anything, or income taxes, which as an S-Corp the business technically didn't pay.  That being said, in Illinois there is something called a 'replacement tax', which only hits S-Corps and is 1.5% of net profits.  Which is pretty small in the great scheme of things.

Do you sell snacks/drinks in your store?

NextGen: Yes

Hobbytown USA: Yep

Lost Coast Wizards:  Not yet.  My store is just small enough that I would eat all the food.  Once I get a bigger shop I will get a liquor license and start selling craft microbrews.

Ken: Ayup.

What percentage of your sales do you think goes to the “casual” crowd?

NextGen: 10%

Hobbytown USA: 50-60%

Lost Coast Wizards:  I would guess that non-sealed product is around 80-90%.  Most of the people buying singles are not coming in and playing tournaments.  Most of the people playing in tournaments are ordering online.  I can get some sales from online sources by offering specials, but non-foils are tough to sell to the competitive players.

Ken: Tons.  Lots of Commander, kitchen table or league players.  If we're talking about a percentage of 'card sales' I would say roughly half.  My store was a full-line game store, so card games were only a part of it.

Have you found it more challenging to grow your business with the increased competition from online stores?

NextGen: Yes

Hobbytown USA: Not necessarily.  We are very diversified so our entire breadth of product offering has allowed us to grow each year.  MTG in particular sells so well that we have zero problem turning inventory.  The downside to that category is that margins have eroded somewhat because of online.

Lost Coast Wizards:  I started my business after the digital age.  It hasn't proven to be much of a hurdle.  I can't offer the lowest prices on Sealed Product but the instant gratification gets my margins.  Getting people into the doors will get them buying product.  This can help to sell product to the more competitive crowd.  Again, using 100% payout store credit will get the competitive people in the store.

Ken: They have always been there really.  Real online competition is fine, it's the guys who set up on TCGPlayer and constantly drive prices down in a race to the bottom that were annoying.

How much local competition do you face?

NextGen: 6 Other stores

Hobbytown USA: Zero in town for gaming.

Lost Coast Wizards:  There are five stores which carry Magic products within a 15-mile radius.  We serve a county with 135,000 people.  There is decent competition but the stores are able to serve different crowds.  We orchestrate our tournaments so that we aren't directly competing with each other.  We try to keep things light and simple.

Ken: One store that is a Magic store only (well, and sports cards), but whose Magic sales are run by someone who tried to do internet pricing in a retail establishment.  That has only worked (somewhat) because the other side of the business pays the real bills.  But they do get large events, when they run free tourneys with $400 in prizes.  People can be bribed to show up, who knew? 😉

Have you found it challenging to keep your stock levels sufficient (or where you want them)?

NextGen: No

Hobbytown USA:  For singles, that is a constant, trying to maintain adequate stock levels to accommodate customer demand.  We do go to TCG often to refill commons and uncommons that are popular.

Lost Coast Wizards:  This is always a challenge for me.  I haven't been open that long so building inventory is priority #1 for me.  Sometimes I will have to let some stock dwindle in order to keep high stock of something else.  I had to deplete a lot of my higher end cards in order to pay for this last round of product (DtK).

Ken: Not at all.

Do you vend at any events outside your store (GP's, PTQ's, SCG Opens, etc)? If so, what additional challenges do they add to your business?

NextGen: No

Hobbytown USA: Nope

Lost Coast Wizards:  I haven't branched out into that yet.  I am just now getting inventory and turnover rates high enough to warrant an online presence.

Ken: Never had time to.

What advice would you give any of our readers that want to open up their own B&M store?

NextGen: Be Prepared to compete with online sales and figure out what you want to do to be better then the next store. Be mindful to take what majority of people say with a grain of salt. Also whatever you think you might need to startup, double it. It’s a rough business to run and even though it’s not hard labor it can be very taxing on the mind. Organize everything as you go, don't let it pile up then try to go back, as it will take significantly more time. Unfortunately, as it is online sales is the way to go as it provides the extra income that you will need.

Hobbytown USA:  Unless you are a very skilled business person that is well capitalized, it is difficult to move into the gaming space and make a go of it.  The margins are less than they used to be.  The MTG customer also is generally not very loyal and will chase the lowest price so you must win on price and selection. At this point, there are a number of very well capitalized businesses that are ran at a very high level.  If you cannot beat the local competitor at price, customer service and selection all at the same time, then it is difficult to recommend going into this business unless you just want to do it as a hobby with the understanding that you will lose all your money.  Then, you need to think about beating your online competitors.

Lost Coast Wizards:   Don't be afraid.  If there is a demand in your area, fill it.  You can open a shoe string budget store and the players will react just fine.  I serve people who have collections which would dwarf mine.  But they don't have the want or the drive to open their own store.  If you open a store, get an accountant on board asap.  Youtube is your friend.  Derium's TCG is a great place to look up information.  Getting a distributor's list isn't easy, but it can be found on the WPN site.  Getting Gateway certified isn't easy.  They are going to ask for many pictures of the inside of your store.  They also want pictures of the neighborhood and frontage.  Then they will want more.  WotC wants to see that you have a store in order to give you a WPN.  But you have to have product in order to have a store...  If you can get a distributor to back you then getting WPN is a lot easier.  If one distributor won't back you, find another and then be loyal.

Once you have a WPN, pack as many people into your store as possible.  Offer a free pack to each new DCI # you can register.  Hold two-person queues to get the tournament numbers up.  I like to offer a two-person at all times other than during scheduled events.  They pay a pack and cost $1.5 per person.  Again, get them in the doors and talking about you.  If you don't have enough space, subcontract out with a restaurant.  They love the extra business and will typically cover the insurance costs.  I charge an extra $10 per head and they provide lunch before the tournament starts.  This helps tremendously with achieving higher WPN.

Again.  If this is something you want to do, do it.  Nothing should hold you back.  If you are always hearing people say they want more options, provide them.  Don't go into debt right off.  Make sure that you can sustain at least 4-5 months of bills without profit.  Word of mouth is the best advertisement, but branching out to colleges and bulletin boards helps.  Facebook is a great marketing tool.  Make sure that you choose a catchy name.  You want people to automatically think of you when they hear part of your store name.

Make sure that the person who interacts with the public (more than likely you) has good people skills.  You don't want to scare off customers with a crabby staff.  You don't want people who are playing Diablo 3 when they could be interacting with the customers.  For the most part customers will take care of themselves, but when they need help (or pointing towards another purchase) you need to make sure they are comfortable.

Ken: Why?  As in why do you want to?  Also, what can you add to the local community?  If your only selling point is price you'll only get customers who care about price, and eventually the internet can always be cheaper.  Also, how long do you plan to do it, because if you want to build up to a good enough standard of living, look at how many game store owners you know and decide if that's what you want.  It might be.  But please, please don't go the way of the common 'I want to open a game store, how hard can it be?'.  It's easy to open a game store if you get a windfall of cash suddenly, but it's really hard to keep one going.  Cash flow isn't income.

Hope this helps.  As I said, my store was a full-line store, so I sold collectible card games, board games, miniatures, RPGs and the like.

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David Schumann

David started playing Magic in the days of Fifth Edition, with a hiatus between Judgment to Shards. He's been playing Commander since 2009 and Legacy since 2010.

View More By David Schumann

Posted in Finance, Free Insider

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