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So, You Wanna Be a Retailer?

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I get a lot of questions from readers who want to go into business for themselves. It's not surprising: in my time I've opened, managed and closed a brick-and-mortar retail store, and I currently help manage an online store and other ventures. I also write about entrepreneurship for Forbes.com, so I'm a pretty reasonable authority on entrepreneurship. The trouble is, I run into the same questions all the time, and I want to begin answering them in a place where people can gather, discuss and share knowledge.

First, a little bit about what I'm doing right now:

Forbes.com - I cover Chicago entrepreneurship and the 'startup scene'.

MTGCardMarket.com - I am the President of Technology, helping to build and maintain our infrastructure. I also help manage our marketing endeavors, which is just as crucial.

QuietSpeculation.com - The site you're reading right now! I was the original founder, but brought on Douglas Linn and Tyler Tyssedal to round out the executive team as we grow. I'm currently acting as our CEO, managing our overall strategic direction and developing new projects.  I also make it a point to answer the support emails myself, since I believe it's the CEO/Founder's job to be the point of engagement for his customers. This is despite the fact that I could easily farm the work out to a virtual assistant in the Philippines or anyone else on my team.

The Sleek Geek - Those who have met me recently may not know this, but I used to weigh around 260 lbs (standing at exactly 6 feel tall). Those who know me now are seeing me at a standing weight just under 190 lbs. I'm no mathematician but that means I lost 70 lbs. It took 3 years and it was pure hell, but I learned a lot along the way. I'm now teaching out my method via this site, and will begin working on a full-length book in the fall. We focus on quantifying actions and goals, and we like using data analytics to supplement the traditional "diet and exercise" model. We are currently soliciting contributors and/or people who want to lose weight to follow the system.

That's what I'm working on right now, and as you can see my plate is quite full. Welcome to the life of an entrepreneur, baby! I wouldn't have it any other way.

So, on to starting a store. I'm going to address the most crucial question this week, and follow up with more in each subsequent column. The CEO of MTG Card Market, Noah Whinston, will also be writing a few times a month, discussing more of the "front office" challenges like pricing against the market and predicting trends. I will be discussing more of the "back office" topics like how to build an infrastructure, maintain and launch a website, and all that kind of thing.

Brick and Mortar vs. Bits and Bytes

This is the first decision, and a big one. There are definite pros and cons of both models, but at the end of the day it comes down to two things: market opportunity and capitalization.

Market Opportunity: When I started my retail store, I opened it in a college town populated by three other stores. They were all full-line gaming stores with an established customer base, but I was focusing solely on Magic: The Gathering. You've got to ask yourself which you want to be. If you're aiming to be a full line gaming store, you'll want to dramatically increase your capitalization because board games don't turn over nearly as fast as MTG singles do. You'll have a ton of carrying costs for slow-moving inventory, but this inventory might be a draw to potential customers.

If there are no game stores in your local area, don't mistake that for an opportunity. Instead, ask yourself why. The rents might be too high, or there might not be enough interest. Perhaps the local university hosts a gaming club, and that negates the need for a real store. Make sure you validate your business model before signing a commercial lease. There's no going back once the pen hits the paper. Ask everyone you know what they would expect from a game store, from events to hours to stock levels. Don't promise anything, and don't assume anyone knows what they're talking about. The best and most relevant ideas will percolate to the top and you'll start to see a theme.

Captalization: As a mentor of mine likes to remind me, "No one has any money and the people that do don't want to spend it." This is true, from venture capitalists to hedge fund managers to the average gamer on the street. The world is a screwed-up scary place. It seems like there's a new financial scandal every day, and the financial well-being of entire continents is in serious jeopardy. If you have money right now, you're surely not interested in risking it, not when everyone else is losing it. In a bear market, he who loses least wins.

When I opened my retail store, I asked some authorities in the industry how much capital I would reasonably need. The number I heard from multiple sources was $20k. That seemed like a ton of money to me when I was 25, but three years into my life as an entrepreneur I can see that number is missing a zero. The first lesson you must learn: everything costs more than you think it will, and there are so many expenses you'll never be able to predict. Most small businesses fail for one simple reason: they run out of money. I recall a month where sales were slow and I had to fire-sale inventory to cover a few bills. That put a real hurt on my business, and you never want to get into the position where you're sacrificing margin for cash liquidity. Liquidity risk is a huge factor in financial markets, and since you can't pay your rent with Magic cards, it's a risk for you too. Raise as much money as you reasonably can, and then raise about 50% more.

Brick and Mortar: There are a few advantages to opening a real live shop. You can buy booster boxes and other MTG products at wholesale, which amounts to a 25% discount on the retail price of a booster box (around $75) and a 50% discount on things like Duel Decks. In many cases, this is just a license to print money, as long as you have enough capital to cover your costs and carry product for some time. You also have a good amount of innate advertising: your retail frontage. Walk-in traffic is easy to convert if the potential customer is at all interested in your industry. As long as you're personable and a good salesman, you can easily convert someone to a loyal customer with just a little bit of charm.

You also get to host events like FNM, prereleases and booster drafts, which are also great for your bottom line. The effort that goes into managing an event is colossal, and you will almost always want a dedicated and trained staff member to do this for you. Trying to run an FNM and a retail store at the same time is absolutely maddening, especially when everyone needs singles for their decks. Getting this workflow right will save you many headaches but ultimately you should just have a dedicated event-running employee.

The overhead of a retail store, however, is astronomical. You have many additional costs compared to an online store: Rent, HVAC, Electric, CAM (common area maintenance -- a fee paid to a shopping center or mall for maintaining the common space) and paying off the local mafia*. That list is not exhaustive either.

The financial overhead isn't the only kind of recurring cost. The minutiae of a retail operation will grind your free time to the bone. Mercilessly. Sweeping the floor, changing light bulbs, cleaning the bathroom and anything else required just to keep a physical space looking presentable takes ages. And gamers are not clean people. I once had to pay someone to clean a clogged and defiled toilet because I was too disgusted to do it myself. Yes, you will spend some of your time literally cleaning up shit. Have fun with that.

*I'm mostly kidding here. Mostly....

Online: There's a huge trade-off here, but in my mind it's a no-brainer. The overhead for an online store is so low compared to a brick and mortar operation that I cannot see doing it any other way. An online store works best if you're a trader about town -- someone that everyone knows and already deals with. If you don't have a pre-made customer base, you've also got your work cut out for you. Convincing people to shop at your site rather than an established site (oh I don't know...maybe MTG Card Market!) is tough.

We're backed with some top-tier talent and have an aggressive marketing campaign, and drawing eyes to our site is still a struggle sometimes. Don't underestimate the power of the incumbents, and don't think that just playing a "race to the bottom" will work -- competing on price alone is almost never the way to win in business. My favorite question to ask a new business is "what's your unfair competitive advantage?" My answer for MTG Card Market -- "our user interface is cleaner, simpler and more intuitive than those of our competitors. Our prices are always in line with, or lower than the market and we stock some rare and hard-to-find items other stores just cannot find." We aren't claiming to be the lowest price, but we do stay competitive.

Though the overhead of an online store is far lower, the barrier to entry is much higher because you just have to convince people to buy from you. With a B&M store, people can walk in and locals have an incentive to buy -- immediate gratification. Online, you have to compete with hundreds of other people selling Magic cards.

Finally: At the end of the day, both models have very large barriers to entry, require large amounts of capitalization and will almost assuredly be too much work for one person to handle alone. Overhead will eat through your starting capital quickly if you don't have sales within the first few months and you'll get caught in a cash crunch. Once that happens, you'll be out of business before you know it. Do not romanticize the model or the lifestyle; most people who want to start a game store really just want to get paid to hang out in one. You will not be profitable any time soon, nor will your work hours resemble anything reasonable or sane, but if you still want to do this, do it. The worst case: you lose all your money, all your financier's money and learn a lesson. It's still cheaper than an MBA.

Keep checking back on Quiet Speculation for more articles about the retail side of MTG, especially if you're interested in starting a proper business of your own! I'll be covering infrastructure and operations and Noah will be covering front-office things like market trends.

Kelly Reid

Founder & Product Manager

View More By Kelly Reid

Posted in Free, Free Finance, mtgcardmarket.com

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9 thoughts on “So, You Wanna Be a Retailer?

  1. Finally! This is one of the series of articles I was expecting to see when I joined QS! 🙂

    We ALL can learn so much from this and I hope that these kind of articles help me to grow and take the correct decisions in my own endeavor to become a better "retailer".
    I value all this sharing of knowledge very high, so please make this in a recurrent type of article 🙂 The community thanks you!

  2. It's kinda cool to follow up on you from time to time to see how you're doing. It's been a while (4+ years) since I first heard of you, mentioned as "this random guy you should check out cause he might know his shit" on a larger website. Since then, you've made a substantial name for yourself, made many trips to the gym, open/closed a store, and moved to Chicago. Kinda crazy. Anyways, glad to see you're still doing well. Really liked the article and good luck with everything in Chicago.

  3. You know what seems like a good read for a potential store owner? How to properly capitalize – from figuring out how much money you need (before you add 50% lol) and how to go about acquiring the financing without screwing yourself.

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