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Insider: Opening Up a Store

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Welcome back, readers! Today's article was inspired by Mr. Gus Landt's post in the forums. He posted the question "What would you start doing now if you were going to open a brick-and-mortar store in two years?" Gus himself already has a store, but it's a great question to garner feedback on for many reasons.

The biggest reason is that many small business owners are pretty inexperienced running a business (this isn't relegated to Magic or any specific industry). I'll be upfront and state that I have no formal education or training in running a business, so I'm not the ideal source for that specific information; but knowing my limitations, I wouldn't try and start a business without additional outside knowledgeable assistance.

Running a game store adds additional constraints and concerns to consider.

Playerbase Estimation

In my last article I mentioned that the most recent count of Magic the Gathering players (from WoTC) is around 12,000,000--which is pretty impressive until you realize that the earth's population is over 7,200,000,000. This means that of the earth's population only about 0.16% of the population plays MTG.

If we take a smaller sample than the entire earth's population (let's say your nearest cities population), we can assume that a similar percentage of said population might be interested in Magic. I currently live between two of the bigger cities in South Carolina and according to Wikipedia the entire county populations (for both cities) is 765,235. If we use our 0.16%, then we estimate there are around 1,224 potential players in the area (not bad really).

I've been to all of our stores and met a lot of different players, but nowhere near that many (which to me implies that WoTC's 12,000,000 may in fact include people who just buy a pack or two from Walmart once a month). But either way, at least we can get an idea of what kind of demand we can expect in our area.

Break-even Analysis

This is a very simple concept, but one that I think a lot of people don't grasp clearly. The actual definition can be found here. But the basic idea is to figure out how much you need to sell to cover your expenses. It sounds simple enough, but what's critical is for you to figure out all your actual expenses. Here's a quick list of a few I can think of off the top of my head:

  1. Rent
  2. Insurance
  3. Utilities
  4. Internet
  5. Security
  6. Property Taxes
  7. Sales taxes
  8. Product procurement
  9. Advertising
  10. Employee pay

This list isn't likely all-inclusive (there are probably some expenses I didn't think of), but all of these things take away from your profit margin.

break even analysis

Competition

Thanks to the internet and its availability to most people (especially MTG players), MTG selling is quickly reaching a point of "perfect competition." I base this claim on the following:

  1. All copies of a specific card in NM condition are identical (or at least extremely close).
  2. None of the companies selling MTG cards can control the market price.
  3. None of the companies selling MTG cards have a significant market share of the total number of copies of any given card (at least besides Alpha/Beta).
  4. Anyone can look up singles prices on TCG Player and numerous other website to compare prices of each card.
  5. You can easily enter/exit the MTG marketplace (though each may have a cost to do so, it's still easily doable).

That being said, as a brick-and-mortar store owner you have to accept that you are in fact competing with all the other stores/people who sell cards on the internet and in your local area. Thus you need to develop a pricing model conducive to this type of selling if you want to be successful. The good news is, this level of competition is limited to actual product sales. Another form of profit is tournament fees which have a much lower level of competition as tournaments aren't something one can currently "buy" online (at least not paper tournaments).

When it comes to local competition you'd ideally want to calculate the viability of adding another store to the local atmosphere with something like the Lotka-Volterra equation. This equation was created to model dynamic systems similar to how predators and prey interact in an environment. The equation is:

<br /><br /><br /><br /><br />
\begin{align}<br /><br /><br /><br /><br />
\frac{dx}{dt} = \alpha x - \beta x y \\<br /><br /><br /><br /><br />
\frac{dy}{dt} = \delta x y  - \gamma y<br /><br /><br /><br /><br />
\end{align}<br /><br /><br /><br /><br />

Where x is the number of local players (taken from your playerbase estimation analysis), y is the number of other stores in your area, and Dx/Dt represents the local playerbase growth rate, which might be difficult to determine.

Dy/Dt represents the store growth rate, which may or may not be difficult to determine (obviously it's pretty easy to count the total number of stores, but if a competitor is doing really well their store might grow in ways other than "additional locations", such as increased hours of operation, increases in store size, or even just increase in singles selection).

The other major challenge comes from your other constants (α, β, γ, δ) which are real parameters that exist between the players and stores. These might include (but the list is certainly not all inclusive):

  • Cost of entry vs prize payout of tournaments
  • Price of singles compared to online prices
  • Store proximity to players
  • Store owner "likeability" to playerbase
  • Desirability of players to remain or return to a particular store
  • How "fun" the game is and/or overall player retention to the game itself

Unfortunately, there is no "right" answer to look for. One could simply judge the level of importance of the factors they want to look at and run the equations utilizing said factors and then comparing the outcomes. Doing this might help a potential store owner figure out what factors they need to focus on; however, even then I don't know if the answers will be definitive enough to be truly helpful (and not skewed by simple input bias).

The actual graph of these equations (with a predator-prey relationship) often looks something like this:

Volterra_lotka_dynamics

As you might expect, the predator (or store) population increases when the prey (or player) population increases, but it's slower to do so, emphasizing that there's always a delay between actual demand and its perception in the community.

Understanding Your Customer's Wants

One thing I've seen a lot of stores do is diversify what they offer. Magic players often have plenty of other hobbies that game stores can access from their same distributors (board games, comic books, action figures, other card games, video games, graphic novels, etc). However, the best way to understand your customer's wants is to ask them (and gather data).

It would also be wise to gather sales data so you can analyze buyer trends. For example, you're most likely to have the most Standard sales before FNMs on Friday and the most EDH sales on EDH night. This seems obvious, but you might notice other trends; perhaps certain days of the week are barren, and these would be the best nights to offer other games or sponsor new or different formats (Tiny Leaders, Sheriff Commander, etc.)

Conclusion

What is most important to pull from all of this is that there is in fact a relationship, and areas can become "saturated" with stores. This will actually hurt all the stores simultaneously until some close and the proper balance of stores to players is reached.

This is why doing the break-even analysis is so important. If you can figure out how many players on average your store will need to see to cover your expenses you can evolve your store's operation to maximize your profits.

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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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14 thoughts on “Insider: Opening Up a Store

  1. What is ‘Sherriff Commander’?

    Wouldn’t you possibly conclude it’d be better to close on barren nights? I mean at first you will try to get more people in, but if you always fail, perhaps because of some hugely popular television show airing at that time, wouldn’t it be better to reduce your costs?

    Don’t you think games stores perhaps get non-Magic stuff for their non-Magic playing audience?

    1. For all the specifics on “Sheriff Commander” please see here http://www.mtgsalvation.com/forums/the-game/comma

      The basic premise is that before the game begins you assign “hidden roles” to all players…the player who gets dealt the sheriff role reveals it..and then each role has a specific objective. It reduces the time for each game by basically assigning “teams” randomly.

      I do agree that it’s not a bad idea to simply close up shop on slow nights (at least if there’s a specific reason your typical MTG crowd isn’t showing up consistently), however, if you want to maximize profit wouldn’t it be wiser to offer something special to bring IN the crowds instead of just closing up?

      And I realize a lot of MTG stores sell non-Magic stuff, but some are really focused on MTG and miss out on selling a lot of “similar” type products (my own LGS was MTG only for 3 years before they started branching into additional products). That was simply a “warning” to not miss out on lost income.

      1. Your link doesn’t work, but found it. It’s simply Bang! but played with Magic decks.

        If you want to maximize profit you may conclude the cost of being open outweighs the profits. There may still be plenty reason to open anyway.

        It may be geographic, but I know very few (none actually) B&M stores that do Magic alone. Magic is usually what gets added on top of tabletop games in general, not the other way around. Obviously it may be different in other areas.

        1. The cost of “being open” is likely very low though unless you have additional employees (but on slow nights it would seem obvious not to schedule them). Your rent/taxes/internet stays the same, so the only real cost is your own time and power/water/sewege which is likely not that high..

  2. Your population % analysis has a huge huge huge hole in it. It assumes that every human being in the world has a equal chance at being one of the 12 million people. About 3 BILLION of that 7 lives on less than $2.50 a day.

    That by itself almost doubles your figure. However there is a HUGE amount of people between $2.50 a day and the minimum to even be a potential MTG player.

    80% of the world’s population lives on less than $10 per day. That is almost certainly still far too low to afford Magic in any real capacity.

    Adjusting just for this data gives us 1.44 billion potential players (people making 10+ a day). This moves our player % up to .8% and in your example the # who are playing to 6374 customers. This # is probably still much too low for the US population which has much higher income than almost anywhere else in the world, and much higher MTG player base than other areas (on average).

    1. That’s a very valid point. My only concern with that is if we take your numbers into account…I REALLY doubt there are 6374 players in the 2 counties near where I live as I already questioned the 1224 players my original estimation showed. In all honesty (since I actually think you’re assumptions are correct and should be factored in), I’m honestly not all that confidant in WoTC’s numbers anymore as both counties where I live have around 10-12 stores…and if there were 6k players they could all EASILY operate, but none are seeing even 100 players a week (let alone 500).

      1. You underestimate how large the kitchen table crowd is, or how many people buy packs from wal mart regularly. You probably also overestimate your ability to figure out how large the local population is based on visiting multiple different stores vs how many people pop in 1-2 times a week to randomly grab some singles for their EDH casual group.

        Either that or WOTC’s #s are off like a hundred fold. My guess is your personal experiences are skewing it.

  3. Very good article, and as a fairly new store owner I can agree on most points. The one thing I would possibly change in your article is sales tax vs income tax, and property tax. I suppose that really depends on where you are at, but when you purchase product from a distributor you don’t pay tax as you are purchasing product for resale. When you sell your items, you also don’t pay tax necessarily but act as a pass through from your customer to the state. Income tax you would need to add in because essentially anything over your break even you pay income tax on, and depending on how your company is set up, you can either act as a pass through where you as an individual have to report profits/losses on your income taxes(parternership/sole proprietor), or the entity you have created has to report and pay taxes on profits/losses. As far as property tax goes, again this could vary by state, but I’m pretty sure you only pay property tax on property you own, so in most cases your landlord is the one paying the property tax annually.

    I can give some interesting insights on failings of new business owners as i’ve had to learn very quickly on what works and what doesn’t.

    For starters, upfront capital is very important. I have the benefit of having terms with my distributor and on top of that have some very high limit business credit cards so when I do my monthly ordering I usually have a buffer of about 1.5 months before I have to pony up for the product I purchased. Obviously the general idea is to sell all the product you purchased for resale before the terms are up, but this isn’t always going to work out and you need to be prepared with an operating budget to cover inventory that doesn’t sell. I’m in the fortunate position where I’m very in tune with what my players want or won’t buy, so we have very little that sits idle on the shelf, however it is going to happen. You have to have a good diversified inventory even when talking just Magic in order to bring in regular sales. The less you have, the less options people have, the less likely they are to find something they want.

    Second falls into the position you guys were talking about with operating on dead nights. I recently learned something very important. People don’t typically just show up hoping to find others to play with. You have to specifically schedule and advertise in order to get players in on the nights you want them but there is a threshold. For us, we now run Modern Mondays(~16-20 players), Casual wednesdays-boardgames/EDH(this brings in roughly 40 players and we still make no money), Standard/Draft alternating FNMS(usually 20+), Modern Saturday and draft(Usually 16 for each event), Draft on Sunday(usually only 8-12). Being closed Tuesday and Thursday actually made the most sense for us because we were getting so few in on those days, by simply being closed we ensure that there is some sort of pent up demand because Wednesdays and Fridays people are chomping at the bit to get in, buy stuff, and play magic.

    Being a likable community member is actually very important. Simply by being well known, and likable by pretty much everyone in the community I’ve drawn players away from one business putting them out of business locally, and my other competitor which is 30 minutes away is considering closing up shop as well as they can’t fire regular events, and based on volume I was able to price my items more competitively so there’s no reason for people to buy from them over me. There is downside/upside to this as since people know and like me they reach out to me personally about anything. Literally anything. The upside is that if there is an issue they come to me with it vs getting pissed off and going to another store. The downside is people inbox me deck ideas, an friendly chat non stop on facebook.

    I could literally write pages on top of pages of this because there really is so much too it. I work a day job 40+ hours a week, have a family I have to make my #1 priority, and the business usually ties up another 30+ hours a week for me. Feel free to message me if you have any specific questions.

    TL;DR: Business is hard.

    1. I’ll definitely be messaging you as I really enjoyed your comment and it’s definitely a subject that could be a series in it’s own right (and who knows I may try that out). I am curious about your decisions to be closed Tuesday/Thursday though. I definitely agree with your desire to make family #1 (as I was single for a loooong time and being in a relationship definitely brings additional joy/happiness I couldn’t get from cards), so if that’s your reason I fully understand your closing. However, IF you have a business partner or someone who could work on those nights wouldn’t it behoove you to host additional different events on those nights to bring in more customers? I understand wanting to have a day or 2 off for sure, but that’s why I think it’s important to have additional help and if you can’t get people in on a specific night, then sure close up; but not before you try out additional options to bring in additional revenue. In the end, time is a limited asset and it’s always passing; so each night you aren’t open is potential lost revenue….I can also imagine, that while some nights may not bring in much immediate profit; they could be bringing in product (I know a lot of our EDH players here trade in for higher end EDH cards) so while you might not get sales…you can increase your card stockpile on those nights.

      1. We were open on Tuesday and Thursdays at first, and even scheduled events on those nights, but it’s almost like our community just can’t sustain any more magic than 5 days a week. We also had the misfortune of opening up right as college let out for the summer here so during the semester we are planning on going back to 7 days a week.

    2. This is an excellent writeup. I don’t know if QS does this but I’d enjoy to see a series writeup from you detailing your endeavors. I’m everyone that subscribes here has thought about opening a store. Getting to see the nitty gritty would be great to know what it actually takes. I also just like getting insights from folks who do volume at the scale you do. Thanks for the comment!!

  4. My local LGS hosts pokemon heroclix warhammer dragon ball z and yugioh along with board games and magic. They pull in a lot of customers from the other games. I don’t play them, but they get over 20 players a week for yugioh day. Pokemon is a much younger crowd, but parents buy packs. Warhammer takes up a lot of space, and most players shop online, but it still builds a community. When I walk into the store, I can meet new people and try a new game if I’m in the mood. It’s a great place. If you aren’t diversified, you are just leaving money on the table.

    1. Exactly my point. I do think it’s pretty obvious (and from the comments I’ve read MOST stores are diversified), but my LGS wasn’t so I know there are others out there that probably aren’t either…and they are losing out on potential profits from other sources the longer they hold out.

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