So you want to be a Game Store owner? PART 1

GU_Logo_Color_250x250I own 3 game stores in the Milwaukee (Game Universe) area and with some help from my previous General Manager of the past 5 years: Matthew Vercant who opened up a new store this year in New York called Just Games, I have assembled this long (yet still not totally inclusive) blog.

It’s probably many gamer’s dream to someday open a game store and be their own boss and play games for a living… well let me tell you from over 2 decades of game store retail experience, it is as usual a case of the grass is always greener on the other side of the fence. That is not to say it’s not enjoyable or a better choice for some people. But you need to enter into this understanding that you’ll be working 50-80 hours a week and you need to be a businessman first, not a gamer.  In short, if you’re smart enough to run a successful game store, you’re smart enough to make more money elsewhere. You must really want to do this for the love of the hobby/industry.  You need to be sure this is what you want, because once you sign that lease and open your first net 30 account, someone else owns your time, and they won’t care at all when you’re fed up because you don’t like working 70 hour weeks for minimum wage.

There are other resources out there to help you learn the ins and outs of retail and of even hobby game store operation and accounting… my goal of this post is, as most of my posts are, to just highlight or bullet point the items you need to be most concerned about so that you get an idea of what you are really getting into and how to avoid the typical pitfalls. So consider this just a primer and definitely pick up a couple books in the reference section of this post.

You may or may not know from the BIO section of this website, I currently own/manage 3 game stores in the Milwaukee, WI USA area. So keep that in mind while reading the blog. Some things will be greatly different in other countries and some items may not pertain to your metro area. Also, note that some of my actual numbers given may be only relevant to the Midwest area. So I guess most of this is going to be my tips and tricks of the trade that I have learned over the years from my POV.

WHERE TO START?

Business Plan – Yeah I know it’s almost a cliché at this point.  But there is a reason for it. A business plan will help you organize your thoughts and set realistic expectations and make you do the research required to make sure you’re not going to lose all your money. Once you have gathered all the actual data you need to create it, it’ll mostly write itself.

  • Business structure
  • Product mix, cost and sourcing
  • Location, lease, build out materials and expenses
  • Initial marketing plan
  • Website & social media
  • Data management & POS
  • Estimated sales & customer acquisition
  • Cash flow projections

Financing – This is probably the first thing you’ll be thinking of and having to work out. Regardless of what you might hear, most of the time this money comes from family and your own savings and some borrowing that you personally guarantee. Banks are not easy to work with and most likely will only give you a very high-interest rate and make you personally guarantee it anyways – so you might as well just use a home equity loan or some such thing that you can at least write-off and have a decent rate. There is no magical answer here and even if you have the best-looking business plan, you’re unlikely to get a business loan. Make sure you have enough capital to survive 6 months without taking any income home. Most well run stores in a good location can become profitable enough to support a meager living after that.

IMG_0701Location, Location, Location – OK, it’s a cliche, but for a good reason. Can your area support another game store? I have found in larger population areas that there are a good amount of people unwilling to travel more than 15-20 minutes if there is an alternate location. This is why you see many locations of the same store or restaurant in a city. That means, if you can put your store in an area that is at least 15 minutes (8+ miles) away from all other stores, you’ll have at least a fighting chance. But that’s only one of many considerations. You want to be an an area that is middle-class, moderately residential and low crime. I found that high-income areas tend to harbor people too busy to shop at a local game store and so they just shop on the Internet. Low income and you tend to end up being a babysitter for tons of kids or people without jobs – both of which tend to be high shoplifting risks. One of the best ways I’ve found for getting a decent overview of where there might be room for another store in your area is to check out the Event Locator from Wizards of the Coast. I have also found this google map of game stores which is populated mostly by game store owners who are active in online forums (eg. tough competition to avoid).  Don’t be afraid of oddly shaped locations- a game store has a lot of flexibility that some other stores do not. This can work in you favor. Long/deep and skinny is a good thing as it gives you cheap wall space to show off product and plenty of place in the center/back for game space.

There are really 2 kinds of game stores: the destination store and the mall store.  If you wish to sell more mainstream products like puzzles and gifts and to try to pitch games to people who’ve never heard of the stuff in your store, then having a mall or high-traffic store will work for you. However, a destination store is a hobby store that is for the gamer (MTG, RPG, Euros) focused on organized play, events, and meetups; you will find that your customers will find you by word of mouth. The lower traffic store locations tend to have much less rent (half?) and the number one killer of a new business is high rent.

When you find a suitable location, take the time to talk to local businesses about the space. Try to find out who was in the location before and talk to them about traffic. Find out about busy times and crime in the area.

Rent – You should aim to be paying under $3000 for your rent. In fact, most stores should stay around the $2000 mark (Again, this is Midwest $ amounts.) A simple strip-mall location is all you need. Rent is made up of a square foot value per year and something called triple net (which is just maintenance, taxes, and insurance). Usually, the triple net isn’t included and it’s not negotiable in its amount as it’s usually an escrow amount used to pay the bills. A typical nice store would be anywhere from 1500-3000 square foot. More than that is not really needed. It’s the fixed fees that put businesses under and rent is going to be one of your top fixed fees. So what that means is you should be looking in the $10-15 per square foot price range. Most busy shopping centers or those inside a mall will be double that. I do not recommend starting out inside a mall unless you wish to cater to more mainstream toys and light games and have some retail experience.

Lease – Negotiating a least is an art form which I won’t get into here… but there are some things to watch out for. Usually, the landlord will just hand you their standard lease, don’t be afraid to make changes or ask for things – it’s expected. Some things can just be removed from the lease as they are usually there for larger tenants. Most leases are written so that you’re stuck paying for all the HVAC (heating, ventilating, and air conditioning) problems. This is irritating as hell as they own the building and keep the unit when you leave, so try to make them take it out of your lease. If they refuse at least make them put in a 1 or 2-year guarantee on replacing or fixing it. Try not to commit to more than a 3-year term- though if you ask for less you may look too shady to want to work with. I typically put a reasonable (3-6%) increase option to rent for an additional 3 years. This way you know what to expect for the next 6 years. Also, most landlords know you’ll be doing build out for the first month or two, so ask for the first 2 months of rent to be free- most will give you that.

Legal – You will need to incorporate (see my post: “Dammit Jim, I’m a Publisher, Not a Lawyer“), get business insurance, and file for a Resale Certificate in your state. You’ll need to file for an occupancy permit with the local city/town which will get their hooks in you for all sorts of fees and taxes. Be aware of your local tax requirements. For example, here in Wisconsin, they will want to charge you “Personal Property Tax” on your furniture and build-out on a yearly basis. You will need to file a permit to get a sign installed which a committee that usually meets only monthly has to approve. Inspectors will come through, etc. You’re also going to need to file for a reseller’s permit (Sales and Use Tax Permit) in your state so you can collect & pay sales taxes. Note that your landlord has probably little to no actual knowledge of local business laws, and could ask for things that are not only incorrect for your business, but possibly impossible for you to fulfill. Make sure you know what local laws apply to you, and which don’t, or hire a lawyer that does because you may need to stick to your guns in lease negotiations.

GU_MF1Startup Funds – To start a nice game store you’re going to need to spend about $5,000-10,000 on build out, fixtures, furniture, and a point of sale system. You’re going to need at least $20,000 worth of starting inventory (more if you do Games Workshop or Comics).  You should plan for not making any money the first 6 months, so you need operating expenses and rent for that long in reserve. In short, if you cannot come up with $30,000-50,000 without tapping out your credit cards, you should not be thinking of opening a store.

Distributors – You will need to get accounts with distributors (see my “Hitchhiker’s guide to Game Distributors” post) and of course Wizards of the Coast (WOTC) and maybe Games Workshop too. They will all want to see pictures of your location inside and out as well as your cash wrap (register) and game space. They do not wish to be working with someone who’s selling out of their garage or basement. There will be a lot of hassle and paperwork involved – especially with WOTC. Choosing a distributor based on shipping speed, you’ll want 1-day deliveries.

Merchant’s Account – This is simply an account to process credit cards. Your bank and about everyone’s brother has one to sell you. Shop around and look at the rates that are on the back end (a lot of fees get passed back to you for 1% cash back accounts and more). So it’s pretty hard to compare apples to apples here, but don’t just accept the first one that offers you something. Once you open your store you’ll get multiple calls every day for months offering you their card processing. It’s very annoying. Anyway, you shouldn’t be paying more than 2% and a transaction fee of 35 cents. A lot of small print here so read it well and be careful.

GU_MF0Open Hours – In short, for the first 6 months or year you should be open as many hours as you can personally take. If you’re paying someone to work for you then at least be open 8 hours ever day of the week. If you’re going it alone, at least attempt to be open that long on your own till you get a feel for the traffic. Once you have some figures showing you roughly sales metrics for your store you can then trim your hours. Typical store hours would be opening between 10am-noon and closing sometime after 6pm (later on Fridays and Saturdays and maybe Wednesdays). Some stores are not open on Mondays but I think that’s not a good idea – your rent is still due if your doors are open or not, so let people come in and shop. If people attempt to visit your store and you’re not there, they will just go elsewhere or worse, online and may never try again. During this initial time, you will also be working on tuning your inventory for the customer base you’re drawing.

Build Out – This is knocking down walls, putting in a bathroom, changing the flooring, painting, etc. A sizable amount of money will be needed for this task especially if you can’t do much of the work yourself. This will most likely run you $5-15k. Slatewall (2 high) on every open wall is usually the best solution and if you have a smaller store that needs to put a lot on each square foot consider the metal runners inserts to help the boards hold more weight. Based on many of the books in the reference section below, you should come up with a decent layout for your store ahead of time on graph paper. Customers tend to walk a store in a counter-clockwise manner. Hot/popular items should be put further back to encourage browsing the rest of the inventory. Your cash wrap should be positioned to watch over the whole store (I highly recommend putting it on a riser). Small easily stolen products should be in play view of the register. Sometimes your space is oddly shaped, but most of the time that’s an advantage that you get to be more creative with the usage. Sometimes a long deep unit is great as your put all the open gaming in the back. Be open minded and be creative and for sure read the how customers shop references found below. Don’t forget a cash register, software, barcode scanner, printer, Internet service, etc.

GU_MF_FixturesFixtures – Don’t go cheap, go practical. Have nice tables. Have decent shelving and displays. Make sure everything matches. You do NOT need to buy $30k of hardwood fixtures at first, but you may want to spring for sturdy folding tables, table cloths, good chairs (metal or wood – NO FOLDING CHAIRS) and other things that make your customers comfort maximum while you demo a game. Nothing shuts down a sale like a stiff back or cramped butt. Consider buying lifetime warranty chairs. A good place for display counters & kiosks that I’ve used for 4 stores is: http://www.kc-store-fixtures.com/

Little Costs – Total up the “little costs” of opening and budget for them. Lights, fixtures, paint, wiring, rekeying locks, open signs, carpet cleaning / replacement, repairing plumbing valves, etc. All of those have to be done, and at MINIMUM, those are probably going to cost you a few hundred dollars, even if you have some nice tenant improvement money from your landlord. At worst, they could sink your store if you don’t plan for them. As an example. Let’s say 5 fluorescent light fixtures have no bulbs, and dead ballasts, and you want to hire an electrician to fix them because you’re busy opening a game store. 5 ballasts will be around $125, labor will be around $100, lamps will be another $50. That’s $275 – not so much, but when you don’t plan for that little thing, and the next little thing, you can end up paying for several thousand of repairs you didn’t expect.

Inventory – Your initial inventory should be purchased to cover the most categories as you can, but not deep. Only order 1 of most things. Until you get a feel for what your customers want, you need to try to hit as many bases as possible. This startup inventory can be purchased smartly for as little as $20k but can easily balloon to twice that if you’re not careful. You don’t want to skip categories to bring them in later when you have more money as you have one chance to make a good first impression with most shoppers. So you need to put your best foot forward and stock wide.

 (This was the first of at least 4 parts in a series of articles… to be continued)
Part 4 will cover how to stay alive (diversification, not discounting, service, knowledge) and how to stay healthy (expected COG, margins, turn rates and such)…

4 thoughts on “So you want to be a Game Store owner? PART 1

  1. Hi James,

    Nice blog, thanks for posting! On a related but slightly different topic, how successful do you think opening a board game cafe would be in a city of ~60,000 people (Corvallis, OR). It’s a college town and the county seat, so has lots of traffic. There are already 2 board game shops, but they aren’t that great and they aren’t really family friendly locations.

    Do you think some of your content here would apply, plus all the complexities of the food industry?

    • I’m not sure I can answer your question with anything more than a guess… a cafe is more about running a restaurant than a game store and you need to want to do that and have the knowledge to do that. College students are not people with much spare money to blow on stuff like a cafe, but they do have the desire to meet to socialize. I think the size of the town is enough, our stores are in a large metro area but the actual towns/cities we pull from are only about 35-40k residence. The start costs and operating costs will be MUCH higher for such.

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