Wednesday, August 17, 2016

On the Role of the FLGS Part 1: Why the FLGS is Struggling

This is one of those posts that I've written and deleted and then written and deleted over and over and over again. And it's not an easy one, because there are good points to be made by all sides.

And I'm probably going to wind up breaking it into multiple parts, because it's getting long and I'm nowhere near done saying what I want to say.

You see, a few months ago someone stirred up the "The FLGS is an outdated model that has no place in modern gaming" argument again. It was probably in response to Asmodee North America's restrictive internet sales policy, which was designed (in part) to try to protect the FLGS distribution model.

So what is the FLGS model? Why do people have such strong opinions about it?

First of all, let me state that I am not unbiased here. I am a proponent of the FLGS model - and I live in a region where I'm blessed with a number of them to choose from.

Let me also state that I am not an economist. I've done a ton of reading and research over the years, and I currently work for a distributor (one not in the gaming industry). And I'm also going to be speaking in generalities. There are always going to be stores and wholesalers who are exceptions to what I'm saying (Docking Bay 93, for example, is more-or-less built out of a warehouse).

Let's start at the very basic level, here:  FLGS stands for "Friendly Local Game Store."  This is a specialty retailer who sells hobby games. Sometimes it's a dedicated game store, sometimes it's a comic or hobby craft shop that happens to also sell games.

There are lots of things that differentiates a good game store from just another game store, and I'm going to go over that in a few posts.

In the pre-internet days, retail - for almost anything - worked like this:

The manufacturer would make the product and then sell it to a distributor.

Distributors would then mark the price up a bit and sell it to a retailer.

That retailer would then mark the price up a bit and sell it to customers.

Very few manufacturers went direct with retailers - and, when they did, it was often some sort of exclusive deal. Like (for example) Craftsman Tools, which were only available at Sears.

This model worked very well in the pre-computer days. Manufacturers liked it because they only had to keep track of a small handful of addresses to ship to and bill. Retailers liked it because they only needed to keep track of a small handful of distributors to get all of their stuff.  Distributors liked it because they made money.

Retailers didn't go direct because manufacturers didn't like the additional paperwork (and neither did many retailers).

Let's put the use of distributors more-or-less in perspective.  Would you rather:
  1. Go to one store for Asmodee products, another store for Hasbro products, another store for your Cool Mini or Not games, another for your Playdek games, another for your Czech Games Editions, and another for Pelgrane Press, and yet another for Cubicle 7?
  2. Go to one store to buy all of the above in one place, but pay a bit more per product?
In example 1, you're going to be spending more because of the gas and time (and/or shipping costs). Not only that, but you'll need to keep track of a dozen different stores and their invoicing and billing cycles and the like.

In example 2, you pay more per product, but you don't waste time driving around (or paying shipping) for every little thing. And - in business - time is money. Overall, the second example above does save money.

Example 2 is one way in which distributors work - and why they work. Small business owners already put up with a ton of paperwork and - sadly - not all of them are well-organized enough to actually make it work. And they need to keep track more carefully for tax purposes than you do when buying games to play.  Some distributors give discounts based on volume, too. So if you buy a ton of stuff from them, you pay less per item.

It's also representative of how retail works - and explains the appeal of "superstores" like Target and Wal*Mart. They're descendants of the old-fashioned General Store model.

Now fast forward to now.  Computers have made things easier, so it's less work for manufacturers to have more and more and more accounts. It's easier for retailers to also have more accounts at more places for a wider diversity of products.  Some manufacturers even sell to the general public, now.

This is not a bad thing. I want to make that very clear.

But suddenly the internet appeared.

Physical stores have overhead.  The costs of doing business. Rent. Taxes. Licenses and permits. Utilities. Maintaining their computers and software. Paying their staff. Black Diamond Games in California has a fantastic breakdown of where money spent in their store goes. I recommend their blog in general, too.

Internet retailers also have overhead, but several categories are much lower (and a few can be higher). The notably lower categories for internet retailers include the biggest bit of overhead that stores face - rent. Especially when calculated per square foot.

Internet retailers can run out of warehouses in the middle of nowhere. They don't rely on foot traffic to keep them afloat. Because of this, their rent per square foot is significantly lower than the rent paid by a game store. But internet retailers also tend to have a lot more square footage.

Internet retailers also buy in larger quantities than small storefronts do. They can afford to store it (they have the room), so why not? It means that they can buy from distributors at a greater discount. So where a brick-and-mortar guy pays $55 for the game, the internet guy pays $50 (or less).

The internet retailer is already making $5 more profit for the same game. If he's someone "known," he can expect to sell more games than the brick-and-mortar guy (with some exceptions), so the stuff turns over more quickly. Internet retailers also aren't limited in their audience.

I don't spend a lot of money at Canton Games in Baltimore, MD. Don't get me wrong - it's a fantastic game store, and I very much enjoyed visiting a few years ago. But I can't spend money there because I'm in Seattle, Washington. I'm three thousand miles away.

But I can buy from Funagain. I can buy from Amazon.

And both of them are regularly cheaper than my FLGS, even when I factor shipping into the picture.

Suddenly, I can pay my FLGS $100 for Hyperborea, or I can pay considerably less than that online.

That means that the FLGS is suddenly selling less product with higher overhead. Some game stores are offering discounts to regular customers or coming up with loyalty plans or otherwise working to reduce the impact of selling less product - but they still can't really reach the low prices you'll find online.

From a strictly monetary perspective, the FLGS model is obsolete. But then so is most retail. There's a reason that shopping malls are slowly dying off in many areas.

So why are manufacturers working to support the FLGS model? Why is it important? What's worthwhile about it?

I'll go over that next time.

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