Hobby Games retail in the UK
This is long. Under the cut, I write a short essay about the very basics of bricks n mortar retailing of hobby games in the UK, since nearly all the sensible discussion of the subject, as well as a lot of waffle, is USA-centric. If you read this, and want to know more about any particular aspect, let me know in the comments and I'll do further posts going into more detail.
Most important to your business is to understand your Costs.
Universals that are usually a fixed number
Rent. Paid to your landlord. Highly dependent on your location, your negotiation skills, and how reasonable and realistic your landlord is. Your location will influence your customer base significantly and is one of the most critical early decisions you will make about your game store.
Service Charge. In addition to your rent, you may be required to pay a Service Charge which will cover the Landlord's upkeep costs and the like. Again, how much will almost always depend on your negotiation skills and location.
Business rates. Paid to the local council. Is used for things like police, street cleaning, rubbish collection etc. Monthly cost, based on your store's Rateable Value which is related to your rent. Usually the Rateable Value is reassessed every 5 years or so (although the current Government has frozen the reassessment, which is helping some people (big business mostly) and not helping others).
Utilities. Phone line, internet, electricity, water. Some or all of this may be included in your rent, but mostly, they aren't. We have two separate phone lines, one for the telephone and one ADSL line for the internet and card machine.
Insurance. Public liability, plus all the usual risks, does not cover rains of frogs, the end days, etc etc.
Staffing costs. More further on.
Bank Charges, card machine charges, card processing fees. Amex is not commonly accepted in the UK because the transaction fees are about 5x greater than the ones for processing VISA, Mastercard etc.
Variable costs. If it doesn't cost money, it will usually cost man hours. Below is a non-exhaustive list.
Cost of inventory
Licensing for your EPOS (Electronic Point Of Sale) software. EPOS that will track your stock is going to save massive effort on your part. There are free, Open Source ones, as well as various commercial offerings.
Website. May be part of your EPOS bundle, may be independent.
VAT registration. You'll need to eventually, based on your turnover, which means a quarterly VAT bill.
Store maintenance, printing supplies, business cards, miscellaneous expenses, Tea and coffee, replacing things the list will go on and on...
Next you need to know "Who are your customers?"
Successful games stores in the UK know who their target customers are, and have worked out how to reach them, and entice them to buy. There's about four viable models for Bricks n Mortar Hobby Store retail in the UK at present. Miniatures focussed store, following the Games Workshop successes with play space, painting space, and a broad range of hobby supplies. Card game focussed store, supporting Organised Play programs, selling single cards as well as sealed product. Hybrid Geek Store selling Comics and Hobby, or Computer Games and Hobby, or Anime and Hobby or some combination of all of them. Probably the rarest are Boardgames focussed stores (with a subset of Boardgame Cafe). All of these models require easy access to play space. Ideally, this should be in store, but if it isn't possible, then local space is vital.
You can look at your customers like tribes - cardgamers are different from wargamers, who are different from miniatures hobbyists, who are different from boardgamers, who are different from roleplayers... They are all going to want slightly or completely different things. Work out what you can do well. Work out what you can't. Keep your focus on what you can do, and don't try to be all things to all people. That kind of broad diversity requires more space, staff, knowledge, capital and investment than is likely to be remotely practical for a new business.
Your customer base is also a function of your location and your specialisation. If you are somewhere with low foot traffic, don't expect to get casual, drop in customers. You are probably focussing on enfranchised, dedicated gamers, and you are destination retail. You can thrive on this market, but growth is likely to be slower because the barrier to entry is higher. High street or shopping mall locations have much higher foot traffic. They also have much higher rents. You have a much larger potential customer base, and growth can be fantastic, but you have to work harder to turn browsers into customers - it's not as automatic that if they've come through the door they intend to buy something.
Next, you need things to sell. Suppliers and stock is your next concern.
The UK has one major hobby supplier of board and card games. Esdevium Games is the only significant and credible source for products from Rio Grande Games, Z-man Games, Fantasy Flight Games, AEG, Looney Labs, Queen Games, Stronghold Games, Mayfair Games, Days of Wonder Games, Ultra Pro, Wizards of the Coast and for product for Pokemon, Yu Gi Oh, and Magic. (Magic can now be legitimately sourced from any distributor in Europe, but the shipping costs usually make this a pointless option). They carry a huge range of other publishers and games, are owned by Asmodee but run in a fairly 'hands off' fashion, and supply both the hobby game store market and the 'mass market' which over here in the UK constitutes Toys r Us, WHSmiths, Waterstones book stores, Argos, Tescos and Amazon. Esdevium do not generally carry miniatures.
Minatures as a product category can be sourced from several different distributors, depending on which particular range you are after. There are approximately six different companies who are distributors for more than one range, and most minis manufacturers will sell direct to stores. There is a degree of overlap with minatures distribution, and some of the distributors also attend shows and sell direct to the general public, either there or via the web. Games Workshop still has the lion's share of the UK minature market overall, and there is the usual cost/benefit analysis to be done when chosing to stock GW. Elements include whether or not your store is minatures focussed, is there a local GW store which you will be directly competing with, whether you are prepared to ride out the regular GW cycle of 'our stores are everything!-Wait, independents are great!- No, we should grab all the interest the independents have generated and drive people to our stores!' and the trading strictures and terms they will operate your account under.
There are a couple of more minor players in the UK distribution market - Coiled Spring Games have a more family and gift based catalogue, along with a variety of jigsaws. They are Gamewright's UK distribution partner, and they partner with Drei Magier and Schmidt to bring in some of their games, along with a number of their jigsaws. Spiral Galaxy are another small distributor - currently working with Game Salute and doing a number of fulfillment roles for overseas Kickstarters and the like. We have a couple of distribution companies that sell pocket money toys and similar (The In Thing, Muddleit, Cheatwell Games, Paul Lamond Distribution) and there are several major jigsaw suppliers, some of which also do a small number of boardgames and card games (Gibsons, Ravensburger, Jumbo).
Collectable Card Games and accessories are available from a number of suppliers in addition to Esdevium, most of whom are interchangeable, and all of whom are usually within pennies of each other's prices.
Traditional games, (chess, backgammon, cribbage, cards, Mah Jong, dominoes, etc.) are again available from a couple of good suppliers, but are less of a staple in a hobby games shop.
Which leads us onto Margins.
First, a word on VAT. VAT (Value Added Tax) is charged on games, cards, minis, accessories, everything except books and magazines. It's 20% at the moment. So I buy my £1000 of Fantasy Flight Games stock from Esdevium, and am charged £1200. When I sell that stock, 20% of the money I get for the sale goes to Her Majesty's Revenue and Customs on a quarterly basis. I can offset the amount of VAT I paid for my stock (£200) against the amount of VAT due on my sales. I can also offset all the other VAT I have paid in the quarter (on rent, phone bills, other services) but in general, a business that is VAT registered (optional until you hit a certain turnover minimum which is currently £78000) would expect to have a VAT bill to pay every quarter.
Margins in the UK hobby games industry are tight. Gross margin on boardgames in general ranges between 32% and 36% when buying from Esdevium. It's roughly the same on CCGs and RPGs. I'm generally working with a multiplier of 1.9 on my cost price as my guideline for boardgames if they do not come with a Recommended Retail Price. Minatures have a slightly better margin, but I have found it more of a headache to deal with the distributors and manufacturers. Minatures offer a gross margin of 40% to 50% depending on whether they are bought from a distributor or direct from source. Jigsaws, gift items and chess sets generally have a 100% margin/multiplier of 2.4 but have a much lower turn rate.
So, worked example time. Settlers of Catan. RRP £29.99 (£6 VAT due to HMRC). Buy price £16.60 (plus £3.32 VAT can be ofset against the £6). £29.99-£16.60 = £13.39. £13.39 - £2.68 (which is the VAT due) = £10.71 gross profit/35.7% margin.
The above uses the standard list price for Settlers. If games are bought in a case quantity (Settlers is sixes, other games may vary) then Esdevium offers a 10% discount on the buy price, so the worked example would look like this.
Settlers of Catan ordered in case quantity. RRP £29.99 (£6 VAT due to HMRC). Buy price £14.94 (plus £2.99 VAT can be ofset against the £6). £29.99-£14.94 = £15.05. £15.05 - £2.99 (which is the VAT due) = £12.06 gross profit/40.2% margin.
Hasbro games like Monopoly and Scrabble and a couple of other lines from Winning Moves and Drummond Park are what Esdevium class as NET items, which have no discount applied to them, and can have a gross margin as low as 25%. We don't tend to stock a lot of those. Customers who do high volume with Esdevium can qualify for discount on standard list price outside of case ordering - this can vary between 2% and 8%, but never goes higher than the 10% with the exception of a couple of pricing support deals on pre-ordering Magic sets in large quantity. There's a prompt payment discount for invoices settled within 14 days, and their general payment terms for established businesses and customers are 30 days. Next working day delivery by courier is free on orders over £150.
Buying from other distributors means other minimum order amounts (anywhere between £100 and £400) and minimum free shipping amounts (£150 up to £400).
Eventually, you will want not to be doing everything yourself. at this point, you need Staff.
Staffing is vital. To grow, a business needs more than one person working for it. Staff are what mean you can have TIME NOT IN YOUR STORE WHEN IT IS OPEN. Staff cost money. Ideally, staff bring in more money through sales than they cost, but I've found this fairly difficult to measure precisely. Staff are paid wages. Minimum wage exists in the UK, and is detailed at the link here https://www.gov.uk/national-minimum-wage-rates Most game stores I am aware of in the UK have the owner working full time in the store, as well as somewhere between 1 to 5 other staff members, in some combination of full and part time hours. Younger workers are cheaper to employ but will probably need more training and have less skills. Most of the people working games retail in the UK are doing it because they want to work in their hobby, rather than because there are great salaries on offer. (US conversion rate for minimum wages is given here. Minimum wage for an employee aged 21 or over is roughly $10.40/hour at today's exchange rate. 18-20 is about $8.30/hour.) UK Employers do not have to provide health insurance to their employees (although it is a benefit that can be offered, and is a taxable benefit if it is given) but we pay a National Insurance contribution for each employee (which goes to fund state benefits such as Employment Support Allowance, State Pensions, Jobseekers Allowance etc.) alongside the employee's contribution which is deducted from their gross wages along with Income Tax (applies to employees earning more than £149/$245 per week).
Success is defined as paying all your bills by fitting all your costs into the money you generate from your sales, or your NET margin being a positive number. Remember to pay yourself as well as your staff, even if you aren't the primary income earner for your household!
Most important to your business is to understand your Costs.
Universals that are usually a fixed number
Rent. Paid to your landlord. Highly dependent on your location, your negotiation skills, and how reasonable and realistic your landlord is. Your location will influence your customer base significantly and is one of the most critical early decisions you will make about your game store.
Service Charge. In addition to your rent, you may be required to pay a Service Charge which will cover the Landlord's upkeep costs and the like. Again, how much will almost always depend on your negotiation skills and location.
Business rates. Paid to the local council. Is used for things like police, street cleaning, rubbish collection etc. Monthly cost, based on your store's Rateable Value which is related to your rent. Usually the Rateable Value is reassessed every 5 years or so (although the current Government has frozen the reassessment, which is helping some people (big business mostly) and not helping others).
Utilities. Phone line, internet, electricity, water. Some or all of this may be included in your rent, but mostly, they aren't. We have two separate phone lines, one for the telephone and one ADSL line for the internet and card machine.
Insurance. Public liability, plus all the usual risks, does not cover rains of frogs, the end days, etc etc.
Staffing costs. More further on.
Bank Charges, card machine charges, card processing fees. Amex is not commonly accepted in the UK because the transaction fees are about 5x greater than the ones for processing VISA, Mastercard etc.
Variable costs. If it doesn't cost money, it will usually cost man hours. Below is a non-exhaustive list.
Cost of inventory
Licensing for your EPOS (Electronic Point Of Sale) software. EPOS that will track your stock is going to save massive effort on your part. There are free, Open Source ones, as well as various commercial offerings.
Website. May be part of your EPOS bundle, may be independent.
VAT registration. You'll need to eventually, based on your turnover, which means a quarterly VAT bill.
Store maintenance, printing supplies, business cards, miscellaneous expenses, Tea and coffee, replacing things the list will go on and on...
Next you need to know "Who are your customers?"
Successful games stores in the UK know who their target customers are, and have worked out how to reach them, and entice them to buy. There's about four viable models for Bricks n Mortar Hobby Store retail in the UK at present. Miniatures focussed store, following the Games Workshop successes with play space, painting space, and a broad range of hobby supplies. Card game focussed store, supporting Organised Play programs, selling single cards as well as sealed product. Hybrid Geek Store selling Comics and Hobby, or Computer Games and Hobby, or Anime and Hobby or some combination of all of them. Probably the rarest are Boardgames focussed stores (with a subset of Boardgame Cafe). All of these models require easy access to play space. Ideally, this should be in store, but if it isn't possible, then local space is vital.
You can look at your customers like tribes - cardgamers are different from wargamers, who are different from miniatures hobbyists, who are different from boardgamers, who are different from roleplayers... They are all going to want slightly or completely different things. Work out what you can do well. Work out what you can't. Keep your focus on what you can do, and don't try to be all things to all people. That kind of broad diversity requires more space, staff, knowledge, capital and investment than is likely to be remotely practical for a new business.
Your customer base is also a function of your location and your specialisation. If you are somewhere with low foot traffic, don't expect to get casual, drop in customers. You are probably focussing on enfranchised, dedicated gamers, and you are destination retail. You can thrive on this market, but growth is likely to be slower because the barrier to entry is higher. High street or shopping mall locations have much higher foot traffic. They also have much higher rents. You have a much larger potential customer base, and growth can be fantastic, but you have to work harder to turn browsers into customers - it's not as automatic that if they've come through the door they intend to buy something.
Next, you need things to sell. Suppliers and stock is your next concern.
The UK has one major hobby supplier of board and card games. Esdevium Games is the only significant and credible source for products from Rio Grande Games, Z-man Games, Fantasy Flight Games, AEG, Looney Labs, Queen Games, Stronghold Games, Mayfair Games, Days of Wonder Games, Ultra Pro, Wizards of the Coast and for product for Pokemon, Yu Gi Oh, and Magic. (Magic can now be legitimately sourced from any distributor in Europe, but the shipping costs usually make this a pointless option). They carry a huge range of other publishers and games, are owned by Asmodee but run in a fairly 'hands off' fashion, and supply both the hobby game store market and the 'mass market' which over here in the UK constitutes Toys r Us, WHSmiths, Waterstones book stores, Argos, Tescos and Amazon. Esdevium do not generally carry miniatures.
Minatures as a product category can be sourced from several different distributors, depending on which particular range you are after. There are approximately six different companies who are distributors for more than one range, and most minis manufacturers will sell direct to stores. There is a degree of overlap with minatures distribution, and some of the distributors also attend shows and sell direct to the general public, either there or via the web. Games Workshop still has the lion's share of the UK minature market overall, and there is the usual cost/benefit analysis to be done when chosing to stock GW. Elements include whether or not your store is minatures focussed, is there a local GW store which you will be directly competing with, whether you are prepared to ride out the regular GW cycle of 'our stores are everything!-Wait, independents are great!- No, we should grab all the interest the independents have generated and drive people to our stores!' and the trading strictures and terms they will operate your account under.
There are a couple of more minor players in the UK distribution market - Coiled Spring Games have a more family and gift based catalogue, along with a variety of jigsaws. They are Gamewright's UK distribution partner, and they partner with Drei Magier and Schmidt to bring in some of their games, along with a number of their jigsaws. Spiral Galaxy are another small distributor - currently working with Game Salute and doing a number of fulfillment roles for overseas Kickstarters and the like. We have a couple of distribution companies that sell pocket money toys and similar (The In Thing, Muddleit, Cheatwell Games, Paul Lamond Distribution) and there are several major jigsaw suppliers, some of which also do a small number of boardgames and card games (Gibsons, Ravensburger, Jumbo).
Collectable Card Games and accessories are available from a number of suppliers in addition to Esdevium, most of whom are interchangeable, and all of whom are usually within pennies of each other's prices.
Traditional games, (chess, backgammon, cribbage, cards, Mah Jong, dominoes, etc.) are again available from a couple of good suppliers, but are less of a staple in a hobby games shop.
Which leads us onto Margins.
First, a word on VAT. VAT (Value Added Tax) is charged on games, cards, minis, accessories, everything except books and magazines. It's 20% at the moment. So I buy my £1000 of Fantasy Flight Games stock from Esdevium, and am charged £1200. When I sell that stock, 20% of the money I get for the sale goes to Her Majesty's Revenue and Customs on a quarterly basis. I can offset the amount of VAT I paid for my stock (£200) against the amount of VAT due on my sales. I can also offset all the other VAT I have paid in the quarter (on rent, phone bills, other services) but in general, a business that is VAT registered (optional until you hit a certain turnover minimum which is currently £78000) would expect to have a VAT bill to pay every quarter.
Margins in the UK hobby games industry are tight. Gross margin on boardgames in general ranges between 32% and 36% when buying from Esdevium. It's roughly the same on CCGs and RPGs. I'm generally working with a multiplier of 1.9 on my cost price as my guideline for boardgames if they do not come with a Recommended Retail Price. Minatures have a slightly better margin, but I have found it more of a headache to deal with the distributors and manufacturers. Minatures offer a gross margin of 40% to 50% depending on whether they are bought from a distributor or direct from source. Jigsaws, gift items and chess sets generally have a 100% margin/multiplier of 2.4 but have a much lower turn rate.
So, worked example time. Settlers of Catan. RRP £29.99 (£6 VAT due to HMRC). Buy price £16.60 (plus £3.32 VAT can be ofset against the £6). £29.99-£16.60 = £13.39. £13.39 - £2.68 (which is the VAT due) = £10.71 gross profit/35.7% margin.
The above uses the standard list price for Settlers. If games are bought in a case quantity (Settlers is sixes, other games may vary) then Esdevium offers a 10% discount on the buy price, so the worked example would look like this.
Settlers of Catan ordered in case quantity. RRP £29.99 (£6 VAT due to HMRC). Buy price £14.94 (plus £2.99 VAT can be ofset against the £6). £29.99-£14.94 = £15.05. £15.05 - £2.99 (which is the VAT due) = £12.06 gross profit/40.2% margin.
Hasbro games like Monopoly and Scrabble and a couple of other lines from Winning Moves and Drummond Park are what Esdevium class as NET items, which have no discount applied to them, and can have a gross margin as low as 25%. We don't tend to stock a lot of those. Customers who do high volume with Esdevium can qualify for discount on standard list price outside of case ordering - this can vary between 2% and 8%, but never goes higher than the 10% with the exception of a couple of pricing support deals on pre-ordering Magic sets in large quantity. There's a prompt payment discount for invoices settled within 14 days, and their general payment terms for established businesses and customers are 30 days. Next working day delivery by courier is free on orders over £150.
Buying from other distributors means other minimum order amounts (anywhere between £100 and £400) and minimum free shipping amounts (£150 up to £400).
Eventually, you will want not to be doing everything yourself. at this point, you need Staff.
Staffing is vital. To grow, a business needs more than one person working for it. Staff are what mean you can have TIME NOT IN YOUR STORE WHEN IT IS OPEN. Staff cost money. Ideally, staff bring in more money through sales than they cost, but I've found this fairly difficult to measure precisely. Staff are paid wages. Minimum wage exists in the UK, and is detailed at the link here https://www.gov.uk/national-minimum-wage-rates Most game stores I am aware of in the UK have the owner working full time in the store, as well as somewhere between 1 to 5 other staff members, in some combination of full and part time hours. Younger workers are cheaper to employ but will probably need more training and have less skills. Most of the people working games retail in the UK are doing it because they want to work in their hobby, rather than because there are great salaries on offer. (US conversion rate for minimum wages is given here. Minimum wage for an employee aged 21 or over is roughly $10.40/hour at today's exchange rate. 18-20 is about $8.30/hour.) UK Employers do not have to provide health insurance to their employees (although it is a benefit that can be offered, and is a taxable benefit if it is given) but we pay a National Insurance contribution for each employee (which goes to fund state benefits such as Employment Support Allowance, State Pensions, Jobseekers Allowance etc.) alongside the employee's contribution which is deducted from their gross wages along with Income Tax (applies to employees earning more than £149/$245 per week).
Success is defined as paying all your bills by fitting all your costs into the money you generate from your sales, or your NET margin being a positive number. Remember to pay yourself as well as your staff, even if you aren't the primary income earner for your household!