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Monday, August 19, 2013

The future of Games Workshop & Games Days - Part 2


The future of Games Workshop & Games Days - Part 2

You have not read part one yet? Quickly now!

Quick summary

When I thought about how to summarize my Games experiences with the new 'limited availability' format, I soon realized I had to look at a much broader picture. During Games Day (and the weeks and months leading up to it), there was a lot of angry talk pretty much everywhere - and I thought I needed to put things into perspective. 

I was surprised to see that Part 1 of this little mini-series (which now will probably turn into three or even four parts) has stirred so much interest - it is actually on its way to being one of the most read articles on this blog! So thank you all for your comments and most of all - for SHARING & ENJOYING our posts! :) 

Part 1 was subtitled "How bad does GW's Management really suck?" and, let's say Tom Kirby or any of the other top GW managers read that post - at the end of reading it, they probably felt pretty good about what they have achieved. Well, let's tighten the screws a little bit, shall we :P 

Today's post

Today I want to focus a little bit on the relationship between Games Workshop and independent retailers, why - in my opinion - Mark Wells left the company after five enormously successful years and whether the many rumors about Games Workshop being sold to someone make sense or not. 

Please note that - to some extend - we are leaving the 'research-able facts' area and we are entering the personal opinion phase ;) Feel free to disagree! (And comment below!)

Internet traders fail armor saving roll against Straken.


Colonel Straken would be proud.
In Part 1 we looked at the stock price of Games Workshop which went from below 120 pence to almost 800 pence a share in 5 years. The stock-market success bears one name: Mark Wells. Like Colonel Straken, he ruled GW and the markets with an iron hand. We already talked about cutting costs, increasing prices and margin - but that is not all Mr Wells signed responsible for. 

Among his margin-increasing ideas was to restrict European trade accounts from selling outside the EU. If you think GW products are expensive, I invite you to visit Japan or Australia. I purchased a Black Reach starter box for around 165€ in Japan (I really only wanted the Japanese 40k rulebook ^^). I know from our Austrialian friends that Australia has similarly nightmarish prices. 

And of course, GW did not want Wayland & Co to sell their product overseas. So they shut them down. 


I got three of these - best retirement plan ever!
As a result of that - and I do agree with that goal - internet traders, who in part used currency fluctuations and massive rebates to sell their product abroad cheaply, for the most part vanished. Back in the days, as a customer I 'got my stuff' cheaper than what retailers in Germany could by them from GW for! 

Space Marine Company Box, German retail at 400€ - buy online in UK for 210€? No problem! Best investment ever. But I can see how brick-and-mortar stores could not possibly compete with that!

Mark Wells communicated this restriction as a protective measure for GW and independent brick-and-mortar stores to fight the evil Internet traders. And, I for one, can see his point. 


In reality, of course, most independent stores today can't even buy their product from GW any more (mail order only + monthly quota) and have to send their customers to the GW Online store. Year after year, the trading agreement got more-and-more restricitve. In short, Internet sellers are on their way out, brick-and-mortar stores can stay. What this means is: All - or as much as possible - online sales for GW, rest for the brick-and-mortar stores. Margin increased, mission accomplished. 


But there is one important point in there, that many forget to see. In vigorously restricting discount-retailers on the Internet, Games Workshop actually helps brick-and-mortar stores to survive. These stores are the ones most threatened by these online-sellers. For GW it's just margin, for the stores it's their business that is at stake. 

Even though I support the goal to restrict online traders in favor of independent brick-and-mortar retailers, at the end of the day this meant that the hobby got more expensive and less accessible for many of us. And - from what I hear from the brick-and-mortar stores - Games Workshop does not exactly make their lives easier, either - quite the opposite actually. I personally don't know a single independent store owner (and I know many!) who likes the way GW does business with them.

End of Cake - Wells sets sails


GW releases the Straken Kraken - Wells sets sails
Top managers always leave 'on good terms'. And so did Mark Wells. I don't know exactly how and why he left, but from a company perspective, I actually believe that he in fact did leave on good terms. The question now is: WHY did he leave?

It's time to talk about stock price and shareholders again. 

In part 1 we talked about cut costs, increased prices and margins, great profits and a healthy company. Cash in the stash. A picture perfect performance. 

Or is it? Well, yes - but if I was Mark Wells, I would recognize that this is the proverbial 'end of cake'. What do you do after you have cut all the cost, increased the prices to the point it hurts the customers and sold as many minis to the customers directly, maximizing your profit margin? You could sell the whole company for big bucks - but that didn't happen...

So, what do you do? That is actually a very good question! Even more so, once you recognize that you have lost customers and long-time loyal fans along the way!

Stock prices & Fantasy


Puff, the magic dragon consumes the consumer
Has GW built it's success on short-term sand?
No-one buys stock because a company is doing great right now. You buy stock because you think the company will do even better in the future. A CEO's success is measured in the performance of the company's stock. GW's Stock price more than quintupled in the last five years. And successful CEO Mark Wells leaves the company. 

Now let's add 1 and 1 and 1 together (and I know this is tea-leaf reading, but, hey, tea is a good, Bri'ish tradition!).

In part 1 we have seen how GW has maximized profits by running a tight ship. And very successfully so, hats off. But was GW just generating short term cash like many observers stated? How will Games Workshop increase sales and profits in the next five years? Let's have a look at the obvious areas.

Future growth for GW

I'll make this short as this post is already of epic length (again). But these are the obvious areas where I see significant potential for GW following their current strategy: 
  • organic growth: GW can literally open hundreds of stores, especially in the US. It's kinda the same way of growing that we at ALDI Süd had done in the past. Very solid plan, comes at quite a cost though (stores, rent, staff). Really, the sky is the limit here, growth will be slow but steady. GW has the distribution, procedures and governance in place to paste-and-copy new stores.
  • Royalties: Expand on GW's current IP with partners such as FFG, and in particular in the area of computer games and movies. I could see a 25-50% increase in overall profits for the company in the next five years - if they do it right.
  • margin: unlike cost and price - which may be marginally improved with regards to profits, I think GW can still significantly increase their margin by getting more customers to buy from GW directly. It won't be as much as in the last 5 years, but there is still a lot of potential, I think. And it will come at a cost. (More about that later)
  • Diversification, new releases: We can already see that GW diversifies its assortment, e.g., by the recent re-introduction of limited products (codices, collector's boxes, FW Horus Heresy, Black Library etc.) The fact that GW has hired so many new talented designers makes me very hopeful for the future.
By the way - good news! I see the end of massive price increases! No more growth by sucking the hobbyist dry! Let's hope I'm correct! The entry cost into the hobby is already stretching it - and GW would run the danger of pricing themselves out of the hobby market. 

I agree with Tom Kirby's assessment that computer games and the internet are NOT in competition with tabletop- and board-games. However, GW is in competition with other tabletop-systems and - increasingly so - with high-quality, low cost start-ups and 'kickstarters'. 

Nevertheless, I am convinced that GW is currently missing some of the most significant areas of growth completely - and this could be the biggest chance for future growth for them. I will talk more about this in Part 3, I guess. Maybe I'll call that 'the forgotten customer'. Sounds fancy enough. 

Has Bro a chance?

I want to close today's part 2 with all those rumors about GW being sold. Until recently - especially following the 2012 financial report, I was 95.8% convinced that Games Workshop will be bought by a big player like Hasbro. 

Why Hasbro? They are a big fluffy company! The got Wizards of the Coast and all of their awesome IP and I am sure they would make awesome products with GW's IP. 


There is no intention to build a wall!
GW was so focused on driving their short-term profits 'at all cost' that I could not see any other reason but trying to appeal to potential buyers. Other than that, I had two main reasons for believing Hasbro (or someone else) would buy GW: 1) Shareholder concentration in 2012 and 2) the constant unsolicited assuring of GW account managers to independent retailers that "There is no intention to sell GW!".

2012: 50.3% shares in the hands of three investors. That was Hasbro's chance.


2013: Shareholdings are spread out again - much harder to buy the company.

Will Hasbro be all
"Smiles UND Sunshine"
and buy GW?
I personally think that GW would be a very good fit for Hasbro and, of course, it's not impossible that such a deal might go down in the future. After packing some nice golden parachutes, I am sure GW's management wouldn't mind either. And rumors like that definitely are the 'fantasy' that shareholders go for! But, of course, all of that is speculation. Right now I would say the probability for Hasbro (or anyone else) to buy GW is lower than in 2012. But what do I know, I am just a nerd who paints Space Marines! :D

Part 3 on Wednesday

This concludes the business part of my little 'Games Day US/Germany review' :P LOL, what have I done? I haven't even talked about Games Days yet! :D 

In part 3 I will finally look at us nerds and what the real problems and risks for GW are in my opinion. You will finally find some nerd-rage as well, so stay tuned - and don't forget to:

SHARE & ENJOY!

Please leave your comments below! I love to hear what you think!

And here is part 3

14 comments:

  1. Hi Michael awesome article can´t wait to hear more about the inner GW stuff and at least the future of german GD. Very well researched article and i believe what you say.Keep on doin such articles !!!

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  2. Hey,

    Great article, very interesting to read. I'am in the tabletop hobby since 1996. I start with 40k.

    When I look back on this period and how the behavior of Games Workshop towards the customer has changed over the years, I know that I made the right decision to find an alternative for 40k.

    A good example for this chance is one of my orders that I made at mail order in the early 2000s. I spent round about EUR 500 for this order. At that time, I got a Land Raider for free.

    Today, GW offers formations for Apocalypse, which are offered as 1 click deals. You don't have a 1 EUR savings compared to individual purchases of the contained boxes. And we are talking about deals for nearly 1,000 EUR. You feel pretty ripped as a customer. In any other business, I would get something for free on top or a discount when I buy such a deal.

    So I'm one of the customers that GW have lost over the years. But the business behavior is only one of my reasons to quit 40k.

    Cheers
    Volker

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  3. This comment has been removed by the author.

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  4. Hello,
    I think that if GW wants to make some more profits, they should restart the skirmish mode (as they had made for mordheim and necromunda) but with the army of warhammer and 40k themselves to create a footbridge between a few cost start and their great games! Great article otherwise ;-)

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    Replies
    1. This could be the rumoured "Inqusition" this year, but as SM-s are coming up in sept (most likely release date for it) I'm not sure it'll really happen.

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  5. Well written article, t'was a good read.

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  6. Nice read, look forward to part 3. I to started back in the early 90s and dropped GW when they dropped the 'Specialist Games' Even though i played those most of all I still had several 40k Armies and Warhammer. All sold now I think I own a single Ratskin. Westwind, Hasslefree, Otherworld, Studio, Crooked Dice, Artizan, Copplestone Castings all get my cash these days and in metal as well!

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  7. Great read, though I'm eagerly awaiting the nerd rage in part 3 ;) Strange how many of the above comments mention the secondary games we were talking about after part one, huh? Oh, and as a shareholder, I'd really rather not get bought by Hasbro....but I'm old and hate change...;)

    Also should point out that I'll favor bricks and mortar stores above just about anything. Including GW online. Because a physical location can BUILD the hobby, while internet outlets SERVE the hobby (which all the pundits decry whenever a new financial report comes out). As I tell people in my FLGS, I don't want to hear about some great deal from ebay, or you directing other customers there...because this store could go out of business, and I'd like to see you play on ebay. (In the Us there are far fewer clubs and a lot of the gaming happens at stores- garage and basement games exist, but in a vacuum, you can't find out about them, and it is hard to join them without a common store).

    One other thing before your nerd rage begins....prices. I'm pretty sure that internet retailers have affected the pricing strategy GW uses (and to a detriment to consumers who don't use those outlets). GW as you said wanted to increase margin, and profit per figure. A lot of their business was occurring at internet discounters (and yes, EU stores selling out of region and using currency fluctuations). The largest "known" stores around the world are the internet discounters, and that has been the case in America since New Wave Mail Order came to be (who could on certain months do more than some of the Distributors who were servicing lots of stores without GW accounts). I think GW saw that their product was basically mostly selling below their suggested price, and they moved to change their prices (especially here in US) to gather that percentage for themselves. In fact right now, most of the discounters are selling GW on discount at the retail prices from 2-3 years ago. It is scary how closely that works out across most of their product lines. Not that GW has ever been afraid to raise prices, but it was always done for a reason (even if gamers could not see it). In fact GW used to raise prices and sell more units. I used to tell people that GW would stop that when that changed (because they would have found the "right" price point). That didn't happen, and I think some of it was because they wanted to gain the margin and some of it was because of the discounting going on around the world. I think Mark Wells was able to see that and act accordingly, whether it made customers mad or not, GW needed to do it to regain its pattern of growth. If that is true, then price increases should start to slow down (not stop, just slow down a bit)and rumors have mentioned they will not be doing an across the board price increase, just increasing their new releases (basically the stuff that everybody pays because they want it so much). And sorry to be so general, but trying to explain a part of the big picture not details - and internet retailers have upset the apple cart since at least 1997...and a lot of their policies regarding retailers have gotten worse since then too.

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  8. This has been an interesting ride. I wasn't aware that they were putting so much into new artists (a creative company's version of an increase in R&D). That definitely changes my perspective to some degree.

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  9. This has been very interesting so far. I am not convinced to think better about GW or become less worried about the future of our hobby. I am glad to see that they still employ so many new artist and invest in them, I wasn't aware of that, but it is positive indeed. If they'd just listen to their old fans and change their ways a bit, then all will be good, I naively think. That is just not something I could see happen in such a large and efficient company...
    I am looking forward to the grand finale of your epic tale of Games Workshop Michael, well done so far! :-)

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  10. This blog is very interesting. I do not too much about Game World and it's gaming system. Really! It's a nice work to make games for boys both young and child. These types of workshops has a great collection of peoples and got fame also. I can say these type of workshops has great response from market and makes it's business better.
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