Help me start a retail video game store

[noun]

Well, I have owned and run a business, and at times there was no bigger rush than calling the shots and reaping the benefits by being brilliant. On the other hand, running a flagging business feels like you have a 10 ton anchor around your neck with no way out. You really need to consider the following before moving forward:

1) The businesses being cited as successes all revolve around the three basic necessities: food, clothing and shelter. Any business that's associated with one of those has a much higher chance of succeeding than any other type of retail store. Food? Grocery and convenience stores. Clothing? Tailors and dry cleaning. Shelter? Home improvement stores.

2) With a brick and mortar store you have to pay for rent, water, power, parking, and if you're in a nice enough location a portion of your income to pay for upkeep of the shopping center. You'll start off in debt with x amount you need to sell each month to pay for the goods you bought. There's a reason why you only see chain stores or stores selling extremely expensive items in new shopping centers.

3) Games are luxuries, therefore, people will shop around to get the best price, as with all luxuries (unless they're collectible, but that's definitely not a long term business strategy). Luxury retail stores and their customers are very, very unpredictable.

4) Starting a brick and mortar store in the Internet age is nothing short of financial suicide. With eBay, we all have access to a global market where prices are evened out across the world. Want a car? Shop online. Want a house? Shop online. Want the newest game? Definitely shop online. Never before have consumers been so informed with so many choices.

5) A common rule of retail is the more you purchase from a distributor, the bigger discount you receive. You absolutely can not compete with CompUSA, EB, Gamestop, GoGamer or anyone else here.

But let's say none of this is changing your mind one iota. You want to be the next Egghead. How do you do it?

1) Consider very carefully what the present stores offer and what they do not offer. You cannot compete with them on what they have, so what are they not offering? Is there a business need for it? EB used to sell used software, but they average $1-$5 under the original retail price and usually look like crap. Could you buy an old game for %50 of retail, and sell it for %75 of retail, for example?

2) Purchase an existing operation instead of starting from scratch and take the operation in a new direction. Perhaps there's already someone running a business that wants out. Happens all the time with retail stores. Look here for ideas: http://www.businessesforsale.com/

3) Starting a brick and mortar store is substantially more expensive than starting an Internet business. With an Internet business, you'll need to buy and register an IP, register with search engines so people will find it, and purchase a merchant account so you can take credit card orders. Total investment: Maybe $2,000.

Just some thoughts.

[Grifman]

I know that many of you guys have experience in the retail end of video game stores (EB Games, GameStop, etc.) I am presently thinking about starting my own retail store and a game/DVD store is one possibility. This store will probably be located somewhere in the Knoxville TN area.

While I've been a gamer for about 25 years my knowledge of how the retail business works is limited. Do any of you have any information or know a source for information about retail gaming? I'm looking for info on how distrubuters work, profit margins etc.

Any info would be greatly appreciated and not forgotten.

This idea has been posted here before and the almost universal advice was:

DON'T DO IT!

As someone else said, "a recipe for disaster".

That said, if you want to consider this further, run the numbers. Put together a business plan. Figure out your fixed costs - rent, utilities, staff. From here you're found out what roughly what your cost of goods sold and revenue per game will be. Now run the numbers - what's your breakeven point in units sold/month? Now, do you think you can reach that? How much traffic will you need to do so? How will you attract that traffic? Can you run your store at a loss most of the year in order to reach XMas?

You need plan and budget to even begin considering this.

PS You've said that no one's given you good reason not to. No, they have, you're just ignoring those reasons. Go back and read again. Think like someone else is approaching you and wanting you to fund their business. Ask the questions of yourself that you would ask of them.

[Dhruin]

My experiences probably don't count for much but here goes...

I own a small suburban computer store - I guess what American's seem to call a "Mom & Pop" store.

When we started 10 years ago, game software was a significant part of our business. We stopped that something like 7-8 years ago.

The other posts have covered most of the territory; having a comprehensive inventory, getting the numbers right and competing against large chains is very hard. The raw margins aren't too bad - most of the chains like to go out at RRP as much as possible, which is a reasonable margin. However, the disties stopped stock rotation to us many years ago and that was a major killer. In addition, they implemented minimum order values ($2000, for example), which screws you if a customer wants that unusual war game and you don't need anything else from that vendor.

I still deal with one of the disties for other stuff and they have an online system that covers Ubisoft and Vivendi. I can watch the stock arrive at their warehouse and track the shipment as it leaves for my store in realtime...only EB already received priority before me and got it that morning, anyway.

Finally, the idea that people will pay for service is complete crap. Sure, some people will appreciate it some of the time but customers will routinely trek all over town for $2.

Add the paperwork for tax, superannuation, insurance, licenses...it's a labour of love.

If business is good - then good...if it's bad...I just don't take home a pay cheque that week/month.

It can be done -- but think carefully and do your research.

[mrzubblewump]

Thanks everybody you have helped me greatly. While I may be crazy I'm not completely stupid. I agree with the majority here that it probably is not worth doing.

However, the LAN Party room idea may have possibilities. I'm not sure if any of you have ever been to a Dave & Busters? What they do is offer arcade games, soft gambling (no winning of cash involved) and food. The place is packed whenever I'm there. I have in mind something similiar. The difference that I might make is to include competitive console gaming. A place that others can go to show off their Madden skills live and in person with the possiblity of winning prizes. Alcohol would not be served but instead exotic caffein type drinks would be offered. Food would be offered however the servers would be dressed more in a Hooters girl fashion. I would be trying to attract the male college crowd that are too young for drinking but still need a place to hang out.

[docvego]

Something else worth looking at:

http://www.sba.gov/starting_business/pl ... basic.html

[Kasey Chang]

The problem is D&B serves alcohol and is a full service restaurant. Unless you have a McDonalds or something next door or you want to invest in a snack stand you can't compete that way either.

http://www.daveandbusters.com

Besides, I think more than half of D&B is stuffed with billiards, shuffleboard, and other games of skill, not just arcade games and simulators (like Battletech). It's a completely different market.

EDIT: What I actually MEAN is you need to check if the market you plan to serve ACTUALLY EXISTS. What do people of that age currently do, and will they move over to your place, without creating any problems? If you have to hire a security guard or bouncer and/or deal with vandalism you can kiss your profits goodbye.

[Kraken]

Note to all prospective store owners: people will crawl a mile over broken glass to buy a book for 20% off at Wal-Mart rather than pay full price.

Append that to say "most people". Boutique stores have to appeal to a different demographic than Walmartians, because they simply can't compete on price. Some customers hate shopping, or try to avoid the Walmart experience for other reasons. A minority are willing to pay more for a better shopping experience, and that's what you have to deliver. Easy parking, wide aisles, personal service, and a pleasant environment are worth a premium to a small percentage of shoppers.

Unfortunately, online sales compete for these same people who hate stores, and the boutique chains are after this demo, too.

However, the LAN Party room idea may have possibilities. I'm not sure if any of you have ever been to a Dave & Busters? What they do is offer arcade games, soft gambling (no winning of cash involved) and food. The place is packed whenever I'm there. I have in mind something similiar. The difference that I might make is to include competitive console gaming. A place that others can go to show off their Madden skills live and in person with the possiblity of winning prizes. Alcohol would not be served but instead exotic caffein type drinks would be offered. Food would be offered however the servers would be dressed more in a Hooters girl fashion. I would be trying to attract the male college crowd that are too young for drinking but still need a place to hang out.

I could give you LAN center advice, having managed a doomed one. Or you can find out all you need from http://www.igames.org, the LAN center trade association. If you have specific questions, I'd be happy to take a shot at them.

Trendy drinks are a huge profit center. We paid $0.50 for a bottle of Bawls that we resold for $3. Kids love that stuff. We'd also load up on single-serving snacks at the grocery store and resell them for triple their worth. Snacks and beverages were far and away our most profitable angle.

Other than that, keep your costs rock-bottom. The successful centers never have more than one employee at any time, often the owner. The best price-point seems to be $3-4 per hour of gaming.

My center failed mostly because it was poorly located, forcing me to pursue a high-end strategy featuring Alienware computers, Aeron chairs, a plush and spacious room, etc. We nominally charged $7 per hour, with plenty of discounting and specials that brought it down to $5. That was still considered the high end, but it was appropriate for our target adult audience. We got almost no walk-by traffic, being in a business district far from schools and children. It was badly undercapitalized and could only afford marginal advertising. Because of our location, the front-room cafe selling Internet access consistently outperformed the back-room gaming center by about 2:1...yet most of our investment was in the back room. Gaming made most of its money on overnight LAN parties, birthday parties, and iGames tournaments. Xbox gaming outsold PCs by quite a lot. Walk-in gaming, which should have been our bread and butter, was a trivial revenue source.

The high-end, adult approach would've worked if the owner had really had the capital that he claimed, and if he hadn't pissed it away on some extremely stupid and expensive decisions, and if he hadn't undercut my strategy at every turn. We were on track to break even after about a year, which wasn't bad given our dreadful location -- but the owner was broke after three months.

The moral of the story: Keep your costs as low as possible -- the successful centers are low-end, shoestring operations. Make sure you have plenty of juvenile foot-traffic, and keep the price low enough to encourage walk-ins. Hold tournaments and special events to build loyalty (even though they're labor intensive and not very lucrative). Don't overemphasize PCs. Offer a good range of games, but know that only FPS (specifially Counterstrike) will really sell (Halo was a distant second). Lean on iGames; they were always helpful. If you have snacks and drinks, expect to lose some hardware to spills, dirty hands, and hyper-caffeinated, sugar-infused children. Expect behavior problems, especially foul language. Above all, be prepared to absorb losses.

[mrzubblewump]

Ironrod thanks for the tips. I am curious as to how much capital you invested in your gaming center and what on average you grossed per year..

The location that I have in mind is in a vacation tourist trap with alot of family walk by business. I'm not sure if it's the exactly the ideal location for this market but if it is then I might be able to charge more than $4-$5 per hour.

I'm not sure that I want to be a full time baby sitter but my funding is probably different than yours was and I can afford to hire someone for that purpose.

What has happened is that I am currently employed by two companies one of which is my own. For several reasons I need to move to TN and I am looking to find something that will keep me occupied and make some silly money on the side. Making a huge profit or keeping myself alive is not really an issue because my own company is capable of paying for all of my own personal expenses.

[Carpet_pissr]

"a different demographic than Walmartians"

Is that pronounced "Wal-mar-shuns" or "Wal-mar-tee-uns"?

I was looking for the link to that LAN gaming organization. Almost plunked down for membership when I was considering setting up a similar business myself. I did a quick and dirty biz plan, and decided that I would not make any money, though I still think the idea is good.

I did my startup/hardware/rent calculations versus what I thought the market would pay for an hour of gaming and came out with slim to no profits.

My inspiration was seeing a two story LAN center in the middle of downtown Copenhagen, jam packed with people drinking and playing...VERY cool looking inside, obviously very high tech, cool lights, and maybe most imptly, VERY visible from passersby since they smartly had huge open glass windows on two sides. Just amazing. Literally my jaw dropped when I first saw it.

Unfortunately, living in the semi-rural South as I do, where "No One Walks" (R), I would not be able to bank on that walk-in draw.

Your geo situation is probably different from mine...whatever you decide to do, good luck!

[Kraken]

Ironrod thanks for the tips. I am curious as to how much capital you invested in your gaming center and what on average you grossed per year..

The location that I have in mind is in a vacation tourist trap with alot of family walk by business. I'm not sure if it's the exactly the ideal location for this market but if it is then I might be able to charge more than $4-$5 per hour.

I'm not sure that I want to be a full time baby sitter but my funding is probably different than yours was and I can afford to hire someone for that purpose.

This is a long story. I'll try to concentrate on your questions.

I managed the center for a guy who said he was capitalized at $500,000. Shortly after I hired on, he clarified that he really had raised only $250,000 up front, with verbal agreements from his investors to kick in the rest when the place opened. He was gung-ho to the point of manic about the center's prospects and threw money around with great abandon. When we got the doors open, the hordes failed to materialize and most of the oversized staff was quickly dismissed. Then he put way too much money into a direct mailing to a completely inappropriate list. When that failed, he revealed that he really had only started with $125,000, and it was all gone. We kept the doors open for about six months as he kept miraculously finding just enough money to make payroll often enough to keep us hanging on. Turned out he was siphoning it from his other business, which also went down in flames a few months after we did.

Our initial revenues were about $150 per week. After six months, we'd grown it to $1200 per week, and were still increasing at double digits each month. Breakeven was about $5000 per week, which we might have achieved in 6-9 more months. I never saw any profit on the horizon, but profit was not key to our strategy. We'd intended to open other (better) locations and grow rapidly, then either franchise the concept or be acquired before the pyramid collapsed. That could've worked if the owner had really had the capitalization to see it through.

Your location sounds like it could work. You are basically selling a cheap babysitting service to parents who want to drop the kids someplace safe for a few hours.

[yossar]

We've got an independent video game retail chain in Honolulu. Toys N Joys has two stores here and apparently have been around 15 years. They have a pretty good selection of new console games and accessories and they buy and sell used games, but they also have a bunch of other stuff that EB or Gamestop wouldn't do much of like import games, Game Console modding, and Anime-styled Toys, games, videos, etc. Prices tend to be competitive on new games and better than EB on used games. It really doesn't offer me anything a chain store would since I'm not interested in anything but their new and used console games and accessories (although I did get my PS2 modded there and might possibly pick up an import game someday), but I much prefer shopping there on principle.

[Grifman]

I never saw any profit on the horizon, but profit was not key to our strategy. We'd intended to open other (better) locations and grow rapidly, then either franchise the concept or be acquired before the pyramid collapsed.

Besides the general unethical concept operating here, I suspect most investors would have wanted to see that books and that would have killed this attempt at fraud right off the bat.

[Kraken]

I never saw any profit on the horizon, but profit was not key to our strategy. We'd intended to open other (better) locations and grow rapidly, then either franchise the concept or be acquired before the pyramid collapsed.

Besides the general unethical concept operating here, I suspect most investors would have wanted to see that books and that would have killed this attempt at fraud right off the bat.

The business plan clearly stated that the goal was revenue growth and market dominance, with the big payoff coming from either selling out or going public. The investors bought in on that understanding. Nobody was defrauded (except maybe us employees, who thought the business was properly capitalized).

Locations other than the flagship should have earned enough profit to fuel expansion, and that's where the big money came from -- not operations. The owner's mistakes were (1) thinking that the flagship store would reach breakeven overnight, (2) squandering his initial capital, and (3) having no money to market and no time to develop the market. He was after a quick buck with an exit just five years down the road. Taking a year to get the initial location in the black was obviously inconsistent with that. Had it opened in a college town instead of a financial district, the concept might have worked. Had he really had $500k and some patience, it might have worked.

This guy also had some major psychiatric and personal problems that probably doomed the venture before it ever started, but let's not get into that.

My point, for mrzubblewump, is that a LAN center is unlikely to make substantial operating profits. AFAIK from my 9 months in that industry, the failure rate is high and successful centers operate on a shoestring. Perhaps he has a business model that can beat those odds. I don't know of any really lucrative LAN gaming centers.

[Jeff V]

Myself and a colleague were approached by an army base a few years ago to setup and operate a game room on the base. This base was fairly isolated, so we would have had a captive enough customer base to rely on a full house during most evenings. We would not have to pay rent on the location, nor would we have to pay for utilities. We would, however, need to supply the computers, the networking equipment, and the software.

After crunching the numbers, there was just no way to make even this idealistic scenario profitable without charging an obscene hourly fee (I think $7 per hour is what we used in our calculations). I would have needed three such locations, ideally within easy travel distance (so a heavily militarized urban area like Washington DC would have been more practical than the middle of the desert). Since it was the base itself making the request and not the DoD, this wasn't a practical option. If I could have leased network access to the base for daytime training exercises, this might have made a difference, but that suggestion received no support so in the end, we declined the opportunity.

A few other stories of those who tried and failed similar ventures. Wizards of the Coast (they of Magic, Pokemon and Dungeons and Dragons fame) had a pay-to-game location in Seattle; a city with a young, tech-savvy population and climate conducive to indoor activites like gaming. It didn't last long. Here in Chicago, a company opened an indoor paintball facility. They promoted themselves heavily, especially toward groups and corporate outings. It was expensive, but well done, fun, and a two hour session there was just as tiring and eventful as a full day playing in the woods. They failed as well. Finally, back in the boardgaming heydey, a local shop ran evening and weekend gaming sessions, both to spotlight new selections and to provide a gathering place for gamers. Boardgaming is a more social activity than computer gaming, yet it often suffers because players are isolated without a good means of getting together. They failed as well.

I just don't see modern gaming making the jump back to their arcade roots as far as business models go. Arcades were most popular when alternative home fair was inferior and expensive. Now that it is cheap and superior, modern arcades such as Dave and Busters have to rely on a much larger, diverse scope to be successful.

[noun]

I never saw any profit on the horizon, but profit was not key to our strategy. We'd intended to open other (better) locations and grow rapidly, then either franchise the concept or be acquired before the pyramid collapsed.

Besides the general unethical concept operating here, I suspect most investors would have wanted to see that books and that would have killed this attempt at fraud right off the bat.

Books can be cooked for years without anyone catching on. See: Andersen Consulting, Enron, Worldcom, and indeed, any major corporation doing business in the last 20 years...

[malichai11]

I just don't see modern gaming making the jump back to their arcade roots as far as business models go. Arcades were most popular when alternative home fair was inferior and expensive. Now that it is cheap and superior, modern arcades such as Dave and Busters have to rely on a much larger, diverse scope to be successful.

Booze and big crazy games, like http://www.virtualworld.com/main/pods/index.html. Dave and Busters are lots of fun. Too bad they don't franchise.

[Kraken]

One footnote: Few people realize that you need a site license from each game publisher to legally sell gaming access. A few publishers, like Microsoft, give you carte blanc with just a signature -- no fees. Others, like Blizzard, require so much money and bookkeeping that there is no way to offer their games. We refused repeated customer requests for Diablo and Starcraft because Blizzard wanted $1,500 per title per year, plus reports on usage so that they could take a percentage. Many are somewhere in between, charging reasonable one-time fees but stipulating that you must own one copy per machine (no mounting images). Many game publishers had no site license policy -- they referred inquiries to legal departments that never returned my calls and e-mails. A few were so complicated (especially for online games) that we couldn't understand their policies.

As long as you're a single, smalltime location, you're flying under the radar, and don't need to worry too much about legalities. Except for Blizzard, publishers seemed pretty unconcerned abou the whole thing. If you get successful or otherwise draw attention to your business, though, arranging and tracking these site licenses can be a major effort and expense.

[Jeff V]

Booze and big crazy games, like http://www.virtualworld.com/main/pods/index.html. Dave and Busters are lots of fun. Too bad they don't franchise.

Not quite the same thing as pay-to-lan-party, though. I'm guessing that each of those pods costs a fair bit more than a PC, and the software is generally limited (they could be rendered useless if the customers burn out on it).

[Grifman]

I never saw any profit on the horizon, but profit was not key to our strategy. We'd intended to open other (better) locations and grow rapidly, then either franchise the concept or be acquired before the pyramid collapsed.

Besides the general unethical concept operating here, I suspect most investors would have wanted to see that books and that would have killed this attempt at fraud right off the bat.

Books can be cooked for years without anyone catching on. See: Andersen Consulting, Enron, Worldcom, and indeed, any major corporation doing business in the last 20 years...

Sorry, your analogy doesn't hold. Those were large sophisticated enterprises with complex financial transactions. It was impossible to even look at every transaction on the books because they were so large. A gaming store is not that sophisticated - you got rent, personnel, equipment, games on the expense side vs. game revenue on the income side. This sort of stuff is not that hard to verify for such a small operation such as this.

[Pyperkub]

One footnote: Few people realize that you need a site license from each game publisher to legally sell gaming access. A few publishers, like Microsoft, give you carte blanc with just a signature -- no fees. Others, like Blizzard, require so much money and bookkeeping that there is no way to offer their games. We refused repeated customer requests for Diablo and Starcraft because Blizzard wanted $1,500 per title per year, plus reports on usage so that they could take a percentage. Many are somewhere in between, charging reasonable one-time fees but stipulating that you must own one copy per machine (no mounting images). Many game publishers had no site license policy -- they referred inquiries to legal departments that never returned my calls and e-mails. A few were so complicated (especially for online games) that we couldn't understand their policies.

As long as you're a single, smalltime location, you're flying under the radar, and don't need to worry too much about legalities. Except for Blizzard, publishers seemed pretty unconcerned abou the whole thing. If you get successful or otherwise draw attention to your business, though, arranging and tracking these site licenses can be a major effort and expense.

Valve got really serious about this with HL2. Not a single site license, but rather a monthly fee that was rather prohibitive to my buddy who owns a LAN shop...