The future of Games Days & Games Workshop - Part 1

In the grim present of the 21st century there are only true nerds and evil managements.

The future of Games Days & Games Workshop - Part 1

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President Beeblebrox

Yeah, I admit, this is a pretty fancy title for a post that is supposed to summarize our experiences at Games Day 2013 both in Germany and the US. 

But the recent developments within Games Workshop as a company, the miniature and board/tabletop-game landscape as a whole and especially the community warrant a post that is more than the 'Oh, it was great, we had fun!" kind of post. 

I felt compelled to 'dig a little deeper'.

Prepare for incoming wall of text! 

German hit comedy: "Who are you to accuse me!"

After the launch of our first ever miniature painting DVD set called "Season 1: Target Identified" and the many positive reviews you guys SHARED & ENJOYED, our Facebook following has doubled from the mid 600s to now over 1200. We are very happy and grateful for your support! 

Naturally, a lot of 'the new guys' don't know us yet. So, if you are new to masterminis or paintingbuddha.com have a look at who we are. 

And if you think "Who is this overweight, bold-headed, bearded hobo (that would be me), who thinks he can talk to me about the future of GD & GW", just a quick few lines about myself: 

I have been #1 (HUEHUE) Games Workshop and Forge World fan-boy since 1991, when I set my foot into the GW store on Oxford Street, London. In my previous life I worked as the Global CIO of the ALDI Süd group, an international discount retailer with over 4000 stores worldwide. Many of you know them. Now I 'retired' as a full-time nerd, age 42, working only for you :D. My hobby room holds about as much stock as a small GW store. 

I paint miniatures, but I am not an artist.

Structure of this post

Since it's a complex issue, I want to structure this document a little. So first, I will introduce the main players, talk about how good or bad the GW Management really is, talk about how business decisions of the last decades have impacted all the players and finally will talk about our experiences and my view of the future of Games Days.

This little mini-series will have two parts. In part 1 we look at whether GW's management really sucks and in part 2 we will look at the future of our hobby.

So let's get cracking.

Introduction to the players

For this discussion about the future of Games Days and Games Workshop you have to look at 'the big picture' - I will try to be as terse as possible, even though it is a complex subject. The main players on this field are: 

The customers: we got three groups: collectors, gamers and painters. 

The distributors: independent distributors (brick & mortar), online-sellers, GW Stores and the GW Online Store. 

Games Workshop: Employees, designers, top management including legal inquisition, Shareholders.

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Part 1

"GW's top management sucks! They don't know what the frakk they are doing!"

Tom Kirby - GW's acting CEO
Mastermind or Evil Genius?

Another yearly 15% price increase, the disaster release of Finecast, new releases that might not tickle one's fancy, Space Marines inside Space Marines - we are all raging and condemning GW's management decisions at one point or the other. "They don't know their business, they don't understand the community! I am done with GW" are statements echoing throughout the Internets with almost every official release of anything GW does. 

As #1 fan-boy I can completely understand when emotions of true fans of the hobby run high. It happens multiple times every year - and has been happening for decades now.

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However, with some experience in management myself, I have a different perspective on the subject as well. Two hearts beat in my chest: The Nerd and the business dood. 

There is one simple fact that we may wish was different, but have to accept as is: Games Workshop is owned by shareholders. The board's main job is to make shareholders happy. 

So let's have a look and see whether Games Workshop's top management, which - after 5 years under Mark Wells - is currently led again by acting CEO Tom Kirby, 63, is doing a 'good job'. 

(Tom Kirby, btw., led the management buyout of Games Workshop back in 1991. 21 years ago. That's half of 42. Is Kirby a mastermind or an evil genius? We'll talk about that later :D)

Miniature nerds are the best lovers

Tofu and Titans,
Rollin' in the dough.

Let's say after all the Mordor-related financial trouble GW was going through in the early 2000s, at the height of the crisis in 2008, you decided to support Games Workshop by buying 100 shares. It would have cost you 118.75£. 

Because, as we all know*, miniature nerds make the best boyfriends, lovers and husbands, five years later you cash your stock which now is worth almost 800£. You invite your dream-woman to a nice dinner the night before Games Day UK, pay for the trip, buy a Forge World Titan and fly back home. Your first child will be named Marneus Calgar. 

You would a) be the most awesome hoopy nerd I know and b) very happy with Games Workshop's management.

* WE all know that, not all the ladies do yet. At least they know at all times where we are!
  Voluntarily locked in the basement ^^

Games Workshop's shares dropped to under 120 pence a share end of 2007. Then Mark Wells happened.

As a matter of fact, if you followed the global financial crisis and its impact on the stock markets worldwide, this recovery of GW's stock price seems miraculous, especially if you consider that we are talking about friggin' plastic miniatures in times of mobile games and the Internet. Who would have thunked?

How they dunnit

Well, let's look at how Games Workshop has done it. Of course, I get my information from financial reports, GW's sparse communication and 'inside sources' - but, like anyone else, I don't even know the half of it. So let's just identify the main aspects of profit: Cost, price, sales volume and margin. 

Cost

Cutting cost. You're doing it wrong!

For the last decade, Games Workshop has run a very tight regiment when it comes to cost. Staff was cut, distribution streamlined, production modernized (and, in part, outsourced). And to be honest, having followed GW's financial reports for decades now, it is rather impressive what they have achieved. 

Please note that cutting cost in general is not a bad thing, as it often leads to optimized processes. 

I'll talk about which cost better not to cut later, when I talk about the community and how this cost-cutting has affected us. (Part 2)

Price

Unlike our little company, where we plan to lower prices the more successful we get, Games Workshop has not opted to share their success with their customers. Only their shareholders. Again, that's just the way things are when you are owned by shareholders.

As long as I can remember, GW has increased prices by 10-15% every year. My three Space Marine Company Boxes alone have turned out to be a better investment for me than my other 'classic' investments! Not only did they increase prices on a regular basis, they also cut unit sizes in boxes. I know kids that never heard of a 10 or 20 unit box. "They came in boxes larger than 3-5 units? Man, you're OLD!". Yes, the good old days of yore.

Yesterday, I bought a SINGLE Herald of Nurgle Plaguebearer plastic miniature that alone cost more than my first unit of 10 space marines many moons ago. Actually this one herald was 20€, the box of 10 Nurgle Plaguebearers came in at a moderate 23€. (I don't need to understand this).

For the record, let me state that the new single plastic models from GW are PERFECT. Well done, indeed!

Ed Witten could explain basic
arithmetic to you.

GW would probably debate that "15% price increase" is blown out of proportion as they always apply some cosmetics to make their price increases look perdy. The price of items that don't sell well were often not (or only very slightly) increased while top sellers took a 15%, 20% or even larger price increase hit. 

As we all learned in school, you don't just add percentages and then divide them ;) 

There's a little, but in my eyes very bright light at the end of the tunnel in 2013 as for the first time in as long as I can remember Games Workshop is NOT increasing prices on items they produce themselves. This includes all models! Price increases are mostly on items such as brushes and paints. *sigh of relief*

Margin

The third and for GW currently probably the most important way to make profits outside of cost and price is your margin. 

Example: GW sells a box worth 100€ directly to you. Production cost is 10€. Margin is 90€. That's 90€ profit in the bank. Now GW sells the same box to a distributor at 50% margin. That means 50€ - 10€ = 40€ for GW, the rest is what the independent distributor gets to work with. 

So, if I asked you to increase the margin, what would you do? Of course! Sell more yourself and less through distributors. You would try to cut out the 'middle man'. 

And that is what Games Workshop has systematically done over the last couple of years. The US online market is 100% in GW control. Tightening the screws on distributors all over the planet and force-feeding their customers to the GW Online-Store has significantly increased the profit margin for Games Workshop. I totally failed to buy a chaos moloch from my store yesterday. "We can't order that, we are over our quota. You need to buy it from GW directly". Bad for the store, but from a management perspective, this is perfectly fine, if not desired - unless we start to think of the consequences later (Part 2).

I just talked to a brick-and-mortar store owner who recently got "audited" by the GW "Inquisition" who checked her books (!) to see whether she has more than 50% of GW product in online sales (in which case the retail margin offered by GW would go down from 50% to 20%!). You think the IRS was bad! 

Sales

So, cost has been cut, prices have been increased, the margin is skyrocketing! Sales and profits must be going through the roof, right?

Well, yes and no. GW reported profits of over 20m£ for 2013 - very successful indeed! But let's look at GW's sales over the last five years in more detail. 

After declining and stagnating sales in the years before 2009 we can actually see that between 2009 and 2013 the sale volume in fact did go up, with increased momentum since 2011. While profits more than doubled in the last five years, sales 'only' increased by 7%. Still good, all things considering, but let's just assume a yearly price increase of 10% (I know this is not scientific), at equal units sold, sales volume should have gone up around 45%. They didn't. 

What does that mean? Simple. GW overall has lost customers. Average spending per customer, however, went up. More about this in part 2.

Let's have another quick look at the operating profits: 

Royalties down, operating profits up

THQ: Burning down the chapterhouse
Blood Angels of Chapter 11

I want to point out that Royalties receivables went from 4,2m£ down to about 1m£. 

Companies like Fantasy Flight Games pay licence fees to use the Intellectual Property (IP) of GW. In 2009 that was almost HALF of the overall profits! Now you know why GW Legal Inquisition department is so paranoid about protecting their IP!

Since 88% of royalties received came from licenses sold from computer games and the now-bankrupt THQ (Dawn of War) has a hard time paying the bills, the income from royalties has crashed badly. 

Ironically, the income from royalties in 2013 barely covers the legal cost of GW vs. Chapterhouse in the US. That's what I call getting bitch-slapped. Bullying fans and C&D shutting down sites that actually bring customers (most prominently Natfka's Faeit: 212 earlier this year) seems so much easier and more cost efficient! Protecting your IP while destroying your fan base. Learn how to do it from the pros! ^^ Oops, I apologize for this momentary lapse of reason.

Anyways, as we can see clearly now, no longer clouded by royalties (which are not the 'core business' of Games Workshop), we can see that operating profits pre-royalties nearly quadrupled between 2009 and 2013: 5,4m£ to 20,2m£. THAT is impressive and a result of the aforementioned cutting of cost, increasing of prices and - most significantly - increasing the margin. Very healthy indeed and less vulnerable to the success of outside partners.

Again, looking at these numbers, I would tend to say that the often ridiculed Games Workshop management has done a tremendous job. The company is healthy, growing and shifting investment into a direction that many of us either have not seen or chose to ignore: 

Less sales staff, more designers. 

GW has streamlined production and cut down staff there marginally. The biggest cut was in 'selling' which mostly means store staff. The number of sales staff is down from 1264 in 2012 to 1148 in 2013 with a net change of -116 employees. 

(GW has 137 stores in UK, 135 in Continental Europe, 99 in North America, 37 in Australia and 4 in Asia. 274 out of 412 stores are one-staff-stores. This program will continue in the future.)

(Hey, I just realized that I might be one of very few - if not the only one - to have visited and purchased stuff on all Continents GW is operating ^^. YAY!)

What is very important and very promising, however, is that Games Workshop heavily invests in new designers. Sculptors, 3D designers, painters and artists in general. We have seen many of our talented friends move to Nottingham to pursue a career with Games Workshop. Good for them!

In 2013, there were a total of 145 employees working in the design department which is up almost 30% from 2012. Again, in my book very promising numbers, indeed, and the best investment any company can make: hiring the right people. 

Summary of Part 1

Even if some of you might not like this conclusion, from a management perspective as well as from a shareholder perspective, GW's board has done a tremendous job. After his bold management buyout, Tom Kirby has created a true empire. Over the last 5 years, Mark Wells led GW back on track as CEO. He recently left GW to pursue new challenges. (Read "End of Cake?" in Part 2 on Monday).

So why all the whining? Should we as fans not be happy with the success of a now stable company? Should we not rejoice in the fact that our hobby is doing well? 

Well, GW does a lot of things right, but like everything, this comes at a cost. And that's what we will look at in Part 2 of this epic series. First thing on Monday morning, when you switch on your office PC, poured a coffee and unwrapped your croissant, you should read the exciting conclusion of this series. What better way to start your workweek by reading walls of text concerning what we love bests: nerdy miniatures and everything that surrounds them ^^.

And here is Part 2

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Please leave your thoughts in the comments below! Agree, flame, sulk, whine - do as you please! :D