The Future of Games Days & Games Workshop - Part 3

Does the image stealing never end? Will I post from jail next time?
All depends on whether Bethesda's Legal Department shoots an arrow at my knee.

The Future of Games Days & Games Workshop - Part 3
The plot thickens

A kick to the balls by a fan - parental discretion advised, Rated R for 'Rage'

In my time in UK and the US, I learned that when it comes to criticizing someone it is considered good practice to first complement a person on things they did well. Next you tell them all that's wrong to their face only to build them back up again by talking about the good things, maybe threading in some good advise along the way. You shake hands and make things better.

Today is not yet about shaking hands.

Image stolen here - please buy
to appease legal department!

If you have read part 1 and part 2 of this increasingly epic mini-series about the future of Games Days & Games Workshop, you probably think that GW got away rather unscathed so far. 

As a matter of fact, one might be under the impression that I am quite impressed with what the Tom Kirby & the Gang have achieved so far, especially in the last 5-6 years. And you would be totally right. I am impressed, when it comes to their recent recovery and refined business approach. Spoken as a business person. Not as a fan. Not as a nerd. Not when I apply common sense.

Today the gloves come of a little, as I put on my paintingbuddha shirt and turn into the hero nerd I am. And as a nerd, my verdict is not as pleasant. But maybe more fun. Shit will be hitting the fan, capital letters will be used excessively. 

Yeah, definitely more fun. (^.^*)

Companies that failed to see the power of PCs and the potential of the Internet

#1: IBM 

#2: Microsoft

#3 Games Workshop.

It's all GW's fault.

I am quite old. I have used the Internet before HTML - at a time where it was all white text on black background. But I would dare say that at a very early age I understood the potential of personal computers and the Internet. That was in about 1990. 

Acting CEO Tom Kirby is slightly older than me. Well, about 50% older. In 2013's Annual Financial Report of the Games Workshop Group, he correctly stated that most of GW's customers weren't even born when Atari STs were around (in context, he explained that tabletop games will never be replaced by computer games - a view I subscribe to in part). 

First off all Atari ST? WTF? Commodore Amiga, man! (sorry, had to write that) :D

So who's fault is it? I mean, like, everything?

In today's exciting post I will list some of the major mistakes that Games Workshop has made in the last 14 years - in particular with regards to their sales channels. 14 is 1/3 of 42 and as such by definition a pretty good number. 

As our favorite US President, George Walker Bush, in a rare moment of clarity and enlightenment said during one of his State of the Nation addresses: "Hindsight alone is not wisdom and second guessing is not a strategy." And, for once, he was damn right. 

GW Sales 1991 - 2008, in £m, I started buying massive amounts of GW stuff in 1991 and stopped around 2004.
I hope it's not all my fault! 

Along similar lines, Tom Kirby paraphrased the late Lady Thatcher in GW's 2007 Financial Report by stating that 'The wisdom of hindsight, so useful to analysts and some shareholders, is sadly denied to practicing businessmen.'

What happened? After 13 'lucky' years of incredible sales growth, sales dropped like drop-pods full of angry World-Eaters. What caused the problem? Well, let me just quote Mr. Kirby as I think he explains it quite plainly: 

Is the world turning in such a way that mankind no longer wants or needs hobbies? No. [..] Perhaps it is just collecting, painting and wargaming with miniatures that is passé? The evidence again says no. [..] Have computer games, and especially these new online role-playing games, finally bitten Games Workshop? [No.] Are our overheads killing us? Well, yes, they could have, but they don't stop us selling things. Is it a change in society? No. Demographics? No. World recession? No, no, no. It was us.

We grew fat and lazy on the back of easy success. We forgot about customer service and forgot that hard work is and always has been the route to success. We forgot that we are a company which pursues profit and likes paying surplus cash to its owners. What was not expected was that it would take two poor years and a management reorganization to get the problems taken seriously. Somewhere along the line too many of us thought that selling, sweating and saving were someone else's job. Well they aren't. That's my job and the job of all of us here at Games Workshop.

No-one expects
the customer!

Easy success makes lazy, we all know it. Why work hard, if success is automatic? As I explained in part 1 and 2 of this mini-series, from a financial standpoint GW has absolutely turned that ship around. They are financially healthy, investing in designers and new product lines - in short - they are investing in the future. 

I know that this was a lot of work and for many of GW's staff (or now, sadly, ex-staff) a very hard time: Declining sales and operating losses after 2004 forced GW to enter their self-prescribed '7 lean years'. The grim darkness of the 41st millennium arrived early. There was only reorganization and cost-cutting. And a lot of collateral damage to innocently by-standing customers.

GW had recognized that it had made mistakes and was willing to fix them. But in my opinion, they made even more, potentially more significant long-term mistakes and the remedies came in hesitantly - and what's worse - in all the wrong places.

Sales Channels: The one ring to rule them all - and in darkness bind them. 

At this point of the post, at 11:42 am, I realize that this post will truly be of epic proportions. The mother of all walls of text. But that's cool ;) 

I'd really like to see the sales channel overview back
in the Shareholder Report, Mr. Kirby! Thank you! :) 

Before we start really going into all the nerd-rage areas (as you see, we are slowly working our rage level up to over 9000), I want to briefly touch on what I consider the biggest mistake Games Workshop has made in the last 14 years. Or maybe ever. And even today we feel the consequences.

The problem was distribution - or in fancy talk - GW's sales channels. 

GW's biggest mistakes

Fueled by enormous sales driven by 'The Lord of the Rings' trilogy, Games Workshop made more sales then ever. At the same time, many distributors discovered that the Internet with store sites, ebay, amazon & co is a pretty cool new sales channel. And so did GW. Everyone wanted miniatures, the target audience got bigger and the market grew like crazy. 

Sales up, all good? No. Games Workshop did not make a profit. In fact, the lost money. For quite some time. That needed to be fixed. And right there it all went terribly wrong. 

As you can see in the Overview of Sales Channel from GW's 2007 Annual Report, back then only 12% of sales were direct sales, which mostly meant 'mail order' back then and today is online sales on their own website. If you remember from Part 1 and 2, direct sales are the best sales for GW, as the profit of these goes 100% into their own pocketsess, my precious. 

The 'second best' sales channel were GW operated Hobby Centers. Again, 100% of profits go to GW, this time 'only' reduced by the increased cost of store, staff and distribution. 

The 'worst' return-on-investment for GW were the independent retailers as those greedy bastards wanted a share of the pie. How dare they!

Quickly opening new stores in times of unexpectedly high sales is difficult, as it requires a lot of organization, investment and - most importantly - manpower. Sorry. Personpower. GW did of course open a few new stores, but, understandably and wisely, not in sync with the sudden surge of sales. 

The Hitchhiker's Guide to the Galaxy describes the times like this: "In those days spirits were brave, the stakes were high, men were real men, women were real women and small furry creatures from Alpha Centauri were real small furry creatures from Alpha Centauri. Men boldly split infinitives that no man had split before. Thus was the Empire forged."

Sales at all cost - working up the rage

Captain Hindsight could have told you!

Before I tell you what GW ended up doing back then, I will tell you what they should have done. And yes, it might sound like 'wisdom through hindsight', but back in the early 2000s I myself - and with me many long-term-fans on Internet forums - voiced our concerns about the long term effects of what GW ended up doing. (I admit that, in part, we are to blame as well, as you will see later). 

See if you draw the same conclusions as I did back then: 

• You have a business with a very geographically distributed customer base. This customer base has just increased in size significantly (due to the Frodo & friends). You reach a whole new demographic. 
• You want to provide your product to all of your new customers, but you can't (and shouldn't) build a store next to every single one of them.
• You have an existing network of independent retailers which you have not yet fully utilized. However, sales to these guys is 'expensive' in terms of lost margin for GW.
• And there is this new thing called the 'Internet' and people buy stuff on it. Also, it seems to yield the largest possible profit margin for your company, solving all problems caused by the pesky geographically challenged customer who refuses to move into the vicinity of a GW store.

What would YOU have done if you were asked to get back to making profits, increasing sales and cutting cost? You don't even need to have a business degree to be blinded by the obvious: 

1. You invest heavily in your online store and in product distribution to maximize your margin. 
2. You pick up the momentum of the growing fan-base and engage the community with a set of community-driven marketing tools to continue growing your customer base , increase customer loyalty and, as a result, increase your sales. 
3. You support hobby stores with excellent customer service to maximize sales and you FRAKKIN' DRAFT SOME FRAKKIN'  WELL DESIGNED, RELIABLE, LONG-TERM TERMS OF TRADE for them! 
4. You cut costs.

It's friggin' common sense, for the Emperor's sake! (I told you, I'd use capital letters. You have been warned thusly.)

Let's look at what Games Workshop did.

F stands for FAIL, for Frak's sake. 

Maybe they didn't know how to do it, maybe they did not have enough manpower or maybe they were driven by the crave for cutting cost, but the investment in their own web-store as a solid sales channel should have been the first response of GW - it wasn't, at least not until much later. So item number 1 on our to-do-list gets an F for FAIL. With horrific, far-reaching consequences for everyone involved: GW, retailers, customers and fans. 

Because I like to have a good laugh (plus I am easily entertained by random stuff), with a few exceptions I made it a yearly tradition to read the ever-changing GW's terms of trade for independent resellers.

Jolly good read, that.

So with that in mind, let's look at item number 3 on our to-do-list: terms of trade. If you have ever read any of these documents you wonder who comes up with that stuff and what they smoked during writing. 

Back then I actually thought about becoming a retailer myself but when I saw the developments on the Internet (more on that in a moment) and the terms and conditions that were written in the terms of trade, my immediate response was: "Well, FRAK that!". 

From what I read, one could not help but feel inclined to suspect that GW tried to get independent retailers out of business. That, or they clearly did not understand how their customer base interacts with retailers in an evolving market. And they clearly did not see what obviously would happen on the Internet. Or they did not care. Blinded by panic mode: sales at all cost!

Learning from mistakes one step at a time

42% rebate enough? Cool!

If you only have three main sales channels, it's really not so hard to think about what YOUR ideal scenario, your 'dream-state' would be. You sit down with a nice hot cup of tea and after a good 42 minutes of thinking you come up with a plan. Then you implement it. Done.

Not so at GW. They made one mistake after the other, further hurting themselves and the retailers. For a very short while, fans of GW were happy, because prices were doing the limbo-dance:

How low could they go?

What happened? Instead of working on selling product through their own direct channel, GW opened the floodgates by drafting terms of trade that basically directly contradicted the company's goals. Yes, they increased sales, but lowered their margin and drove dozens of independent retailers out of business. The age of discount internet retailers was ushered in.

As we now know, it would take many years and nerdy tears to correct the devastation this caused. And some effects still linger on today (of course, more on that later!) 

42 Shekels for this basing beard?
You must be out of your mind!

The Internet turned into the Wild West where the educated 15-year old bought their daily dose of plastic at massive discounts. MASSIVE. Like in really large. 

20%? Pffft. 30%? Naaah! 40%? OK, I'm listening... GW. You turned fans into bargain hunters, so don't complain now.

Since I learned haggling from educational videos such as "The Life of Brian", I got between 40 - 55% rebate on the MSRP. Life was good. For me, at least.

40%+ cheaper than in stores? You must have be buying cheap recasts from the Ukraine? 

- Nope, there was no such thing back then as there was no money in recasting minis - unlike today. If one sells a product which can be produced cheaper, one should expect copy-cats trying to make a quick quid. Another result of GW's mistakes.

Anywho, discount Internet retailers without a brick-and-mortar store, often times run out of basements or warehouses emerged everywhere. Not only could you get massive discounts shopping online, but one also benefited from prices that were weirdly out of touch with the reality of their underlying exchange rates to the Pound. As mentioned in part 2, I bought my GW stuff cheaper online as a end-consumer than what an independent retailer in Germany had to pay GW for!

It comes at no surprise that independent retailers, who mostly live on Magic and GW were suffering hard for years and years. 

Customer numbers (or at least the number of paying-and-not-just-playing customers) went down - and I personally know many stores that had to forever close their doors just because of the 'Internet Discounts' and the increasingly demanding trade agreements from Games Workshop. 

There is only two possible ways of explaining this: Either Games Workshop did not know what was going on or they simply did not care. Neither of which is very flattering. Sales at all cost. 

Shooting yourself in the foot on several occasions

GW only started caring when they realized that their bottom line didn't really increase by supplying internet dealers with their product. Yes, volume went up, but margin went way down. The direct channel suffered. The GW Hobby Centers suffered (tumbleweed syndrom). The independent retailer suffered (crickets chirping) and were up in arms. 

Instead of working on the obvious, which was the above described focus on the best (Direct Sales), second best (Hobby Centers) and 'third best' (Indep. Retailers) sales channels, they morphed in a cannibalizing, fourth sales-channel-monster in the form of low-margin-mass-volume Internet traders that consistently gnawed on the existing sales channels. 

Well played, GW. NOT. 

And yes, this is your fault - and no, this has nothing to do with hindsight. I could have told you. Others tried to tell you. For Frak's sake, you can just google videos of disgruntled retailers on Youtube - they TOLD you. 

Again, you turned the community into deal-thirsty bargain hunters. And in my nerdy dreams, I was the Alpha Male of the pack. It was a good dream while it lasted.

What do I care about my chitchat from yesterday?

Konrad Adenauer, first German Chancellor after WW2 once said "What do I care about what I said yesterday?" and when it comes to drafting trade term 'agreements', this seems to be the underlying theme for Games Workshop. The amount of substantial changes with far-reaching consequences even for long-time sales accounts is mind-boggling to say the least. 

Dear GW. If there is one thing I learned about building successful relationships with partners, this is NOT how you do it. 

It's the exact opposite.

You have to establish long-term relationships with reliable and lasting terms. You have to EARN trust. You need to design a contractual framework that retailers can plan and build their own business strategies - and often times their livelihoods - on. 

Don't call me stupid!

Don't call me stupid!

The dumbest thing I possibly ever heard in a business context was that independent retailers were no longer allowed to use product photos from GW to advertise THEIR products. 

This is so mindbogglingly stupid that even years after I heard it I am still in disbelief. The only sensible explanation is that you want to make life as hard as possible for your retailers - all in the name of 'servicing the customer' and 'protecting our IP'. If this was really a viable way to protect your IP, why do you think companies with much larger legal departments than you still allow their partners to advertise and sell their product? Are they stupid?

Every high-school student can read the true intention between the lines of the 'explanations' GW provides to their retailers. 

If you don't want retailers to sell your stuff, be honest and say so. Close the accounts and see what happens. If you do want them to sell your stuff, wake the Frak up. Support them. Ask them how YOU can help them sell more. Stop making their job harder than it already is. I won't elaborate further, I am sure you can google all of this up yourself. 

Miniwargaming.com was among the more prominent 

victims of GW's trade agreements. 

Every year the rules for independent retailers changed drastically. I know sales reps that don't even agree with these strange decision by HQ - and yet have to sell it as if it were the best invention since sliced bread.

The Internet is full with colorful language describing your latest trade agreements - from retailers. I personally don't know any other company where retailers feel it's necessary to address you in an 'open letter' video, complaining about your practices. 

Doesn't this strike you as odd?

You can't constantly change the rules! We can't do this mid-game, either! If a retailer tells me: "I don't know if we can still sell GW products next year, we have not received the new terms yet!" somewhere in your apparently KPI-driven company alarm bells should whistle and lights should be flashing. 

Unless of course, that is exactly what you want, in which case you are doing a great job and I apologize for my lack of comprehension! 

The first cut is the deepest, the first loss is the cheapest

I said earlier that GW is slowly learning from its mistakes one-step-at-a-time. The problem is, that over the last 14 years they have actually made these mistakes one-step-at-a-time as well. And they try to micro-solve them one-year-at-a-time.

As stated above, drafting your ideal configuration of your sales channels is not really that hard. It takes knowledge of the business (which GW clearly has), a reliable cooperation with partners (nope, not cool, GW), knowledge of the customer (I think, they think they know - but by now, I think they know I think they don't), a vision, a cup of tea and good-old common sense. And than you frakkin' just do it. Hey, you even get some really tasty KPIs out of the whole exercise! 

Games Workshop has created this distribution and sales channel mess themselves. This nightmare on distribution street hurt and still hurts everyone: GW's margin, independent retailers - and as you will see in the next part - us consumers. A few guys made a quick buck on the Internet. One or two of them are still in business today. 

All of this is in fact Games Workshop's fault - and their's alone. You can't blame the consumer to buy at the cheapest seller, nor the Internet seller who tries to make a quick profit - how ever 'morally questionable' this may be.

Sister Mercy of the Sisters of Silcence

The old trade-agreement was a gammy leg no-one could really stand on. And I do blame the GW Management for not cutting it off in one big cut. Instead they chose to continually take off slices - with no anesthetics and an absolute lack of beside-manner. After all, it was mostly the brick-and-mortar store's screaming, so who cares.

Maybe Tom Kirby plays Dark Eldar. The signs are there... :P 

Oh, shut up, already!

OK, I just realized that this post is already far to long and I haven't even started talking about us fans yet :P There was not enough nerd-rage in this yet, either!

Therefore, I guess we will have to extend this mini series to 5 parts now. By popular demand, of course. Or by my inability to summarize all of this in 42 words. You choose. :D

Read more in part 4 tomorrow in our next exciting installment of "The Future of Games Days and Games Workshop when you read about: 

- GW pulls the breaks

- The Spanish Inquisition and other incredibly stupid ideas

- Honesty shall reign, because snow is black

- Bubble Boy: Me, myself and I

- It's all our fault. 

- 42! All ur bases are belong to me

...and, I fear, much more ^^

I will continue to talk a little bit about independent retailers tomorrow, before I start diving into how GW's decisions over the last 10 years have hurt us fans and where I hope (and see) things will be going from here.

I will also talk about the fact that, as of now, GW has solved many of the above mentioned issues and what I would do, if I was CEO of Games Workshop. Hey, GW, free advise or at least 'food-for-thought'!

Thanks for your many comments which drive the content and volume of this mini-series in previously unplanned directions! So much for pro-active planning on my part.

Part 4 is one click away

It took me about 6 hours to research and write this article, It would be very hoopy of you if you let me know what you think :) 

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