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#34: The Game Isn't the Only Thing

Snowblind

I say, who's there?
The next few years will probably see a drastic jump-ship from the distribution method (and distributors themselves) according to various insider folks I've spoken to.

For myself, I've got no idea. Not my area of expertise. Nice article, though.
 

flyingmice

Avenging Aerial Rodent
Validated User
Nailed it in one, Ross. The Distributors are screwing everyone, including themselves. The retailers just want to run their store, and the publishers just want to create, but somebody's got to do something.

-mice
 

smascrns

New member
Banned
Very good analysis. Distributors without computerized systems? In 2006? I mean, 2-0-0-6???

I wonder what Marcus thinks about this but I suppose he will keep his thoughts to himself given the fact that he must have a stake in not being outspoken.
 

Munchezuma

Hooray!
I'd love to hear some more comments on this column. I'll be honest, in my limited experience, I have a fairly positive experience with distribution.

For example, I have found that two distributors do satisfy nearly all of my ordering requirements. Both of them ship same day (if I get orders in around 4 PM EST, and often times later), and one offers up-to-the-minute item availability.

Availability is key for me - if I am out of something or a customer has a special request, I like to satisfy that immediately (which typically translates to order that day, product arrives in two days - say, request on Monday, product in my hand on Wednesday). This is generally pretty easy to do with my two suppliers.

When availability is an issue, it is generally because the publisher is either late on initial release (a shamefully regular occurance in this industry) or a reprint is in the works. Reprints seem to take months, especially if it is a boxed game sailing the seas in a container from whatever Cheaplaborland is in fashion.

What impact do the following have on the health of the industry:
Selling through Amazon at huge discounts
Late releases
Late reprints
Error-ridden products that require FAQs and online updates to play
Promoted products that never appear
Printing/Production problems
"F"LGS that special order products every two (or four, or more) weeks only
Caveat Emptor service at said "F"LGS (by this, I mean sending customers to publishers to resolve questions or complaints)

I do not intend to wash distribution of all responsibility. Simply put, publishers want to sell more, distributors want to sell more, and retailers want to sell more. Also, all three want to reduce their costs while doing so. Generally, I feel the burden of responsiblity is shared by all fairly equally.
 

heliographinc

Retired User
Here's the list of things you've gotten wrong, or just need to clarify to make them less wrong:

"Publishers sell this to customers direct at the show and make three to five times as much as they make selling through distribution."

You sell to distribution at a 60% discount. Including shipping, you're making 35% of the cover price of the book, roughly. If you sell at a convention, you're making 100% of cover (or less, if you offer discounts). That's three times more. To make five times more than a distribution sale you'd need to sell your book to distribution at 20% of cover. Ladle on top of that all the costs associated with attending a convention, and your net margin for a convention sale over a distributor sale is 2x, tops.

So where are you getting 3x to 5x?

"In the old days the distributor carried enough for five to six months, usually on pretty reasonable terms and they reordered usually once a month."

Even in the golden age that exists largely only in your imagination, terms were about the same that they are now. Technically distributors got a 55% discount with other incentives that added up to a bit over 59%. Terms were net 30 or net 10 for an additional discount: the same as they are now.

Where did distributors get all this money to lend to publishers and retailers?

The reality is that the publishers spent money to print their game, and sold it to distributors who paid them (ideally) 30 days later. Distributors offered retailers terms as well, so that when a retailer sold something they'd pay the distributor who would pay the publisher. If the retail end starts to have cash flow problems, the system is fubar: this has been true for the 30+ year history of the hobby channel.

If they had a five or six month supply, why would they reorder once a month? That just doesn't make any sense.

"Meanwhile smart companies like Hero Games are selling direct like mad from Amazon, from their own online stores, and from web-based game stores like RPGNow.com"

By definition, if Hero is selling through Amazon or RPGNow.com they are not selling direct. Amazon buys the books either from the book trade (at best at a 55% discount) or direct from the publisher (at 55% off). RPGNow, DriveThru, and e23 charge the publisher 20% to 30% of cover for their services. The only DIRECT sales are from Hero's website, assuming they run it themselves.

"Buyers keep a ninety-day supply of new products and if products go out of stock, the bonus of that buyer is affected."

Why 90 days? If dealing with real companies (ie not micropublisher like Heliograph) they should have their orders filled less than a couple of weeks. Heck, even I could fill an order in less than three weeks, and I have to have the books printed first. I understand why you don't want them to run out, but at the same time 90 days is too long: that's leaving money on the table to the benefit of nobody.

Measuring demand for the retailers and distributors is also tough, especially for new products.

"If they are not carrying inventory the retailer does not need them, if they are not extending credit the manufacturer does not need them, and if they are not actually filling orders and shipping product than no one needs them."

Are you familiar at all with how the book trade works? Many publishers -pay- for premium placement in a retail establishment like Barnes & Noble, and distributors usuallly pay publishers 30 days after a purchase... while holding back a percentage of that money for returns. I'm not sure where your "extending credit to the manufacturer" comes from: everyone I've spoken with who have been in the business for years all agree standard terms were net 30 with a discount for 10.

Setting all that aside, if you think it sucks that retailers need 3 to 5 distributors, without distributors they'd be dealing with dozens (or hundreds) of companies. Ditto for manufacturers. Consolidation has value, which you seem to indicate in this very column.

"The retail channel has a huge number of filings as well"

For bankruptcy?

The way the chain is setup now, the publisher gets 35% to 40% of MSRP, the distributor gets 10% to 15%, and the retailer gets 45% to 50%. The distributor slice is the smallest piece of the pie.

The traditional book trade has problems too, but if you wanted to do something that would health-i-fy the hobby chain, get publishers to accept returns: then the risk shifts off of the distributor and retailer fully onto the shoulders of the publishers.

Matt Goodman * Heliograph, Inc.
 

ross_winn

freelance geek
1/ So where are you getting 3x to 5x?

with overhead the manufacturer is usually only making a 10% profit. So to go from 10 to 50 is 5x.

2/ In the golden age it was not uncommon for the distributor to give retailers ninety day terms while paying manufacturers in 30; hence the extending credit riff.

3/ Reordering monthly with a six-month supply in house didn't make sense then either. However so many products were evergreen that the distributor did not as commonly get stuck with seven pallettes of Sandman, but it happened.

4/ A manufacturer can sell direct through Amazon by being an Amazon Advantage dealer.

5/ Because if you don't have a ninety day supply any spike in sales will Completely exhaust distribution. You want to turn your merchandise, but if there is a spike in sales you do not want to lose that revenue. Weeks is too long to wait, and no Manufacturer wants to ship six copies of anything Fedex for free.

6/ Yes, I am pretty familiar with how retail works. Placement and slotting fees are not unique to publishing. I agree that RPGs need to go to a fully returnable model.

7/ Consolidation has value, but no so much value that it is irreplaceable. Since email and web access are so common now it is feasible to deal direct. Many stores are dealing with so many suppliers anyway, that the addition of ten or twelve publishers is not a burden.

8/ Distribution should be the smallest part of the pie, and if they keep performing so poorly then even %5 is too much.

Thanks Matt!
 

st_gulik

Ben Woerner - WunderWerks
Validated User
ross_winn said:
1/ So where are you getting 3x to 5x?

6/ Yes, I am pretty familiar with how retail works. Placement and slotting fees are not unique to publishing. I agree that RPGs need to go to a fully returnable model.

7/ Consolidation has value, but no so much value that it is irreplaceable. Since email and web access are so common now it is feasible to deal direct. Many stores are dealing with so many suppliers anyway, that the addition of ten or twelve publishers is not a burden.

8/ Distribution should be the smallest part of the pie, and if they keep performing so poorly then even %5 is too much.

Thanks Matt!
First off I just want to mention that I found your column via imanikchick ala livejournal, and I'm glad I found this site! I think your latest column was excellent, and I wanted to make a few comments about your latest post/reply.

Just so you know, I've been an avid gamer for 18 years (started when I was 11), and I have been in and around my family's retail jewelry business my whole life. In fact, I now work as the numbers guy for our store, so I am intimately familiar with our distributors and suppliers.

Not only that, but jewelry manufacturing, distribution, and retailing shares many, many, simularities with RPG manufacturing, distribution, and retailing. For example, everything is basically designed over here (or Europe for Jewelry), and manufactured in the Far East. However, while there are distributors for jewelry lines they are basically dying the death of the dinosaurs. Jewelry designers like Publishing house all make unique products (and many have simularities as well. There are really only so many ways you can create superheroes, and only so many ways you can set a diamond into a gold band), but in jewelry the designers normally hire travelling salesmen who peddle their lines (normally a salesman will carry two or three different types of lines from different designers) in different regions of the U.S. Jewelers have big shows just like Gama (We have the JCK in Vegas every year and it rivals E3 in size and scope), and instead of dealing with crazy distributors at all, we just buy directly from the designers.

One last little bit then I will get to the direct responses: The designers are all much the same size company-wise as the gaming companies. You have your behemoths (White Wolf, WotC in gaming, and Stuller, and Simon G. in jewelry), and everything down to the literal Mom and Pop companies. So I see no reason why the publishers can't do away with the distributors completely. The Designers of Jewelry generally deal with an Overseas jewelry factory to build their pieces once they've designed them, just like Publishers have to deal with an overseas printer. Yet the VAST majority of jewelry designers don't deal with distributors, and publishers do, and trust me mailing one small box of jewelry is just as exspensive, and much more of a security risk (generally FedEx, UPS, or Registered Mail via the USPS) than mailing boxes of books.

To the comments on your replies:

6. A fully returnable model doesn't always work the best. I think, however, that RPGs could use a lot more of it though. The quality in product really shows! I do, however, think that a certain level of returns should be allowed. In jewelry, generally, designers and retailers work on a buy-back plan where if a piece just isn't doing well the designer takes it back and the retailer buys at least twice the worth of the piece in other product.

This works quite well with established companies, but not so well with start-ups because sometime their quality just isn't there (But that's something you should have determined before entering in with the new line in the first place).

If there were distributors in the way this whole process would get gummed up and complicated. So in a simplier direct to retailer model (and not undercutting the retailer by selling on places like Amazon) the Publishing house gets a larger cut of the cover price, and if there are return systems like double buybacks then they protect the Publisher, but give an out for the Retailer, and generally pushes the quality of product up across the board.

7. Yes, RPG retailers have many more product lines in their store (than a jeweler), which is a blessing and a curse. It is a curse because if everything went to a direct sell system you'd be inundated with salespeople constantly wanting to show you new product, but it's a blessing because if you have a line that does poorly you, generally, are out of pocket much less than say a jewelry retailer who dropped $50,000 on an opening buy in. Also, if you can schedule appointments, which retailers would learn to do, seeing someone every afternoon for an hour is no big problem. That, however, is just the tip of the Iceberg! There are SO many benefits from working directly with the publisher! If there is a problem with the product, you call the publisher, if it's late you call the publisher, if you want more, you call the publisher...get the picture? You have one contact person, and no hassles with mutliple levels of distribution. Also, an indipendent Publishing format allows a retailer much more freedom in customizing their store to work best for their market, and gives Publishers much more freedom of who to sell their product to.

8. Exactly. Distributors make up the 5% with volume. They do volume business, and if they're doing so terribly they should be kicked to the curb.

One last comment. In jewelry, as you probably know, there are independent stores (like my family's) and massive chain stores. RPGs are sold mostly through independent stores and massive chain book stores. The system is much the same for jewelers, with one exception. Most of the chain stores in jewelery purchase their product through distributors, but if you can ever take a ring of the exact same quality and design to an independent store you'd be able to get it for much less. Why? Because in jewelry the Chain Stores (Kay, Jarrods, Weisfields, Shane Co.'s) all rely on the ignorance of the public in purchasing jewelry and sell low quality product at inflated prices. This is the PRIMARY reason Independent Jewelers have been able to Survive, Thrive, and Grow so strong. We can educate our employees, who can educate our customers, and gain repeat customers for life.

I am a repeat customer at my FLGS (Imperial Outpost, PHX AZ), the owner Darren won me over with his great store, good customer service and his desire to really promote gaming as a fun hobby and not just as product for customers. I spend a vast amount of money there every month, and I would never think of purchasing something elsewhere. I do it out of loyalty, and a desire to see such a great store suceed. I could probably find a book online for cheaper, but there is so much more a brick and mortor store can offer that Amazon could never.

This RPG Industry is just in it's adolescents. There have been jewelers since before the history of man, and it will continue for many more years. The internet is just another competetor that can't compare to real face to face customer service. Sure, it takes a part of the pie, but it will never take it all. We're humans after all, and we thrive on communication. The industry will have to learn it's lessons about under-cutting itself (via discount sellers), about lack of quality because of a lack of returnability, and that competition is good. Sure, Online RPGS are huge, but that's just a MAssive Market of Customers that have all been indoctrinated into Role playing, and all you have to do is hand them a book. Do you honestly think that Blizzard would've had the World of Warcraft RPG books made if they didn't think there was any corssover potential from Computer TO Tabletop?

st_gulik
aka
Ben Woerner, Arizona
 

ross_winn

freelance geek
Most small retail businesses are run the same way. Hell I ran the largest retail luggage store in California for three years. To many of the people in this industry I have no experience; which just goes to show you that some people are just pig-headed.

I appreciste your comments.
 
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