Tuesday, January 23, 2007

The future of gaming?

Is your favorite store going out of business?

In 2007, the market consists of three major categories, in order of volume & revenue: trading card games, miniatures games, and roleplaying games. In addition, the market now also has smaller, but still significant categories like “hobby” board & card games. The total size of the market is approximately $1 billion at retail. 30% of that revenue is generated through hobby game stores. That translates to a 300% increase in revenue in just over 15 years. At the same time, the number of stores has declined by about half. So the average retail store is now generating 600% more revenue in 2007 than it was in 1992.

And yet.... the retail tier is facing extinction. Their overhead costs have increased faster than their gross margins in absolute terms. Their inventory costs have skyrocketed. They face competition from e-commerce retailers who undercut their pricing power and erode their margins. The products have become vastly more complex, and the burden for product support has fallen on their shoulders, with impacts on staff costs, rent, merchandising, and the scarcest resource of all: time.

As a result, more stores continue to fail, further reducing the footprint of support available to the publishers. The largest publishers have escape routes into the mass market, into the book trade, into Europe, and elsewhere. The mid-tier publishers however have few options, and are being crippled by this slow dieoff. Small, niche publishers, who rely on catching lightning in a bottle to have a chance of success, are even worse off.

1 comment:

Jason said...

Haha, welcome to my world, though I'm on the ecommerce side. I could tell them what the gaming industry needs to do, but the manufacturer's at this point haven't made a stand to protect their products in any meaningful way...the retailers cannot protect the value and margin of a product unless the people creating this product are willing to support them. Bose, Apple, and most other electronics manufacturers have already done this a long time ago with unilateral pricing policies.

In my own market of aftermarket automotive parts, this is just finally starting to occur, and the first true unilateral pricing policy is going to be coming online with one of the major manufacturing groups in April.

Balancing the low overhead, easy entry ecommerce market against the traditional retail market is a challenge, and most smaller markets are just finally starting to figure it out. Hopefully gaming will too before it runs into real problems.