Thursday, January 23, 2014

Games Workshop - What To Do?




What is wrong with Games Workshop?  And what do they need to do to get back in the driver's seat?

The 2 5% drop in Games Workshop stock last week lead to some big questions that have been asked again and again over the past couple years.  # 1 being:  "What the hell are they thinking?"
 
When Games Workshop releases their  6 month financials they were BAD.  Yes, they are still making money, but compared to the previous 12 months they are down big.

Revenue          £60.5m (2013)    £67.5m (2012)

Pre-tax profit   £7.7m (2013)     £11.1m  (2012) 

So sales were down about 12% and profit down about 30%.  Those are huge numbers - especially for a public company beholden to the shareholders.  A public company must keep growing to maintain or grow its stock price.

What is notable is that the profit is down so much despite major GW efforts to reduce costs and restructure their retail.  And their gross revenue is down despite the past two years of price increases, an increase in the velocity of releases and new product, and significant sales growth in the Black Library and Forge World divisions.

So what is the problem?


Unit sales are down.  That is obvious.  People are buying less plastic crack. GW specifically notes that their trade sales are down as well.  Why?  Pretty simple, prices are TOO HIGH.

Nothing new here.  Last year I did a poll on the Apocalypse40K Facebook page.  I asked how the price increase was affecting people's buying habits.  With over 100 responses, 75% of the people said they were BUYING LESS.

A Land Raider increased in price 50% from 5th to 6th editions!   The basic intro set, increased from $ 50 to $ 100.   I have had one of the top GW managers in the country tell me that GW was cutting its own throat by doing that to the intro kit.  And he told me that GW expects $ 800 in sales the first year after someone buys an intro kit.  So why screw them up front and make that $ 800 less likely?

This market will simply not take these price increases.  People are not buying new models and they are DEFINTELY not starting new armies.   Three of the top retailers in the US, all of whom are contributors to BoLS, agree, saying sales are down, and people aren't buying GW like they used to.  Heck, I am not buying GW as I used to.  I can't afford to!

Why does GW not get this?
 
I think it comes down to one word, stubbornness.  Games Workshop was used to being the only game in town for decades.  They were used to people not having easy alternatives.  But now there is the Internet, Kickstarter and competitors like Privateer Press (Warmachine),  Battlefront (Flames of War) , FFG (X-Wing) and a hundred other smaller game companies growing like weeds.  Yes, GW still makes the best models, but that doesn't mean people will pay a king's ransom for them.

And this all falls at the feet of the Chairman of the Board, who now is the acting-CEO until they find a new one.  Tom Kirby.  He is making all the big decisions.  He is the guy who took the company public.  He carries the company's glories and also must shoulder it's failings.

Kirby thinks he knows this business.  But statement after statement tells me he's losing the Midas Touch.  Mark Wells, the GW CEO who left early last year, was a good CEO.  A retail specialist, who had previously worked at Boots, the English chain store, the company did well under Wells. But despite his leadership, they made one big mistake, they increased prices to the bleeding edge, then one step beyond where the majority of the customerbase could afford it.  And in an economy that was difficult to begin with, that meant trouble.  They were able to hide that trouble for a bit through internal cost-cutting, but now  with the company lean and cut down to the bone, they are facing big problems. 

And worse for GW shareholders, the whole idea of selling the company at peak value is now not going to happen any time soon. GW proudly touts that they don't do discounting - unless of course you're looking to pick up an English toy soldier company at a 25% markdown.

So what do you do?

You lower prices.  You get used to the fact that your business isn't what it used to be and you can't keep raising prices forever.  You're not Ferrari, but maybe you can be Mercedes. You also either get the company sold or you take it private, because this company cannot sustain the growth needed to be a public company, where growth is everything.  It simply cannot.  Do you hear me Tom Kirby?

If you don't lower prices, then you really do have a serious problem. These types of situations often lead companies into the vicious-cycle of an ever shrinking customer base feeding into the need for ever-higher prices and down the drain it all goes.

No need to get more complicated.  That is what needs to be done.  But I have my doubts the Chairman will do what is needed.  He is holding on too tight.

Nykona



17 comments:

Lufgt Huron said...

Well a certain savvy law school graduate turned entrepreneur, business man could always apply to be the Head of North America retail and say that to his face...

inoccent bystander said...

I don't think it's as simple as dropping their prices. If they do that, they cut even further into their now shrinking margins. It will help clear inventory but it doesn't fix the current issue of declining revenue.

At this point, I think their best bet is to discount purchases via bundles through online only channels while easing up on independent retailers who can sell single model kits. They should then probably consider dropping out of the retail market (particularly in North America) in order to cut their costs further.

They need a purchase incentive program as well. Something like registering a UPC on their site to get points towards online discounts. This also does the favor of driving traffic to the online store where their margins are highest.

The other huge pain point from what I see is lack of revenue from their IP. They should aggressively pursue licencing to companies with multiple revenue streams. (Disney is a great example of how this can be done.) As long as GW has final approval over what is being produced, why can't a company like battle foam create "official Ultramarine" carrying cases?...

Anyway, I personally think that they have hit the point where dropping their prices would be akin to slitting their own throats.

Lee said...

This hobby isn't too expensive.
I had very little money for a period of time and I could still participate. I couldn't buy as many models but I still could buy models on an income of about £300 per month (free rent). I could still use the ones I had too. I could go into a GW store and play for free, or down to my local club and pay £2.50 and a quid per drink. I'd maybe buy one new unit a month.

If I had a hobby such as golf/scuba diving/climbing I'd have had a bit more difficulty in doing it. Especially as often.

If I buy a unit of ten models (£15-30 but most are £20 so I'm going to use that) I reckon I get more value than from nearly any other hobby out there. A new movie costs £15. I watch it maybe 3 times totalling 4.5 hours of my life. Time to money ratio £3.33 per hour

I carefully deflash my models, spend a good while posing them, converting them, painting them and then gaming with them. Say 2hrs to put together, 20hrs to paint and 2hrs per game. Say I only play 10 games a year that's 62hrs of enjoyment giving a ratio of £0.30 per hour

Pedant's will no doubt want to add on the cost of paint, conversion bits etc but you'd have to go some to get anywhere near even £1 per hour.

Set up cost to new hobbiest. £60 for the starter set, £30 for some paints and brushes. And if they shop around less again.
Set up cost for golf? £100 for a set of very cheap clubs, £40 reg fee then £30 membership fees (monthly).
Even football I had to pay £40 for insurance and registration then weekly sub's of £6 and £40 for a set of half decent boots.

I am no economics expert. But I can say that this hobby is the cheapest I do!

The reason I have stopped buying as many models though is the fact the rules for 40k are so unbalanced I don't enjoy playing it anymore. So I will buy nice models to paint but I don't need an army anymore. So if GW sort out the game then I'll buy more models to play it.

And on the point of 'other companies are cheaper' yes some are, some are the same and some are MORE expensive. I find you generally get what you pay for overall. But regardless, in the grand scheme of things this hobby is not expensive

I typed this on my phone by the way so for any typos I'm sorry. Also I could probably have formatted and swapped bits around better but on a tiny screen I simply can't be bothered. :-)

Lee said...

When the total war game hits the shelves the revenue on that IP should be huge. A great partnership. I don't often get excited anymore but for this I'm like a kid before Christmas day

Daniel Grundy said...

Totally agree with the above. However the price points and strategies do need looking at as comparison across the range just leaves me confused. I also have many other thoughts but will have to write them up later.

Meigeall said...

I get my kid a $50 game, he's happy with it for a few months. I buy my kid $50 worth of GW models... he has 1 model.

K. Wheeler said...

I've spent so much money for Epic 40k stuff on eBay recently. I'd sooner have bought it from Games Workshop, but well... they killed off the specialist games to focus on getting people to play a ridiculous version of 40k where people line up their models shoulder to shoulder on a 4'x6' table for a turn before they are wiped out by titans/badass overpriced model.

gundog8324 said...

I believe the major goal with most retailers and manufacturers has always been get the costs down and sell to a wider market(Opposite of what GW is doing) because selling 100 units at a 10% margin outperforms selling 50 units at a 15% margin

And as others have commented a higher quality of gameplay (I.E. not having some armies that are nearly autowin, and some that are downright garbage) it is hard to get people excited about a game where you can "buy your wins"

Nykona Sharrowkyn said...

First Lufght, one of my best friends was approached to interview for CEO of Games Workshop. The second time he has been approached (the first being before Mark Wells got the job).

Second, you can say all you want that the prices are NOT too high. You are wrong. All polling indicated people are buying less because prices are too high. So saying "Stop whining about prices" is senseless since it avoids the FACT that prices are too high according to 3/4 of the GW buyers who are saying they buy less because of it.

Nykona

Lufgt Huron said...

I didn't say anything about prices, that was everybody else.

Lufgt Huron said...

Games Workshop isn't hiring for a CEO though, they are hiring Retail Managers for Europe and North America.

Lee said...

Where was this poll conducted and by who? What were the questions? I could get results that say the opposite.
At my club people aren't playing it, and therefore buying models, because of the rules FACT.
At the end of the day peoples reasons are their own and each are entitled to it.

However you still didn't address the point of compared to other hobbies this one isn't as expensive.

I have played since I could buy a Beano, mars bar and can of coke for 80p. A single infantry model would cost me a months pocket money, £3, bigger ones over £5 and I can't remember how much regiments were.
Today's prices a Beano (last time I looked) was £1.50, coke 80p and a mars bar 80p, total £3.10. A single infantry model costs £8-£15. In relation they're very similar

Miegall if you're paying $50 for a model it must be a big one. If he takes his time putting it together and painting it then he should get a good amount of time from it. And then he can use it long past he finishes his game. Oh and if he paints it well he can always sell it for a good portion of its value after too. When the game is worth pence at a trade in

Nykona Sharrowkyn said...

Lufght you are 100% WRONG. The simple fact that my friend was asked to interview for the Games Workshop CEO job is evidence they ARE looking for a CEO.

Lee, we did one last year on our Facebook page. 75% of the over 100 who voted said they were buying less because of the prices.

Also, you can see the BoLS Poll:
http://www.lounge.belloflostsouls.net/showthread.php?40850-The-Great-GW-Pricing-Poll

Facts are facts, YOU may not think prices are too high, and how it compares to other games is IRRELEVANT. Unit sales have gone down and people say they are buying less because of the prices. If you can't put 2+2 together you now know why GW can't either.

Lufgt Huron said...
This comment has been removed by the author.
Lufgt Huron said...

Well I guess I could clarify that Games Workshop isn't publicly hiring a CEO, not many companies really put that out there...

hence, my original question, and follow up statements, My apologies.

As far as facts are concerned, I find it irresponsible for anybody to base their facts on GW's business practices based off of 992 participants. That number isn't even close to a fraction of the total customer base that GW has as a whole, world wide, and shouldn't be used as news.

It's an interesting finding as a focus group, but I'd hardly claim 992 voices are enough to say that's the reason why GW's profits are down.

Sorry, just my 2 cents.

Stucarius said...

Put a fork in them. This current management is DONE DONE DONE

James Folkerts said...

I would have to say I would support Nykona assessment. I came back to 40k about 1 year and a half ago. I have bought a full army and upgraded my primary army with close to 20 new units. Of those 2 of them were purchased at GW the other 18 from Ebay. Why? Price.

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