In previous installments we covered the basics of the 3-tier system, and how online game stores (OLGS) began to disrupt the traditional model. This time we’ll take a look at Amazon, Barnes & Noble, Walmart and Target, and how they’ve changed the industry.
Amazon: Mass Market, or The Largest OLGS?
In the early 2000s, Amazon wasn’t yet a player in the boardgame industry. But over the years, Amazon grew into more product categories, in part by opening the door to 3rd-party sellers. In essence, anyone could ship Amazon some inventory, create product pages, and when items would sell, Amazon handled fulfillment, sending the item to the buyer and paying the seller. This Amazon FBA (Fulfillment by Amazon) program was just one of a variety of models by which sellers could leverage Amazon’s site, customers, and back-end services.
As a result, many games started appearing on Amazon. For a while, Amazon, like eBay, became a liquidation channel for stores. They could sell slow-moving games at a discount, and they could also pull out-of-print gems from their shelves and sell them for a premium. As a result, more games appeared on Amazon, and more non-hobbyists started seeing games they’d never heard of on Amazon, at low prices.
Amazon was becoming a sales channel for anyone who had inventory. Distributors could sneak some sales out the back door to customers, using Amazon accounts that retailers didn’t know about. These sales came at much higher margin than their sales to retail stores. Distributors got stock earlier than retailers, and had informational advantages about reprints and promotions that made it very tempting to sell direct-to-consumer, at least a little, even if it was competing with their FLGS clients.
OLGS could view Amazon as their competition, or as another sales channel for the OLGS. They could have an Amazon storefront and try and reach customers who didn’t know them, but knew Amazon. Even publishers sold on Amazon, much to the chagrin of their distribution and retail partners. Other companies, who specialized in purchasing from manufacturers and retailers to sell on Amazon, also got in on the act, purchasing in bulk from distributors and publishers to sell on Amazon.
In the early period, Amazon itself largely wasn’t selling games, they were only providing the infrastructure for others. But eventually, Amazon also entered the business. Amazon didn’t go through traditional distribution to buy stock. They purchased directly from publishers. Between their own stock, and the stock of FBA merchants who allowed Amazon to manage prices automatically, Amazon quickly applied a squeeze to prices. Algorithmic price-setting and stock-purchasing, combined with free Prime shipping has made Amazon into a major player in the boardgame industry.
One publisher described the Amazon relationship as follows: Amazon buys a case of games and sells them at a cent or two below the lowest price available. If the case sells rapidly, they order two cases, then four, etc. At some point, demand is met, and Amazon is sitting on inventory. They then reduce prices by 50% or more and blow out that remaining inventory. After some rest period, Amazon orders another case, and begins again.
Today, Amazon continues to house a variety of sellers and selling strategies. Some publishers sell themselves on Amazon. Others sell directly to Amazon. There are also value-added distributors, like the Flat River Group, who buy from publishers and function as outsource Amazon warehouses. And many game stores, both online and B&M, continue to sell on Amazon too. Some publishers have gone the other way and restricted their distribution partners from selling on Amazon, seeking to control fully their Amazon presence and price, to prevent devaluation.
Barnes & Noble: An Early Adopter
B&N was the first big-box store to expand into hobby games. B&N was constantly experimenting with new products to sell, from ebooks and music to toys and games. B&N had long sold party games and puzzles, and working with their partner, PSI, a consolidator, they extended their range to include major hits like Catan and Pandemic. They also began to offer a much broader selection of games and publishers, building out a respectable hobby games section. (My game, Show & Tile, was one of a few titles from the Kickstarter publisher Jellybean Games to get tested out in B&N stores.)
B&N had a few prongs to its games strategy. First, in-store, B&N stocked front-list hits and IP-branded products that were more recognizable to mainstream shippers. Second, BN.com offered a deeper online-only catalog of games. Third, B&N had PSI identify retail-friendly games from their catalog, and a group of games were piloted in test markets each year. Games that succeeded rolled out nationally. Finally, B&N also began to run boardgaming events that were free and open to the public.
Selling to B&N was an attractive proposition to publishers. B&N ordered in bulk, and reached new customers who didn’t shop at an FLGS or OLGS. However, there was a dark side too. Sales to B&N were essentially on consignment: inventory that didn’t sell would be returned to the publisher, who was obliged to buy it back. B&N was taking a risk on this new product category, and publishers were sharing in that risk. For many publishers, the visions of large dollar signs were replaced by the reality of low sales and high returns. For small publishers that were brought into the relationship by PSI, these returns could be financially devastating.
In all, the B&N experiment was not especially successful. Few publishers made good money from the channel, and the PSI-B&N relationship interfered in some ways with PSI’s primary business as a sales agent and consolidator. Retailers and distributors were furious to see game sales that they thought belonged to them flow instead to B&N. As for gamers, B&N did offer a decent shelf of games, which improved accessibility. B&N’s regular deep discounts as part of their twice-a-year clearouts also became popular among hobby gamers who trawled hot deals forums and exchanged information about inventory at local stores.
Perhaps learning from B&N’s missteps, Target took a different approach to hobby games. Taking narrower aim, Target began to stock hobby games that had proven sales records, like Catan, Ticket to Ride and Cards Against Humanity. But Target also sought to work with publishers who would create exclusive versions of existing and upcoming games that would be sold only in Target stores, and serve to lure buyers into either the in-store or online Target experience. These Target exclusives were typically only exclusive to Target for a period of a year.
Target exclusives followed several models. There were modified versions of existing games, such as the Vampire Encounter version of Nyctophobia, or the After Dark version of Codenames. There were also IP-based versions of games, like Marvel and Harry Potter versions of Codenames. Other games were completely new IP board games like MacGyver, Oregon Trail, and Megaland. In August of 2018, Target announced 95 such exclusives and 130 overall titles for its board game category.
Target pursued this model with major companies, working well beyond the hobby space. Publishers like Pressman, USAopoly, Buffalo, Mattel and Hasbro all had some Target-exclusive games. Big G Creative, a publisher of licensed games, cornered the market on nostalgia games ranging from Bob Ross: The Art of Chill to Monster Crunch: The Breakfast Battle Game to the Trapper Keeper Game.
But Ravensburger, the large German publisher, had the largest impact on the hobby space with smash hits including Disney Villainous, Jaws, and Jurassic Park: Danger. These games, designed by Forrest-Pruzan Creative, and published by Ravensburger, offered the German giant a more direct entry into the US market that was not dependent on distribution, and could scale up nationally with shelf presence at Targets nationwide. Ravensburger also continued to buck the trend of expensive games, releasing its titles at affordable price points. By working with global brands and licenses, Ravensburger could print at enormous volumes and keep per-unit production costs down, while moving units to families and fans of those brands, rather than only fans of the Castles of Burgundy. Forrest-Pruzan, which has since been purchased by Funko, offered a dependable pipe of high-quality, market-fitting products, backed by considerably IP experience.
The Impact of Big Box Stores
It’s hard to account specifically for the impacts of big box stores entering the board game market. Without a doubt, these retailers both respond to rising demand and help to stoke that demand by introducing consumers to new products. It’s not clear whether traditional game retailers benefit from the growth more than they lose from the competition, but the anxiety for FLGS is real. Today, Target, Walmart, and Barnes & Noble all carry extensive board game lines in-store. Retailers like Bed Bath & Beyond offer hundreds of hobby games on their websites, typically fulfilling out of a 3rd-party drop-shipper.
If other industries are a good example, what big-box retailers do exceptionally well is bring discipline and efficiency to supply chains. Big stores order in enormous quantities, and an opening order from Target can easily be 50,000 units or more. Operating at this level of scale, and being able to turn around reprints of successful titles on time requires organizational capacity, financial capital, stable manufacturing, and predictable shipping. Continuing pressure on publishers will, over time, select out for those most capable of keeping up.
For FLGS, big box retail presents challenges well outside the issue of pure competition. Big box stores upend the power relationship between publishers and retailers. Many FLGS are built on Magic: The Gathering, and they live and die by the rules Wizards of the Coast dictates for release dates and pricing. An FLGS can’t afford to lose access to the product. But a Target location is less likely to carefully attend to the desires of a supplier as minor, in the Target universe, as Wizards of the Coast, and indeed, Wizards has much more to lose in the relationship, and can’t effectively police these stores. As a result, core buyers at FLGS are being lured to big box stores for CCG content. This is tangential to the board game story, but it reflects how the change in power dynamic puts both publishers and FLGS in an unusual position.
FLGS are continuing to pivot in response to these ongoing changes. Some stores are embracing a role as community hub, focusing on events, tournaments, and organized play. Some are turning to food-and-beverage, either as a full-on cafe or bar, or an expanded food menu, or wine and beer after hours. Others are using a pay-to-play model with hourly charges, day rates, and monthly memberships. Others are focusing on Kickstarter, imports, rarities, and the like, seeking to be a place to shop for what can’t readily be purchased on Amazon or at Target.
Distributors are also taking heat from big box retail, which largely cuts them out. While some distributors do operate in the drop-shipping and big-box ecosystem, the Big-5 hobby distributors don’t, and haven’t yet pivoted in that direction. Distributors all have wider lines than just hobby board games, but the same trends are disrupting their business in RPGs, CCGs, and miniature games. For the four distributors who can’t stock Asmodee products, their loss isn’t just the sales, but the ease of those sales. A narrow line that you can stock deep and sell reliably is the foundation of a distributor’s business, but it seems like those lines are being monopolized by Asmodee/Alliance on the one hand and Target on the other hand. New products like Cards Against Humanity went around traditional distribution too, leaving distributors without backbone product lines to rely on.
The Elephant in the Room
Much of what we’ve discussed in the last three weeks is a kind of prologue, though this week we put the cart a bit before the elephant, so to speak. Next week we’ll talk about Kickstarter, which was an accelerant for the trends we’ve described, and then we’ll start to bring all the strands together and talk about the gaming glut, how it is starting to shake out, and who the likely winners and losers will be. Hope you stick around!