Friday, August 31, 2012

Games Workshop and The Peter Principle

Have you heard of the 'Peter Principle'? It is the idea that eventually everyone gets promoted to a level of incompetence. That is, you get a job you are qualified for and capable of executing. Eventually your hard work is recognised and you get promoted. Maybe you are good at that next level of responsibility and action so you get promoted again. But, after a few steps like this, you get promoted to a point where you actually aren't capable of doing the job.

Its not a bad theory. The same principle can, in fact, be applied to a lot of areas (pro-Poker players are also liable to play their way up onto tables they can't compete with) including the development of business.

Another way of looking at this idea is that businesses will find what seems a successful strategy and then milk it and stretch it to the point of breaking. It is my belief Games Workshop is doing just that.

Games Workshop, being a Publicly Limited Company, makes its financial results freely available. At the uppermost level, the company appears to be doing well. Profits are good. Shares paid a healthy dividend recently. More lines are continually being added to the product portfolio and new shops and retail accounts appear to be being opened and added every month.

All good, right?

Well, not really.

The problem with the profits being generated by Games Workshop, and in particular recent increases in same, is that they come not from increased sales per se but from increased efficiencies. That is, GW is not selling more boxes of models, they're just spending less on doing it.

These efficiencies come in several flavours, from supply chain reorganisations to mass lay-offs and the opening of one-man stores with limited opening hours. Several stores have just announced reduced opening hours - including my own local GW.

While the financials make sweet reading to share holders looking for dividends, they are not good news for the business in the long run as they ignore one of the primary factors in GW's survival and prosperity over the last twenty years - its retail network.

By this I mean the shops and the people that work in them. Its all very well having the largest network of retail floorspace in the industry, but it does you no good if its staffed by mouth-breathers who neither know nor care about the product they peddle. Just ask any High Street fashion or technology outlet.

Research by the YMCA network of gyms in America found that people became and stayed members more for the social side of the gym than the actual fitness side. That is, they YMCA figured out it didn't need to spend as much money on fancy new gym equipment as it did on getting staff to be welcoming to members, know their names and goals, that sort of thing. Similarly, people go into stores like GW as much to play with other people as they do to shop.

When you walk in to a GW, as well as enticing boxes full of fantastical toys and games, you see other players. The background and the models are great - probably best in the industry and all that - but what keeps people playing and buying beyond the first impulse purchase is the social side of gaming. People like doing stuff with other people, its as simple as that. GW stores have facilitated that.

Or at least they used to.

My local GW used to have pretty much unlimited gaming, painting, and modeling for anyone. You could turn up any day of the week and, if there was a space, sit and paint, or play a game with a friend. You generally wouldn't do this on a weekend day, just because those were the days all the school kids would mob the store so best to stay away. But apart from that, it was a great place to hang out, play, paint, build, chat, etc.

Then we got a new manager and this was changed. Now there would only be spaces for gaming and painting on Tuesdays and Thursdays. Sure, it was from opening till 8pm, but that wasn't the big message that most of the loyal customers took home. What these new gaming hours said was 'if you aren't buying something, you aren't welcome in the shop five days a week'. Sounds dramatic, I know, but thats what we heard. This was particularly galling after a lot of the regulars had literally worked through nights to help the Store Manager get a display board ready for Games Day. One regular's flat became a sort of doss-house for the volunteers trudging back and forth to the store each day to build more and paint more. For the store.

Playing hours just recently changed again (less than a year after the first reduction). Now the Tuesday gaming has been shortened to end at 5pm. So, if you have a job or family commitments during the day, you're out of luck on a Tuesday. Oh, and by the way, during school holidays, over 16's gaming only starts at 5pm anyway.

And today it was announced the shop wouldn't even open on Tuesdays.

So, to revise, we have gone from a store with a loyal clientele who all visited several times a week, bought, played, and painted there, and were willing to work nights for free to help the staff with their projects to one where we are only welcome one day of the five in a week unless we have our wallets open. 

I am not unaware of the rationale behind 'efficiencies' like these. There's a recession on, blah blah blah. No doubt sales on these two days are particularly weak. To save on wages and overheads the decision has been made. But really it is just one more negative response to the problems of business.

Once again the profit margin is being protected not by aggressively driving volume sales, innovating new product lines, or recruiting new customers, but by cutting off what the upper management see as dead flesh.

It may be the higher ups see this as part of a viable long-term strategy to eliminate their retail footprint entirely - they sell the same product at exactly the same price on the web. Perhaps they figure they can continue to make money that way. The official blurb from GW is that they are a manufacturer, not a retailer, so its entirely plausible the Board of Directors sees the retail network as  a liability, not an asset. The problem with that though is there are a growing number of alternative retail outlets that do provide gaming, do value customer footfall, and sell all GW's competitors for less than GW's prices.

I'm also aware I'm a little spoilt by having Wayland Games and Tabletop Nation on my doorstep. But I'm not the only GW customer who is finding alternative places and systems to play.

Is it a coincidence then, that the biggest single share holder, recently receiving a nice dividend of 29p per share, in GW is also its 62 year old Chairman? Is it ironic or sarcastic that that same Chairman said in his preamble to recent financials that 'short-termism' was a great evil?

We will see. For now though, there is really no reason for me to go into a Games Workshop. I can get anything I want from them cheaper elsewhere, including getting to actually play their games. But I can also get a whole lot more from those other venues and I will post more about that later in the week.

No comments:

Post a Comment