Games Workshop currently has about $150 million in revenue and $7 million in annual profits (2009). They have just warned analysts that they are unlikely to hit their profit estimates this year (2011), sending share prices plunging about 13% to the end of the day.
I'm not a GW insider so this is all speculation from observing adjacent industries.
Marvel Comics has a revenue of $125 million, with an operating income of about $50 million. Both companies appear to target roughly the same market, teen to young adult males of a more geeky bent, and it is not uncommon to see game store/comic store hybrids selling both miniatures and comics side by side.
GW, unlike Marvel comics, has a strategy of owning and operating (O & O) its own stores in locations in Europe and the USA (and some scattered attempts in the rest of the world). GW has recently announced that it is trying to turn these operations into 1 or 2 man operated stores in an effort to reduce manpower costs, and it has been anecdotally confirmed that these GW stores have so little depth and breadth of stock that they typically have to take orders from customers and order online on their behalf.
According to their published annual reports, the strategy behind the O&Os is as much to create new customers amongst children and teens (i.e. showroom model used by some computer companies like Sony) as it is to generate retail sales.
However, with greatly reduced staff and product, it appears that both these objectives will be greatly hampered, which begs the question, why do it? Presumably, the GW O&Os do not have to pay for stock, which means these stores are capital sinks until the stock is sold, which may explain the recent scaling back of carrying stock in stores. It is a relatively simple retail rule, if you don't have what the customer wants when he walks into the store, you will usually lose the sale; GW does not appear to have perfected the art of predicting customer demand, and the sales staff in the stores do not appear to be able to steer customer purchases. Unlike washing machines or TVs which may be somewhat fungible, due to the nature of their product with specific army lists and unit types, it would be difficult to convince a potential customer to purchase an Ork Dreadnought instead of an Ork Battlewagon when the latter is out of stock.
Marvel comics does not have O&O stores, but instead relies on a large network of independent, typically small comic retailers to get their products into the hands of customers. This has considerable advantages; they don't pay rent, they typically have net 30 day terms which makes for predictable and efficient use of capital, they do not pay for staffing and they have limited exposure if a store location fails, for whatever reason.
What would I do? Phase 1
1. Close all GW 1 man locations, as a precursor to closing any location not intended to be a showroom or efficient retail generator.
2. Decrease independent retailer margins from 40% to 30%. Eliminate 3rd party North American distributors and beef up the internal distribution division.
3. Retrain GW store ground staff responsible for creating brand awareness and making them available to independent retailers, possibly as permanent seconded staff in large independent locations.
What does this achieve?
1. Decreasing retailer margins and eliminating distributors realizes a large increase in revenues without significantly impacting sales. Why? Because GW does not sell to big chain retailers but rather mostly smaller independents (even Hobby Town USA locations are independent franchise operations) that do not have set in stone ordering rules, nor great leverage in terms of negotiating prices.
Since GW has the dominant "must have" product, they will continue to order it regardless, and in eliminating 3rd party distributors, discount operators will be less viable making the remaining brick and mortar stores more able to sell at MSRP.
2. Closing GW locations means considerable cost savings in terms of rent and manpower. Remaining manpower can be refocussed on supporting independent stores, with largely the same effect except GW will receive a net 30 return on supplied inventory! Making use of independent retailers to finance their business would be better than paying rent to a mall and tying up capital in non-performing GW locations.
3. Marketing goals can still be met by having semi-permanent product evangelist presence in major independent stores. There is also the added advantage that people going to a store to play Flames of War or Warmachine, for instance, will be faced with GW marketing that is stronger. The days of pretending there is no other game out there are well and truly over and GW needs to address this immediately.
What would I do? Phase 2
After ensuring short term profitability and rationalizing the inefficient portions of the business, I would ...
1. Reorient the company into understanding that it is an IP company (actually a Warhammer 40,000 company), and not a miniatures company. Marvel Entertainment, the reorganized holding company of Marvel Comics, has had huge success with the Xmen movie franchise (co-produced with other film studios), and raked in almost $1.3 billion in gross revenues thus far with the wholly internally produced Iron Man franchise. Let's put it in perspective. Iron Man 1 made more money for Marvel than all the Iron Man comics, books, toys etc ever sold up till its release. In effect, the entire history of Iron Man comics was basically a marketing exercise leading up to the movie, if you view it from a business perspective.
Continue the miniatures business as is without modification, you don't throw the baby out of the bath water.
2. Move the corporate HQ to the USA. Currently manufacturing is already happening in Tennessee for most plastic products, but for some arcane reason all the senior management insist that the UK is the best place to run this company from. It's not. You have to go where the money is, and where movies and venture capital are concerned, that is still the USA. Without a strong corporate presence in the USA, it makes concluding a deal where a potential movie requires a budget more than your entire year's revenue that much more difficult.
3. Pitch and close a trilogy movie deal for Warhammer 40k. Give some creative leeway with the script, and ensure that the deal is only done with a high enough budget. The 40k universe is ripe for plundering here, e.g. the Horus Heresy period.
4. Possibly sell the company to a major media entity after the movies are produced. Marvel Entertainment was sold to Disney for over $4 billion.
Of course, as mentioned I'm not a GW insider so I have no idea what kind of internal factors they maybe limited by or what their long term strategy is. At their current valuation of about $120 million, they seem to be ripe for a hostile takeover if any venture capital group were to realize the IP potential.
I'm not a GW insider so this is all speculation from observing adjacent industries.
Marvel Comics has a revenue of $125 million, with an operating income of about $50 million. Both companies appear to target roughly the same market, teen to young adult males of a more geeky bent, and it is not uncommon to see game store/comic store hybrids selling both miniatures and comics side by side.
GW, unlike Marvel comics, has a strategy of owning and operating (O & O) its own stores in locations in Europe and the USA (and some scattered attempts in the rest of the world). GW has recently announced that it is trying to turn these operations into 1 or 2 man operated stores in an effort to reduce manpower costs, and it has been anecdotally confirmed that these GW stores have so little depth and breadth of stock that they typically have to take orders from customers and order online on their behalf.
According to their published annual reports, the strategy behind the O&Os is as much to create new customers amongst children and teens (i.e. showroom model used by some computer companies like Sony) as it is to generate retail sales.
However, with greatly reduced staff and product, it appears that both these objectives will be greatly hampered, which begs the question, why do it? Presumably, the GW O&Os do not have to pay for stock, which means these stores are capital sinks until the stock is sold, which may explain the recent scaling back of carrying stock in stores. It is a relatively simple retail rule, if you don't have what the customer wants when he walks into the store, you will usually lose the sale; GW does not appear to have perfected the art of predicting customer demand, and the sales staff in the stores do not appear to be able to steer customer purchases. Unlike washing machines or TVs which may be somewhat fungible, due to the nature of their product with specific army lists and unit types, it would be difficult to convince a potential customer to purchase an Ork Dreadnought instead of an Ork Battlewagon when the latter is out of stock.
Marvel comics does not have O&O stores, but instead relies on a large network of independent, typically small comic retailers to get their products into the hands of customers. This has considerable advantages; they don't pay rent, they typically have net 30 day terms which makes for predictable and efficient use of capital, they do not pay for staffing and they have limited exposure if a store location fails, for whatever reason.
What would I do? Phase 1
1. Close all GW 1 man locations, as a precursor to closing any location not intended to be a showroom or efficient retail generator.
2. Decrease independent retailer margins from 40% to 30%. Eliminate 3rd party North American distributors and beef up the internal distribution division.
3. Retrain GW store ground staff responsible for creating brand awareness and making them available to independent retailers, possibly as permanent seconded staff in large independent locations.
What does this achieve?
1. Decreasing retailer margins and eliminating distributors realizes a large increase in revenues without significantly impacting sales. Why? Because GW does not sell to big chain retailers but rather mostly smaller independents (even Hobby Town USA locations are independent franchise operations) that do not have set in stone ordering rules, nor great leverage in terms of negotiating prices.
Since GW has the dominant "must have" product, they will continue to order it regardless, and in eliminating 3rd party distributors, discount operators will be less viable making the remaining brick and mortar stores more able to sell at MSRP.
2. Closing GW locations means considerable cost savings in terms of rent and manpower. Remaining manpower can be refocussed on supporting independent stores, with largely the same effect except GW will receive a net 30 return on supplied inventory! Making use of independent retailers to finance their business would be better than paying rent to a mall and tying up capital in non-performing GW locations.
3. Marketing goals can still be met by having semi-permanent product evangelist presence in major independent stores. There is also the added advantage that people going to a store to play Flames of War or Warmachine, for instance, will be faced with GW marketing that is stronger. The days of pretending there is no other game out there are well and truly over and GW needs to address this immediately.
What would I do? Phase 2
After ensuring short term profitability and rationalizing the inefficient portions of the business, I would ...
1. Reorient the company into understanding that it is an IP company (actually a Warhammer 40,000 company), and not a miniatures company. Marvel Entertainment, the reorganized holding company of Marvel Comics, has had huge success with the Xmen movie franchise (co-produced with other film studios), and raked in almost $1.3 billion in gross revenues thus far with the wholly internally produced Iron Man franchise. Let's put it in perspective. Iron Man 1 made more money for Marvel than all the Iron Man comics, books, toys etc ever sold up till its release. In effect, the entire history of Iron Man comics was basically a marketing exercise leading up to the movie, if you view it from a business perspective.
Continue the miniatures business as is without modification, you don't throw the baby out of the bath water.
2. Move the corporate HQ to the USA. Currently manufacturing is already happening in Tennessee for most plastic products, but for some arcane reason all the senior management insist that the UK is the best place to run this company from. It's not. You have to go where the money is, and where movies and venture capital are concerned, that is still the USA. Without a strong corporate presence in the USA, it makes concluding a deal where a potential movie requires a budget more than your entire year's revenue that much more difficult.
3. Pitch and close a trilogy movie deal for Warhammer 40k. Give some creative leeway with the script, and ensure that the deal is only done with a high enough budget. The 40k universe is ripe for plundering here, e.g. the Horus Heresy period.
4. Possibly sell the company to a major media entity after the movies are produced. Marvel Entertainment was sold to Disney for over $4 billion.
Of course, as mentioned I'm not a GW insider so I have no idea what kind of internal factors they maybe limited by or what their long term strategy is. At their current valuation of about $120 million, they seem to be ripe for a hostile takeover if any venture capital group were to realize the IP potential.
