A 52-store retailer group has produced a joint statement of its concerns regarding Games Workshop wholesale pricing and other issues (see 'Joint Retailer Statement to Games Workshop').  According to the statement, 'Retailers may have been remiss in the past by inadequately expressing the strength of their feelings in these and other matters.  This small statement and the undersigned names should go far to redress this failing and make it more difficult for the management of Games Workshop to think that policy changes do not engage retailer comment and action.' 


The retailer joint statement was prompted by past GW statements that complaints from retailers about its policies have been minimal.  We sent the statement to Games Workshop and received a response from Games Workshop Director of US Sales Mike Jones (for the full text of his response, see 'Games Workshop Response to Joint Retailer Statement') and spoke to him to get additional information.  We share Jones' over-all assessment of the missive as 'well thought out,' and note that its positive tone and acknowledgments of those GW policies viewed as favorable to independent retailers made its criticisms easier for GW to respond to positively.


The retailer statement listed three specific issues that the retailers have with Games Workshop:


1.Wholesale pricing.  The retailers cited a recent wholesale price increase in GW's direct-to-retailer program that '...coupled with the difficulties inherent in adequately supporting the complex products that are offered by Games Workshop reduces the incentive for carrying the product line.'  Among the listed difficulties of handling Games Workshop miniature-heavy product line were larger than average shrink, the large amount of space required for display, and the amount of product knowledge necessary to explain the complex product line. 


Jones' response noted that the price increase in question had taken place last August, and '...was done largely to invest in the new Territory Managers program.'  GW's Territory Manager program, which to date has only been running in the Northeastern US, involves copany reps that call on retailers and work with them to improve sales.  According to Jones, 'The most important thing for us is the Hobby, and developing and promoting the Hobby.'  To help retailers do that, the Territory Managers 'explore problems, alleviate the problems and help them grow their business,... help them run clever and sensible promotions,' and help find 'what's the right stock range,' for each individual store.  Among ways that the reps help achieve the right mix are taking in-store inventories, helping to determine the best-selling items, and balancing stock to focus on those products expected to do best in that location. 


The five NE reps are based in Boston, New York, Philadelphia, Washington, and Baltimore.  Rather than attempting to visit each GW customer in a standard rotation, Jones said the pattern is more like a 'doctor-patient' relationship, in which the Territory Manager works intensively with a store to improve its GW sales, and 'when the processes make sense, you move on to the next one.'  Asked about Northeast US retailers outside of those five metro areas, Jones carried the analogy further, saying that the TMs could make 'house calls' on retailers further afield if requested to do so.


GW's program is taking some time to roll out. Jones said that three new Territory Managers are currently in training for imminent placement in Los Angeles, San Francisco, and Seattle.  The goal is to end up with 20 Territory Managers in four regional territories covering the lower 48 States by no later than November of next year.  We asked Jones whether the fact that the price increase took place over two years before the complete rollout of the program it was designed to fund meant that a portion of the price increase was going to GW's bottom line in the interim.  He acknowledged that it was, saying, 'We're in business to make money like any other business out there in the States.'  On the other hand, Jones said that the program had been a 'huge success' in the Northeast, and that GW was working hard to roll it out nationally as quickly as it can. 


The question is whether retailers will perceive that the Territory Manager program is worth the lost discount.  Certainly for those retailers that are paying higher prices but receiving no additional services, the deal is a bad one for now.  But for those retailers that have begun receiving the additional services, the improved merchandising alone could easily make up for the lost discount, if effective.  There have been some very positive reports about the program; only time will tell whether that opinion is still widely held when more retailers are involved, and whether the target staffing levels will be adequate to service the number of retailers that may want to participate.


2.Games Workshop discounting its products to consumers.  The retailer statement lauded GW for its policies discouraging the offering of deep discounts on its products by retailers.  But it noted that those policies were undercut by GW discounting in its 34 company-owned stores in North America.  Jones said, 'To be blunt, it simply isn't true.'  His response said that other than Grand Opening sales for new stores, that '...both Mail Order and retail stores adhere to full retail pricing.'   He continued, 'We've dropped the old mail order 'Bargain Basement' also as it gave the impression that we were discounting.'   


We were not able to independently verify pricing in the GW stores, but we did take a look at its online store where the 'Bargain Basement, where overstock items are offered up at ridiculously low prices,' showed signs of its recent departure (it was still flagged on the opening page).  Inside 'Da Troll Cave,' however, there's a notice that the Bargain Basement is gone 'for the time being.'  There were also still discounts off retail on the site, as well, in the form of 'Speshul Offers,' which appeared to be assortments built up out of multiple blisterpacks sold at modest discounts of around 3% below MSRP.   


3.Communication.  The biggest issue here was the unavailability of a list of Games Workshop products available at wholesale, with pricing and other pertinent information.  When we talked to GW's Jones, he said, 'A few months back someone made a ludicrous decision that we didn't need one,' but that a new Trade Order From was in production.  Jones also said GW planned to offer online ordering for retailers 'sometime in the next three months.'   


A second communication issue listed was retailer referrals.  Frequent delays in getting independent retailer information into Games Workshop's online referral service or into its list of retailers in White Dwarf magazine were cited.  Jones acknowledged that delays had at times been 'absurd.'  Asked for the ideal turnaround time for getting new retailer information onto its Website, Jones targeted one week, and said that he expected GW to be consistently achieving that within a month.  Due to the long lead time for production and printing of White Dwarf, he held out little hope that the lag time there could be cut to less than three months.  But he noted that there had been fewer probems with meeting that turnaround with White Dwarf than there had been with the GW Website updates. 


Do They Really Want To Hurt Me?

Beyond the specific areas of concern, a more general issue was also raised by the retailer statement.  'A historical disregard and under-appreciation of retailer concerns has prompted many retailers to simply conclude that the difficulties outweigh the benefits of carrying Games Workshop products,' it said.  This general issue could be described as one of company culture -- retailers wonder whether Games Workshop genuinely wants to improve its sales to independent retailers.  And it's not a new concern; it dates back to the launch of Games Workshop's US operations in the 80s. 


Games Workshop is vertically integrated to a very high degree, especially in its home market of the United Kingdom, where over 60% of its sales are through company-owned stores.  It has also pretty much eschewed the independent distributor route, favoring direct sales to retailers in all its markets.  In part because of this historical pattern of vertical integration, in part because GW has, at times, ineptly executed its efforts to sell to US retailers, and in part because of what seems like  antipathy toward outside resellers at times, independent retailer perception of Games Workshop has been troubled since it first came to the US, ranging from being suspicious of its motives to just giving up on the difficulties of dealing with the company.


The Games Workshop Strategy

Games Workshop believes that it can do a better job of selling its own products than anyone else can, and says so explicitly and implicitly.  For example, in its most recent annual report, the company notes, 'The sales growth has been strongest in those channels which we control, direct (mail order and Internet) and GW stores, which further underlines the strength of the Hobby when marketed by our uniquely skilled and enthusiastic staff.'  On the more implicit end of the scale is the ranking of retail options on its Website, where its own stores are listed first (even though, with under 40 stores, they're only in a fraction of the markets in the North America) and its directory of independent retailers is listed second.  Interestingly mail order/Web sales is listed third, presumably because the company believes its products are better sold in an environment that encourages groups of gamers. 


According to the annual report, the new Territory Management program is a result of the observation that GW sells its own products better than others do; it's an attempt to transfer knowledge about retailing GW products to independent retailers.  GW has also been 'breaking down the barriers between the channels by giving ...sales managers responsibility for all sales in their geographical area,' regardless of channel.


Why It's Important

In its 'Americas' territory, which is the largest contributor of sales of any of GW's sales territories and the source of nearly half of the company's robust net profit, independent retailers accounted for 2/3 of sales in its fiscal year 2001 (which ended June 1, 2001).  And things have not been going well in that channel.  The six month interim report for the period ending December 1, 2001 reported a 6% growth rate in the Americas (lagging a 21% overall growth rate).  'Growth in the Americas was more modest, with sales to our independent customers proving harder work,' the report summarized.  And to address that lower growth rate, Games Workshop can't open stores on a scale that would significantly replace independent retailers in the US/Canada market for the foreseeable future.  So its efforts to expand sales through its Territory Management program are especially critical here. 



Whether that financial imperative, the changes in management structure, and the new techniques of Territory Management can bring Games Workshop to the point where retailers will see it as a more worthy channel partner will probably play out over the next 12-18 months.  We'll let you know how it turns out.