We break down the numbers and look at the challenges facing local game shops.
Since 1985, Joel Riplie has opened 45 video game stores. Calling each Video Game Exchange, he approaches them like a reality show — he finds a location, fixes it up, stocks it with games, gets the business running smoothly and then, when the right offer comes along, he sells it.
"Any time somebody calls in, we go to the warehouse and dig out an inventory and we open another store," he says, initially taking my call in the back of his shop, away from customers, because he thinks I might want to buy it.
The strategy has worked well for Riplie, allowing him to live across the U.S. and kickstart dozens of small businesses. He keeps a warehouse with enough stock to open 10 stores "tomorrow" if the situation presents itself, he says.
But in recent years he’s seen less demand from those looking to buy him out. He’s been in one of his current locations for more than seven years. The calls have become less frequent.
It’s an old story at this point — internet sales and large corporations have made it harder for small stores to compete, and the game industry adds its own challenges. In 2017, even mainstream retail chain GameStop has been struggling to keep up as more and more players buy games online.
Riplie, who eventually plans to double down on online sales as an exit plan, gives his retail business five to 10 years. "I’m not sure that I think it’s gonna be around in 10 or 20 years," he says. "I really don’t."
Jason Brassard, owner of Trade N Games in Fenton, Mo., gives the same five-to-10-year timeframe. "I don’t think this industry, in retail, is left in 10 years," he says. "… No, not in the least bit. I mean, there will be some collectibles, but paying two employees who work full time and paying a few thousand in rent, nah. No way. Not a chance."
To break down why some feel this way, we recently dug into the specific costs of running an independent game store in the U.S., and talked to more than 15 store owners and managers about the process. From telling stories of Amazon selling games for less than wholesale distributors, to opening their books and showing the costs of everything from insurance to paper towels, they paint a picture of an industry doing its best to keep its head above water.
Some disagree with the five-to-10-year predictions and say they expect to be around for the long haul, pointing to loyal customers and a recent upswing in retro collectors, but most agree it’s a tough business with ever-growing challenges in making the math work.
Photographer Jonathan Castillo recently drove from California to New Hampshire, taking photos of small game stores along the way. You can see his work scattered throughout this story.
One of the first lessons many store owners learn is that they aren’t part of the game industry. They exist on its fringes, and it will humor them, but game publishers hold the cards. If small stores want to play, they play by publishers’ rules.
Case in point: new game sales.
In the late ’80s, a store owner could buy an NES game for around $25 wholesale from a distributor and sell it for, in some cases, $50. Accounting for inflation, today that would mean a profit of just under $50 per sale.
In our research of wholesale rates available to small stores in 2017, the lowest price we found — for a new game that retails at $60 — was $49. The highest was $59, and most fell between $50 and $55. So in a hypothetical utopia, a store could make $11 per sale. Yet there are hurdles that prevent them from making even that much.
In most cases, they pay more per copy — of the stores we spoke to, only one has gotten a $49 rate in recent years, and that came with buying a few hundred copies at a time, which many stores can’t handle. Stores also have to factor in shipping costs (or gas if they use a local distributor), taxes and credit card processing fees, on top of rent, payroll and the general costs of running a business.
Excluding broader store costs, many locations end up making $5 or $6 per sale, and that’s if they sell every copy they bring in. From there, things get more complicated when game publishers decide to lower the game’s official sale price before a store sells through the stock it bought at the original rate.
"Video games nowadays price-drop faster than I’ve ever seen before," says Spenser Brossman at Complete in Box in Ephrata, Pa. "There are times where we’ll order a $60 game and a week, maybe a week and a half later it’ll be down to 40 bucks."
It makes for a gamble as stores have to guess how many copies they can sell before a game drops in price.
"I always joke to my guys that I always get it wrong," says Brossman.
Nearly everyone we spoke to for this story praised Nintendo as a publisher that generally doesn’t drop the retail price on its games, but some point to the 2016 fall lineup as particularly tough for price drops from other publishers, calling out games like Battleborn and Call of Duty: Infinite Warfare that dropped quicker than expected.
"In the case of Battleborn … within a week it had dropped 10 bucks so there goes our entire profit," says Edgar Garcia at World 8 in Los Angeles, Calif. "So we’re trying to break even, but then the reviews come out or Overwatch gets more praise and then it gets dropped another 10 bucks and now we’re losing 10 bucks every time we sell a copy."
"Your profit margin is so slim on these games," says Frank Bond of Stateline Video Games in Feeding Hills, Mass. "I have a whole showcase full of games we’re selling online right now, of games I probably paid $52 for and I’m selling for $15 and $12."
These sorts of numbers are why many independent stores have long avoided new game sales, focusing on used games and other services.
Brassard at Trade N Games stopped carrying new games years ago. He says the main issue isn’t that he would lose money if he stocked them but that it would tie up capital he could put to better use elsewhere. Brassard says he used to stomach the thin margins on new games because they encouraged customers to trade in more used games in order to afford the new ones, but in the long run, it wasn’t worth it.
"We’ve done the math," he says. "… It’d be a $25,000 investment in new releases just to keep it flowing in and out. Minimum."
Jake Stoner at Cap’n Games in Sparks, Nev. simply has an Amazon Prime account and preorders one copy of every new game. Since Amazon offers 20 percent off preorders, he gets a lower per-unit price than distributors offer. Then he turns those around for a $5 profit on each.
"I don’t try to mislead my customers, but I’ll let them know that I’ll have one," he says. "So if you want it, that’s great. I don’t have an issue with that. But I’ll only have one. And that works OK. But most of the time, I just refer people elsewhere."
For some like Brossman at Complete in Box, though, it’s worth it to suck it up and play the distribution game. He points out that certain items have even worse margins than new games, noting that he pays $29.90 for a Microsoft gift card that sells for $30. If a customer buys that with a credit card, his store loses money on the sale.
"Sometimes you just kind of have to eat it," he says. "… You just do that, just hoping, ‘Well I hope they’ll remember this. I hope that they’ll come back.’"
For stores that carry new games, another challenge comes with sometimes having to sell lesser versions of those games. While GameStop, Amazon and others carry enough weight to strike deals with game publishers for exclusive pre-order bonuses on some games, small stores are generally stuck with vanilla copies.
As a way to give themselves an advantage, some small stores choose to sell games before their official release dates — a move that helps them sell through new stock quickly but comes with a certain amount of risk.
Similar to the tough margins, this isn’t new. Game publishers have been cracking down on stores that break street dates for decades, sifting out unreliable distributors and retailers. And distributors often have formal processes in place — some take the option away from stores by delivering games less than a day ahead of release or forcing stores to pick games up in person if they want them on the day. They also typically make stores sign contracts with large penalties if those stores get caught breaking dates.
Complete in Box has to sign a new agreement with distributor D&H every fall, for instance, specially mentioning that it won’t sell Activision products early. The types of agreements vary by publisher and distributor.
"There’s been places around here that have done it on purpose, selling stuff early," says Spenser Brossman of Compete in Box, "and Activision will go to D&H and be like, ‘What’s up?’ And D&H will go, ‘Well, we’re dropping them.’ And that’s huge. Because say if we were dropped … it’s like, ‘Oh man, we only have a couple more choices.’ Or we’ve got to worry about shipping them from super far away or whatever the case is."
Jay Gelman, CEO of distributor Alliance, says he’s had to cut stores off for breaking street dates in the past, "when we were more trusting," but he doesn’t see violations often these days.
Alliance funnels games to a wide range of customers, from independent stores to major retail chains like GameStop and Burlington Coat Factory, and helps with fulfillment orders from websites like Walmart.com and Target.com. And Gelman says that over the 14 years Alliance has been in business, he’s seen publishers ("vendors") get much more aggressive about finding which games end up where.
"The thing about this business which is very difficult is there’s no exclusivity," he says. "So the same retailer could buy the same game from me and buy it from one of my competitors, and if my competitor’s not as vigilant, that retailer could break the street date while I had nothing to do with that offense. That’s where the vendors have become much better. They’ve identified that a lot more and I would say have weeded out certain distributors that were issues when it came to street dates."
Despite that, some stores still work around the system.
When Garcia started World 8 in Los Angeles, he admits he broke street dates. In the store’s first couple years, he was buying in small quantities and didn’t have agreements in place with larger distributors, so he would often find ways of getting games without signing contracts. And when he did, he figured selling those games early would give World 8 an edge.
"The thing is, it’s not technically a law," he says. "There’s no law saying you can’t. It’s just a contract thing."
He says he never got in trouble, but when his store grew and signed with larger distributors, he saw they had more formal processes in place and decided it wasn’t worth the risk and hassle.
"My most hated release of every year is the 2Ks," he says. "When NBA 2K or Madden, or any 2K really, comes out, people go nuts. And they’re willing to pay $100, and they’ll show up to the store and they’ll say, ‘Oh hey, do you have this game?’ And we’ll say, ‘No, it’ll be out next week.’ And they’ll say, ‘I know you have it. I’ll give you an extra hundred dollars,’ blah blah blah. We could do it, but there’s no loyalty there. These guys are not going to think of us when they buy a game. They’re just going to go to every store until they get it."
Another store owner, who requested anonymity so game publishers won’t hassle him, says he regularly breaks street dates because it generates loyal customers, noting that selling a game even an hour early can make a big difference to people.
He says he’s been selling games early for years and isn’t overly worried because he doesn’t sign contracts — i.e., if he got caught, his distributor would be the one to get in trouble, not him. He simply is careful about who he sells to, makes sure not to give out dated receipts on those sales and if anyone comes around asking questions, he denies the sales happened.
Financially, he says he doesn’t see a big upside from these sales; he doesn’t charge more for them. He just thinks it’s fair because of how difficult game publishers make it for small stores to profit on new game sales otherwise.
With all the challenges tied to new game sales, the big money for small stores has long come from cutting out the middleman and selling used games. And that’s where many store owners and managers waver on the health of the business.
On a base level, the margins work much more in their favor. Many owners and managers speak proudly about giving customers more money or credit for their games than GameStop and selling games back to customers for less than GameStop, all while making larger margins than they do on new games. They say the only times that’s not the case are when GameStop offers special promotions.
The margins vary wildly depending on the store and game. At Core Gaming in Salem, N.H., Matt Hickey says they generally mark up games 75% above what they pay for them to offset a large inventory and showroom. At 4JAYS in Antioch, CA, Jody De Amaral says they typically mark a $1 game up 100% but scale down from there, getting down to 25 to 35% as the game becomes worth around $40. Some stores skew higher, and their customers often feel gouged. Others skew lower and try to make up the difference in volume.
A handful of stores also point to a "retro boom" over the past five years, noting significantly increased interest in games more than 10 years old.
At Digital Press in Clifton, N.J., Leonard Agrusti says that, over the past three years, he’s seen five rival retro game stores open within 30 minutes of him. And he’s seen a number of retro trends that the store has been able to ride from a massive uptick in NES collecting in 2015 to, "out of nowhere," PSPs selling super fast in late 2016.
Multiple stores point out how they are ideally positioned to hop on trends like these, overstocking Pokémon games when Pokémon Go funneled customers their way and advertising alternatives to Nintendo’s NES Classic when it sold out.
The downsides list runs long, though, largely revolving around the inevitable internet competition and how players can buy and sell online with an almost unlimited audience. Since eBay took off in the late ’90s, this problem has been hanging around, and many stores say it’s gotten worse in recent years.
For 4JAYS, this means they see far fewer rare games and big deliveries from customers. In the store’s early days in the late ’90s, De Amaral says they regularly took in valuable collections, in part because they were one of the only stores nearby buying games from the public. She remembers a time a customer drove a van of Atari and Commodore computers up from Los Angeles — about a six-hour drive — just to get rid of them for a dollar a piece. Or other times, customers would invite 4JAYS staff to their houses to help clear out garages filled with games.
"We literally would just be getting in car loads full of stuff because people didn’t want it," says De Amaral. "They didn’t know what to do with it anymore."
Now, De Amaral says, those sorts of collections don’t fall into their laps nearly as often. And many stores point out that when customers sell games, they tend to be much pickier about checking prices online first. They aren’t hurting for options.
"If you just talk Craigslist, sure," says Trade N Games’ Brassard, "but let’s just talk Facebook sale pages. Let’s talk Let Go. Let’s talk Flip It. Let’s talk all these other outlets … people can take payments and swipe them on their phones when they meet in a parking lot, or they can just take PayPal now verbally, and so on. It used to be they would have to go to a store if they needed cash quick, but nowadays a lot of people don’t even see cash."
Depending on where a store is located, it may also have to deal with laws rooted in pawn shop sales that require stores to hold merchandise it buys from the public before selling it. At People Play Games in Chicago, IL and Video Game Exchange in St. George, UT, for example, they have to hold used merchandise they buy for 30 days, which ties up money.
"It’s a little bit difficult when you’re coming on to holiday seasons and you’re seeing good deals that are coming in the door, but you’re on a 30-day hold," says Riplie at Video Game Exchange.
Still, some see the benefit of convenience of having a local store and think it overshadows many of the other issues.
"Amazon, eBay, Half.com, all those places, you want to think they would hurt you as a small business," says Stoner at Cap’n Games. "I mean, you really want to. ‘There’s so much competition, and blah blah blah.’ But a lot of people are lazy. Or they’ve been burned so hard on eBay or Amazon that they don’t want to deal with that anymore, and so they’d rather shop local. They’d rather go pick it up and hold it in their hands today versus wait three days, get something that’s crap and then have to send it back and deal with that headache."
And some also see the internet as an advantage, finding success in Google and Facebook marketing.
"Facebook’s been huge for us," says De Amaral at 4JAYS. "Since we started doing Facebook, we’ve gotten a ton more business." She says the difference is particularly notable when compared to legacy marketing ideas like newspaper ads and local flyers. "No one’s really looking at that stuff anymore, it seems."
To adapt with the changes in times, many small stores are also expanding more and more beyond game sales. They are focusing more on peripheral merchandise like statues and plush dolls, holding more tournaments and doing more hardware repairs. Basically, they’re using the idea of them as game stores to get people in the door, then finding related items or services to sell once customers show up.
In the case of Alhambra, Calif.-based Japan Video Games, the store has kept its name from its early days as an import game shop but generally no longer carries video games, focusing on licensed toys instead.
"There’s no way we could keep the store open selling strictly video games," says World 8’s Garcia. "Fortunately, in the last two/three years we’ve gotten into all sorts of other stuff. … I mean, whatever we could to make up the numbers to try to break even." He estimates that 75% of the store’s profits come from nongame items.
Multiple stores point out that one of the key upsides to selling items other than games is they work well as impulse buys, and they aren’t the sorts of things customers always know to look for online or know what they should expect to pay for them. At Complete in Box, Brossman says they regularly sell action figures and comic books at a 100% markup over the wholesale cost, though it can be harder to predict how well these will sell well compared to games.
At Digital Press, a store with its deep roots in the classic game collecting community, Agrusti says they are doubling down on things customers can’t always do themselves, such as repairs.
"Doing repairs, I feel like, is much more important now than ever," he says, noting that many older consoles are reaching the age that they are starting to break down more regularly. "Because when we started, we did the basic repairs, like repinning NESs, replacing batteries in games. Now we’re doing a bit more. There’s more things you have to do. Replacing the back of the Super Nintendo happens a lot more now."
That extends to mods as well, he says, and he sees the demand for those continually rise.
"Almost everyone’s trying to put an HDMI in everything these days," he says.
Any time a store deals with buying games from the public, it has to consider variable factors as well — such as theft, seller scams and a wide range of customer tricks.
The majority of stores we spoke to say they run into minor issues with customers trying to sell pirated or stolen games, and that those have calmed down over the years.
"Most of the time we get pirated stuff in, it’s not on purpose," says Alejandro Ramirez at The Gaming Zone in Tempe, Ariz. "It’s like, ‘Oh I’ve got this stack of burned games. Do you guys want it?’ And we’re like, ‘No.’"
"I know how to spot a fake Pokémon game a mile away," says Bond at Stateline.
When customers arrive with stolen games or consoles, stores get similarly cautious because of the financial risk. Policies range by store, with some requiring fingerprints that go into a police database, but many say they regularly decline to purchase anything they even suspect could be stolen. It’s not worth the risk of the police seizing it, they say, leaving the store out whatever it paid.
"If a guy comes in and tries to sell you a PlayStation for 10, 20 bucks, you know it’s stolen," says Garcia at World 8. "But you know, it’s a tough business so most people would just go, ‘Yeah that’s fine. Whatever.’ Because they don’t expect anyone to follow through with trying to find an old system. But it happens."
Then there’s an issue that many retail stores face from time to time: robberies.
Stoner at Cap’n Games recalls a recent incident where a man called the store just before closing time, asking for it to stay open so he could sell a PlayStation 4 Pro. Stoner’s wife stayed and the guy arrived, offering the console for $80 while his friend went around the rest of the store stealing things off the shelves. Stoner saw the incident on his security cameras and called the police, who ended up arresting the duo. Stoner later discovered the two had a trunk filled with guns for a gang in San Jose.
Stoner says it’s a running joke amongst his employees that he’s always listening through cameras placed around the store, even when he’s not there. There are "a lot of things in place just to cover my ass in case something bad happens," he says.
He also points to issues competing with those selling games at flea markets. He says he’s run into a group of people that will sell their games at a local flea market, then bring whatever they can’t sell to his store to trade for bigger name titles like "my Marios, my Pokémons, my Zeldas" that they can sell the next week.
"Of course, I’ve gotten wise to it," he says. "I ended up giving them a dime for this and a nickel for that. They still come back. [Laughs] Because if you can’t move it, you can’t move it. You just sit on it for nothing."
As with any retail business, the product is only a small part of what it costs to keep things running.
Every store’s situation is different. Some have larger square footage and therefore need to add employees, or pay more for insurance if they have enough glass on their exterior. Some pay for health insurance for their employees. Some rent warehouses or storage space off site to store extra games. Some set up booths at conventions to sell additional games.
Gamers Anonymous in in Albuquerque, N.M. takes a relatively straightforward approach. It sells new and used games and doesn’t branch out into related fields like comics or movies. It sells some merchandise, but it makes the bulk of its profits on used games.
Owner Jonathan Sakura bought the store in 2007, and says he was inspired by Japan-based chain Super Potato to turn it into something that celebrated games with rare items and marketing materials around the store.
For this story, he opened the store’s books to give Polygon a breakdown of all the money that goes into running it.
To keep Gamers Anonymous going on an average month, costs include $3,400 for payroll, $1,800 for rent, $976 for taxes, $250 for a miscellaneous bucket of minor expenses like cleaning supplies from Walmart, $200 for a point of sale system, $175 for credit card processing, $150 for electricity, $150 for insurance, $150 for internet and phone, $150 for an accountant, $100 for advertising, $100 for a FiveStars customer rewards program, $30 for gas and $6 for web hosting.
To stock the shelves, Sakura spends approximately $1,500 a month on new game and peripheral orders from distributors, and another $1,500 to buy used games from customers. That latter number varies, however, based on what customers bring in, and whether they want cash or store credit. (As part of a recent deal, a customer sold Gamers Anonymous a large collection for $15,000, throwing off the store’s monthly averages.)
Added up, that comes to $10,637 in a given month, which the store has generally been able to make back with a small buffer to keep things going, selling, on average, just under 1,000 of the store’s 4,500 games each month for approximately $12,000 in revenue. The numbers fluctuate through the year, though, slowing down in October and ramping up from November to February.
"There’s a misperception, sort of, of how a business has to make its money," says Sakura. "You know, it’s really easy to walk up to some place and say, ‘Oh, well they just want to rip you off. They just want your money.’ Which, sure, if you’re a business, absolutely we do [want your money]. But we like to do it not through high-volume sales or high profit margins, but to establish a good relationship with our customers. …
"We’re not making dollars hand over fist like Walmart or GameStop. We’re making enough to survive and build the store slowly, essentially."
Trade N Games’ numbers look relatively similar, with higher payroll ($4,000), rent ($3,000) and cost of games ($6,500) to cover a larger, 2,000-square foot, space with total costs adding up to $16,530 per month.
"If we [make] $17,000 to $18,000 in sales for the month, that’s just enough," says Brassard. "That’s just barely enough."
The numbers are tight enough for many that regional differences like minimum wage and rent costs can make or break a store. In our research for this story, we found zero independent game stores in San Francisco where rents are high. Forty-five miles away in the suburb of Antioch, 4JAYS makes the math work by staying in a cheap area that has low foot traffic and "Drug Free Zone" signs scattered around the streets outside.
"Mainly, we decided that we wanted it to be affordable for people to buy video games," says 4JAYS’ De Amaral. "… [We wanted to] keep our overhead low so we didn’t have to, you know, be like another GameStop or some of our competitors that are pretty high ticket on their items."
And there’s no lower overhead than getting rid of retail space altogether, as many selling exclusively through Amazon and eBay already have.
"That’d be the future," says Brassard. "That’d be no need to pay employees or pay rent. Just do it all out of the house and write off whatever it is — 10 or 15 percent of the house — for business and just roll with it. My rent is $59.95 a month for my website, not $3,000."
Ultimately, none of this matters to someone who just wants a game. Many customers have nostalgic memories of visiting local stores, but for those looking for the best deals, they’ll generally find them online. And as time goes on, more and more games will be available digitally, and retail store costs will keep going up.
The longer a store sticks around, the higher things like rent, payroll and insurance will go up. And game profits won’t always rise to match the higher expenses. A store that made a healthy profit 10 years ago, without any changes to its customers or sales, may lose money today.
So with all the challenges involved in running a small game store, why do many continue to do it?
For De Amaral at 4JAYS, it’s partially to keep the family business going. Her family has run the store for almost two decades — "4JAYS" refers to four family members whose names all start with "J" — and it’s a place for her and her parents to spend time together.
She says the store makes enough money to pay one person’s salary, but not to support the three full-time staff they have. They make it work since two of those three are her retired parents who volunteer, and her husband brings in enough to live on through another job. "So my money’s like the fun money," she says.
"We always joke it’s more of a hobby than it is a business," she says. "But we like doing it."
She plans to keep the store running for as long as her father wants to keep working, noting that both of her parents, who are in their 70s, do the bulk of the labor involved in stocking, organizing, repairing and testing inventory.
"So I’m thinking once [my dad] quits," she says, "I don’t even know that I want to pick up what he does."
For Kevin Hicks at Game On in Muscle Shoals, Ala., the store also means more to him than just the money it brings in.
Before opening the shop in 2013, he planned to partner with a friend. The two had gone to school together and started selling their own games to friends, then ramped up to running flea market sales. Everything was going well, and he says his family was "shocked" at how much money they were making.
But shortly before opening the retail store, his friend got into a car crash, went into a coma and later died. Hicks remembers buying him a copy of Earthbound as a going-home-from-the-hospital gift; he never had a chance to deliver it.
"It was really tough to try to move on without him," Hicks says, but he keeps certain items around the store as a sort of memorial, such as a favorite Yu-Gi-Oh! card that sits behind the front counter.
"So that’s like he’s got a piece of himself at this shop."
For Stoner at Cap’n Games, it’s about having a place to settle down.
He grew up with parents that he describes as "transient minded," so he moved a lot and dropped out of school at 15 to work with them in the woods. He then carried that approach into his early career, regularly opening small game stores, selling them for cheap ("whatever they had, basically") and moving somewhere else to start over.
In the ’90s, that meant he often sold stores for around $5,000.
"Then I got married, I had kids, and for some reason, my wife was like, ‘No, I don’t want to move every year,’" he says with a laugh.
Now he’s grown comfortable and says he turned down a $100,000 offer for his current business, and would need an offer over $300,000 "to even consider" selling, despite recent raised rents forcing him to relocate to a pair of nearby locations.
"I don’t plan on moving anymore," he says.
For Sakura at Gamers Anonymous, and many others we spoke to for this story, it comes down to simply enjoying selling and being around games all day.
The morning before an interview for this story, his store got broken into.
"I walked in this morning and saw my front window smashed in," he says. "I took a bunch of pictures and was like, ‘Man, this is kind of discouraging.’"
Thinking about it for a moment, though, he says the store is worth the trouble. He reminds himself of another job he had before running Gamers Anonymous — working in a TiVo call center — and says it was hard to feel excited about going to work because he wasn’t excited about the product.
Selling games changed his outlook.
"You know, this is all I’ve wanted," he says. "I worked in video game retail for so long before this. I know video games. I can give people honest answers, and I can help them find exactly what they want. And that’s all I love doing, just seeing people walk in and walk out with whatever it was they were looking for."
Source: Polygon – Full