** Writers edit: Congratulations to Charles for opening his new store – Manabase. You follow a long line of aspiring entrepreneurs who decided to take a step forward in realizing your dreams. Best wishes going forward.
Firstly, this article may be the most controversial of all yet. I plan to state out the facts and figures, show no preference nor illwill against any LGS owner(s) and this is just my pure assessment and opinion from both the perspective as a player, a customer, a former business owner and a finance guy. Secondly, I’ll be focusing only on Magic the Gathering as primary source of income. I know most LGS caters multiple products – Warhammer, Pokemon, Force of Will etc. I’m not familiar with those products/markets, and I’m drawing the assumption that a store operates with MTG doing most of the heavy lifting towards their income. I doubt any other card game contribute close to what MTG provides anyway. And finally, I’ll only be covering LGS’s in the Klang Valley. I’m not ignoring the folks in Northern and Southern regions, is just that the concentration of the market and stores are predominantly based in the Klang Valley for me to provide my assessment.
So lets go!
Geographic
LGS or more commonly known as “Card Shop” or just “Shop” has been sprouting up in great numbers over the last two to three years. I figured its “normal” as MTG is growing in Malaysia, the player base is growing and a Card Shop is actually a viable business. Or is it?
Lets take a look at the list of LGS within the Klang Valley itself (in no particular order):
The Safehouse
Classroom
Cards & Hobbies
AK Games Centre
Genius Maze
Decards Enterprise
Comics Corner (Subang and Damansara Jaya)
Attilan Games
Brainstorm Games
Yokozuna
Comics Mart (Mid Valley)
Eternal Magic
Hobby Quarters
Top Deckers
Manabase
Most shops are concentrated in Petaling Jaya and the few outside the KL city centre area. But that’s a massive list of stores for a small city (don’t get started on Singapore). I live in Kota Damansara and it takes me under 40minutes by car to get to either store on the list. It’s reasonable amount of time to travel for a PPTQ or a similar event. However heading over to say Attilan Games (roughly 40 minutes and RM5 in tolls) is not my ideal choice of playing FNMs. I mean Au Yong is my buddy and I’m all out to support him, but its just not realistic and cost effective to travel that far out when there are other nearer options. In other words, MTG world in the Klang Valley is considered rather small when there are numerous shops within close proximity to each other. While there is a healthy number of players within Klang Valley, but they are more or less spread out across the stores much possibly due to geographic locations of the store.
Would transportation infrastructure play a role in determining accessibility to a store?
Unlike Singapore, where everywhere is connected via MRT, Klang Valley’s public transportation is far from efficient. However these days most MTG players travel to their LGS’s via personal car, car-pooling with their mates or even cheap ride-share services like Uber and Grab. The old myth of opening a store next to public transport system is long behind us. But that brings us to the next issue of other amenities such as parking and food. Parking has been an issue for a while for some LGS’s but with surge of shopping malls sprouting in many areas, this opened up additional parking for the players. One example is Classroom that was previously plagued by horrendous parking. Now with the Starling mall opening across the street, parking is no longer an issue. However some other stores still has parking challenges like Comics Mart (Mid Valley) where getting a parking on the weekend is almost equivalent of winning a lottery. While that statement may be slightly exaggerated but the thought of fighting through the throngs of weekend shoppers to get that LGS may sway your decision to head to a different store to spend your weekend.
Crunching the Numbers
So how much does a LGS make? That’s an interesting question many players have on their mind and everyone at some point will think (a) its so cool to own a MTG store and (b) MTG store makes a lot of money.
I’m all about the cool factor but slightly on the fence with the lots of money part. For those who were not aware, I used to co-own and manage CCE Games, a dingy LGS at Old Klang Road, from 2006 to 2009 along with my buddies, Khoo Wei Ren and Au Yong Wai Kin. Together we took over a run-down store that predominantly sold video games and ventured into MTG. We started the store with close to zero inventory and with a starting capital of RM20,000, we grew the store rapidly. Back then, there weren’t as many established LGS’s which did everything – events, products and a massive supply of singles. We supplied to local Klang Valley, outstation customers (Penang and East Malaysia) and we were doing well on international sales.
In those three years, we were averaging around RM300,000 per year in gross revenue, half of it attributed to singles (both local & international) while the remaining was split roughly between event revenue and products. Back in the day, people didn’t crack as many boosters and boxes as they do today and event revenue was pretty decent as we were the few stores that were actively churning events. RM300,000 is no small number but once you drill down to the profits, that’s when things look slightly shocking. We made almost no profits from event revenue as we paid out everything in prizes to make it attractive for the players. Product sales were generally low margin (approximately 10%) and a bulk of our operating profits came from our singles sales. Wei Ren and I took no salary and despite a low operating cost of cheap rental and only Au Yong’s salary to manage, we were just barely breaking even – cash flow wise, each month. Considering I spend 20 hours a week (between running the store on weekends, managing the international sales, trips to the post office) and getting nothing in return, the cool factor fizzled out very quickly.
Of course we amass a large collection of cards over the years and the value attributed to these cards increased over time. However these were only as good as cash if you were able to convert them at the relevant prices and we were not converting them at a very healthy rate that was justifying the time and effort we were putting in.
So while it was a very fulfilling experience for me and I gained so much, but financially it didn’t make a whole lot of sense. In addition, running the store over that three years left a significant negative impact to me. I didn’t enjoy playing the game anymore. The business aspect sucked out the competitive and the play experience I had with MTG. I was too engrossed on making the next sale and earning that extra dollar more so than enjoying the game for what it is. LGS owners reading this article today may relate to what I felt back then. So in 2009, I finally had enough as the entire experience felt more draining than rewarding, time and financial wise, and was also taking a toll on my other things in life.
Separating the business and the enjoyment, we come back to LGS as a business. Are they really that profitable? I’ve done some homework and crunched the numbers to what I think the Klang Valley market looks like.
Total approximate MTG players in Klang Valley (active): 500
Broken down to:
Class A - Regular / Competitive / Weekly: 300
Class B - Casual / EDH / Friendly / Starting Out: 200
Rough monthly spend by category:
Class A – RM1,200 a month
Class B – RM300 a month
Basis of RM1,200 a month? Simple. Annualise that number and you get RM14,400. Which is then broken down to roughly:
a. 2 booster boxes per new set @ 4 sets a year = RM3,000
b. 2 booster drafts per new set @ 4 sets a year = RM400
c. 4 pre-release sessions per new set @ 4 sets a year = RM1,600
d. New sleeves, folders, deck boxes, accessories = RM200
e. 1 special edition box per year (Masters) = RM800
f. Singles for 3 new standard decks = RM2,500
g. Singles for 1 new Modern deck = RM3,000
h. 20 PPTQ Entry Fees = RM1,500
i. 35 FNM Entry Fees = RM700
j. Other events (Game Day, Release Party, Weekly Modern etc) = RM700
Spending split:
Class A:
Singles – 40%
Products – 40%**
Events – 20%
Class B:
Singles – 20%
Products – 70%**
Events – 10%
*** Assumption - Pre Release falls under Products rather than events. There isn’t a pre-release each month, but its roughly the average spending for four pre-releases a year.
So when you add the entire math up we can assume the following:
Class A:
Singles Revenue = RM144,000
Products Revenue= RM144,000
Events Revenue = RM72,000
Class B:
Singles Revenue = RM12,000
Products Revenue= RM42,000
Events Revenue = RM6,000
Cumulative:
Singles Revenue = RM156,000
Products Revenue = RM186,000
Event Revenue = RM78,000
Total Monthly Revenue = RM420,000
When you look at RM420,000 monthly revenue, that’s a circa RM5 million per annum industry. It’s small in comparison to restaurant or fashion retail, but its huge for a hobby (assuming solely MTG) that requires secondary disposal income to sustain. Of course I can imagine right now, LGS owners shaking their heads not agreeing with my numbers. But I also believe that in past this number could be higher if you factored in international sales (singles). However due to higher shipping costs and eBay scams, the level of international sales is not what it used to be, even for me.
But here’s the true reality check – the profits. I know the percentages in detail, but I’m going to “assume” its roughly 25% for both singles and products. In the age of SCG prices, stores find it difficult to compete with the player market prices pushing SCG x 3.0 or x2.8 or some as low as x2.5. Shops need to mark up the prices well enough to cover not only their store overheads but also cost of holding which are opportunity costs to their cash flow. Hence while 25% is pretty healthy (though not ideal) for any sort of retail business, the actual numbers could be much lower. Also the shops need to contend with the fluctuating prices of the cards itself. It’s a punishing business where it’s plagued by too many variables for which things can go wrong very quickly.
But lets just assume an LGS make a clean 25% on everything they sell and also take the assumption that event sales generate little to no profit. Normally you can engineer some level of profit between the prizes and the entry fee, but once you factor in judge costs or those lucky draws in between, the actual profit is quite negligible. Hence please don’t give a hard time to the LGS when you personally feel their prize structure is not up to par. They are, after all, a business and not a charity.
So basically on the back of RM420,000 revenue, you come down to approximately RM85,500 in gross profits which is still fine. But when you apportion it across the fourteen (now fifteen) stores and apply all the relevant overheads such as rent, utility and salaries, suddenly the number doesn’t look that big anymore. Of course its not an even spread across all the stores. Some LGS do better than others, some carry higher overheads, some small. However collectively, you can see why almost every LGS is just barely threading above water. I hear the plights of each store and while I do think that every store probably does enough to cover its costs plus overheads, I think back to my CCE days and wonder if LGS owners would eventually spiral down the same path as I did.
I don’t doubt the effort, the time and the money channeled in making their business more successful, whether it’s by generating more revenue from existing players or cultivating new players. But it’s my view that the cake just isn’t big enough. Magic after all is a hobby that ranks second on your disposable income list (possibly after smoking, shopping, movies) and there is no consistent growth rate as there is an annual churn rate where players quit the game outright possibly due to costs, career, life responsibilities or simply losing interests. There are certain months LGS’s gets windfall in increased customer spending when a new set releases or a hot product gets launched (Masters series) but I seriously don’t see this model sustaining the way it is in the long run.
The obvious response to my comment would be a statement made to me sometime back – MTG alone is not enough. Based on what’s happening right now, I couldn’t agree more. But based on what I’ve articulated, there is a lot of money on the table for just MTG alone to have a sustainable and profitable business. Five big mios (millions) of them. It’s certainly possible but there has to be changes.
So who are the real winners here?
Two groups of people – the players and Hasbro.
The large number of stores placed in multiple geographic locations certainly benefits the players. There’s plenty of options depending on where you live, where you work and also which store offers the best customer experience. With that many choices, as a player you feel more empowered and happy to spend your hard earned money at a store you support.
The second winner is obviously Hasbro that is effectively getting their main KPI (key performance indicator) sorted – ie maximum reach to the end consumers via the LGS. They don’t pretty much care if LGS’s are just barely breaking even. Hasbro makes their cut the moment the products gets shipped out to the stores. While eventually they know these products get to the hands of the consumers, what happens to the middlemen (the LGS) often gets ignored.
I personally know almost all the LGS owners that operates in the Klang Valley and each individual, and their strategies, has their pros and flaws. Unfortunately there is no quick fix for everyone as the Magic money pie is not growing at a pace to where it keeps every LGS contented and full. Forces beyond the LGS's control such as foreign exchange rates, the quality of the new sets/cards itself, and the expanding secondary singles market play huge factor in a success and downfall of the store. I can't fault the owners for complaining when things are not looking too well but its a market they themselves chose to operate in.
Is there any advice I can offer to LGS owners today?
As a player and as a customer, keep up the good work and continue to offer the best you can to your customers. Sometimes it just doesn’t come down only to price, but equally as important is the overall customer experience. I applaud you for giving us, the players, your very best everyday and make us feel appreciated and happy to spend our money to support you.
As a person in business and from the financial perspective, measure up your priorities and calculate the potential returns of operating a LGS, both in the short and long term, and both financially and non-financial returns. I know sometimes we get carried away with the cool factor, but the reality of business is harsh and it doesn’t discriminate whether you are the coolest guy in the market or the hard blue-collar guy sweating each day to make a dollar. The one who works and fights the hardest stays in the arena the longest. But the question should be – is this all worth it?
-pm out-
Most shops are concentrated in Petaling Jaya and the few outside the KL city centre area. But that’s a massive list of stores for a small city (don’t get started on Singapore). I live in Kota Damansara and it takes me under 40minutes by car to get to either store on the list. It’s reasonable amount of time to travel for a PPTQ or a similar event. However heading over to say Attilan Games (roughly 40 minutes and RM5 in tolls) is not my ideal choice of playing FNMs. I mean Au Yong is my buddy and I’m all out to support him, but its just not realistic and cost effective to travel that far out when there are other nearer options. In other words, MTG world in the Klang Valley is considered rather small when there are numerous shops within close proximity to each other. While there is a healthy number of players within Klang Valley, but they are more or less spread out across the stores much possibly due to geographic locations of the store.
Would transportation infrastructure play a role in determining accessibility to a store?
Unlike Singapore, where everywhere is connected via MRT, Klang Valley’s public transportation is far from efficient. However these days most MTG players travel to their LGS’s via personal car, car-pooling with their mates or even cheap ride-share services like Uber and Grab. The old myth of opening a store next to public transport system is long behind us. But that brings us to the next issue of other amenities such as parking and food. Parking has been an issue for a while for some LGS’s but with surge of shopping malls sprouting in many areas, this opened up additional parking for the players. One example is Classroom that was previously plagued by horrendous parking. Now with the Starling mall opening across the street, parking is no longer an issue. However some other stores still has parking challenges like Comics Mart (Mid Valley) where getting a parking on the weekend is almost equivalent of winning a lottery. While that statement may be slightly exaggerated but the thought of fighting through the throngs of weekend shoppers to get that LGS may sway your decision to head to a different store to spend your weekend.
Crunching the Numbers
So how much does a LGS make? That’s an interesting question many players have on their mind and everyone at some point will think (a) its so cool to own a MTG store and (b) MTG store makes a lot of money.
I’m all about the cool factor but slightly on the fence with the lots of money part. For those who were not aware, I used to co-own and manage CCE Games, a dingy LGS at Old Klang Road, from 2006 to 2009 along with my buddies, Khoo Wei Ren and Au Yong Wai Kin. Together we took over a run-down store that predominantly sold video games and ventured into MTG. We started the store with close to zero inventory and with a starting capital of RM20,000, we grew the store rapidly. Back then, there weren’t as many established LGS’s which did everything – events, products and a massive supply of singles. We supplied to local Klang Valley, outstation customers (Penang and East Malaysia) and we were doing well on international sales.
In those three years, we were averaging around RM300,000 per year in gross revenue, half of it attributed to singles (both local & international) while the remaining was split roughly between event revenue and products. Back in the day, people didn’t crack as many boosters and boxes as they do today and event revenue was pretty decent as we were the few stores that were actively churning events. RM300,000 is no small number but once you drill down to the profits, that’s when things look slightly shocking. We made almost no profits from event revenue as we paid out everything in prizes to make it attractive for the players. Product sales were generally low margin (approximately 10%) and a bulk of our operating profits came from our singles sales. Wei Ren and I took no salary and despite a low operating cost of cheap rental and only Au Yong’s salary to manage, we were just barely breaking even – cash flow wise, each month. Considering I spend 20 hours a week (between running the store on weekends, managing the international sales, trips to the post office) and getting nothing in return, the cool factor fizzled out very quickly.
Of course we amass a large collection of cards over the years and the value attributed to these cards increased over time. However these were only as good as cash if you were able to convert them at the relevant prices and we were not converting them at a very healthy rate that was justifying the time and effort we were putting in.
So while it was a very fulfilling experience for me and I gained so much, but financially it didn’t make a whole lot of sense. In addition, running the store over that three years left a significant negative impact to me. I didn’t enjoy playing the game anymore. The business aspect sucked out the competitive and the play experience I had with MTG. I was too engrossed on making the next sale and earning that extra dollar more so than enjoying the game for what it is. LGS owners reading this article today may relate to what I felt back then. So in 2009, I finally had enough as the entire experience felt more draining than rewarding, time and financial wise, and was also taking a toll on my other things in life.
Separating the business and the enjoyment, we come back to LGS as a business. Are they really that profitable? I’ve done some homework and crunched the numbers to what I think the Klang Valley market looks like.
Total approximate MTG players in Klang Valley (active): 500
Broken down to:
Class A - Regular / Competitive / Weekly: 300
Class B - Casual / EDH / Friendly / Starting Out: 200
Rough monthly spend by category:
Class A – RM1,200 a month
Class B – RM300 a month
Basis of RM1,200 a month? Simple. Annualise that number and you get RM14,400. Which is then broken down to roughly:
a. 2 booster boxes per new set @ 4 sets a year = RM3,000
b. 2 booster drafts per new set @ 4 sets a year = RM400
c. 4 pre-release sessions per new set @ 4 sets a year = RM1,600
d. New sleeves, folders, deck boxes, accessories = RM200
e. 1 special edition box per year (Masters) = RM800
f. Singles for 3 new standard decks = RM2,500
g. Singles for 1 new Modern deck = RM3,000
h. 20 PPTQ Entry Fees = RM1,500
i. 35 FNM Entry Fees = RM700
j. Other events (Game Day, Release Party, Weekly Modern etc) = RM700
Spending split:
Class A:
Singles – 40%
Products – 40%**
Events – 20%
Class B:
Singles – 20%
Products – 70%**
Events – 10%
*** Assumption - Pre Release falls under Products rather than events. There isn’t a pre-release each month, but its roughly the average spending for four pre-releases a year.
So when you add the entire math up we can assume the following:
Class A:
Singles Revenue = RM144,000
Products Revenue= RM144,000
Events Revenue = RM72,000
Class B:
Singles Revenue = RM12,000
Products Revenue= RM42,000
Events Revenue = RM6,000
Cumulative:
Singles Revenue = RM156,000
Products Revenue = RM186,000
Event Revenue = RM78,000
Total Monthly Revenue = RM420,000
When you look at RM420,000 monthly revenue, that’s a circa RM5 million per annum industry. It’s small in comparison to restaurant or fashion retail, but its huge for a hobby (assuming solely MTG) that requires secondary disposal income to sustain. Of course I can imagine right now, LGS owners shaking their heads not agreeing with my numbers. But I also believe that in past this number could be higher if you factored in international sales (singles). However due to higher shipping costs and eBay scams, the level of international sales is not what it used to be, even for me.
But here’s the true reality check – the profits. I know the percentages in detail, but I’m going to “assume” its roughly 25% for both singles and products. In the age of SCG prices, stores find it difficult to compete with the player market prices pushing SCG x 3.0 or x2.8 or some as low as x2.5. Shops need to mark up the prices well enough to cover not only their store overheads but also cost of holding which are opportunity costs to their cash flow. Hence while 25% is pretty healthy (though not ideal) for any sort of retail business, the actual numbers could be much lower. Also the shops need to contend with the fluctuating prices of the cards itself. It’s a punishing business where it’s plagued by too many variables for which things can go wrong very quickly.
But lets just assume an LGS make a clean 25% on everything they sell and also take the assumption that event sales generate little to no profit. Normally you can engineer some level of profit between the prizes and the entry fee, but once you factor in judge costs or those lucky draws in between, the actual profit is quite negligible. Hence please don’t give a hard time to the LGS when you personally feel their prize structure is not up to par. They are, after all, a business and not a charity.
So basically on the back of RM420,000 revenue, you come down to approximately RM85,500 in gross profits which is still fine. But when you apportion it across the fourteen (now fifteen) stores and apply all the relevant overheads such as rent, utility and salaries, suddenly the number doesn’t look that big anymore. Of course its not an even spread across all the stores. Some LGS do better than others, some carry higher overheads, some small. However collectively, you can see why almost every LGS is just barely threading above water. I hear the plights of each store and while I do think that every store probably does enough to cover its costs plus overheads, I think back to my CCE days and wonder if LGS owners would eventually spiral down the same path as I did.
I don’t doubt the effort, the time and the money channeled in making their business more successful, whether it’s by generating more revenue from existing players or cultivating new players. But it’s my view that the cake just isn’t big enough. Magic after all is a hobby that ranks second on your disposable income list (possibly after smoking, shopping, movies) and there is no consistent growth rate as there is an annual churn rate where players quit the game outright possibly due to costs, career, life responsibilities or simply losing interests. There are certain months LGS’s gets windfall in increased customer spending when a new set releases or a hot product gets launched (Masters series) but I seriously don’t see this model sustaining the way it is in the long run.
The obvious response to my comment would be a statement made to me sometime back – MTG alone is not enough. Based on what’s happening right now, I couldn’t agree more. But based on what I’ve articulated, there is a lot of money on the table for just MTG alone to have a sustainable and profitable business. Five big mios (millions) of them. It’s certainly possible but there has to be changes.
So who are the real winners here?
Two groups of people – the players and Hasbro.
The large number of stores placed in multiple geographic locations certainly benefits the players. There’s plenty of options depending on where you live, where you work and also which store offers the best customer experience. With that many choices, as a player you feel more empowered and happy to spend your hard earned money at a store you support.
The second winner is obviously Hasbro that is effectively getting their main KPI (key performance indicator) sorted – ie maximum reach to the end consumers via the LGS. They don’t pretty much care if LGS’s are just barely breaking even. Hasbro makes their cut the moment the products gets shipped out to the stores. While eventually they know these products get to the hands of the consumers, what happens to the middlemen (the LGS) often gets ignored.
I personally know almost all the LGS owners that operates in the Klang Valley and each individual, and their strategies, has their pros and flaws. Unfortunately there is no quick fix for everyone as the Magic money pie is not growing at a pace to where it keeps every LGS contented and full. Forces beyond the LGS's control such as foreign exchange rates, the quality of the new sets/cards itself, and the expanding secondary singles market play huge factor in a success and downfall of the store. I can't fault the owners for complaining when things are not looking too well but its a market they themselves chose to operate in.
Is there any advice I can offer to LGS owners today?
As a player and as a customer, keep up the good work and continue to offer the best you can to your customers. Sometimes it just doesn’t come down only to price, but equally as important is the overall customer experience. I applaud you for giving us, the players, your very best everyday and make us feel appreciated and happy to spend our money to support you.
As a person in business and from the financial perspective, measure up your priorities and calculate the potential returns of operating a LGS, both in the short and long term, and both financially and non-financial returns. I know sometimes we get carried away with the cool factor, but the reality of business is harsh and it doesn’t discriminate whether you are the coolest guy in the market or the hard blue-collar guy sweating each day to make a dollar. The one who works and fights the hardest stays in the arena the longest. But the question should be – is this all worth it?
-pm out-
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