October 19, 1999 - Perspective
The GMT Games Chronicles - The Road to Recovery

Editor: The following excerpt is taken from the GMT Games topic of the ConsimWorld Discussion Board, in which company owner, Gene Billingsley, comments on the road traveled in the past 2-3 years that has resulted in the turnaround of the company. What prompted this discussion was the recent announcement by Clash of Arms Games in taking cost-cutting measures by dumping some of its excess inventory. This in turn stirred debate amongst ConsimWorld members regarding such alternatives as the practice of Fire Sales (greatly discounting excess inventory), a practice of GMT Games. We encourage members to print out this excerpt, to read at their leisure. The comments presented by Mr. Billingsley provide valuable insight into the management decisions made by the company to not only survive, but ultimately regain momentum and profitability in a changing marketplace, in the face of a challenged distribution model.

Regarding Fire Sales and Inventory Dumping

OK, first a few of caveats:

1. I probably haven't read EVERYTHING that's been posted on various boards about the fire sales/inventory dumping- just the past few days on CoA and BRoG, so I MAY not have the complete story or answer everything you want answered.

2. In terms of Clash of Arms, it's their company. They can do anything they want with their inventory. I don't see it as my place to criticize or correct them for a business choice they made. Their customers are the ones who will give them the most useful feedback on the issue, as it should be. The more they listen to their customers, the better information they'll have for making future decisions. As for me, I'll confine the bulk of my comments to the GMT-related questions/comments founds on those boards or in your question.

3. I have no interest whatsoever in making or watching another game company look bad. I root FOR these guys, in that I believe in rooting for folks that do good games (it helps the hobby as a whole) and most of the companies out there today are doing very nice games. So, this isn't about "GMT's way is better than x" or whatever. I'll just try to give you facts as they relate to GMT.

That said, here goes. I'll try to post some relevant questions and give you my views and our history, for what it's worth.

Collapse of Distribution Channel
When distributor orders began to drastically decrease (I believe this was late '96/early '97 for us), we were printing standard initial print runs of 4,000 and 5,000 games. In one case (Caesar: Civil Wars), we had printed 7,500 initially, based on the 7-8,000 unit sales of SPQR and Deluxe Alexander. It made more sense to up the print run (because those last 2,500 games cost a LOT less than the first 5,000 due to economies of scale) for a slightly higher dollar investment than to go through the hassle of a reprint a year or so down the road.

Well, when the distributors stopped ordering as much (and some distributors folded or began the slow slide to closing their doors), our inventory stopped moving as rapidly, warehouse space began to be a problem, and cash flow became a BIG issue, pretty much all at once. Summer convention sales in '97 kept us going into the fall, but at that point, as a company, we were in big trouble. If we had been heavily capitalized, we could have used the cushion of the cash reserves to buy time to put together detailed recovery strategies, but we didn't have the reserves, so we felt we had to do something RIGHT THEN to at least get enough cash in-house to keep the company afloat. Thus was born the so-called "fire sale" at GMT.

I remember talking with Mark Herman as we pondered what to do, and having him pass along more of his father's wisdom (renowned for it's accuracy and applicability in the halls of GMT):

"Look, Gene," he said. "Your problem right now is that you have LOTS of 'bad paper." That's the inventory that isn't moving in your warehouse. It has potential, but currently not much value to you, because you can't use it to pay the bills. What you need is "good paper" (money) to keep the company alive. Your job is to figure out how to turn that bad paper into good paper as quickly as possible."

Now today we have different reasons special sales, but back then it was purely survival. So, we offered a "buy any x for y$" type of sale in the fall of '96, while telling our customers that we could REALLY use their help. The result? Over $60,000 in cash came in over a six-week period and we moved quite a bit of inventory. Literally, that money (NOT the computer royalties, as someone suggested- I'll talk about that later) saved our collective butts as a company.

Now the problem was, that money was a short-term solution, in that it bought us some time to survive, but didn't change the fact that the distribution system as we had known it for 7 years (and that everyone pretty much depended on) was going south in a big way. It hit me that we were almost totally dependent on what the distributors did, and that was NOT a good feeling. So I began to look for ways to rework our business in a way that would allow US to control our own destiny, and not be completely dependent on the variances of the distribution network. That search was the seed of the P500 program that we use today.

The Customer response to the sale? Generally VERY good. Folks were happy to "fill out their collection" and pick up bargains while helping us to stay alive. We DID hear a FEW folks gripe about "I paid retail and now you're selling it for a discount," but not many. That number would INCREASE over the next year or so.

So it's now the Spring of '97, the company is saved but far from healthy, and the hobby companies as a whole are pretty much scrambling for ways to deal with this "new" distribution challenge/environment (I'm not saying "everyone," lest someone want to drop in and say "Not us!- nah! Nah! Nah!, but that was my general impression from talking with other companies and reading what they wrote online).

Enter the computer games. This is a bit of a parenthetical departure from the big picture, but it fits time-wise into the whole, so here goes.

The short answer is "Gene's involvement with those various projects over 18+ months from early '97 to fall '98 ALMOST killed an already sick company."

First off, let's talk about the revenue provided by those jobs. GMT got one of those "% of a % deals" with Erudite and Interactive Magic, so the royalty $ that actually came into GMT fromo the 4 GBoH projects over those 18 months were barely more than 1 month's revenue from boardgame sales, although the games sold fairly well by computer industry "wargame" standards. Personally, the work was pretty good news for me because Erudite hired me to co-design/develop/produce the GBoH games, which meant I had a good-paying "real" job to feed my family. Later with the USAF, the money was VERY good for my family. If GMT had been in good shape concurrently, that would have been GREAT. Sadly, it wasn't, and the end of the story is that I ended up putting over $75,000 of my personal funds into the company over those 18 months to help salvage it.

The main reason it needed salvaging is because during those 18+ months, GMT was my third job, at a time when the company DESPERATELY need someone at the helm full-time. So the "extra" revenue we made outside of boardgame sales was more than offset by the bloodletting (cash-flow-wise) that was taking place inside the company.

Worse yet, in an overall sense (although there were notable exceptions in both areas of incredibly loyal and helpful people), both customers and team-members were unhappy and drifted somewhat in the attention to and dedication to GMT. I strongly believe that most of a company's ability to create future revenue and profits is dependent on strong, healthy relationships in these two areas, and in the mid 97- fall '98 timeframe, both of these areas dwindled for us. And I lay a lot of the responsibility for that at my own feet, for being too caught up initially with the computer games to see the longer-term damage we were doing to the game company by allowing them to dominate my time for a year and a half. If I had it to do again, I'd say "no" to the computer games and run P500 right a year earlier than we did, and I think we would have been much better off. Then again, hindsight IS 20-20.

Sorry to bore you with the computer stuff, but I wanted you to understand the "no one at the helm" situation as much as anything. We DID have some good recovery IDEAS in late 97-'98, we just didn't have ANYONE (as the "team" was pretty fragmented or focusing in other areas to make ends meet in their own families back then) to CONSISTENTLY implement them.

For example, some people have said "The P500 idea saved GMT." I absolutely reject that. The IDEA was a good one (and all the elements of that idea didn't just come from me, but from two other of our key team members- Rodger and Tony), BUT almost as soon as we had the idea, we proved that we STUNK at consistently implementing it.

So we found ourselves in the summer of '97, with me running the company in a very small amount of "spare time," with two employees in a pitifully small office/warehouse packed to the gills, once again with cash issues very pressing, very much grasping for answers, with P500 not yet much more than a fledgling idea. So the inevitable "It worked once. Maybe it'll work again" idea was put forward, and we had another "buy x number of games for y $" sales. This time we only brought in $25,000 +, BUT we got smarter this time and mixed the old game sale with some new game offerings, so that the overall returns from the sale approached what we'd done the previous fall, and we have once again "survived" the cash crunch to continue the company. But more and more the questions arose "Continue to WHAT END? and "What is the future for wargame companies as a whole?"

And, BTW, this time, in addition to being roundly criticized by other companies for our "fire sale," the number of disgruntled "I bought that game a year ago for retail price" customers increased to the point that we started to recognize that it COULD turn into a big problem. This was the first time I remember a customer saying "Why should I buy a new GMT Game when I can wait a year and get it for 1/3 to 1/2 the price?" This was something we needed to pay attention to, but it still looked like a small price to pay for the revenue that sustained the company from the sale.

At this point, we STILL did not have a viable alternative to the "rely on distribution" plan in place and functioning. We were looking carefully at what other companies were doing. Of course, almost everyone was lowering print runs by rather large margins. We thought his would help with inventory, but would almost certainly negatively impact game prices. The Gamers went direct and pretty much thumbed their noses at distributors, while not turning away direct store business. We thought that was a little too much "burn the bridges" approach for our taste (and frankly, we still didn't have a good revenue source alternative to the distributors), but recognized that it would probably work, and tried to be as supportive of Dean and Dave as we could. Other companies denied that it was a big issue, and basically hitched their futures to the distributor chain's star. Still others hung in there with distributors, but decided to add some non-wargames to their line to broaden their market appeal and increase their cash-flow from non-wargame outlets/players. A few folded or drastically cut back their production.

We thought the "direct" and "broaden" approaches above made some sense, while the "stick with distribution, no matter what" approach would just leave WAY too much control of our future in someone else's hands. What we needed was a way to turn customer loyalty - and we still had a good amount at that point, although it had declined - into increased revenue (which we thought was essentially what the Gamers did), cut our up-front risk (so one bad game couldn't sink us), and build a strong enough customer-company relationship to sustain the company if distribution collapsed completely (which was a possibility, we thought). And so P500 was born. Unfortunately, it was born to a very sick, erratically-led company, which very nearly made it a "last stand" rather than a "first step" for our company.

Project 500
In late summer of 1997, we started P500. The reaction from other game companies ranged from "What a stupid idea, it'll never work," to "Boy GMT's REALLY desperate now." One company even did a parody on the P500 program. Nuthin' like support from other companies when times are rough, huh? The response from customers was mixed. Quite a few wanted to help us and signed up, but a BUNCH of folks were leery of pre-pubs, especially after 3Ws demise and our own track record through 95-97 on LONG delays on products to market. So we got enough sign-ups to make the program viable, but just barely.

We STILL didn't have anyone consistently running the company, though, so the first year of P500 was pretty rocky and it didn't really do what it was intended to do in terms of getting new games to market (early 97- early 98 was our slowest period ever, in terms of number of game releases). Cash flow was still a problem, because we just weren't releasing enough games, regardless of P500, to pay the bills. So, guess what? Yes, ANOTHER sale! In fall-winter, 1997-98, we did yet another inventory sale (this, if I remember right, was the advent of the "Any older game for $20 and 3 for $45" sale) and brought in over $40,000 in cash for the older games alone.

In this period, I think we also did one thing REALLY right. I addressed the issue of "Why should I buy a new GMT Game if it will be on sale in a year" by promising customers two things:

We've held to those promises for nearly two years now, and don't intend to change. What that did was markedly increase the number of P500 participants by a lot of folks who wanted the best price on their games. At the same time, it pretty much silenced the folks who said "Why should I buy a new game if it'll be on special later?" And over time, I think those have been a couple of the bedrocks of the program. Naturally, at first folks were skeptical, but the longer we've kept to our promises, the more people see that we're serious, and get on board with P500.

Parenthetically, I read on one topic that someone had kept a close eye on how long it took for new games to go to the discount bin, and that it was just a few months after they were released. Naturally, I don't know what company the person was talking about, but it certainly isn't true of GMT in the past two years. Come to think of it, I don't really know of any company of whom that's true AT PRESENT. A few years ago, maybe, but not now.

OK, so what happened was that the winter 97-98 sale helped us stay alive, the increase of P500 players helped our cash flow and let us depend less on distribution, and in '98 we had a terrific year of game releases, including Saratoga, Sicily, Barbarossa: AGC, and Caesar: Gaul. The $ from those games really helped with operations and with customer relations, TO A POINT. We still had the problem of no one at the helm, and, with a few long-promised-but-not-delived projects as the focal point, unrest among our customer base began to grow.

That was the beginning of the decision-making process that brought me back into the company pretty much full-time last August/September. Since then, our consistency has improved greatly just by having someone always paying attention to running the company, customer relations are dramatically better due to consistent communication and access to me and our other team members, and P500 has REALLY begun to run the way we intended. We've paid off most of the company debt, and while we are not on Easy Street by any means, the financial and personnel fundamentals of our company are stronger than they've been in our history. We still have a few problems (as witnessed by the recent RoD debacle), but in general we're much stronger today than we were at this time last year, and certainly better of than we were a couple of years ago.

So, back to the question of "did the inventory sales help us?" Financially, historically, the answer is undoubtedly "Yes." We brought in over $100,000 from those sales, made a BUNCH of "bad paper to good paper" transactions, and moved a lot of that older inventory to make room for newer stuff. Without those sales, I don't see how we could have survived as a company in 97 and 98.

In current terms, we now use the website for an ongoing sale of the older games. At some point (I can't remember when exactly, but I THINK it was later '98/early '99) we decided to make the "One for $20, 3 for $45" special a standard ongoing special. (Again, though, it ONLY INCLUDES the games made before Barbarossa: AGS in '96 - no newer games at all.) What drove this mainly was the advent of using the internet web site for a large part of our marketing/sales effort.

When we brought on the website and the discussion boards and enhanced our presence on this board, we were looking to really expand our customer base and improve our customer support, communication with our customers, and to decrease our cost of all of those items. Traditional game companies depended on mail and phone sales and support back then (and some still do). Both phone and mail efforts in those areas cost money.

So looking strictly at the old inventory question for a moment, here are some considerations:

1. First off, are the "old" games good games, ones that you'd be proud for a new customer to pick up and help to encourage him to buy more of your products? If the answer to this is "No," then you have a good reason to dump them instead of trying to sell them, in my book.

2. If the games are good, then can you make a CASH FLOW profit by selling them? To answer this question, you have to know what a good price point is to entice the most customers to buy (sometimes trial and error is the only way here). You also have to know what would it reasonably cost to sell and support those games? Traditionally (using phone and mail), these costs can be pretty high.

(By the way guys, Mike Welker knows about a million times more about the economics of all this than I do. I'm not setting myself up as some expert here, just giving you a feel for how I've looked at this issue.)

For example, let's say you have 500 copies of an old game retailing for $40. (Doesn't matter what it cost you at this point in my book, because you've already recouped the cost in all likelihood. The question of what to do with the inventory is now a CASH FLOW analysis, NOT a Profit/Loss issue.) So let's say you decide, based on whatever research you do or industry knowledge you have, that a 50% discount will get you an extra 200-500 sales of the game. So your price point is $20. Question is, can you make a cash flow profit at that point? Surprisingly (maybe), sometimes the answer to that may well be "No!" Or it could be "Yes, but only a few dollars," and you decide it's not worth the trouble.

So if the games are good AND you can make a cash flow profit that's worth your time by selling them, there's good reason in my book to keep the inventory and sell it over time. Otherwise, it may not be worth the effort.

And the thing I want to point out here is what an INCREDIBLE tool a website (I mean a good one that does what you intend sales-wise) can be here. Why? Because the cost of selling a product is SO low, compared to traditional methods. No stamps, no flyers, no salespeople, no phone calls. Just a 24-hour a day salesperson who doesn't get benefits or cost payroll taxes or lie to your customers, etc. A website might cost you $50/month to run, and maybe another few hundred dollars to maintain. But the sale it runs is consistently there, day and night, to gamers all over the world. So your cash-flow cost to sell an old item (divide the total cost for the site by your number of games is one quick and dirty way to figure it) can be REALLY low - like WAY under a dollar, MUCH cheaper than that for traditional methods.

Anyway, I'm not sure I said all that too well, but I hope you get the gist of it: A well-maintained, sales and support-oriented website can sell your old inventory at very little cost to you.

To date, we've sold out of several of our harder-to-move titles, moving scores to hundreds over the website in the past year. And we've seriously reduced our stocks on ALL of the other older games. Essentially, all it cost us to sell them was the warehouse space.

Another amazing (at least to me) thing about the online sales is that of the 1,000-1,100 new customers we've added this year, 20-25% of them bought their FIRST games from us using that 3 for $45 sale from the website. And MOST of those guys have bought other games since. So for us, at least, it's been a real winning situation both in terms of cash flow and attracting and retaining new customers.

Well, there's a REALLY LONG answer to a short question, but I hope at least it helps give SOME perspective to the issues that are being discussed, at least in terms of the GMT experience.

If you have any questions, feel free to ask. You guys ought to know by now that I'm pretty open to talking about this kind of info if I think it'll help someone.

Gene Billingsley, GMT Games

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Copyright © 1999-2002. ConsimWorld.COM. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission is prohibited. Web Masters are encouraged to link directly to this page, this URL is not subject to change. For general site information: kranz@consimworld.com

Headline News | Archives | New Products
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Copyright © 1999-2002. ConsimWorld.COM. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission is prohibited. Web Masters are encouraged to link directly to this page, this URL is not subject to change. For general site information: kranz@consimworld.com

Headline News | Archives | New Products
Game Ratings | Clubs | Events | Discussion Board

Copyright © 1999, 2000 ConsimWorld.COM. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission is prohibited. Web Masters are encouraged to link directly to this page, this URL is not subject to change. For general site information: kranz@consimworld.com