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Resisting the Siren's song


Nanite
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Point is though even if they end up losing 7% of the clientelle, once the tooling is paid off (i.e. the "fixed" cost of the product) its almost all pure gravy after that. While the volume profit may drop, the per-unit profit may go up, and that may be what they want.

 

That may be what they want, but it doesn't make sense to me. Seems to me that they'd want to attempt to keep the volumes up as well. If the per-unit profit goes up, keeping the volumes up is even more gravy.

 

One of the things my business instructors spent tons of time drilling into me as a student was that there are three ways to deal with a decreasing profit margin

 

1. Cut Costs

2. Increase Prices

3. Increase Sales

 

Most companies have a tendancy to focus on only the first two options and figuring out how to increase sales is almost never considered.

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Yeah, but if your profits are falling, it might not be so easy to increase VOLUME (which is what you're really talking about since a busines is always a hope someone will give you money for what you do), which may or may not increase actual SALES (all depends on the market), but also carries with it financial risk that you might now be stuck with a warehouse full of product that is not moving that you have to pay to store (costing more money). I recall when Dancey took over TSR, there were still warehouses full of Buck Rogers product. Its easier and more immediate if you cut costs by laying off the dead weight and raising prices if the market will bear it, but more risky to increase volume since it is never a guarantee of sales.

 

Damon.

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GW is the only miniatures company that's publicly traded, correct? I guess I should count Wizards/Hasbro.

 

That alone explains alot of what they do.

 

The price hike is going to kill my in-person incidental GW purchases. It wasn't too long ago I could pickup a single mini or a small box for not much coin, on an impluse, now? Ebay and online discounters for my GW purchases.

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TSR doesn't count. They had the business acumen of a crack-addicted spider monkey.

 

Of course, I find myself describing far too many entities in the hobby gaming industry in that manner far too frequently, from the big players and manufacturers all the way down to local game store owners.

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Depends on how you increase sales volume Lars. Depending upon the business, what it does, and it's current stock levels, there are ways to increase sales volume without necessarily taking on additional risk. Sales and/or price reductions are just two of the strategies.

 

Anecdotal only, but our local GW store was shutting down due to a rental increase by the mall. As part of that going out of business, everything in the store was 20% off. This included brand new products, including the new 40k book, which had just come out about a month prior to the announcement they were closing. Their pre-order for the book had sold out, but more more amzingly, they had a bigger rush on the books during that 20% off sale than their preorder sale had had - they couldn't keep them in stock, and they were ordering new stock of those books in up until a few days before the store closed. One of the employees commented to me that no other product in the store's history had been as popular.

 

Anyway, business practices are drifting off topic

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So in the midst of a global recession and with the main raw material to create plastic having fallen in price GW feels that this is a good time for a price increase?

 

Actually it does make a bit of sense to me. If GW has loans that need to be renegotiated soon and they can't count on getting them renewed then this "peeing in your pants to stay warm" strategy is exactly what I'd expect to see. Similarly I'm guessing that the recession has made GW share holders MORE aggressive and MORE pushy for "here and now profits" over "long term profits"

 

I could be wrong but it doesn't sound entirely odd to me to hike prices in the middle of a recession.... if the conditions are bad enough. It could be seen as a sign of crisis for GW.

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I, too, have been fearing what Kim is talking about. GW could be doing this in spite of itself. Stockholders want a return on their investment, and the only way to do so in the short term is to increase prices enough to cover the decreased sales volume brought about by the price hike.

 

I heard a theory that the $41.25 greatswords are priced that way because 10 of them will still cost less than ten metal ones do now. While that's certainly true, it doesn't mean it's not an unreasonable price. Another thought (not mine) was that GW is pricing up to the level of Privateer's only announced plastic models so far (The Exemplar Bastions for Warmachine), which will retail for $45. What GW would be failing to grasp is that those 5 models are more akin to space marine terminators in size than to Empire State Troops. I don't buy it.

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I, too, have been fearing what Kim is talking about. GW could be doing this in spite of itself. Stockholders want a return on their investment, and the only way to do so in the short term is to increase prices enough to cover the decreased sales volume brought about by the price hike.

It seems to me that, ultimately, most of us (myself included) are pinning what we see as GWs "bad" decisions on it's stockholders. Maybe I'm just being cynical, but I'm starting to think that there is no room for publicly owned/traded companies in this hobby, and that maybe I should no longer support such companies by buying their products at all, no matter how cool they look.

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GW has been buying up its stock, slowly, for about the last five years now with the intention of going private again. I have a friend here (transplanted Australian) that owns a number of shares (I don't know how many) and he has been holding out till he gets a better offer from them. I can only imagine that he is not the only gamer holding stock and doing this so who knows on how long the process takes.

 

Most stockholders aren't driving the company either. Executives have to be aware of them and that they want a return on their investment. However, I imagine that a good portion of these stockholders are GW executives and that the majority of the stockholders are issuing their votes by proxy. Without knowing who is holding what its difficult to determine what is actually going on behind the board room walls. So we may have GW executives padding their profits or it could be someone else.

 

Does this model work for the gaming community in general? Hard to say, I think GW went that way because they were trying to expand and needed the funds and now they are trying to go back, but I imagine at the time it looked like the right think to do. Its hard to address Hasbro/Wotc, as that was a big corporation buying up a small company. The jury is out on that one.

 

So I guess you have to look at it from the standpoint that if the gaming industry is being served and is happy then I don't think it matters whether the company is public or private.

Edited by Heisler
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I have no idea. I'm guessing they are not being that aggressive about since its still being actively traded in current price is 1.95 pounds per share.

 

Games Workshop Group plc Announces Consolidated Earnings Results for the First Half to November 30, 2008

01/27/2009

Games Workshop Group PLC announced consolidated earnings results for the first half to November 30, 2008. For the period, the company reported profit from continuing operations of £1,533,000 and profit attributable to equity shareholders of £1,533,000 or 4.9 pence per share on revenue of £61.2 million against loss from continuing operations of £85,000 and loss attributable to equity shareholders of £115,000 or 0.4 pence per share on revenue of £53.9 million for the same period a year ago. Operating profit for the period was £3.8 million compared to operating profit of £0.6 million for the same period a year ago.

Edited by Heisler
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You bring up a good point Kris. I've just been automatically assign "evil corporation" tag to GW because of it's publicly traded status - but the two may not be related in the way I've been conditioned to think.

 

Now I have a ton of questions -

- how many gamers actually own GW stock?

- when did GW first start being publicly traded?

- who's been the company executives all this time?

and so on...

 

I gotta go look a bunch of this stuff up. I'm suddenly reminded of the situation with Commodore Computers and the Amiga years ago. It wasn't the shareholders driving the company into the ground, it was the CEO and major shareholder Irving Gould, and when fans of the Amiga started buying up Commodore shares to try and influence the company policy, all sorts of crap started happening, like the board of directors moving the company headquarters to the Bahamas.

 

The shareholders may not be the bad guys here.

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The shareholders may not be the bad guys here.

 

There was an analysis of GW's annual report floating around on Warseer that was very intruging, done by someone that works in Finance, etc. Essentially the conclusion this analysis came up with is that the leadership of GW were using it as a cash cow. Don't know how true that is, or even how accurate the analysis is, but it definitely was thought provoking.

 

I would also add that a privately held company can just as easily be pillaged from the inside by the leadership...

 

Damon.

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yeah, Kris' post really got me analyzing the possibilities, based on my own previous experiences and the whole Commodore/Amiga situation.

 

I've now worked for two privately held companies where the owners "forgot" the financial lessons that resulted in their initial successes, and began to pull more money from the company than the company could afford just to maintain the lifestyle they'd grown accustomed to, leading to a downward spiral. In both cases, the drain was really their kids, and them being parents who couldn't say "No" to their children.

 

There is no reason this couldn't happen in a publicly held company, and the buy back makes me wonder if someone isn't trying to buy back in order to keep the shareholders from "messing in their personal affairs."

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