Wednesday, January 22, 2014

GW Apocalypse - Financial Edition

Last Thursday Games Workshop released their interim report for the six months to December 2013. This showed Operating Profit down 38% and when the stock opened it fell 24%.
Since then it has been open season on the internet. The full range of responses have been evident from outright glee to "Keep Calm and Don't Panic". Suffice to say internet forums and wargaming blogs are not the first place I'd go to get financial advice and the response to the GW result has reinforced that in spades.
The first thing people have appeared to have missed is the GW did not lose money. They just did not make as much money as they did in the same period last year. In fact GW has not lost money since 2004. The drop in share price is a reaction to profit expectations. Investors were pricing the share based on certain earnings expectations and they did not eventuate so the price is adjusted to the new expectations.
So what does this all mean? Well GW isn't broke and isn't going to be broke anytime soon. It has little debt and has cash reserves of GBP 9 million. However even Games Workshop would be able to say with a straight face "This is Great News!"
The most telling metric was that turnover was down 12% on the same time last year. This takes out any seasonal variation. However even this figure needs to be looked at in context. First the positive; these turnover figures were achieved in a period where new Playstation and xBox consoles were released. Now GW might not see these as competing products but I'm going to say any Venn Diagram of Warhammer/40k players would show an overlap with console gaming. Given finite hobby spend then you'd expect an impact on Gw products. Second, the negative; this has occurred against a backdrop of GW's accelerated release schedule - five books for each system in the past 12 months. From a 40k viewpoint this includes two elephants - Space Marines and Eldar. All things being equal I would have expected a significant increase in sales given the refreshed IP and new releases associated with it. To have turnover reduce against such a release schedule should at least be viewed as problematic.
So how has the internet reacted? With its usual hyperbole.
The change in reporting lines of GW shops in Germany directly to the UK Head Office was seen and reported as "GW closing down Germany". No, what they were doing was removing a layer of management.
A comment on Facebook regarding the transfer of GWNZ's Queen Street Store Manager to St. Luke's was extrapolated on WargamerAU to "Games Workshop Quits New Zealand".
A rumour surfaced that GW were "squat-ing" Beastmen, Wood Elves, Bretonnians and Tomb Kings. Why they would remove a quarter of their range from the game was not supported with any evidence other than they weren't on store shelves in Hobby Centres anymore. Here's a little lesson on inventory control. If you have 30 stores in a region and 10 products in a specific range (say Fishmen), all of which are unspectacular sellers. Rather than having each shop carry those products - inventory 300 - you supply on an as needs basis from the warehouse - inventory 50. This can be done by in-store ordering - wow look GW have these terminals - or from home via this funky new invention, the internet.
More likely what is going to happen is exactly what we've seen with Sisters of Battle. Codex/Army Book goes to digital i.e. DLC via iBooks and product supplied from stock centre either to hobby centre or to your letterbox. Why would they shelve something where they have a sunk cost and any sale from here is gravy. Does it mean we'll see new models? Not as per the current release practice. However the new White Dwarf form allows a load more scope for supplementary releases.
So overall the sky is not falling, the end is not nigh nor can we expect a firesale any time soon. What we can expect is continued changes to their retail and inventory procedures while they try to squeeze every last dollar they can over coming periods.
A lot of what GW does pisses me off. For example the Embargo has not led to nirvana for Australia/New Zealand sales - no, not at all. Revenue is down by 22% which is far worse than any other jurisdiction. Surprising to no-one but GW we haven't rushed into our local GW and purchased product. Instead people have looked at other games or being resourceful buggers continued to source product from offshore….or cut back on purchases. Hard to view this other than a Wil-E-Coyote moment.
Similarly the attitude of the company to "veteran" gamers. Yes I understand that new gamers are the target market but seriously do they think they will get sufficient new customers to grow purely through exposure to GW Hobby Centres and White Dwarf? Whether they like it or not existing gamers are ambassadors for the game and I can't help thinking they would be better off having them inside the tent rather than outside.
And while I know the new White Dwarf Weekly and Warhammer Visions is Great News. So was the re-launch of White Dwarf 15 months ago, the introduction of Finecast, the cluster-f#4k which is Warhammer 40k 6th Edition. We're not stupid. If it looks like a duck etc. You don't have to tell us what we think, really.
There you have my thoughts on the GW Apocalypse that has been sweeping the net. Remember you can always stop a vortex at any time.


  1. Interesting thoughts. I liked the comments that while revenue is down, margins are still strong. I read a article about it that summed it up as the consequence of the wild west internet sales pre-embargo where they turned hobbysts into bargin hunters and then didn't screw the lid down fast enough/hard enough and then once they did they tightened the screws on the independents to drive sales through the GW webstore. Stop the internet sales is fine to protect existing channels that draw new customers, but to package it with the resultant T&C and supply issues for independents = who is going to promote the hobby?

    For veterans they claimed one of the factors for sales drop is removing metal from their range....or more specifically collector edition/limited run minis (last one was in the 2007 Dark Angels army box) that almost guaranteed 100% sales...who hasn't spent a little too much trying to win an ebay bidding war for that limited edition model you missed out on when it was for sale?

    Joel v

  2. I have to say that when i first heard about this my first response was "Excellent, they are finally getting what the deserve". And thats still my view on it. This is what they get when the increase their prices and decrease how many models come in their boxes (among other things they have done).

  3. Hi Peter,

    The GW figures are to 1 Dec 2013, and the new consoles were launched on 17/11 and 22/11. I suspect their impact will be felt in the next 1/2 year report (if any)...


    1. Aaaah okay. You're right most impact will be in the next period

    2. Who's to say that the spend that would have gone on new GW stuff wasn't squirreled away for the impending release of the consoles? A $100 book vs a $600 console, if you're on a limited budget you're going to save your arse off for the new shiny.

  4. Taking financial advise from any kind of open user forum is a sure ticket for disaster, let alone war-gamers with their various bias and knee jerk reactions.

    They are still a juggernaut in the industry with plenty of infrastructure, assets and a (semi) captive audience worldwide. They are not going to collapse because of one bad (should that be less good that usual?) half year report on the back of their long successful run.

    The market they operate in is changing rapidly however and the board would be wise to consider the ramifications of continued direction and policy if this pattern of falling turnover persists.