THE STATE OF DFG AS A BUSINESS

Let’s start this by having a rather upfront look at the miniatures industry, the customer base and expectations.

My rather unique perspective:

I have the benefit of looking at this not only from my personal company (A crumb gathering niche within a niche) but also for watching WGF, who I think most would agree had a solid seat at the mid-tier table, with a rather large product offering spanning quite a few interests.

I have worked, not only the creative side designing miniatures, but in my previous life as a buyer/planner, which gives me some ability to understand product reorder points and the financial aspect of just in time ordering, supply chain logistics and the implementation of contracts. Add to this, experience with the manufacturing aspect, working closely with WGF and even producing my own resin releases… I understand soft and hard tool molds, direction of pull and release draft angles. Well at least enough to be dangerous: P The only reason I went over this is to illustrate although I am a fresh new business man, and likely NOT a very good one, I do possess a wide skill base that assists me every day.

The Industry:

The industry, is a niche industry, with most companies either finding their niche within a niche market or attempting to gather the crumbs off the table form some of the larger players in the industry. Volume wise, its not a great industry for those not sitting in the top positions within their niche.

It has been said, you are only as good as your last release and only as memorable as your next tease. I find this to be a true if not slightly jaded view. The ‘new shinny’ is what drives this market from a sales standpoint. You need to remain in the publics eye as there is always a new ‘something’ from some other company that will be released just around the corner. 

This is where plastic is king and curse all at the same time. Plastic is a fantastic medium for the end user, light durable, infinitely modifiable and highly desirable. There is no doubt that for a miniature line a plastic release adds desirability and a certain legitimacy that those dealing in lesser materials, metal and resin have a hard time competing with….

But why Mark, why would that be a curse when plastic is King, you ask.

(THE LONG ANSWER)

Most would say the upfront costs, which is the correct answer but only part of the answer, the other part is time to market with plastic. Companies that are in plastic need to be looking about 18 months in advance to have any form of steady release schedule. (Remember the new shiny is what matters) Once again, I know that sounds jaded, but it is not… Your supply chain can back you up and help you drive sales if you have a proven history of delivery.

You need to have the capitol to pay upfront for 6 or so releases to be worked on at any one time. Let’s say they are frugal with their kits and two molds for each kit will be required. That would be 12 Molds in the works, 50% down for a total of $60,000 investment tied up for a minimum of 6-12 moths -AND- They need to have available enough capitol to finalize payment on two of those kits, their production run, box/packaging and shipping to their distribution center. So, let’s say you plan an average release to have enough stock to get you through a quarter. 3000 is a fairly good number for the first quarter release from a smaller manufacturer without a huge marketing budget to drive sales. i.e. me or WGF. That would be about $55,000 to get two releases to your dock, paying off four molds and the production run for two kits @ 3000ea volume.

Total outlay of capitol required, around $115,000 with another $55,000 needed in another month or two for the next two releases… and this cycle goes on and on as long as you keep the plastic flowing.

Looking at plastic production from a single project or set of molds is only half the answer… Heaven forbid you have a slow release in there that never grabs like it should. If you are not sitting on $100,000 of ‘problem solving extra cash’, you then do not have the capitol for the next releases and the entire production aspect gets thrown out of whack. Your customers are upset, your supply chain is upset, and the money spent on marketing to tease the next release is pretty much cash in a dumpster fire.

The moral to this story, if you are looking to run a plastic kit line and want to continue doing so, plan 18 months in advance, have 6 kits ready to go to the mold maker from your end at any one time and be sitting on about $250.000 in a cash reserve that is not required for other aspects of your business or its overhead. 

A smarter move would be choosing a format that is kinder on the mold count and margin returned for each kit. KD and Mallifaux are a couple of examples, (Hero models) a single figure sells for nearly as much as a boxed set and requires 1/10 the mold space. Unfortunately, this is not the format that DFG embarked on and I am not sure it is one I would have chosen even knowing what I know now, primarily because the character model scheme is just not that appealing to me…. Let’s just say I would need to give it some thought.

So, I think we have established that ‘properly’ running a plastic miniatures business is expensive….

So you had a flop:

Let’s talk about the inevitable soft release. So, you had a flop… bound to happen and you have a release coming shortly behind to help punch back up those numbers. You need to get it out of your head that that slow release will ever pay for its self. The first quarter is the make or break for that kit, flub up the release or have shipping issues and miss the restock or short your initial release, you WILL NOT be getting those sales back, they are gone, your customers and supply chain have moved on to the next release. Sure, they will continue to sell in some small manner, but you missed the boat and the return on investment will likely never come. You can chalk the $15-20K loss up to a learning experience and move on…. Assuming you still have the capitol to do so.

After the first quarter, the product sales will decrease each end every quarter until you hit the products base line. Historicals burn the slowest and lowest but they are steady. Sci-fi is one of the better formats for that initial bump. Fantasy? Not sure…. I do not have any insider information on that. If you have a strong line with distinctive style such as KD, I think you would be fine but that is an uneducated guess on my part.

So, we all are on the same page? Miniatures are expensive, risky, and from an artists stand point a hell of a lot of fun, from a businessman’s standpoint, perhaps not the best investment without an eye for the long game and certainly not without a rather large bank account doing nothing but gathering interest.

The customer base:

What a nefarious gathering. Truly, a hive of scum and villainy.

Creative, imaginative, supportive, geeks, nerds, artist, and general loons….. I could not be prouder of all of you!

Seriously though a great community and one that I am proud to be a part of. I think that they key to my success has always been the relationship with my customer base. I can honestly say I miss being a part of that as much or more than I enjoy the creative sculpting aspects.

As was stated in the beginning of this long rambling thread, the shiny new thing drives the business, that is not to say that quality and the feeling of a fair exchange price vs return is not important, because it is. We all need to feel like we received value from our purchase. If any one aspect fails, quality, value, time to market. You as a manufacturer will feel the effects, not just in that sale but in future transactions.

The supply chain is a customer as well. If you are part of the supply chain, you had better be firing up your customer base. The supply chain directly reacts to demand, they my or may not like your product but if it sells, they will bump the next order and if it is flat, they will pull back. For you the customer/end user its about scratching that creative itch with something cool. For the retailers and wholesalers (who are likely geeks like the rest of us) its still about stock movement and fast returns on investment.

Remember your first few months of any release will make or break that release. This all comes back to time to market… Loose that race and you have lost sales, it is an extremely important aspect that every manufacture frets about and that many of us never think about as we wander store shelves or click through retailer’s websites.

Expectations:

IT’S A TRAP! (Admiral Akbar, Battle of Endor) 

Also a fun drinking game for this post.

Wipe the sleep from your eyes, this next part is important and although my ramblings may have put you into a stupor, this is meat and potatoes time!

If you have been on this side of the table for any length of time, you will know the manufactures rarely meet deadlines.

This is not just a ‘China thing’.

Every vendor I have worked with on the manufacturing end comes in late.

PERIOD, NO EXCEPTIONS.

So how do you manage expectations? How can you guesstimate when something will arrive once the order has been placed? Honest answer, you can’t, the delay will range from reasonable, two weeks to mind numbing 1+ years. Best advice is not to even tease a release until it is in your warehouse… let it simmer for a couple of weeks and then release.

The problem for me is that I truly enjoy bringing all of you in on the creative process. I am likely shooting myself in the foot by doing so, but some of the feedback ends in changes or insights that effect the final product. This (for me) is a difficult decision. Do I open the doors and show all while destroying the OOOOOH NEW SHINY! Or pray that the ends justify the means. I still do not have an answer for this problem, I just know that I prefer active participation.

I am not sure how the supply chain felt about that, but I imagine they would prefer an unveiling and big initial hype just before release.

Quality:

Based on your past purchases, we know WGF delivered quality, late, but quality. This in its own way is a trap. I have no doubt that Wai Kee (WGF) knows the value of quality and what that means for retention. He is a brilliant engineer and can be a perfectionist when his attention is fully on a project. Should my next release not rise to the same level, there will be comparisons and expectations will be met or not. I will never knowingly produce crap but not every manufacturer is able to meet that standard to the same level.

Price:

I have always priced with an eye to value for money spent. I tried to keep the kits slightly below some of the ‘big boys’ so that my customers could view them as a quality alternative that may be slightly more reasonable. This is also a trap. Slaving your price structure to a larger more capable manufacturer means that you may be running at a loss if all things do not go as planned. The pull back from distribution and rising costs to ship outside the US have made it impossible to look at new releases with the same pricing structure, certainly not while staying within distribution.

Kit contents:

When we started this path together, WGF was manufacturing, shipping in full container load to their warehouse and pushing those product up the supply chain that had been in existence for some time. The discount they received by shipping full container loads is substantial, the cost to manufacture, insignificant by comparisons to what a customer needs to pay. Having these large multi sprue kits was not a real concern aside from their volume in the container. When I took over distribution, it became very clear that the kit contents (sheer size) and number of shots per kit would indeed be an issue and A TRAP!  How do you pull back from that or cut a new course once expectations have been set?

Means of production:

As I stated very early in all this, plastic is king, but now that you see the monetary requirements, the delays in time to market, the lost revenue associated with these delays…. Where do you go with all of that? How as a manufacture can you justify any move towards plastic? And if the expectation is that all my releases are to be plastic, well….. IT”S A TRAP!

I will lay out a single example here to help clarify the financial issues with plastic kits. You ready for this? Where ell’s will a manufacturer open his books with a real-world example of pricing? (queue cheesy used car salesman commercial music)

One of my best-selling kits, the 20-man Stormtrooper set.

20-man stormtrooper set, cost to manufacture $5.00, not bad, not great but folks in China got to eat too.

Cost to deliver $3.00 (shipping and initial warehousing, would be substantially less if I could fill containers, but the sales volume does not allow for that)

Total cost of kit delivered $8.00

Retail $44.00

Buy at $8.00 sell at $44.00?! Where do I sign up, right? Hang on folks, it’s a bumpy ride.

What does it take to run a miniature line and keep the doors open? It’s simple really, you need to have a 4-5 X mark-up from the manufacturing costs MINIMUM (kit delivered to warehouse) returning to you on most sales. It may seem crazy high to require 4-5X the cost but when you break it down it becomes clear. Now granted this is simplistic but a good estimate. If you can get it 6X cost delivered is much better, as it allows for some breathing room that may be desperately needed.

1X For cost to re order the kit you just sold

1-1.5X For the associated overhead (Warehousing, utilities Labor) Assuming that you turn the product over every 2-3 months, if it goes longer, it will eat further into the profit margin.

1X Tax…. No way around the tax man.

1X Back into business to fund that next sweet release.

.5-1X Personal profit, a man must eat after all….

$8.00 X 5 =$40.00 all is good! Well, sort of… If I sell direct only, at full MSRP, then I have met my margin. If I sell into distribution, I net $16.00-$17.60 per kit, which works ONLY if your turnover is very fast and you are able to restock with a container load of product.

I tend(ed) to sell 60/40 split 40% direct (at less than retail many times) and 60% into distribution with a 6 to 12-month turnover (sell through last shipment) depending on the SKU.

What does all this mean? It means that there is simply no way to sell into distribution without jacking the kit price so high that it would cripple sales. Retail for a 20-man set would need to be $80-$85 for this kit to make sense from a business perspective. If all of you are confident that and $85 retail is reasonable, and you would snatch them up…. Please say so, but I think I know the answer to that question already.

So, Wholesale is clearly not an option based on the financial realities, but wholesale is consistent. They move product every month like clockwork down to the retailers, they pay the operating expenses by being reliable in a way that my customers cannot be, through no fault of their own. Wholesalers are pushing out to multiple retailers and pushing to a much larger and willing base.

All of the expectations listed above have been on my mind from the first day I took over, reflecting, trying various things, contemplating every month on the direction of the company and how or IF it should move forward. Seriously, I LOVE this stuff, but every month I examine if there is a future or not.

All doom and gloom, right? May as well just call it a day? 

Nope, not yet. There are several paths forward, but they are untested, and the results may or may not net the desired result. I have started the process by removing myself from distribution and reopening a dialog with my customers. I will lay out a few options as I see them and see if any of you have input that might assist in steering the boat. Not to worry, this is not ‘on you’ DFG will move forward in perhaps some rather unconventional ways that may break some of the ‘expectations’ but I am more than happy to plot the course and see where it leads.

NEXT UP WHERE TO GO

I will be going over what I have planned so far and possible ways to deal with production and releases.