My Favourite Small Business

Raindrops on roses are ok, but the Games Workshop is definitely one of My Favourite Things.

I have several motivations for writing these business commentaries:  in part they define me and encapsulate a working life mixed up, often quite literally, in the belly of the business beast; also, seeing things done well has become something of a passion for me after experiencing such confusion, ignorance and chaos in so many businesses; and I guess, like all human beings, I am reaching out to touch you, my reader, in some way. I can’t tell you the delight I get in experiencing a well run business – that’s perhaps a sad admission, but true. I find it truly exciting when folk are doing things well, but there are few real gems around: the Royal Castle Hotel in Dartmouth, Devon, where I have a fancy I was conceived, is one of them, as is Pret a Manger, but for me, there are few small businesses around that can match the Games Workshop.

If you have never been to a Games Workshop store then you must visit one, preferably with a target customer – an adolescent male. Go and take in the simple genius of it all: see the very clear segment focus and positioning; the wonderfully understated but welcoming staff; the inclusive interactive environment; the apparently effortless creation of value in the target audience and the ridiculously high prices that they are willing to pay; the superb approach it takes to selling – the way the shop staff talk to their young customers should be a lesson to most bigger retailers; and yes, just how well it has done to stay under competitors’ radars – as far as I am aware it just doesn’t have any direct competition.

The Games Workshop sells tabletop war-gaming figures and kits, an idea updated from another era and mixed with fantasy, but along with that comes a degree of storytelling for boys and an innocent intimacy with adults, the staff and older customers, that in a small way eases the rights of passage from boy to man. Ok, I’m getting carried away a bit now, but there is a lot of subtlety here and they are selling much more than toys. As you can see I am a fan, but I have never been a customer; it wasn’t around when I was young and my mum couldn’t have afforded the prices – young people today are relative millionaires compared to how I remember things.

Although it suffered something of a self-inflicted set back a year or so ago, when it had to issue a profits warning, because its annual summer recruitment of new customers fell a bit flat, it now seems back on track and it has just announced that it is increasing its dividend by 40%. In the 12 months to June revenues were up 6.4% to £131M, with pre-tax profits up 27% to £19.5m, after focusing more on the one person operated store format, which for me has always been its sweet spot.

This business formed in 1975 by John Peake, Ian Livingstone and Steve Jackson, has had a stream of product innovations, driven my Tolkien inspired films, in recent years. The business has rightly changed and adapted over the years but it has a stable and proven business model that is lucrative because it has achieved something that many businesses could achieve but don’t put adequate effort into: it is unique in what it offers; to a sufficiently large target audience; who are willing to pay a premium for it, which gives it great gross margins that aren’t going to disappear anytime soon – all reasons why I like it so. If you think that is what all businesses do then think again, sadly, few manage it anywhere near as well.


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