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Games Workshop has a report titled “Our Business Model” on their Investor Relations page, and I, as an MBA who works professionally in marketing (and who has played Warhammer for nearly 30 years) thought it would be interesting to review it, make comments on it, and respond to it. I’m going to be reproducing it here. My commentary will be in bold italics.

Our business model

We have a simple strategy at Games Workshop. We make the best fantasy miniatures in the world, to engage and inspire our customers, and to sell our products globally at a profit. (This is the first interesting thing: Games Workshop starts right off the bat saying that they are a miniatures maker. It is not until much later that we get to the fact that they are a game maker. I think that, keeping this in mind, we’ll get a better insight into why Games Workshop makes the decisions they do about releases, pricing, and scarcity.) We intend to do this forever. Our decisions are focused on long-term success, not short term gains. (Long-term success is an interesting thing. Games Workshop is a publicly traded company, and as such they are beholden to quarterly profit reviews–which is very short term thinking–but they also are a product developer, and the development cycle of their products is somewhere between two to three years. So they have to focus on the short term for shareholders, but they have to think in the long term for development.)

Simple, but every part of this statement is important. We make things. We are a manufacturer. Not a retailer. We do have outlets in retail locations and these stores show customers how to engage with our hobby of collecting, painting and playing with our miniatures and games. They are the front end of our manufacturing business. If our stores do a great job, we will recruit lots of customers into our Hobby and they will enjoy spending their money on the products we make. (This is very interesting to me, because it suggests that Games Workshop’s primary goal of their stores is to generate business for their products–to be a marketing tool–rather than to have the stores turn a profit. I find this somewhat at odds with the many, many reports for former Games Workshop employees who are told that their passion for the games is less important than their ability to sell. At the end of the day, according to these former employees, to succeed at a Games Workshop store you need to be able to move product as efficiently as possible. There have even been accounts of stores who try to get more churn through the store in terms of getting gamers in and out the door and not wasting too much time cluttering up the gaming tables for too long. Granted, this could be good or bad: it could be good because more people are getting a chance to play the game, but it could be bad because it dissuades diehard fans from making the Games Workshop store a home-away-from-home. Compare this to FLGSs: they have people who hang out at the stores for hours, almost every day, because the store is a gathering place focused on fostering the hobby. The same can’t be said–it seems–of Games Workshop stores.) The products we make for our customers are the best in the wargaming world. This is because everyone at Games Workshop is passionate about our Hobby.

Every year we seek new and better ways of making our products and improving the quality. This is not simply a personal obsession; it also makes good business sense. We know that, for a niche like ours, people who are interested in collecting fantasy miniatures will choose the best quality and be prepared to pay what they are worth. The games are a key part of both our Hobby and our business model. Our games are played between people present in a room (a Games Workshop store, a club, a school), not with a screen. They are truly social and build a real sense of community and comradeship. This again makes good business sense. (Nitpicky thing, but this is a poorly phrased sentence. The lead is that they are all about improving the quality of their fantasy miniatures and their games, but then they pivot into talking about how this means they’re playing socially in person, which is not the theme of this paragraph. Nitpicky, I know, but I’m a writer, and I nitpick these things.)

The more fun and enjoyable we make our games, the more customers we attract and retain, and the more miniatures our customers want to buy. This in turn allows us to reinvest in making more and more exciting miniatures and games, which creates a virtuous circle for all. We are also clear that we will only make fantasy miniatures, not historical ones. Fantasy miniatures from our own Warhammer and Warhammer 40,000 worlds allow us unlimited scope for product innovation. (This is an interesting, though not necessarily bad, decision on the picking of a niche market to inhabit. There’s nothing wrong with insisting on being SF&F only, which is what they’re claiming, but things get a little muddier when they partner with games like World of Tanks or World of Warships and insert their fantasy elements into traditionally historical games.) In addition, we can, and do, defend our intellectual property rigorously against imitators, thus ensuring that our worlds are synonymous with quality. (This is something I make fun of –a will never stop calling Astra Militarum Imperial Guard, or Space Marine Adeptes Astartes–but it is sound business sense to change Eldar o Aeldari, and Dark Eldar to Drukhari. It protects copywrite, and speaking as someone who ones a lot of personal IP, protecting copywrite is always a good thing.) Our customers are global. People with our particular Hobby gene, that is collecting, painting and playing with fantasy soldiers, exist all over the world. Our job is to find them.

In developed markets we like to do this ourselves through our own Games Workshop stores. Here we employ wonderful people who are recruited for their enthusiasm and willingness to help others. Our store managers are quite literally that: the centre for the Hobby in their local community and it is their behaviour and attitude that determine our success in that location. Because it takes time and care to find the right person to run a Games Workshop store, it will take us many years to get the global penetration we want to achieve. (Again, the scuttlebutt is that they hire people who are good salespeople, and the “enthusiasm and willingness to help others” is a means to an end–that end being getting them out the door with as many products as they can afford–or fit on a stretched credit card. Not a bad business strategy, but this comment does seem a little disingenuous.) So, in order to improve our coverage today, we seek out other businesses which can help us get to the places where our hobbyists may be found.

The best businesses at helping us are independent shops, run by owners who know their customers and offer them a good personal service. We call these Stockists and we supply them with an easy to manage range of our fastest selling products, which we resupply every month. (This is where things break down. I’ve been around enough FLGS stores to know that the FLGS stores doesn’t always get their allocation, don’t receive top-notch communication, and are kept almost entirely in the dark, at least as much as the public is. Much could be done to improve FLG relations between Game Workshop and the FLGSs.) For emerging markets in Eastern Europe and South America we work through experienced local distributors to ensure our product is available through their local networks of retailers. And, of course, in all these locations, we also have the Games Workshop Webstore, which gives customers a huge amount of information on the Hobby and access to our entire range of products with a fast and efficient delivery service to wherever they live in the world.

Finally, we know that if we want Games Workshop to be around for a long time, we have to deliver all this profitably. This is why we are cost conscious. We don’t spend money on things we don’t need, like expensive offices or prime rent shopping locations or advertising that speaks to the mass market and not our small band of loyal followers. We only invest where it makes a positive improvement to our business model, such as in tooling to make better plastic miniatures, in opening more Games Workshop stores to improve our customer service and in fit-for-purpose systems to make our processes more efficient and reliable. (This makes me wonder if the stores are really marketing tools or simply places to push the latest releases.)

And when we make an investment, we measure its impact to ensure that it delivers an improved return on capital for our owners. Our continual investment in product quality, using our defendable intellectual property, provides us with a considerable barrier to entry for potential competitors: it is our Fortress Wall. While our 400 or so Games Workshop stores which show customers how to collect, paint and play with our miniatures and games provide another barrier to entry: our Fortress Moat. We have been building our Fortress Wall and Moat for many years and the competitive advantage they provide gives us confidence in our ability to grow profitably in the future. Even though we have been in the UK for over 35 years, we still see opportunities for growth here with smaller one man stores in market towns and suburbs of large cities. Compared to the UK, most of the rest of the world is for us still “green field” territory. This means we believe we can keep on growing steadily, using the same tried and tested approach of recruiting and retaining customers by opening Games Workshop stores, supported by the Games Workshop Webstore and independent Stockist accounts across the globe. With this growth we should be able to put more volume through our dedicated manufacturing and warehouse facilities ensuring that our gross margin continues to improve. (I would ask: if the FLGS stores are the lifeblood of the organization, why for official store wont’ get over get over t the Games Workshop exclusives? I seems as though Games Workshop doesn’t always treat FLGSs as the lifeblood of the company if they refuse to sell some of the most sought-after models through the FLGSs and keep them to themselves.)

(Overall, I’m impressed with this Games Workshop Business Model statement. They clearly see themselves as a model maker first, a game designer second, and a retail chain third. Of course, they’re all mixed together in an interconnected jumble, but thy have a plan that is working for them. I don’t agree with a lot of what they choose to do. I would like them to refine their brick-and-mortar stores, but that’s a good good business decision.)

(So I have my quibbles, but this seems pretty solid, and it gives interesting insights into Games Workshop moving forward. It explains, if nothing else, why they invest so much in new and shiny, less on the game support, and even less on the retail. It would be nice if they all could be moving hand-in-hand, but the truth of the matter is that they’re in a remarkably good position to where they were five years ago. Five more year and who knows what will be?)