Q&A: Play N Trade CEO Smhul Talks Retail Experience

Video game retail franchise Play N Trade recently announced the opening of its 50th store across the U.S., Guam, Puerto Rico and Canada in two years. Additionally, the company has sold the rights to 250 stores, a rate of growth that CEO Yuvi Shmul notes is “equal to or exceeds that of much larger franchise operations” and has seen it ranked recently as one of the Top 50 New Franchises for 2007 by Entrepreneur magazine. The franchise markets itself as “the destination of choice for gamers”, with a “try before you buy” policy, a number of in-store competitions and tournaments, disc and console repairs and “video game experts on site” in each location. The Play N Trade website notes that the company’s franchisees are “not just selling video games”, they’re “customers for life by inviting their communities to become part of the gaming culture” found in-store. Gamasutra spoke to Shmul recently and asked about the company’s growth, its promises and values and the market share threat from other retailers and online distributors. What made you decide to enter the games retail field? The founder of the company, Ron Simpson, is a gamer, and he started Play N Trade to meet the needs of gamers. From the store design to the products and services offered, Play N Trade is the destination of choice for video gamers. Backed by exceptional customer service, our stores offer an atmosphere that is inviting to everyone from the casual gamer to the hard core enthusiast. I got involved with the company in 2005. I had experience as a business broker and was CEO of a successful wireless franchise. Although I am not a gamer, I have a master’s degree in finance and began my career as an equity analyst on Wall Street, so I know how to evaluate and analyze a business. I determined that Play N Trade offered an exciting alternative to the traditional retail experience, and that the franchise model offered the best chance for success. Did the competition in the marketplace from large companies like GameStop concern you? Does it at this point? Competition means there is market opportunity, and we have very clearly and specifically differentiated ourselves from large companies. Although our footprint is not as large – yet – we offer superior products and services, including a ‘try any game before you buy’ policy, disc and console repair services and in-store local and national tournaments. Our stores deliver a unique customer experience that cannot be found anywhere else. When gamers walk into our stores, they know that Play N Trade is where they want to be. The store design is hip, unique and very modern, featuring at least eight flat-panel wall-mounted HD screens, WiFi connectivity, and an extensive selection of new and used games and consoles, ranging from retro to most current. This is backed by exceptional customer service because our passion for gaming comes through. We get to know each of our customers as individuals, and everyone is made to feel welcome. We are not concerned at this point. We have more than doubled the number of open stores in six months, with a total of 60 open stores and almost 300 franchises sold. We are opening a new store almost every other day, and are on track to have 200 open stores at the end of this year and 500 open by the end of next. How healthy do you feel the retail market is at this point? Is the specialist gaming store market under any threat from larger chains like Wal-Mart or Best Buy? The gaming retail market is very robust and continues to get stronger. In 2006, U.S. industry sales were $12.5 billion, and analyst projections are that this year it will hit $15 billion. In the interactive entertainment sector, video games are now bigger than the film industry. We believe the specialist gaming store will always be successful if it focuses on what makes it special. Play N Trade stores mix retail with in-store contests and tournaments, try any game before you buy policy and repair services, which creates an arcade atmosphere. When you are a Play N Trade customer, you are part of a club, with many more reasons to come into our stores other than to simply buy a game and walk out. Do you see online distribution as a threat? The threat of online distribution has not yet put brick and mortar stores out of business. Again, there are lots of ways to buy games, but our stores are much more than a cash and carry or cash and click retail experience. It is the club atmosphere, the opportunity to try any game before you buy it, have your consoles and discs repaired and most of all, the in-store contests and tournaments. The in-store activities bridge into social networking, where gamers can get together to meet each other face-to-face, show off their skills and compete to win cool prizes. How did you publicize the franchise in the beginning? Our initial efforts were very localized and grass roots, mostly word-of-mouth. As we have grown, we have expanded to other mediums, including online, radio and print. But gamers are wary of being “sold” and so our best publicity is still word-of-mouth from gamer to gamer. How much of a risk were early franchisees taking on by opening a Play N Trade? Play N Trade offers entrepreneurs and small business owners a very compelling opportunity, that includes a reasonable franchise fee and great opportunity for success. We believe that there are very few franchises out there with such an attractive industry and also with such a franchisor that provides superior franchisee training and support. We are training our franchisees in all aspects of business ownership and management, and all relevant industry knowledge. In addition, we provide marketing solutions and brand awareness that is comparable to those of franchises ten times our size. Therefore, all told, we believe that there is no better opportunity for any small business owner in the video game industry and across all industries in general. What kind of financial outlay is required in order to set up an outlet? The UFOC (Uniform Franchise Offering Circular) provides all of the details, which takes a number of factors into consideration, but a ballpark figure would be $130,000 and up. What do you think has been the single most important factor in selling the rights to 250 outlets? The industry. Video games are unique in that the appeal transcends age and geography. As video game consoles have evolved from toys to sophisticated technologies, the video game consumer demographic has expanded beyond its original base of kids and teenagers to include adults as well. Video games are a major draw for discretionary income, and Play N Trade is the only video game franchise opportunity available. Our stores are proving that business success can be achieved in small towns, suburban areas and large cities. Just as important is our organization and infrastructure that provides the necessary training and support for success. How risky is it for you to offer a buy-back scheme for software? The corporate buy-back system is designed to maintain system-wide consistency and availability. This is one of the important ways in which the franchise has the resources to assist all of our franchisees in offering their customers the best product mix. Our business model is based solely on the success of our franchisees. We do not compete with them, and do not have any corporate stores. Where do the company’s six core values come from? These are the values of our executive team, describing the way in which we conduct business, what we offer our franchisees, and serves as the foundation on which we will build our success. Have you listened to other gamers’ criticism of other specialist retail stores, and what impact has this had on the company’s franchisor system? The franchise model is the key here. Many of our owners are gamers, and so they understand what their customers want on an instinctive level. This passion for gaming is enhanced by the training we offer, which emphasizes customer service above everything else. When you go into a Play N Trade store, the employees are not just standing behind the counter, waiting for something to happen. They are out in front of the store, greeting customers as they come in, asking them what games they play, what games they are looking for, if they have seen the latest releases, and if there’s any game they’d like to try out. The Play N Trade employees will then pop the game into the console and start playing with the customer. You won’t find that energy and enthusiasm anywhere else. How are you able to ensure that each franchise has “video game experts on site”? Many of our owners are gamers themselves, and if they are not, their employees are. We add to this through our training, which is free to franchisees, their families and their employees and includes beginning, intermediate and in-store programs, conducted by our corporate gaming experts. What plans to do you for further expansion and franchise rights selling? Play N Trade stores are all over the country, as well as in Puerto Rico, Guam and Canada. We are opening a new store every other day and are on track to achieve our goal of 200 open stores by the end of this year and 500 open stores by the end of 2008. A lot of our franchisees have made a tremendous impact in their neighborhood from the first day they opened their business. As a matter of fact, many of them, soon after opening, have bought the rights to open additional stores. Therefore, I feel like it’s just a matter of time before we are the number one video game destination across the U.S. and Canada. Are you considering the international market a priority at the moment, and what challenges does this raise in terms of market conditions? We have expanded into Canada, so we do have an international presence. We are exploring several international markets at the moment, but priority at the moment is U.S. expansion, building the brand, extending our footprint and increasing recognition. There have been several large corporations who have expanded into international markets without being fully aware of local customs and practices, and have suffered setbacks because they were not adequately prepared. We will expand internationally at a controlled pace, making certain the proper in-country and corporate systems, procedures, processes and personnel are in place first.