(Discussion) GW Half-Yearly Financial Report, Space Marine II launch, pricing update flags

[Norman Paperman]

I've dared to hypothesize that Warhammer's current success predates Space Marine II in that other legacy franchises like Star Wars and LotR are currently in the doldrums and people are looking for an alternative. Warhammer has decades of lore and passionate fans, which has the gravitas that someone looking for a new fantasy or scifi epic setting can latch on to. I know that's my story for how I ended up a Warhammer fan just over a year ago. If I had to guess, the GW growth right now has less to do with the video game and more to do with this larger trend of people taking up the setting, as that's going to translate more often to players than video gamers taking up their nippers and paintbrushes. Space Marine II was a big success in large part because there is this hunger for a faithful adaptation from a larger universe, but I don't think a successful video game will translate to long term players/customers for models. (Your thread about LotR leading to their worst years is very prescient there). 

 

Warhammer is eating Star Wars' lunch. 

 

 

Edited January 16 by Norman Paperman

[LameBeard]

I get what you are saying, @Norman Paperman. I would have a slightly different take. I saw a sign in my wife’s Instagram feed that says “buying art supplies and actually using them are two different hobbies”.

 

This forum is a kind of proof of that: we fans are sometimes predominantly into the lore and the novels, or the computer games, or the tabletop games, or the painting, or whatever. But selling models is what makes GW most money, and by their own strategies and descriptions, getting new customers is what drives those model sales. There are millions of Star Wars fans, but do they buy many models?

 

So my hypothesis is this: those new and returning customers they got under Covid have mostly stuck. There is even a kind of knock-on effect as they bring some of their friends (or kids!) into the hobby.

 

However, we still have no idea if we are close to saturation in the mature markets. I think future growth is very uncertain.

 

TLDR: I’m also sceptical that Space Marine II success will drive a lot of new sales of models in the medium term.

[Norman Paperman]

1 minute ago, LameBeard said:

I get what you are saying, @Norman Paperman. I would have a slightly different take. I saw a sign in my wife’s Instagram feed that says “buying art supplies and actually using them are two different hobbies”.

 

This forum is a kind of proof of that: we fans are sometimes predominantly into the lore and the novels, or the computer games, or the tabletop games, or the painting, or whatever. But selling models is what makes GW most money, and by their own strategies and descriptions, getting new customers is what drives those model sales. There are millions of Star Wars fans, but do they buy many models?

 

So my hypothesis is this: those new and returning customers they got under Covid have mostly stuck. There is even a kind of knock-on effect as they bring some of their friends (or kids!) into the hobby.

 

However, we still have no idea if we are close to saturation in the mature markets. I think future growth is very uncertain.

 

TLDR: I’m also sceptical that Space Marine II success will drive a lot of new sales of models in the medium term.

Star Wars fans used to buy toys by the billions. Keeping the licensing for toys is what made George Lucas a mega-gazillionaire, likely a big part of why Disney bought SW, and a big part of why Disney Star Wars is struggling. People just aren't buying toys for the new stuff. Star Wars toys are aimed at children rather than adults like Warhammer is, but I think it's absolutely accurate to say that "models" are what make/made Star Wars money. Movies created the universe and drove demand, but the toys were the real money printer. 

 

That said, I agree very much with your post. Any way that GW can get people in the door and interested in the franchise will move models. I watched some clips of Pariah Nexus on youtube and two weeks later was buying my supplies. Others will read a book or play a game as their path into the hobby, and GW is smart in pushing every avenue. Star Wars interest collapsing is out of their control, but they're in position to take advantage of it and ride the growth of that external factor. Demand for sci-fi and fantasy is enormous and while building/painting/playing with models will always be niche, GW is in a great position to grow that niche as much as possible. Far better than a company with a new IP starting out could do.

 

Covid players sticking around is yet another factor (I wasn't here before covid so I can't really comment, but in general this is going to be a complex set of things going on that are all breaking GW's way and contributing to the success). Based on my Star Wars theory, I think there's quite a bit more room for growth in terms of interest, but how much of that will translate to model sales at the end of the day is the million dollar question, and how many people will stick with it for decades rather than years, etc. There will undoubtedly be a "peak" somewhere, but how high that is and how far down it goes after are also questions for Tzeentch. 

[skylerboodie]

re: GW's write-downs, my understanding is that they prefer to write-off unsold stock rather than sell it at a discount*, literally leave it out in the rain and then write-off the value (eg, the £3.6M write-down in the report).

 

(* the reduced price sale they did on Dominion and a few other products a couple of years ao being an unusual exception.)

 

For GW, it costs pennies to produce the sprues (plus paper costs for tokens, books, cardboard box etc) so it's clearly no way near ~£100 of product input lost per big box, but it is effectively £100 of lost revenue from a sale that didn't happen. @N1SB, are you able to clarify whether such reporting write-downs in accounts (eg: the £3.6M here) would have to be based on the lost revenue, or the lost input costs?

[TheArtilleryman]

6 hours ago, LameBeard said:

Sorry, it’s my fault being lazy while writing on the phone, it can come across a bit terse.

 

Back on topic I’m still suspicious that web sales down so much is a result of “temporarily not available” rather than “it’s an awful website”. I might try to do some digging about whether they’ve written off any investment there - that’s where the humility should be shown in my view!

I wonder if web sales are down because there is so much online competition now. I mean, if you are going to order online, why wouldn’t you order from somewhere that has the same range for 20% less? Unless GW makes some of its range home exclusive, or has better stock levels than third party stores, I can’t see any reason why.

[darkhorse0607]

13 minutes ago, TheArtilleryman said:

I wonder if web sales are down because there is so much online competition now. I mean, if you are going to order online, why wouldn’t you order from somewhere that has the same range for 20% less? Unless GW makes some of its range home exclusive, or has better stock levels than third party stores, I can’t see any reason why.

 

I think it's a combination of issues. For what it's worth, there is a sizeable chunk of things that are GW exclusive,  anything Forgeworld for example.

 

But you're right

 

1) it's cheaper elsewhere. Even if I just open up Amazon, I can get the same kits far cheaper/faster than from GW

 

2) as others have said, even GW themselves, they have a pretty significant inventory issue. If I as a customer go to the GW webstore and the thing I want is out of stock, but I can go to any number of sites and find it, why would I keep trying to go to the GW webstore, especially given point #1

 

3) the website itself is annoying. That's all I'll say there, we have discussed it to death

 

GW is almost actively giving customers reasons not to shop on their official store, where they get the highest portion of profit. This isn't the pandemic where most FLGS were out of everything, people have faster, cheaper, easier options to get the same product and GW needs to realize that. Or give the customer an actual incentive to shop on their website

Edited January 16 by darkhorse0607

[ZeroWolf]

10 minutes ago, TheArtilleryman said:

I wonder if web sales are down because there is so much online competition now. I mean, if you are going to order online, why wouldn’t you order from somewhere that has the same range for 20% less? Unless GW makes some of its range home exclusive, or has better stock levels than third party stores, I can’t see any reason why.

Only reason I've contemplated using the GW website in the past is the online exclusives like Uriel Ventus (who i will order one of these days) other than that? There's nothing

[LameBeard]

All good points my friends, but has that really changed over the last year or two? I guess the stock level issue and annoyance factor could prompt the looking elsewhere, what we call an interaction effect (what @N1SB might compare to a combo). Side note: I never see good prices for Warhammer on UK Amazon, I’m gonna check it out now, got a voucher for Christmas I now might treat myself to Warhammer with (instead of a drill).

Edited January 16 by LameBeard

[TheArtilleryman]

Their online sales would do better if 

a) Everything was in stock and they had more available of certain stuff e.g. pre-orders

b) They ran some sort of loyalty system and/or had regular deals/sales like “spend x amount, choose a free gift” or whatever

c) They released everything on their own site a week earlier than third party sites

d) They did extra runs of limited edition boxes from time to time that third party sites don’t get

e) Have more products that are GW exclusive

 

I’m sure there are loads more things people could suggest but those come to mind.

4 minutes ago, LameBeard said:

All good points my friends, but has that really changed over the last year or two? I guess the stock level issue and annoyance factor could prompt the looking elsewhere, what we call an interaction effect (what @N1SB might compare to a combo). Side note: I never see good prices for Warhammer on UK Amazon, I’m gonna check it out now, got a voucher for Christmas I now might treat myself to Warhammer with (instead of a drill).

 
I think there are a lot more third party sites that have sprung up in the last couple of years. Definitely noticed many more places to get stuff.

Edited January 16 by TheArtilleryman

[DemonGSides]

12 minutes ago, LameBeard said:

All good points my friends, but has that really changed over the last year or two? I guess the stock level issue and annoyance factor could prompt the looking elsewhere, what we call an interaction effect (what @N1SB might compare to a combo). Side note: I never see good prices for Warhammer on UK Amazon, I’m gonna check it out now, got a voucher for Christmas I now might treat myself to Warhammer with (instead of a drill).

 

I can imagine that GW or local LGS is a smarter place to buy Warhammer products if you're in England.

But if you're in the States, there's almost 0 reason to go to GW unless it's for "online only" or GW exclusive.  Both of which are dwindling as the days go on.

Why deal with GW's nightmare of a storefront and their MSRP when I can get 15% off on Amazon if I'm desperate, or take 10 minutes to find it on an LGS webstore for 20% off?

Edited January 16 by DemonGSides

[TheArtilleryman]

Just now, DemonGSides said:

 

I can imagine that GW or local LGS is a smarter place to buy Warhammer products if you're in England.

But if you're in the States, there's almost 0 reason to go to GW unless it's for "online only" or GW exclusive.  Both of which are dwindling as the days go on.

Why deal with GW's nightmare of a storefront and their MSRP when I can get 15% off on Amazon if I'm desperate, or take 10 minutes to find it on an LGS webstore for 20% off?

Only things I ever buy in GW these days are paints.
 

We recently took the trip to Warhammer World in Nottingham. My son had £100 of birthday money to spend but despite a long time browsing he didn’t buy anything because of the prices. Even being in actual Warhammer World with every model you can possibly think of in front of him, he was like “nah, I can get it cheaper online.”

[Sky Potato]

12 hours ago, N1SB said:

While describing this, I did think of 1 possibility, it's when GW takes old sprues and stuffs them in Imperium magazines or Combat Patrol magazines.  I got the Imperium magazine with 3 Necron Warriors and a pot of paint, this really would be the equivalent of an nVidia GPU dropping in price, isn't it?  Mystery solved.

 

I would probably agree that - on the balance of probability - Imperium Magazine was made up of excess stock from the second run of the Indomitus boxset. Its probably worth mentioning that the original partworks magazine, Conquest, was definitely made to order for the magazine. The sprues were the regular off the shelf sprues, but in coloured plastic - blue for the Marines, green for the Death Guard, brown for the terrain. So the original plan for the partworks was not a method of coping with overstock.

[ZeroWolf]

1 minute ago, Sky Potato said:

 

I would probably agree that - on the balance of probability - Imperium Magazine was made up of excess stock from the second run of the Indomitus boxset. Its probably worth mentioning that the original partworks magazine, Conquest, was definitely made to order for the magazine. The sprues were the regular off the shelf sprues, but in coloured plastic - blue for the Marines, green for the Death Guard, brown for the terrain. So the original plan for the partworks was not a method of coping with overstock.

It's been pointed out that the stock for all magazines (and army deals) are all printed to order rather than surplus stock as it really doesn't cost them much to do it and saves time rather than having someone manually unbox things (to say nothing about the probability that they'd need to still print some sprues to match shortfall).

 

The simple answer (and maybe most wasteful?) Is they simply print them.

[N1SB]

6 hours ago, skylerboodie said:

re: GW's write-downs, my understanding is that they prefer to write-off unsold stock rather than sell it at a discount*, literally leave it out in the rain and then write-off the value (eg, the £3.6M write-down in the report).

 

(* the reduced price sale they did on Dominion and a few other products a couple of years ao being an unusual exception.)

 

Exactly my reaction.  If you remember the 500th Store, it was in Hong Kong.  It closed down eventually (the location was very creative, it just didn't work out).  One of our friends camped out of the store trying to catch the GW (Regional/General/not Store) Manager, trying to make a deal for all his unsold stock.  He later told us the guy would rather pay to shred the sprues than to give them away for free or to flog them off at a discount; it was like GW policy.

 

6 hours ago, skylerboodie said:

@N1SB, are you able to clarify whether such reporting write-downs in accounts (eg: the £3.6M here) would have to be based on the lost revenue, or the lost input costs?

 

You're spot on, write-downs happen in Inventory, basically lost revenue as you say.  "Write-down" I think is an Americanism, if you talk to those old Savile Row tailored suits-wearing toffs they'd say, "Inventory Impairment."  Isn't that so quaint, "This inventory's been impaired."  They'd also say "turnover" instead of revenue, etc.

 

But yes, in actual logical practice, it makes sense to be in Inventory, because that represents that opportunity cost in lost revenue, exactly.

Edited January 17 by N1SB

[TheArtilleryman]

4 hours ago, N1SB said:

He later told us the guy would rather pay to shred the sprues than to give them away for free or to flog them off at a discount; it was like GW policy.

My mum used to work at a bakery chain - at the end of every day they had tons of fresh food left over and they wouldn’t even let the staff take it home. It just went in the bin. Almost makes sense with food, though it’s still wasteful. But for non-perishable models why wouldn’t you just ship the stock back to the central warehouse so it can be redistributed to places where it’s in demand?

[Arikel]

1 minute ago, TheArtilleryman said:

My mum used to work at a bakery chain - at the end of every day they had tons of fresh food left over and they wouldn’t even let the staff take it home. It just went in the bin. Almost makes sense with food, though it’s still wasteful. But for non-perishable models why wouldn’t you just ship the stock back to the central warehouse so it can be redistributed to places where it’s in demand?

I would imagine the same reason that the US tends to leave piles of wrecked military equipment when they withdraw troops from a region. It’s possibly cheaper and definitely less complicated to simply destroy the used equipment than attempt to ship it all back home for redistribution.

[TheArtilleryman]

5 minutes ago, Arikel said:

I would imagine the same reason that the US tends to leave piles of wrecked military equipment when they withdraw troops from a region. It’s possibly cheaper and definitely less complicated to simply destroy the used equipment than attempt to ship it all back home for redistribution.

Not really got any words for this … wow

[Domhnall]

2 hours ago, TheArtilleryman said:

My mum used to work at a bakery chain - at the end of every day they had tons of fresh food left over and they wouldn’t even let the staff take it home. It just went in the bin. Almost makes sense with food, though it’s still wasteful. But for non-perishable models why wouldn’t you just ship the stock back to the central warehouse so it can be redistributed to places where it’s in demand?

 

Other than logistical costs as mentioned, I can think of four other options:

 

1. It's a premium product/company. You don't want to dilute the "brand image" (yes, please do the airquotes) by discounting stock, or having it appear you have inferior goods that nobody wants isn't what you want for your image.

 

2. It also sets a precedent: If you do it with some items and not others, people will get annoyed (hard to believe, I know) that their favourite popular item isn't up for discount, how dare they not discount everything!

 

3. It may be the thinking at GW HQ that if you send unsold stuff out for discount, then there is the chance that people will wait for that to happen to buy... that's unlikely, because if it's popular it'll sell, and if it's not, it'll not, discount or no. But there could be that kind of thinking.

 

4. Something to do with how that's accounted for in their system or terms, as it's not sold full price, but surely there'd be a market for an arms length branch selling off OOP or superseded stock? 

 

I'm not saying I would agree with the options above if any of them are the case, but just that they may be part of the thinking back at HQ. Gone are the days of the 3 for 2 sales in store with queues down the street (and store employees working out what would be best value for the customer as well!). 

Like with the food thing you mentioned, which is common where I am too, it's wasteful yes but the legal ramification of doing so gets in the way* a lot of the time. 

 

* - potential of being sued by somebody that's gotten sick after eating one of your foodstuffs (like the story that's gone around the internet, whose veracity I can't comment on) isn't worth the risk, so chuck it all out. 

[TheArtilleryman]

19 minutes ago, Domhnall said:

 

Other than logistical costs as mentioned, I can think of four other options:

 

1. It's a premium product/company. You don't want to dilute the "brand image" (yes, please do the airquotes) by discounting stock, or having it appear you have inferior goods that nobody wants isn't what you want for your image.

 

2. It also sets a precedent: If you do it with some items and not others, people will get annoyed (hard to believe, I know) that their favourite popular item isn't up for discount, how dare they not discount everything!

 

3. It may be the thinking at GW HQ that if you send unsold stuff out for discount, then there is the chance that people will wait for that to happen to buy... that's unlikely, because if it's popular it'll sell, and if it's not, it'll not, discount or no. But there could be that kind of thinking.

 

4. Something to do with how that's accounted for in their system or terms, as it's not sold full price, but surely there'd be a market for an arms length branch selling off OOP or superseded stock? 

 

I'm not saying I would agree with the options above if any of them are the case, but just that they may be part of the thinking back at HQ. Gone are the days of the 3 for 2 sales in store with queues down the street (and store employees working out what would be best value for the customer as well!). 

Like with the food thing you mentioned, which is common where I am too, it's wasteful yes but the legal ramification of doing so gets in the way* a lot of the time. 

 

* - potential of being sued by somebody that's gotten sick after eating one of your foodstuffs (like the story that's gone around the internet, whose veracity I can't comment on) isn't worth the risk, so chuck it all out. 

I get it about the discounts (all 4 of your great points), but I don’t get it about not returning the stock to the warehouse. They wouldn’t have to be all public about this at all, just quietly return it to the central stock pool and send it to stores that need it, or sell it online. Especially if it’s a whole store full of stock being written off like the Hong Kong example and not just a few random boxes.

[LameBeard]

A couple more snippets from the accounts. First of all, for a FTSE100 CEO, a rather colloquial comment:

Quote

I would normally now complain or whine about IT, well they still have a difficult plan to implement, but they're making some progress, so I’m going to keep quiet for a change. If anything changes I’ll let you know. They’re on track to hit their first milestone, helping us open our new warehouse in Sydney with our new global IT solution

At least this acknowledges some issues, and shows the focus is really on the back-end, how it links with logistics, not customer experience. And he's still not as bad as (say) Michael O'Leary.  More detail later:

Quote

Online declined by 4.2% at actual exchange rates, 4.0% at constant currency rates. Excluding digital sales, Online sales decreased by 12.2% at constant currency rates, which is broadly in line with our expectations, following the Warhammer 40,000 release in June 2023. It’s now been just over a year since we launched our new webstore onto a more stable platform. The sales team with the support of central IT are now looking to continuously improve our customers' online experiences. This will, I’m promised, soon include additional payment options and changes to our navigation, making it easier for our customers to use the site.

Again, I guess I should be happy that they acknowledge it's a bad customer experience. I still don't completely buy the story that online is down as expected because it's not a 40k launch year - why is the impact so different through other channels?

 

And before anyone says, @LameBeard, why can't you just let it go about the website and go shop somewhere else? I do shop somewhere else. But I am a shareholder as well as a customer. I want the new customers to have a good experience, because that's the route they might feel 'safest' in - ie that they really are buying Little Timmy exactly the thing he wants for Christmas from the place that should have the stock, will deliver on time, will have secure card payment, will allow easy returns, generally should be the most reliable option.  Shopping is an experience, it's not just about the product at the end.

 

As to @skylerboodie's point, under the International Accounting Standards, inventory has to be held at the *lower* of historical cost or net realisable value.  As you all discussed above, that seems to make the 'it's going in the bin' explanation of a write-down much more likely than my 'Skaventide sale next year' idea. Not that it rules out such a sale, but merely that the discount wouldn't be deep enough to appear in the accounts at this stage.

Edited January 17 by LameBeard

[Dark Shepherd]

I have a suspicion they just bin unsold English stuff; theres a FLGS outlet store in Barcelona Ive been to a few times that has a tonne of super heavily discounted/sale GW stuff in Spanish. Its sister/main store has way way less GW

 

 

[LameBeard]

My instagram is full of "90% off Warhammer sale" adverts which I assume are scams and never click on.

[Felix Antipodes]

Hopefully, the new Sydney warehouse coming online will put an end to Oz (& some other Asian region) releases continually running a week or two behind the other markets.

[Emperor Ming]

36 minutes ago, Felix Antipodes said:

Hopefully, the new Sydney warehouse coming online will put an end to Oz (& some other Asian region) releases continually running a week or two behind the other markets.

Staffed by kangaroo servitors wearing cork string hats

[Dark Shepherd]

8 hours ago, Emperor Ming said:

Staffed by kangaroo servitors wearing cork string hats