In an era defined by online shopping and falling real incomes, the high street can seem like a morass of zombie companies, hauling their carcasses from one sales season to the next until someone puts them out of their misery. One honourable exception is Games Workshop, a company that makes its money by selling zombies instead, alongside wizards, space orcs and all other accessories for the dedicated fantasy gamer.
Had you invested £1,000 in the firm’s shares at the end of 2009, you would now be sitting on a pot of more than £25,000. The company is the best performing FTSE250 retailer of the past decade – and second best performer overall. So what’s going on in those dungeons? What lessons can this impressive operator teach the rest of the high street?
Founded in London in the mid-1970s by Ian Livingstone and Steve Jackson – who would later became famous for co-authoring the Fighting Fantasy choose-your-own-adventure books – Games Workshop evolved quickly in its first few years of existence. It went from manufacturing and distributing traditional board games to focusing on fantasy fare, above all Dungeons & Dragons, the cult role-playing game from America that would define the whole genre.
The company soon launched the White Dwarf magazine, which became a bible for fantasy gamers, and moved into manufacturing miniatures for wargaming under its Citadel Miniatures brand. It soon began to build its business around these miniatures and, to a lesser extent, the Warhammer tabletop fantasy game, which launched in 1983. By the mid-1980s, White Dwarf had stopped covering Dungeons & Dragons and other people’s games to solely concentrate on the Games Workshop universe.
Let battle commence
This narrow focus has essentially continued up to the present day. It is key to understanding the business. To investors and retail staff alike, the company has long referred to its strategy as “total global domination”. It barely acknowledges the existence of competing games or miniatures, perhaps with good reason; it has no real competitors who can match its vertical integration in the marketplace.
Most other wargames manufactures are just cottage industries with no presence on the high street: the next most successful achieves less than 2% of Games Workshop’s £257 million turnover. The company’s stores stock only its own products, though it is more than happy to sell them elsewhere: 47% of sales come from third-party retailers, while a further 19% are online.
Games Workshop’s share price
Staff have regularly described the company as making the “best fantasy miniatures” in the world. Where most big Western retailers outsource manufacturing to contractors on the other side of the world, the firm makes almost everything at its own factory in Nottingham in the English Midlands, also the place of the company headquarters.
Games Workshop now has 500 stores worldwide – a fifth of them major outlets, while the rest are one-vendor operations like the one pictured below. Most of the bigger stores are in the UK, Europe and Australia, and total global domination has no room for passengers: loss-making stores are quickly reorganised to make a profit, or closed. There are also a smattering of stores in North America and Asia, though the company has never achieved critical mass in those markets like it has in the UK.
It is clear from my own research that stores function at least as much as clubhouses devoted to the hobby: collecting, painting and occasionally even gaming with the miniatures. Fans and customers obsess over both these figures and the complex fictional worlds in which the games are set.
Everything is built around two settings – one fantasy and one science fiction. You could legitimately accuse them of being derivative of the pop culture over the past half-century or so. But they function as fully realised, complex worlds complete with spin-off novels, comics, card games, computer games, and even a film – though Ultramarines: A Warhammer 40,000 Movie was hardly a classic. The logic is to give the dedicated fan so much to consume that there is no need, or indeed very much time, to bother with anything else.
One potential threat to this close relationship with customers in the past was the company’s approach to defending its intellectual property. Its legal department long had a reputation for zero tolerance, attracting heavy criticism, for example, for taking action to prevent an author from selling a book about space marines. My sense is that the company has become much less litigious since Kevin Rountree took over as CEO in 2015.
Treasure chest required
Buying into the Games Workshop hobby is not cheap, it should be said. You can easily pay over £50 for just a dozen plastic figures, for instance, plus another £25 for paints and brushes. This attracts regular gripes from both fans and the press, and is presumably integral to the company’s surging share price and mainly strong financial results.
Yet steep prices are only viable if the product is good enough. The company has regularly rebooted and reinvented its own games and worlds over the years, though arguably they can never be well enough tested to satisfy competitive gamers. The complexity of each game system and the need to bring out new versions to sell more models tends to mean that one strategy becomes too dominant.
The company has also innovated in other ways – recently, for example, formulating revolutionary new paints and painting techniques to make it easier for the customers to get great results with their figures.
Can the success story continue? There seems every reason to assume that it can. It might even benefit from the mounting concerns around the carbon emissions from video gaming, and the need to transition to low-carbon computing.
Though Games Workshop certainly makes money from branded video games, being anchored in physical products and stores that offer a communal experience could be a good place to be in years to come. So long as you can save your prized miniature collection from extreme weather events, Warhammer 40,000 and Age of Sigmar will continue to be playable in a post-carbon economy. For a company that has done so well out of dystopian fiction, that would arguably be a fitting turn of events.