Business Breakdowns
· Todd Wenning
[00:00:00] S1: No. So, they have their own retail stores, as you mentioned. They have about 575 around the world. And about 55% of those are in Europe and the UK. About 35% are in North America, and 10% in Australasia. And you probably don't even know that they have a store in your town. If you live in a semi-major city in the US, you probably have what's called a Warhammer store. So, if you go to Google and type in "Warhammer store near me", you probably have one. I don't know this for sure, but we have one in Cincinnati. There might be one in Pittsburgh. There might be one in Cleveland. A lot of these stores are run by enthusiasts. About 75% of their stores are single-staff stores. So these are just enthusiasts who thought, I get together with my friends anyway to play this game. And, I might as well have a store and have everything set up there and make some sales and make a little money while I'm doing it. So a lot of them are in strip malls. The stores are fairly small, but they're stacked to the gills with just Games Workshop materials. They do not distribute any third party. That's about 20% of the revenue comes from the retail channel. 60% of the revenue goes through the trade channel, which is the third-party. And so that's where they might be in hobby stores, or I'm not sure if they're in Walmart, but they might be in like a Walmart store somewhere. These are all distributed to third-party independent sellers.
· Matt Reustle, Todd Wenning
[00:00:00] S0: I looked to understand the concept of a Warhammer store and found there was one just a 20-minute drive from me. So, I can attest to that being the truth. Just to have some context about this market, I think it is very enthusiast driven, but it continuously amazes me, the level of enthusiasm. I think you can even look at something like Marvel movies, and the real appreciation and diehard nature of some of the fans of the origin stories back to the Stan Lee days, and what that generated for that IP over time. Do you have any way of contextualizing the size of this type of market, and Games Workshop revenue is one data point, but I'm curious about that. [00:00:00] S1: It's a lot bigger than you probably think. There are 790,000 people around the world who've signed up for the "My Warhammer" emails. Free, regular emails that go out to people who are interested in Warhammer. About 248,000 people are subscribed to Warhammer Plus, which is a $50 a year subscription. Now this number is up from 115,000 three years ago. It has doubled over the past three years, in terms of people who are willing to not only subscribe to the emails, but also pay for the unique interactions they have with the company. So this is bigger than you might expect and growing very rapidly. [00:00:00] S0: When you mentioned the origins, was there demographic concentration or geographical concentration where this was really material in Europe first before expanding outwards? How key is Europe to the story? You mentioned the 55% number earlier, but I'm curious about that as well.
· Todd Wenning
[00:00:00] S1: It started in the UK. It feels like a very British company. They're based in Nottingham. The World of Warhammer, the big showcase store is next to their headquarters in Nottingham. They're actually building a new World of Warhammer in Washington, D.C., that comes out in 2027. So that's another part of the story. But it's a big cultural thing in the UK. A lot of young men in particular – it's not always men, but it tends to trend towards young men who get really into this game. Henry Cavill, who I'm sure we'll talk about in a minute because he's producing the Warhammer series for Amazon. He's a big fan, so he'll get on talk shows and talk about it. And a lot of people grew up playing Warhammer. Maybe a similar way to you and I might have collected baseball cards and gone to baseball card shows. So it's a very hobby-driven type of business. Management talks about the "hobby gene," that a lot of their customers have the hobby gene. Not everybody has that. That's a big part of the people who buy it. In terms of age, it tends to be young men between the ages of 10 and say, 18. And then a lot of times they fall away from the hobby because it's an expensive hobby. The starter box that I bought was about $70, to give you an idea. So, it's roughly video game type level and it can go much, much higher. So you can get individual units that cost hundreds of dollars if not more, depending on what you're doing. So it's a very expensive hobby. And so a lot of times young players are supported by their parents when it comes to buying Christmas gifts, birthday gifts, things like this. A lot of times what happens is they discover the opposite sex or they discover someone who they want to partner with, and they just get distracted for 10 years or so. Then in their 30s and maybe in their 40s, they come back to it. That tends to be the trend of the ages and the interest in Warhammer.
· Matt Reustle
[00:00:00] S0: Once you lose access to the parental funds too, it becomes more focused on the budget until you get back out of that hole. But it is interesting when you have the demographic evolution where, as they come back to the hobby, they might also have their own children to help break into the hobby. And I can imagine that happens quite a bit. I think you've laid out who in theory would be the competition, but I'm always very curious when it comes to having the hobby gene, what attracts people to Magic: The Gathering, versus Dungeons & Dragons, versus Warhammer. Are those the right competitors to think about when you think about where competition exists for the business?
· Todd Wenning
[00:00:00] S1: In some ways, yes. I think, a lot of it comes down to what your friends are playing. Warhammer is a lot about community and having something to do with your friends. In an increasingly digital world, it's a great way to come together in the physical world and enjoy time together. One of the things that separates Warhammer from, say, Dungeons & Dragons or Magic: The Gathering, is that you can latch onto various parts of Warhammer. You might really enjoy the gaming, or you might really enjoy the collecting, or you might really enjoy the painting. I don't want to go too deep myself into this world, because otherwise I start mixing up investing and the narrative of the business, but I did get a starter set. And you paint these figures, and then you have to do multiple layers sometimes, to get them right. And so you spend hours of your time putting these things together, so if you can get really into painting them – some people actually paint them, if they do really good at them, they sell them. You can latch onto various parts of the hobby without having it compete with Dungeons & Dragons or Magic: The Gathering. It could be that you really like collecting these space figurines or these medieval fantasy – they actually produced the Lord of the Rings official tabletop games. If you want to collect armies of orcs fighting elves in the Lord of the Rings, you can do that by buying Games Workshop products.
· Matt Reustle
[00:00:00] S0: Yeah, it's always interesting to me in terms of the symbolism of when you see something that is a niche hobby evolve. And one of the key moments, I think, is when you see the resale with customization. There's just something that represents – there's a market above this market that now exists, and that is representative of an ecosystem. And people willing to spend the time to create a business around the original IP is usually telling in terms of the level of enthusiasm there. The other question I had was, vertical integration seems like it can be very impactful for Games Workshop, particularly because of that community element that you mentioned. If you have a traditional hobbyist store, they might have a Magic: The Gathering monthly event, they might not. But I'm sure that pretty much all Warhammer stores have these events. Is that normal in the industry based on what you've seen?