The Mall Kiosk Business Part 1 of 2

This could easily be a novel but I'll give you fellow YE's the cliff's notes version of my first entreprenurial experience. It might be helpful for you guys to learn from some of the things I did and didn't do.

In October 04' I started a business selling poker chips at mall kiosks. I did a fair amount of market research (though at the time, I thought it was overkill) and this was a no brainer at this time of the year for a number of reasons; 1) poker, specifically texas hold em' was (and still is) HUGE in popularity, especially in my particular region, 2) the only competition was online or the crappy plastic poker chips (with ridges that make them stay together when stacked) that you could get at Wal-Mart or Walgreens. 3) Because the margin on this product in my estimation and based on my research could be between 3x to 4x my cost while still being competitive with online pricing.

My first obstacle was getting a kiosk at a great location. I quickly identfied a location at a local mall in an area which had all the criteria I was looking for; high amount of disposable income, good balance of blue and white collar economy, predominantly caucasion, and most importantly a high traffic area. The problem was I applied for a kiosk in my perfect location and was quickly denied. When that happened I was pissed but I couldn't give up. I went to the mall leasing office and coerced them into giving me an appointment with the lady who accepts or denies applications for tenancy. At the meeting a week later, I completely sold her on poker chips and on the concept of my business and she accepted my application on the spot. With only one stipulation; that I move in the last week of September instead of my proposed Nov. 1. I knew at the time that it would be hard to secure my inventory by that date, but it was doable, so I agreed. Obstacle #1 hurdled. I walked away feeling like I was on cloud nine. I could see all my dreams of entrepreneurship coming to reality. I was even envisioning how I was going to quite my 9 to 5 and all the nonsense that I know you other YE's have felt before.

Once I locked down the spot the next problem was choosing a supplier. I had based my business plan on a certain price structure that many companies who were in China (and I had established contact with) would fall under. But the problem there is that it would take 6 weeks from placing the order to recieve the products and I had to open shop in two weeks. So I found some domestic wholesalers that could supply me immediately in the meantime at roughly twice the cost of china just so I could open in sept. It wasn't a decision I was happy about, but it was really my only option at the time. I figured as long as my china products were here by November 15th or so I would be fine since, within my 5 month business plan, 85% of my sales would come between nov 26th to dec. 25th.

September 26th. 2004 - I open shop. A very simple, humble beginning to what I felt (and still feel) is going to be a very successful life of entreprenuership. Most people who work white collar jobs like me would probably frown on working at a mall kiosk, feeling it was an inferior job for greasy faced teens, but not me. I was so proud of my little kiosk and to be working there as "the owner" as well. I had a good friend working the day shift during the week, and I would come and finish off the evening when I got off work. We BLEW our forecasts out of the water that first week. It was perfect and once again I was on cloud nine.

In the midst of my outstanding opening week sales I got to know some of my fellow kiosk owners and they were taken aback at how popular my product was. One little side note about the mall kiosk industry; the kiosks are primarily run by middle eastern or asian businessmen who employ mostly family and close friends...and the business model goes something like this; find out what the short attention spanned american public is into this week, find a way to manufacture it in China, sell it in every kiosk possible untill the market is completly oversaturated, then find a new fad. You're only real protection you have from them doing this to your product, is that most malls won't let two of the same products in the mall unless it's something EXTREMELY broad like cell phone accessories. If you're offended by this synopsis, I apologize, I'm simply relaying what I observed. They all wanted to know how I knew about this product and how I knew it was going to be successful. When I told them that playing poker and other card games had been a passion of mine since I was a kid, they seemed dumbfounded by the idea of actually being interested in something your selling. Anyways, I quickly met a Chinese man who, along with his wife, operated the crystal animal statue (no joke) kiosk next to me. We developed a rapport and he told me that whatever I was buying my products for in China, he could get me the exact same stuff for significantly cheaper provided I payed him a small agent's fee. Being I was 24 hours from placing my order my China manufacturer, I figured it was no hurt to give him a shot. Sure enough the next day he came to me with pictures of the items and pricing of an average of $20 per 500 pc. case (my china guy was getting them to me at $25) and that included his agent's fee. This again was a no brainer because the price was 20% lower but more importantly, I now had an agent I knew personally, who had demonstrated his experience in doing business in China, and could actually speak the language of the Manufacturer in case any problems arose with the order. I agreed to his terms, drew up a contract (this was VERY important later down the road) and put 20% deposit down on my first order of 25K (enough to last me till the end of my lease in February) in products.

So everything's looking good right now, we can't keep enough product in stock, cash flow is great, there's a nice little buzz in the mall about our cart, i have an english/mandarin speaking agent i see on a daily basis, and now i start thinking about expansion. I would later find out that many of my fellow kiosk owners were copying my business and putting it other malls with completely different demographics and losing their pants....haha I knew that if I didn't lock down every mall that I knew had similar demos, that these other guys would. So being that I had the luxury of ordering so much inventory I did the math and realized that I could support three kiosks untill around Dec 15th. So I called some of my buddies and showed them the numbers we were doing on a daily basis and they jumped on board.

So now everything is going REALLY good, I got three kiosks in prime locations. with two of my best friends, with the lucrative November-December season in our sites...again, entrepreneural euphoria is pumping in my veins.....but here is where things get sticky.

The Mall Kiosk Business Part 2 of 2

For those of you who missed part one, here's a link to it here

So now all three of our stores are up and running and we’re doing great at my store…the other two stores are slowly coming along but not doing quite as well as my (the original kiosk).

October is quickly becomes a “hope to break even month” because of the fact that we’re still getting out products from domestic wholesalers rather than from overseas. This cuts our profit for now but isn’t a huge deal because by November 15^th our shipment from China will be here and we can start making real money.

Then we get hit with Bomb #1

Around the end of October, Costco decides to play the role of evil corporate bully and begins to offer their equivalent of our hottest selling product for $69.99. That is a HUGE hit considering we’re selling them for $139.99 and can’t keep them in stock. What makes that worse is that our price on that product is $50 per unit from our domestic wholesaler. Me and the managers of the three other kiosks a little war room strategy session and decide to match any price that a customer brings up to us. This stops the bleeding a little bit but we are already seeing a small decrease in demand. I can’t tell if that’s because of the product being sold by a mass retailer or because if people are just waiting for Christmas. Oh well, I say, Once my China products get in I can match that price and still be getting 350% margin on that product. It may not make me rich this year but it’s still very profitable.

Here’s Bomb # 2

Ok, remember the helpful Chinese guy (I literally never knew his name) from part 1 ? Well, we hit a little snag at the end of October. Apparently, the demand for these poker chips is so high that the factory is a little backed up and I might not get my order until November 21^st instead of November 15^th as we had agreed upon originally. This makes me very uncomfortable but what could I do?? I already given the guy a 5k deposit on a 25k order and plus it was way too late in the game to try to find another supplier overseas so I have no choice but to wait it out. [another little side note about the kiosk business, when you get into it, leasing people will try to sell you on how great November/December are and how that’s where you make all your money for the year. What that’s really code for is; ‘We know you’re gonna do well in December so we’re gonna screw you on rent for November.’ November looks just like October and September right up until black Thursday (the day after thanksgiving) but that still isn’t enough to justify the rent almost TRIPPLING for those two months.]

And just as it appears the smoke has cleared and we’ve assessed our casualties, here comes Bomb 2.5:

The friendly, helpful, Chinese man (who by the way, is becoming much less friendly and very less helpful by the day) calls me on November 1^st and happily tells me that my order is done and that they are ready to ship. All he needs is the remaining 20k for the order. Great I say. All I need to see is the samples that we stipulated in our contract we signed so I can be assured that the quality is up to par with what I’m currently selling. He assures me that it is and asks me to trust him. I tell him that I can’t trust him on a HUGE investment and that I need to see some samples or there’s no deal. He gets very angry and takes this as an insult even though our contract (apparently, based on my situation and others I’ve read about since, Asian business deals are thought of more along the lines of a handshake deal…they aren’t legalistic like western culture’s are) clearly states that a sample must be provided by the factory for quality assurance in order for the balance to be paid by myself. Whatever, the last worry on my mind right now is hurting his feelings. Sure enough, three days later my worst fears are realized; I get three sets of poker chips in via priority mail and the quality is completely ridiculous!! The stripes on the side of the chips don’t even line up properly. And I don’t mean there off just a few millimeters or something, they are literally on opposite sides of each other!!

I tell him of my displeasure with the samples. This doesn’t go over with the Chinese Man too well. To top it off the he is now telling me that because I requested samples instead of allowing the factory to ship on Nov 1^st when the product was completed, I’m now looking at a Dec 12^th delivery date. I’m at a loss for words. My whole little entrepreneurial world was crumbling before my eyes. My dreams of walking into work wearing casual Friday clothing on a Monday and mooning my entire department were quickly fleeting. I have not choice to but to tell him it’s a no deal. He threatens to keep the five thousand dollars I put down as a deposit on my order. I again cite the contract and three months (and several conversations with my credit card company’s legal department) later I get the money refunded back on my credit card. Whoop-ee.

So now everything has done a complete 180 and I’m getting very depressed about my little venture. Not being one to wallow in my misery, I quickly have to develop a backup plan. It’s now mid November. I definitely cannot afford to be paying $50 a unit to my domestic wholesaler for the remainder of the year especially with Costco and Sam’s selling the SAME thing for $70 a pop (by the way, to this day, I have never entered one of those places again….I’m convinced they are destroying small business in this country). It’s too late to make a big order to china and have it arrive in time for the holiday rush. So my only option is to find a domestic wholesaler who’s cheaper. I eventually find a guy out in California who can sell to me at $34 a pop which is not bad. It allows us to get at least 200% margin when we match the Costco price.

So the net-net is this; I lost money on the two kiosks that I opened with my buddies (as a 50/50 partner in each) and I barely broke even in my kiosk which is almost miraculous when you look at what I went through to do that. But here’s the good part…the part where I tell you what I learned from this so that if you ever open a business similar to mine you won’t make the same mistakes I did.

· In retail, ALWAYS have a backup supplier for whatever it is you’re selling. Not sometimes. Not most of the times. ALWAYS. If you can’t find a backup supplier, don’t do it. If you do, don’t expect to have ANY stability because your business can easily be crippled with one little snag.

· The smaller the product, the better. One of the biggest obstacles I had was keeping my cart stocked with these huge poker chip cases. The most our cart would hold is about 40 but we could go through 60 in a day which created many logistical problems for us. The bigger side of this is that if you’re getting your product from china, the shipping is significantly reduced and cheapened if 300 units can be sent priority mail.

· If Wal-Mart, Sam's, or Costco can/will/do sell it, it's probably not profitable. There are of course exceptions to this rule but not many, at least when it comes to brick and mortar retail environments.

· If you're gonna import stuff from china, go over EVERY scenario ahead of time. Trust me; you'll thank me if you do this. If you have to, hire someone who is bilingual (that you trust) to look out for your interests. Doing business with China is very profitable but you can lose your ass very fast.

Lastly, I want your feedback. You have no idea how many countless hours of sleep I’ve lost wondering what I could have done differently, what strategic move that was obvious did I ignore?? Please, no ‘know-it-all’ comments. You guys don’t help anything succeed or grow other than your own egos. Obviously hindsight is 20/20 but with that in mind, what did I miss?? Any good natured feedback would be greatly appreciated.

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