Why does Games Workshop never lose money?

Games Workshop was founded in 1975 and last posted a loss in 2007. This came after it had licensed the rights to make miniatures and a game using characters and stories from The Lord of The Rings but saw a decline in interest for the franchise. Since that point the company has traded through the financial crash in 2008, the austerity of the 2010s and the pandemic in 2020 and made money throughout, posting a profit-before-tax of £200m in its most recent full year results. What is the company doing to navigate these challenging economic environments and consistently drive home positive results for its shareholders?

Strong business model

It should really go without saying that a company that has been profitable for almost two decades has a strong business model but there are some things that are specific to the company that make it so robust. According to Chris Camacho, CEO of Cheil UK a creative agency which specialises in strategy, consulting, ecommerce, and retail transformation, unlike traditional retailers, Games Workshop doesn’t just sell products, it sells an immersive hobby, a culture and a community. Warhammer 40,000, the tabletop game developed and sold by Games Workshop, is more than just about the miniatures themselves, the brand is also about the stories that surround these figurines and this creates a greater sense of brand loyalty.

Alongside this, Games Workshop has always operated at a high price point. Calvin Innes, managing director of JvM NERD London, states that this gives them an advantage because higher prices means more profit margins. This allows the company to be able to take more of an external hit as there is more margin. Innes states that the high prices are acceptable to customers as they have always been the case, no one gets into Warhammer without the knowledge that it can be an expensive hobby. “Once you get into the hobby at the premium price point. You’re never worried about new stuff staying premium,” Innes says.

Furthermore, Games Workshop operates a mostly direct-to-consumer model, meaning it is in control of the products it creates and how they are sold. Innes does point out that some of the company’s products can be available from third-party retailers but this is often older collections. Camacho believes that by selling primarily through its own stores and website, it avoids the deep discounting that erodes margins for many retailers.

The company also benefits from the fact most of its products are made in the UK. While this does mean that it costs more to make the products but that is made up for with the high price point of the products. What it does do is it gives Games Workshop tighter control over its supply chain and quality control, meaning that the high price point can always be justified.

Warhammer is a recession proof hobby

Innes believes that this kind of product is as close to recession proof as anything can be in retail. This was especially pertinent during the pandemic. Innes explains that while the majority of retailers were haemorrhaging money during lockdowns when people had nowhere to go, Games Workshop was able to capitalise on the fact that people had nowhere to go but their own front room and nowhere to spend disposable income except on hobbies. In the year ended 30 May 2021 the company saw its profit before tax exceed £150m for the first time ever. He also states that the kids who grew up playing games like Warhammer are now in their 30s and 40s with plenty of disposable income to spend.

Camacho seconds this, believing that hobbyists are often committed to their hobby no matter what. “Hobbyists tend to maintain their spending even in downturns, prioritising their passion over other discretionary purchases. Its surge in success during the pandemic is clear proof of the strength of this model. The company’s focus on quality over quantity has also contributed to its long-term resilience,” he says.

More than just a business

As previously mentioned, Games Workshop is more than just a business. Warhammer 40K is one of the most popular tabletop games in the world and is directly linked to the company. This gives Games Workshop a huge advantage over any similar retailer. But Innes believes that the company is very good at making sure the quality of the world-building never drops, meaning fans continue to trust the brand even after all this time.

“The reason so many people are into it, is because the lore around it is so in depth and so well thought through. There’s no quick cash grabs. Many brands across gaming, across fandom, across whatever, have a tendency to go for the quick win and dumb stuff down at the risk of alienating some of the fans. The nice thing with Games Workshop is, even when they’ve done expansions and spin offs, there’s so much lore around it, there’s so much it’s so in depth, there’s so much storytelling. So as well as winning a new batch of fans, which is obviously always the plan with expansions, they’re retaining the old fans,” he states.

Camacho says that Games Workshop has also done a great job of community engagement. “Its in-store experiences, gaming events, and content ecosystem, including books, digital platforms, and even a streaming service, keep fans invested beyond just making a purchase. This means the brand isn’t just a retailer, it’s an experience driven business that keeps customers engaged for years,” he explains.

Part of the reason this is the case is that many of the people who work for the brand are fans of the brand meaning many of them are personally invested in the lore and not just the financials of the business. Innes states that this means that when Games Workshop is trying to sell a new product it comes from a place of fandom and knowledge rather than just trying to sell something for the sake of it and this sincerity resonates with the fanbase.

The changing market

While Games Workshop’s business model and strong commitment to storytelling has made it a robust business, it has also benefited from the fact that Warhammer and other things which would be considered ‘nerdy’ hobbies have become more mainstream. This has opened Warhammer up to a wider fanbase.

“When I was a kid, if you read comics, played tabletop gaming, played computer games, you were a nerd. You were the geek who sat in your bedroom at night and everybody else was out playing sports. Over the years, it’s developed and become a part of mainstream culture. When I got into marketing 25 years ago you had pop culture, gaming, nerd stuff, and then you had culture and now they’ve come together, your biggest film franchises are sci fi and superheroes,” Innes says.

According to Innes, social media has been a big driver of this. Pre-social media people who were into things like Warhammer had fewer ways to keep up with the brand and fewer places to find likeminded individuals to help foster a community. Now people are able to go on Twitter or Facebook or Reddit and find thousands of people to share their interests with. He also believes that this has helped to bring the culture mainstream because previously those who were interested in this genre of things could have felt isolated and felt like they needed to keep it a secret. Nowadays people are emboldened to share their love for Warhammer as they know that there are thousands of others like them.

Looking ahead, Innes can only see the market growing. The strength of the brand has allowed it to strike a deal with Amazon to produce a TV series based around Warhammer. With self-proclaimed nerd Henry Cavill driving the production Innes is hopeful that it will be a success with fans and non-fans alike which can only benefit Games Workshop.