The eight weeks culminating in “Black Friday,” a.k.a. the day after U.S. Thanksgiving, are logistical hell for Gabrielle Chevalier. As video-game publishers scramble to unveil new titles for the biggest U.S. shopping day of the year (so big it tips retailers into the black), the president and COO of Solutions 2 Go Inc. and her 180 employees prepare for their own epic battle against the clock.
Their challenge: to receive, sort and ship hundreds of thousands of units to almost every major games retailer in Canada as publishers release more than 500 new games North America-wide on a single day. With $750 million in sales, the Mississauga, Ont.-based firm (No. 1 on the 2010 PROFIT W100 ranking of Canada’s Top Women Entrepreneurs) is by far the biggest kid on the distribution block. And the über-competitive Chevalier isn’t about to let anyone knock her off the top spot in North America. But given her firm’s utter dominance of distribution in Canada and the rapid rise of online video games, how much higher can it fly?
Chevalier, a straight-talking grandmother of four, says there’s still plenty of room to grow: “I see us as a billion-dollar company. It’s a nice, round number.” Still, further growth will be harder to achieve for a firm that already handles Canadian distribution for virtually every video-game publisher in North America. Chevalier says Solutions 2 Go can expect organic growth of only about 10% per year from the sector. But she hopes that she and her brother, Oliver Bock, with whom she leads the company they co-founded in 2004, can take the business model they’ve perfected and apply it to other products—possibly transforming distribution in other sectors the way they have for video games in a few short years.
Solutions 2 Go’s extraordinary growth from zero to three-quarters of a billion dollars in just six years hinges on “master distribution,” a model Chevalier spotted another Canadian video-game distributor using. In the traditional model, aside from getting product onto store shelves, distributors have represented dozens of publishers to retailers. Chevalier, who got her start in the business in the 1980s distributing Nintendo 8 games to video stores, saw several problems with this model. For instance, distributors didn’t always know enough about each title they represented to educate retailers properly about it. And they were tempted to sell harder for publishers who paid them the highest commission.
Master distribution cuts out the middleman from the sales and marketing, allowing publishers to “own” their relationship with retailers in this aspect of the business. That leaves Chevalier’s firm to handle the logistical side—jobs such as importing, sorting, packing and shipping—in return for a percentage of the U.S. “sheet” (wholesale) price. Solutions 2 Go operates so efficiently that it can distribute games at the sheet price, which saves retailers up to 10% because they no longer have to pay a built-in markup on distribution.
“We’ve made it possible for the publishers to focus on selling their product,” says Chevalier. She says many of her clients have boosted the Canadian share of their total North American sales, formerly in the 3% to 5% range, to as high as 12%. Chevalier attributes this jump in large part to clients now being able to conduct their own sales and marketing in Canada.
As well, she says, “Retailers are happy because they now have price parity.” Under the traditional model, distributors offered discounts to some retailers; but Solutions 2 Go charges the same price to everyone.
It also offers to handle sales and marketing for publishers who prefer this strategy, and has built a larger retail presence for some clients who have chosen this option. Steve Turvey, Canadian general manager of Sony PlayStation, credits Chevalier’s company with placing Sony’s games in Staples, Costco and Shoppers Drug Mart, where volumes were too small or bundling requirements too complex for Sony to handle itself. “They’ve certainly helped us expand into new markets,” says Turvey.
Underpinning Solutions 2 Go’s success is a well-oiled logistical machine. Chevalier says her firm’s ability to receive and turn shipments around “accurately and on a dime” has been the most important factor in its expansion. She forgoes weekly management meetings in favour of twice-monthly “process meetings” at which reps from each department scour internal processes for excessive or unnecessary touch points. “The fewer times we touch the product, the faster we can be,” says Chevalier. Speed is of the essence in a sector in which “our clients are under extreme pressure to recoup their development costs the second the game is finished.”
Another factor contributing to Solutions 2 Go’s speed is its employees’ willingness to work insane hours—not just in the run-up to Black Thursday but anytime a new game is ready to hit stores. “If we didn’t have every single person in this office working at a 200% level during that time, we couldn’t pull it off,” Chevalier says. A profit-sharing system, in effect since Day One, helps take the sting out of all the overtime. In 2009, the company gave every employee a bonus cheque for $23,000.
That same year, Solutions 2 Go branched out into merchandising by acquiring Stratford, Ont.-based Alliance Sales and Distribution, a specialist both in value games priced at less than $20 and game accessories. While every national retailer carries value games, says Chevalier, they often threw them into discount bins that were “unshoppable.” Solutions 2 Go pitched Walmart Canada on the idea of a “value program” that included installing new racks and display cases for the budget games. The retailer’s sales in this category shot up by 50%. Walmart was so impressed it has since put Solutions 2 Go in charge of merchandising game accessories at its almost 400 Canadian stores.
Chevalier’s firm has achieved such large economies of scale, she says, that it has effectively cut out the competition. Last year, the new management at a major publisher told Chevalier that the publisher was investigating the cost of handling distribution itself. “They came back a few weeks later and told me our rates were roughly half of what they could do it for,” she says.
But while Solutions 2 Go enjoys a commanding competitive advantage, Chevalier says, threats to its continued fast growth do exist, such as the increasing popularity of online games. To that end, she says, Solutions 2 Go is investigating online fulfillment. It is also looking beyond the games sector, says Chevalier: “If we can find something that’s small, light and similar in size to a video game, we know we have a distribution model that makes sense.”
But that’s a game for another day. For now, Chevalier has her razor-sharp instincts trained on dodging logistical bullets and scoring large by Black Friday.
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