In five short years, Canada’s Solutions 2 GO (S2G) has become the largest-ever video game distributor in North America. Just imagine what the next five years could bring.
The company was formed in 2004 by video game distribution veterans Oliver Bock, CEO; Gabrielle Chevalier, president and COO; and Mark Smith, VP of purchasing. The company’s headquarters are located in Mississauga, Ontario, and it has sales offices in Quebec and British Columbia as well.
With more than $700 million in revenue, it ranks around 360th in terms of the largest revenue generators in Canada. In 2007, 2008, and 2009, Profit Magazine ranked it second in Canada’s Top Woman Entrepreneurs and 16th in Canada’s Emerging Growth Companies. In addition, Bock, Chevalier, and Smith won the 2009 Ernst & Young Ontario Entrepreneur of the Year award in the business-to-business products and services category.
The company’s list of vendor partners reads like a who’s who list in the world of video games, including everyone from Activision, Nintendo, Sony PlayStation, and Bethesda to Konami, Namco Bandai, Sega, and many more. Although the company offers traditional distribution, exclusive licensed accessory distribution, and 3PL distribution services, what allowed the company to achieve so much so fast is a much different structure than traditional means of distribution.
“Traditionally, you have third party developers building products for the video game industry, and they have certain titles coming out on certain dates,” said Bock. “In that model, the Canadian distributors go to a buyer like Walmart or Best Buy and have a small amount of face time to secure a sale for multiple developers. The flaw in that system, from a licensee standpoint, was they would have to hope the distributor was getting enough time to successfully pitch their goods.”
Ties that bind
The key to the company’s model is something Bock called master distribution. It puts sales and marketing duties back in the hands of third party licensees because they have the expertise in selling products and developing software. S2G excels in the back-end logistics involved in moving products in a country that is the second-largest landmass in the world but only has the population of California. Bock said that makes Canada an expensive country to distribute products in from a logistical standpoint.
The reason is video games must be distributed quickly. If a shipment of 400,000 video games comes to the company’s distribution center, they’d need to be on the shelves of 4,000 retail outlets nationwide by the next morning. With that comes logistical issues and costs. The master distribution model has the licensee conduct the sales and marketing with S2G serving as their back end in Canada.
“What that means for licensees is, where they were doing about 4% of their annual volume out of Canada, under our model, our vendors now see anywhere from 9% to 12% marketshare compared to the US,” Bock said. “It has increased their marketshare in Canada immensely, and it also cut out a lot of costs. Under the traditional model, distributors would have up-charged anywhere from eight to 15 points, which drives up retail prices. Now we just get paid a fee by the vendor.”
The company’s formula for maintaining relationships with licensees is committing to complete transparency with those vendor partners. Although the company is private, its licensee partners get copies of its financial statements. The good will that generates is tremendous. In just five years, the company has managed to obtain nine-digit credit lines with its vendors. Without the openness and dialogue between the company and its partners, that would likely not be the case.
On the retail side, the company has long-standing ties with the Canadian retailers it works with, many that were created in the years before S2G’s founders started the company. Bock said retailers see the value of what the company delivers because of the fact that it represents exclusively four of the top 10 licensees in the category, making it a strategic partner for retailers to work with.
“Our relationships from a retail standpoint are extremely strong,” Bock said. “That is one of the reasons the licensee world sees the benefits of using our model.”
The company is focusing internal investments on providing employees with the knowledge and resources they need to succeed. It now has more than 100 employees, and it set up profit sharing the day the company opened. That is something Bock believes in wholeheartedly and has done in every company he’s ever owned. The commitment to employees and ensuring they are focused on doing their best for the company is on display in the incentives and benefits it provides. For example, every employee in the company received a $22,000 check in June.
“From a profit sharing standpoint, we treat every employee as an equal because they all play an equal role in making our organization successful,” said Bock.
Opportunities ahead
Last May, the company opened an American operation for the first time, founded by Nima Taghavi, founder and former CEO of SVG Distribution and Crave Entertainment, in partnership with the team in Canada. It is not a subsidiary of the Canadian company but has common ownership.
The relationships and buying power of S2G will benefit the US operation, which has had significant success establishing itself as a key vendor with suppliers and retailers in a short timeframe. Because of different business models existing between the US and Canadian companies and the way publishers approach the marketplace, it is unlikely that the US will experience the kind of growth S2G achieved in Canada. However, it is off to a great start and could potentially become a major player in the market.
Even though his company is already a Canadian powerhouse, Bock sees room for more. It has strong first party ties, serving as Sony PlayStation’s largest distributor in North America and Nintendo’s exclusive distributor in Canada, for example. But the company is working to close the loop and ensure it is part of the process from the time a title comes out until it sells on a shelf. Last year, it bought a company that sells value software priced $19.99 and below. That will help the company capture even more of the Canadian marketplace.
Going forward, S2G in Canada has its sights set on $1 billion in revenue, while the hope for the American operation is $350 million in revenue by 2011 through a focus on value software. It is hard to imagine that the company won’t reach its goals in Canada or the US given the success the company has had in a short amount of time.
“Prior to us, the largest video game distributor in North American history reached about $450 million. We’ve already shattered that,” said Bock. “We have to be aware of emerging trends like distributing video games via broadband, but the reality right now is no one can do what we do at the price we do it at.” |
