By Brian Hibbs

[#123 – July 2004 – “The stores are aligned”]

If you were to ask me what the single biggest problem facing the Direct Market was? That one is easy!

Not enough Direct Market stores.

Apparently, there are some 3800 stores that comprise the DM. The government’s population clock claims there are about 293 million Americans – so that’s about one store for every seventy seven thousand people.  According to this Encyclopedia Britannica entry, the US is 3,675,031 square miles – so that’s about 1 store every 967 square miles. Clearly, there aren’t enough comic shops.

It’s not that comics are culturally rejected any longer. No, quite the opposite. It’s that there simply aren’t enough places to buy them. That is what is holding us back.

This is where you come in.

Comics, as a business, is not for everyone – you have to be passionate, and you have to be thrifty, and you have to be crafty to make a go of it. You’re probably not going to get stinking rich from it – though I own a house in San Francisco because of comics – but that’s true of nearly any type of retail-driven business, really.

An interesting thing that Mel Thompson (a comics-oriented consultation firm) has noted is:

“Whenever a [comics] store goes out of business, between 70-90% of its volume disappears. When a new store opens, about 65-75% of its eventual sales volume comes from customers who are entirely new or who have been inactive for quite some time.”

There is a huge, untapped market for Direct Market comic book stores.

Publishers are making big moves to bring comics into the “mass” media outlets (book stores, WalMart, whatever) – this increases the need and potential for specialist comic book stores, not lessens it! Generalists can do generally well, but specialists can carry a much wider selection of goods, and have the dedicated knowledge about that material to do the best job of selling it.

When I opened Comix Experience in 1989 I was able to do so for $10,000 and my comic book collection. (Some 45 long boxes) Those days are probably gone now. I suspect it would take at least $30k today. On the other hand, the wide availability of backlist makes getting a return on your investment much faster because of “just in time” ordering.

I’m not going to do a primer on opening a small business – there are scores of books on the subject that address the generalities far better than I can. I strongly recommend contacting the federal government’s Small Business Administration as they have numerous programs designed to help guide, advise, and guarantee new start-ups.

What I can do is go through a couple of the specific-to-comics issues, and tell you where I think we’re going wrong.

You’re pretty much going to have to have an account with Diamond Comics Distributors. They have exclusive Direct Market distribution arrangements with DC, Marvel, Dark Horse, and Image. While it’s possible to buy most of what those publishers offer and not use Diamond, you’re likely to end up with a worse discount and greater hassles.

There are two major things to remember when starting a comic shop. Thing #1 is comics are ordered roughly two months in advance. This means you will be placing your first order long before you actually open your store. You can’t call Diamond the week before your doors open and ask them to ship you comics. Well, you can, but you’re not going to be too happy with the results – they’re just not going to have a lot of what you may want. (I’m thinking particularly of Marvel there – Marvel sets print run 3 weeks before shipping, so if you try to order in less than that time frame, you’ll probably receive nothing)

The second thing to consider is that your discount comes from your volume. The more you sell, the better your profit margin. The problem is that your first few orders aren’t going to be very large at all, even when you’ve been open for a few weeks – when you need the profit margin the most, you’re selling the least profitable comics you will ever sell.

DC and Marvel each have their own discount charts, while all other publishers go by Diamond’s – these charts are based on your monthly purchases. For example, the DC chart looks like this: 

Under $400                35%

$400-599                   40%

$600-2199                 50%

$2200-3399               52.5%

$3400-16999                        55%

$17000-33999          56%

$34000+                    57%

Marvel calculates things entirely differently. They use your rolling average of sales from the last 12 months. What this generally means is that you’re going to see less of the direct benefits of growing Marvel sales until some time has passed.  Marvel’s charts look like this:

Under $800                35%

$800-1199                 45%

$1200-2499               50%

$2500-3999               53%

$4000-6999               54%

$7000-14999                        55%

$15000-29999          56%

$30000-74999          57%

$75000-124999        58%

$125000+                  59%

I’m sure you just thought “But, wait, if I just opened, I don’t have 12 months of sales, so what is my discount?” Apparently Marvel takes the new-store-friendly policy of offering new accounts 53% for the first 3 months, probably earning you a better discount than you will receive for some time after that. After that first quarter, you switch to rolling, based on how many months you’ve been ordering.

Let’s go through a small example of this while we consider the first few orders you’re likely to make. I talked last month about cycle sheets and tracking how much you sell. I know I say this every month, but, please remember that DM retailers buy non-returnable. Excessive amounts of backstock is what kills most start-ups (and many mature stores, for that matter) – you’re striving to have as close as zero inventory as possible at the end of your cycle, without actually having zero inventory at any point during it. If you have no inventory, you may be missing sales, which is worse than having too much.

In your first months you won’t have the foggiest notion about who will shop in your store, how many of them there will be, or what their exact tastes are. Until you’re able to build up an understanding of your customer base you’re going to be ordering 1, 2, 3, maybe 5 copies of a book. If you’re deadly confident of something you might order 10 or 12, but your average title is going to get a 1-3 until you see what the demand truly is (which might, indeed, be 1 copy or less)

 With this in mind, let’s pretend you’re going to open in September, so you’re placing an order in the July catalog. If you were to order 3 copies each of every new comic book and 1 copy of each new TP/HC offered by Marvel and DC, you’d be ordering $1208.70 from DC and $992.94 from Marvel. That’d put you squarely in the middle of 50% for DC. We don’t actually know what the Marvel discount will be, but if July was an average month for Marvel sales, and there were no reorders (reorders, including backlist, count towards your Marvel discount – they don’t from any other publisher) then your Marvel discount would likely to be 45%. At least 50% is within spitting distance. And again, Marvel gives you 53% for the first 3 months. Just don’t be caught with your pants down if you lose 8% of your margin in your second and third quarters until you can work volume up!

I know you’re saying “Three copies? That’s not much!” and you’re right about that – but you’re going to find that a surprisingly large number of Marvel and DC books that can’t sell that many copies. Look at the sales charts: if there are 3800 comic book shops then somewhere around chart-placement of #150 books start selling, on average, less than 3 copies per store. And you’re not likely to be selling to the level of an “average” store in your first year. So those discount estimates above are probably a bit high.

Every other publisher’s discount is calculated based on your entire Diamond volume, excluding your Marvel sales. That is, your DC numbers do count. Diamond’s charts look like this:

(Diamond’s minimum order is $425)

$425-1149                 35%

$1150-2199               45%

$2200-6299               50%

$6300-9999               52.5%

$10000-49999          55%

$50000-94999          56%

$95000-269999        57%

$270000+                  57.5%

For sake of argument, let’s say that your combined order for every publisher that’s not Marvel or DC is about equivalent to your entire Marvel order – let’s call it $1000 for simplicities sake. So your qualifying order for the Diamond discount would be $2208.70, or right on the low end of 50%.

Except that’s a little deceptive. While Diamond’s discount charts are the “standard” discount, not all publishers give the entire standard discount. Dark Horse, for example, caps all TP/GNs at 52.5%. I make 50 cents less on a $20 Dark Horse book than I do from a $20 DC book. Archie comics are capped at 50%, Fantagraphics is capped at 45%, Drawn & Quarterly at 40%.

(This is really why you need to have an account with at least one of the following: Last Gasp, Cold Cut, or FMI – when you add on Diamond’s 3% reorder penalty on non-Big-4 books, Diamond sometimes has the worst pricing on the “small press”. There are many many many titles from non-Big-4 companies that sell very very well for the stores that stock them. Often you are seeing very little of the potential sales volume for these titles being reflected by Diamond’s charts because of pricing issues. Don’t think that the “back of the catalog” means poor sellers. Open-minded retailers can find some of their steadiest money-makers outside of the Big-4.)

 So, even if ordered $10,000 worth of Archie comics (55% by the chart), you still would only qualify for a 50% discount, because Archie is capped.

 Discount (or margin) is your lifeblood in retail – every percentage point is desperately needed because it represents your profit. I know some fans will read this and think “50% off? Sweet!”, but out of that you have to pay rent, utilities, employees, inventory, insurance, and, if you’re lucky, yourself.

 Because your margin is so precious, you are strongly advised to not discount comics for regulars. Go back to the top of this column and read that quote from Mel Thompson again. Two-thirds to three-quarters of your business will be people new or returning to comics – these people aren’t primarily concerned about discounts as much as they are about having a clean, well-lit well-stocked location with a friendly and gregarious staff. Discounting costs you much more than you can often see. If you are a 50% account, and you give a mere 10% discount, you’ve given up twenty percent of your profit. Don’t do it, no matter how tempting it seems – you’re not going to drive sales up enough to offset your loss of income.

 One way that Diamond can help you get started is with their “Get stocked to the MAX!” program. The way it works is that you can place your first Star System (ie, backlist) order at an extremely accelerated discount. What they do is total your first Previews order, then allow you to order up to half of that in backlist items at the maximum discount. You get your DC TPs at 57%, your Image at 57.5%, your Dark Horse at 52.5% and so on. The one exception is Marvel which still caps at 53%.

 This is really great for a starting store because you can have some starting inventory at a very profitable position. Of course, half of your first Previews order doesn’t really go that far. Going with the imaginary numbers we’ve posited here, your first Previews order would be roughly $3200 – that would be $1600 worth of backstock you could order at accelerated discount. Assuming an average of a $15 TP that’s about 107 books you could bring in. That’s just not as much as it sounds. I mean, stocking one set of Sandman trades would account for nearly 10% of that total just by themselves!

Backlist, I think, is the best way to drive your initial volume up, using “just in time” ordering. Unlike new periodical comics, where you’re front-loading your order before you know what you’re going to sell, backlist can be replaced and reordered “as needed”. You sell that one copy of Watchmen, you bring another in. Sell that one, bring another in, and so on. The goal is to turn your inventory frequently enough that it becomes a great profit center for you. When you’re just opening, there is almost no TP you need to stock deeper than 1 copy. The best rule of thumb is “a mile wide, and an inch deep”. It’s really OK to be out of something as long as you know when you’ll be able to restock, and you can communicate that clearly to your customers. You may or may not need to do weekly restocks in your first year – bi-weekly is probably sufficient – but the key is to be able to clearly tell your customers when you’ll have what they want in again. Take their names and numbers (although a certain percentage of people won’t actually come back in a timely fashion), if you feel you can provide that level of customer service efficiently.

You want to consider having a “subscription” service, or a “pull and hold” where your regulars can preorder new comics from you. This can provide you with an awful lot of information about your customer’s wants and needs, but it can also leave you holding the bag if the customer defaults on you. Personally, I wouldn’t run a store without such a system, but some retailers, most notably Jim Hanley of Jim Hanley’s Universe in New York feel that such systems invariably leave unsold comics sitting behind your counter when there’s a live customer who wants it. Jim’s got a really good point, but I feel the advantages outweigh the risk. What’s key is that you protect yourself according to the laws of your community (you do have a lawyer on retainer, right?) – for example, we won’t take an order without a verified credit card backing it up, not unlike what you need to do at Blockbuster to rent videos. You should also not take orders from individuals under 18 unless their parent or guardian is guaranteeing it – subscription programs are a contract, and you need to be over 18 to sign a contract!

Again, I know it is really tempting, but don’t offer an uniform preorder discount – the math works against you every time, even though it seems like you’re guaranteeing loyalty. The problem is, price-based loyalty can be bought by your competition just as easily, and customers that are solely swayed by discount are just as likely to leave you if they get a “better deal”. Much better to get loyalty by service and selection. If you’d like to see more of the math behind discounting, please feel free to read this earlier Tilting at Windmills. If I could go back in time and tell myself one thing, it would have been to never have offered a discount in the first place – we’ve since reduced it to an after-the-fact “rebate”, but even then I cringe when I add up how many dollars I’ve given away over the decades.

Really, the big thing that bothers me in all of this is that there aren’t enough formal “new store” programs available. I remember the days of Carol Kalish at Marvel when she instigated programs like the one where Marvel would get you your first cash register at cost. (If Carol was still alive today, I suspect that Marvel would be offering starter Point-Of-Sale systems by now)  I miss the old days of the International Association of Direct Market Distributors (IADD) when there was a co-op program to put comic book racks into stores. In a world of one exclusive distributor, and a customer base of half to a third of the size, those kinds of ideas have fallen by the wayside. It’s really a horrific shame that so many of the most basic incentives for new stores to open have been cleansed away by the 90s.

If I were a publisher, one of the first things I would do is to create a program whereby legitimate new accounts got a cross-section of my backlist for gratis as well as a very favorable (50%+) discount for at least the full first quarter. Good and bad habits of comic shops are made in the very beginning of their operation, and you want to reward the former the best you can while minimizing the latter. As a publisher, you want to show yourself to be indispensable to the next generation of stores.

It’s not easy setting up a new DM comics shop, but you’re working in a form you love, and it’s easy to transmit your love and passion for comics to others. And doing something that you enjoy, that you’re building as a long-term commitment to the industry, is worth a lot in this world. Too many people work jobs they can’t stand, but every day I wake up thinking “Damn, I’m happy to be in comics!”

 And that’s far more precious than money.

To comment on this column, click here

*******

Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989. Feel free to e-mail him with any comments. You can purchase a collection of the first one hundred Tilting at Windmills (originally serialized in Comics Retailer magazine) from IDW Publishing. An index of Tilting at Windmills on Newsarama can be found right here.