Comic Book Stores (and Game Stores) – The Problems of Inventory Buildup and Low Goss Margins – Part 5 of a Series

Recently, I have noticed that comic book stores seem to have somewhat lower gross margins than they use to have in the past. In the past, the typical gross margin for items was on the order of 50% but recently I have seen some items being sold with margins as low as 15%. While 15% may ‘sound’ ok to anyone not running a store, it becomes almost impossible to keep a retail store open on margins that low.

While there was always a problem of inventory build up for all stores when the owner made a mistake on what they thought would sell and orders things that no one wanted, the low gross margins adds to this problem. As an example; in a podcast episode of ‘My Comic Shop History’ they recount how they thought the Ape series of comics would be a good seller so the store orders 150 copies. As it turned out, no one wanted it at all, and none of the copies sold. While an extreme case, it shows how hard it is to get ordering exactly right, and how bad things can go when that happens. While there is not much one can do about problems like that; since how can anyone always be right about all ordering, there is the additional problem of gross margins going down over time. The result of this seems to be that a lot of the reported profit (for those stores that are reporting any profit) from a store is getting ‘stuck’ in inventory; inventory that will not sell at any price and ends up sitting in stores for years or even decades.

One example of an item where there were lots of inventory all over the place, and this was a very successful item, was the 1976 pinup poster of Farrah Fawcett. I remember the first time I saw that poster in years was as part of the background on the TV sitcom, “The 70s Show”. I remember thinking, “wow, I can’t believe they (show creators) were able to find something like that”. I thought there was no way it could be an original from those original print runs and had to be a copy of the poster created special (printed up) just for their use within the show. As it turns out, there are still lots of these posters still around and the price is only around for $15 to $20 per poster. As an example of how many of these posters are still around, one ebay seller listed a few hundred of these posters for sale recently, still in the original shipping tubes with a note that they got them from a failed distributor. My impression is that there still thousands of these poster from the 1970s print runs of them. Another interesting fact surrounding this poster is that the company that originally put this poster out, Pro Arts Inc, went bankrupt. This happened even though they sold something like several million of these posters along with their other posters. My impression is that for some reason they printed millions of extra of these posters that did not sell, which are still turning up in inventories of various distributors and shops as they liquidate after all of these years. Pro Arts Inc itself has a somewhat interesting history since they had some kind of lawsuit on another poster and won, but spent more on legal fees than they won, and eventually went bankrupt with the two owners’ homes as part of the bankruptcy. There was also a book written by one of the owners where he basically accuses everyone, including judges, of ‘being in on the fix’ to take the company apart. I have not been able to find a copy of that book in any form but expect it will be an interesting read of how the company failed even though they put out what was the best selling poster of all time.

Now, comics and games are not the only thins that this problem happens to, but it is an industry where there are stores all over the place in the same industry, across the county, and we see this inventory buildup everywhere. Stuff does not sell, and seems to sit there forever, taking up space and costing money in rent, inventory taxes, etc to keep stored. Plus the money, or profit, of the store is tied up in these items, which may never sell.

While better ordering can fix part of this problem, it is impossible for any store to just order what will sell, since inevitable that owners will order things that will not sell and get stuck with them.

What would help this problem is if the gross margin on items was better, something like on the items of 10% or 20% improvement. That would help all stores so that even though items may not sell, at least the store will make more on what does and it will help to cover the losses on the inevitable mistakes made on ordering.

Good Luck and Take Care,

Louis J. Desy Jr. – Sunday, October 06, 2019

LouisDesyjr@gmail.com

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Comic Book Stores – Inventory Problems – Part 3 of a Series

One of the big problems all comic book and game stores have is inventory buildup over time. In all of the time I have been looking at comic book and game stores, I have almost never seen the problem being a lack of inventory in the store, the problem always seem to be a build up of inventory of items that were never picked up by the customers or that owners ordered but no one wanted so it sits in the store forever. In some cases the inventory build up over the course of decades is so bad that some businesses end up with a few hundred thousand comics sitting around and in a few cases, I have run across reports where the build up was as much as one or even two million issues of comics.

My estimate is that there are a number of small comic book stores in the country where they are ‘going along’ with around 50 to 100 subscribers and their typical weekly order shipment from Diamond Comic Distributors Inc (I will, and others, usually refer to Diamond Comic Distributors Inc just as Diamond, Diamond Comics or Diamond Distributing) is around four to six boxes, resulting in the items at retail of around $1,000. With a hoped for 50% gross margin it gives them $500 per week to  pay all business expenses providing that all the customers pick up their orders. Now, I know that many people are kind of shocked that I would pick such a low amount, since at that level of sales the gross margin in full is only $26,000 per year, which is lower than working a job at minimum wage full time in many parts of the country. I have seen the financial books for some stores over the years and they were operating at or below that level. While those stores did eventually close, I have reason to believe that many of the stores still in business today are running along at such levels, and even on average $1,000 in sales may be OVER estimating the sales for a number of existing stores. The reason a number of stores are able to stay open at such levels are usually because the owner is somehow able to get funds from another source or has something special going on (owns the building, has social security retirement income) that allows them to stay open for working, in effect, less than minimum wage.

The reason that many comic book store owners would be willing to work, for in effect, less than minimum wage is, in my view, a combination of two things: 1: The owners love being in the business and do not want to do anything else. As long as they are able to somehow stay in business, they will, and will keep going. 2: The owners really do not want to go work for someone else, mainly for the loss of freedom to do what they want every day at work plus if there is no really better prospect for work, except for something at or near minimum wage, there is not much incentive or urgency to change their work. In many cases it may be that the alternatives offers not much upside or improvement from working for themselves, so there is no rush or incentive to close the store and go work for someone else.

I think part of the reason many owners do not want to close their store, no matter how bad things are financially, is that they feel, and I think they are correct, is that it is something that will be ‘gone and lost forever’; i.e. the closing of the store will be the passing of an era and a tragedy to them and their customer, so they try to hold on for as long as possible. There was time and era where many comic book stores did very well and a dream job for many people. A person, who only really needed to have an interest and knowledge of comics, could go sign up with a distributor for a credit limit of $5,000 on net 7 day terms, lease a store space, and be profitable from almost the first day. A comic book store owner didn’t even need to be a high school graduate, would be able to make a very good middle class income, and was the master of their own fate. One of my friends during the mid 1990s boom, had sales of over $100,000 most years and a few years may have had sales as high as $180,000 per year, all out of a 600 sqft or so store, in a multiunit building  that they owned (three rental units and one commercial unit for the store). This was also around the same time that many comic book store owners bought their own store or building the store was in because they felt the comic book store was going to be around for a long time and wanted to own the building instead of leasing.

Today, there are still a number of stores in this situation and one of the big reasons that those store has been able to remain open is that the store has been shielded from rent increases, due to the escalation of real estate prices over the years, because the store owner owns the building. The problem in these situation is that many times the stores are only marginally profitable, even with the owner owning the building. In many cases in this situation the owner eventually sells the building as they retire but the store ends up closing since there is no way to keep the store as an going business due to the fact that the store is really not profitable enough to support a market level lease, so no one can buy the store as a going business.

Anyways, onto the inventory problem. The big problem is that for many stores there is a massive buildup in inventory which takes up most or all of the store profit, and eventually kills the store. Instead of having cash to pay bills, especially rent, utilities (electric, gas, phone) and the weekly invoice for new product shipment from Diamond, the store is unable to continue on. Over the years I have seen some stores so bad off that they had their electricity shut off or phone shut off. In one case of the phone being shut off the store could not process credit cards at the store and customers had to make arrangements to pay by check or cash, since the store was unable to process credit cards. In another case the store was so bad off that the mall locked the store out of their commercial space and seized all of the inventory in the store for non payment of rent. (Under state law this was legal and a right of remedy available to landlords for non payment of rent on commercial leases.)

The first cause of inventory build up is that customers do not pick up all of their orders and the store gets stuck paying for them and then not being able to ever sell them, in some cases at any price. The typical sales cycle is that customers tells the store what comics they want, the store places the orders every month with Diamond Distributing, and when the comics arrive each week the customer comes into the store and pays for them. This entire model break down when customers over estimate what they can afford to pay for or something changes with the customer and the customer can no longer afford to pay for the comics as they arrive. Some situations are beyond the customers control, like an unexpected loss of their job and they can no longer afford to get their comics. In these situations many customers will notify the store and cancel all of their subscriptions so at least the store will no longer order for that customer. The problem is that even if one stops ordering for a customer today, there are comics that will arrive for that customer for the next few months, which the store is stuck paying for. In some situation sometimes customers will move away and not notify the store to stop their subscriptions.

My friend Roger Anderson, of Musicquest in Worcester, MA, had an interesting problem years ago when he was going down his list of subscribers and calling them to get them to come in and pick up some of their stuff. One person he called was not in but someone else answered their phone. The person on the other end did not seem to really be clear of when or where the person Roger wanted to talk to was or when they would be back so Roger could phone them and talk to them. Roger kept pressing and finally the person who had answered asked why Roger needed to talk with the person so bad. Roger explained that the guy had a subscription for comics at his store but the guy had not been in to the store in 3 or 4 months. At this point the person, who Roger had on the phone, told him that the guy had moved away a few months ago and left no contact information. If Roger had not pressed the person he got on the phone for more details, Roger may have place more orders for comics for this subscriber, that Roger would have had to pay for, but was never going to get picked up and paid for ever.

The second cause of inventory build up is that many comic store owners will order things that ‘they like’ under the believe and hope that if they like it, their customers will like it. The problem in many cases is that the customers usually have different likes so the items arrive, get paid for by the store, and then sit in inventory until the end of time. As these items build up over time even a small store could have tens of thousands of dollars tied up in things are never going to sell!

The third cause of inventory build up is the large number of items publishers put out every month plus, in some cases, required minimums to purchase some items. I am still amazed at how Previews, the monthly catalog from Diamond of the items available for ordering each month, is typically anywhere from 400 to 600 pages. The problem with having so many things available every month, that it is hard to know what to order or what will sell. Every time a store orders ‘just a few of something new’ they run the risk that not even 50% of what was order will sell, meaning that it cost the store money to have it in stock and also now the remainder are taking up space in the store, usually forever. While a few things overstocked is not that bad, over the course of a few decades it can result in hundreds of thousand of unsellable comics or even mountains of comics that are unsellable in the range of one or two million issues and require storage or warehouse space. The problem with the tens of thousands of dollars tied up in such mountains of inventory is that they usually will never sell because most comics are usually only in demand for a few weeks after they are released. After that, most stores discount them, and then after that it is the one dollar or even 25 cent bin where they languish forever and take up space. All of this unsold comics take up valuable cash that stores need to pay bills and provide the owner a living.

Fro many stores, the inventory build up problem is so bad that even if they lost something like 50% to 80% of their inventory overnight, they would still be able to have a large pile of inventory available to stock the store with and the store shelves would still be jammed with items. The comic book industry is one of the few industries where I have seen inventory builds up on such a large scale and combined with the problem that even at very low prices it would still not be practical to sell off this inventory. Part of the problem, especially for a number of comic series rushed into production during one of the boom periods, is that the comics were bad (bad illustrations, bad story line, no plot, etc) and no one wants to read them, so no one wants to buy them, ever. Some of these comics are so bad that even if given away from free to people that fans would consider it a waster of their time to read them!

Hopefully, with the help of computer systems such as Comicbase or Diamonds retail Point of Sale System, Comic Suite, for comic book stores, many of the problems with store inventory can be mitigated so comic book stores can be successful and continue to operate for years to come.

One recommendation I would make is that companies like Diamond Distributing should do everything possible to make it affordable for all comic book stores to get an integrated Point of Sale System. The last time I look at that it does look like a good system but seems to be very expensive. While I can understand wanting to make it so the sales cover the cost, Diamond Distributing should remember that it is in the business of moving comics and the Point of Sale systems is a tool to help stores be successful so they can build their business, which would result in more comic book orders. If possible, I would recommend that Diamond Distributing sell the Point of Sale system for as little as possible in order to make it so all stores are automated and computerized to the full extent possible. Every moment such a system can save a comic store owner from having to deal with the mundane work of the mechanics of running a store is another minute that a comic book store owner can be doing something else to directly work on providing service to their customers and building the business, and everyone in the chain (publishers, Diamond Distributing, comic book store owners, customers) all benefit.

Good Luck and Take Care,

Louis J. Desy Jr.

Sunday, February 24, 2019

LouisDesyjr@gmail.com

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Comic Book Stores – The ‘Joy’ of New Comic Book Day Every Week – Part 2 of a Series

Ah, the joy of new comic book day each week. All comic book stores have a weekly new comic book day. As far as I know and can remember, that day is Wednesday every week. That is the day that the shipment of new comics arrives from Diamond Distributing and people rush to their local comic book store in order to pick up the new comics. Several years ago Diamond started to offer the option of getting the shipment on Tuesdays so that stores would be able to check in the order and sort the comics into customer pull boxes and be all ready on Wednesday to sell to their joyous customers. Over the years I have heard some variations where stores will actually close for a few hours in order to check in the weekly order and sort it into customer boxes. Roger and my friend Bob have told me stories of customers so eager to get their new comics that the customers show up on Wednesday, and prior to the order being sorted, would open up the UPS boxes of the order and rummage through them looking for their comics in front of Roger or Bob, not wanting to wait the few hours it would take to sort through the whole order. As you can imagine, this would upset a number of store owners and resulted in them closing for a few hours to properly check in and sort the whole order or getting the order on Tuesdays so they could do the checking in and sorting after hours on Tuesday evening without customers rummaging through everything.

Under the business model I discussed in Part 1, the dream is that everyone, customers, would come into the store each week and pick up everything that was waiting for them. The best part, when this did happen, is that the store would collect the money for the weekly Diamond invoice prior to the payment being due since Diamond typically gives NET 7 day terms.

The problem is that at times, especially during recessions, many stores will not even have 50% of the order picked up prior to the following Wednesday, which is when the next shipment arrives from Diamond and the prior Wednesday order’s invoice was due. Since the margin, at best, now a days, is around 50%, when less than 50% of the order is picked up by customers, the store now has to get money from other sources in order to be able to pay the weekly invoice, or worse, simply can’t pay the weekly invoice.

As far as I can tell from over the years, Diamond will allow a store to go about three weeks behind on paying the weekly invoice before the store will get put on back debt for the old invoices and COD for any future shipments. Back Debt is the store has to sign a note with Diamond, at 18% interest, and pay off the old invoices over the course of a number of months, like around 6 to 9 months. The COD is that any future shipments have to have a COD (Cash on Delivery tag) with UPS so the store has to give the UPS driver a money order or cashiers check for the shipment before they can get the order.

As a side note, some stores get so bad off that when they get put on COD they don’t have the cash to get a money order or cashiers check. What some stores discovered over time is that if they are on good terms with their UPS driver is that since only one box of the order has a COD tag, the UPS driver can drop off the other boxes to the store. This allows the store to get all of the boxes for the new week’s shipment except for the one with the COD tag. The hope for the store is that the store will sell enough from the new shipment that they then will be able to get enough cash so they can pay for the COD tag and get that box off of the truck also, and be ok with Diamond. The problem when a store does this is that sometimes the store, even with most of the new shipment, can’t raise the cash before the end of the day on Friday. At that point if the box with the COD tag is still on the UPS truck, it gets returned to Diamond. Now, this is where the real problem starts. Since only the box with the COD tag got returned to Diamond, Diamond knows that the store got the other boxes and has not paid for anything. In this situation, Diamond will now break the weekly shipment down into the individual boxes and put a COD on each and every box for what is in that box. This causes all kinds of extra costs to the store since a COD tag use to be around $10 or so, so even a small store with only four boxes per week, that is having trouble paying for the new shipments, now has an additional $40 per week that it has to come up with. Over the course of half a year that would be another $1,000 that the store really can not afford and makes things worse for a store that is already doing not too well.

My estimates are that at any one time in recent years, about 25% to 33% of all of the comic book stores are on back debt and COD with Diamond. This is kind shocking since I am not aware of any other industry that this kind of problems with payment would be considered typical and on going and ‘just how the business is’ but it seems that on average it has been getting worse and worse for the typical comic book store over the decades.

Hopefully, these trends will stabilize over time and maybe even reverse a little so comic book store owners and their customers can continue to enjoy their comics for decades to come.

Good Luck and Take Care,

Louis J. Desy Jr.

Friday, February 22, 2019

LouisDesyjr@gmail.com

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Comic Book Stores – The Business Model – Part 1 of a Series

Over a number of the past years I have followed the general business of what I would call the ‘comic book store business model’. Initially, around 2007 or 2008 or so, I started sending some of my friends reports about comic book and game store closings and openings. One of these friends owned a game store, another friend owned a comic book store and the third friend use to own a comic book store but closed it around 2000 and moved all of his inventory into a warehouse space and sold online only afterwards. My hope was that there was something that I could do or find to help all of them with sales in their businesses. I also talked over the years with a few other people that owned comic books stores;
a friend who owned a comic book store from 1985 to 2003, another friend owned a store until a few years ago and moved into a combination warehouse/retail space but is recently starting to liquidate in February 2019.

The, what I would call, the comic book business model is very interesting and worked well for a number of years. The typical comic book store would get customers who would want to sign up for subscriptions on what they wanted every month for comics. In return for ordering subscriptions almost every store would offer and give these customers a 10% discount off the retail price. As the comics arrived every Wednesday at the comic book store, New Comic Book Day, customers would come into the store and pick up everything they had ordered. These comics where usually held in a pull box/slot for them. Some stores would call these held comic for customers a subscribers list or subscribers, other stores would call these held comics for customers a pull box. In any case, the idea was that customers would come into the store every week and pick up all of their comics that had arrived, plus, hopefully, buy a few more things that the store stocked while they were there in the store.

According to what I have been told by my friends over the years, if all went well, the gross margin to the store from Diamond Distributing for the comics was usually in the range of 50% or so. Diamond would give stores net 7 day terms on the weekly invoice, so the store could sell enough of the weekly shipment and pay the weekly invoice before the end of the seven days. My friend Roger Anderson, who use to run the Musicquest comic book store in Worcester, MA; reported that in the good times for a comic book store that typically the store would have enough money to pay the weekly invoice from Diamond before the end of the day on Friday each week. After that all of the sales over the weekend was profit to the store for the week. When one think about this, that is very good, especially since most customers probably work during the week and only would be available if they made an extra effort to get to the store during the week so normally one could expect most comic book sales to be over the weekend, especially Saturday.

This business model of customers signing up for subscriptions in exchange for a 10% discount and then going to the store to pick up their orders every week should be a ‘dream’ business model. The store knows exactly what the customers want since they ordered what they wanted from looking through Previews. (Previews is a catalog put out by Diamond Distributing every month that lists all of the products available for ordering. So what a comic book store does is order at least one copy of Previews every month and when customers come into the store they can look through it while there and tell the store what they want to order.) The business model should be very good since the store would get the comics in on Wednesday and have seven days to pay the weekly invoice. This gives the store an opportunity to collect the money from the customers without having to put out any of its own money. The whole business model is cash flow positive, the store should collect its revenue days before it has to pay for the inventory.

The problem with this business model is that many customers over estimate what they really want or can afford to pay for, plus some comic book store owners over order under the belief or hope that if they like something that their customers will also like it and buy it. The problem with customers over ordering is that now the store gets stuck with inventory that it has to pay for but that is not going to get sold. I have also noticed the problem every economic downturn that a number of customers who lose their jobs and they are unable to keep up with their subscriptions and end up having to cancel all of their subscriptions. This leaves the comic book store stuck with the orders that continue to stream into the store over a number of months. (If one is ever in this situation and you need to cancel your subscriptions, please do so as soon as possible, otherwise it hurts the store more when you can’t pick up the comics which they have to pay for.) The other problem I noticed over time is that sometimes customers move away and never tell the store where they have a subscription to cancel the subscription, leaving the store stuck with comics that they now can’t sell and will continue to get for a number of months because they had no idea the customer moved away.

Other problems with this business model is that over time the gross margin from Diamond Distributing to the comic book stores has declined over time. Back in the good times, the margins were typically around 50% and in some large stores could get as high as 55%; i.e. $1,000 worth of comics at retail would cost the store $500 from Diamond at a 50% margin or even as low as $450 at a 55% margin. Today, the gross margin for many stores is down to 45% to 40% margins. On some items the margin may be as low as 35%. While that may sound like a good amount, it is usually very hard to make any money, especially if the store gives a 10% discount for customers that order comics through subscriptions plus the fact that for most stores overall revenue has declined over the years. A combination of declining revenue along with declining gross margin percentages make it hard to make any money, resulting in the string of comic book stores that have closed over the years.

Another problem with the gross margins over time is that years ago the gross margin was based on the total retail amount of the shipment for that week to the store but in recent years Diamond changed this to a rolling 12 month average. The problem with this change is that if a store had a low or soft month during the year, it would effect margins for months to come until the average improved. Sometimes these soft months in the year might not be the fault whatsoever of the store because of delays or changes in production schedules. While in theory most comics are published on a set schedule and have set release dates, it is not unheard of for schedules to slip at times or new series delayed for a number of weeks or even months for whatever reason. That will leave the store with less sales since the items will not be in the stores when they were expected and responsible customers who only order what they are sure they can afford will have allocated some of their hard earned money on something that will never arrive. Once in a while some products simply get canceled with no word or explanation as to why they were cancelled, leaving customers with unfilled demand for the product.

While it is not as easy to make money in the comic book business as it use to be, if one can get a store to the point that it is at least breaking even it can be a very enjoyable industry to be in and allows one to form a community of fans interested in comics. Many people will still miss their old favorite comic book store if it was one of the many unlucky ones over the past several years that ended up closing, but hopefully the stores that remain will be able to stay in business for years to come.

Good Luck and Take Care,

Louis J. Desy Jr.

Thursday, February 21, 2019

LouisDesyjr@gmail.com

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