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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