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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