Posted: May 23, 2005 03:28 PM

This is an outline of a panel presentation that Mel made at ProCon in 1996. His thesis is that most of the problems in the Direct Market come from fundamental structural deficiencies in the marketing channel itself and that significant growth won't come without remedying these problems.

All of the marketing research which we've carried out over the last ten years indicates that there's a substantial, untapped market for a wide variety of comics products in North America.

My profession is that of industry observer and analyst, and I've identified sixteen issues which I believe need

to be solved if that potential is to be harvested. There isn't enough time in this presentation for me to go through the entire list, so I've selected some topics which I think are especially important and you can read about the rest later.

The key to what I'll discuss is that the entire comics industry is going through a paradigm shift in which almost all of the old, traditional ways of doing things have ceased to be as effective as they once were. The characteristics of industries which go through a paradigm shift is confusion, loss of profits, and pain. At the same time there are also tremendous opportunities for the intelligent and nimble minority who perceive what's going on and adjust to deal with changing conditions.

Consumer Problems

• Significant loss of the under-18 marketplace market
• Graying of traditional consumer base and shifts in taste and preference
• Adjustment of buying habits with increased comics prices,
• Growth of perception among customers of many comics not giving sufficient value for money

Major Publishers Problems

• obsessed with the continuous universe concept
• generally ignore publishing opportunities in old product and are overly focused on advance-order products
• overly focused on short-term, me-too actions

Minor Publishers Problems

• under-capitalized
• unable to reach consumer market
• unable to reach majority of retailer market
• irregularity of publication

Distributors Problems

• still pursuing an outmoded monopolistic "one source for retailers" strategy
• still willing to carry retailers with huge back debts
• still largely locked into "fast freight forwarding" mentality

Retailers Problems

• there is a gross lack of professionalism in majority of comics "retailers"
• there is an inability or unwillingness to adjust to new business conditions
• they will be unable to compete against the developing group of new comics retailers
• preponderance of "lifestyle" retailers vs. professional business-people

Solutions

In general, the comics industry as a whole is characterized by unprofessional management, lack of capitalization, lack of positive public exposure, a lack of any industry-wide cooperation and a near-total lack of information about the size, health and characteristics of the entire market.

Many of the industry's "leading" companies are still following the same strategies which worked "once upon a time", instead of recognizing that the entire marketplace is changing and that their strategies need to change with it.

Solutions for Publishers

Small publishers need to group under the banner of one or more umbrella marketing organizations which would handle marketing, promotion, billing, etc. for them on a turnkey basis.

Larry Marder of Image seems to be heading in this direction by the back door, while Cold Cuts or Fantasy Distribution could evolve in this direction successfully.

Both large and small publishers need to identify larger retailers and focus co-op and other marketing on these companies. Given that promotional resources are limited and that 2/3rds of
the retail stores represent 1/3rd of all sales it's a waste of scarce resources to do otherwise. Small comics shops are only able to expand the market slowly.

Properly managed multi-store chain operations can reach out to the largely untouched consumer community in a relatively short period of time - relying on the small-store retailer base will result in the comics marketplace taking another twenty years to achieve any significant growth.

Solutions for Retailers

If small comics shops are to survive and prosper they will need to ally themselves with a distributor who can provide services to them besides basic access to products. The hardware store industry offers comics retailers a good model to follow.

Independent hardware stores become Ace Hardware members, pay an annual fee for membership and receive a wide range of benefits; including national, regional and local advertising, just-in-time access to merchandise, special purchases tied to monthly promotions and access to low-cost professional services. This sort of alliance would allow small, independent shops to compete on a more level basis with the larger comics retail companies which are evolving.

Larger comics companies need to professionalize their existing operations, and expand to cover their metropolitan market areas once they have rationalized their operating systems. In this way they can gain sufficient size to be competitive in the coming competitive environment. Existing multi-store comics retailers need to grow to $3.5-4.0m in annual sales to support the business organization that they will need to compete, or should downsize and follow the "one big store"concept.

Comics retailers in general need to understand that just as there is no longer any such thing as the "typical" comics collector, there also isn't any such thing as the "typical" comics store. Instead there are at least six major niches that are evolving, and all of them work:

1. The small "independent store" in a low-cost, destination location.
2. The larger "big store" with a very broad range of destination merchandise.
3. The back issue specialist in a low-cost, destination location.
4. The multiple-store outlet located in a strong strip center location (or equivalent).
5. The mass-market comics boutique inside a strong, parent store.
6. The mass-market/pop culture comics shop located in regional malls or extremely strong strip centers.

Solutions for Distributors

The rapidly diminishing comics distribution community needs to focus on developing its smaller retail accounts, as they may very well not have access to the business of the larger retail entities which are forming, regardless of "exclusive" agreements or not. This means switching their mode of business from "fast-freight forwarding" to providing a broad range of merchandise at competitive prices and discounts with modern trade terms. This also means providing marketing and promotional services to accounts on a fee basis - Diamond's Store Locator Service is a start in this direction.

Solutions for Consumers

If the industry provides interesting, affordable product in accessable, attractive stores on a regular basis, "they will come".

Obstacles to Growth

As I see it, the major obstacles to the continued growth of the North American comics marketplace are:

1. Under-capitalized comics retailers.
2. Unprofessional comics retailers.
3. Small size of comics retail companies.
4. No comics retailer trade organization with widespread membership.
5. Attempts by Comics distributors to preserve the "one-stop shopping" model.
6. Lack of industry-wide automation:

1. Lack of basic automation at the retailer level.
2. Lack of bar coding for ALL comics titles - therefore no industry-wide coding.
3. Lack of understanding among comics distributors of automation issues.

7. Industry in transition from "one-model" paradigm to "multiple-model" paradigm.
8. There used to be "one right way" to do comics retailing, etc. There are now multiple "right ways" or niches which retailers can successfully follow. Comics retailing was traditionally learned by an "apprenticeship" system and emphasized product knowledge. Successful comics retailing now demands a significant level of professional business knowledge in addition to having access to product knowledge.
9. Lack of industry-wide promotions/advertising.
10. The majority of the US/Canadian population is ignorant of the nature of the modern comics market.
11. Lack of information on industry norms:

1. No public professional information on customer base.
2. No public professional information on retailer performance norms.
3. No public professional information on composition of retailer community.

12. 'No Return' System doesn't work any longer. The original thesis of the "advance order/no return" comics ordering system was that retailers were rewarded with large comics discounts for assuming the risk of ordering 60 days in advance! Retailers are still ordering 50-60 days in advance but have significantly lower discounts and additional expenses in freight charges and administrative overhead.
13. Over-emphasis on monthly/bi-monthly products. DC Comics and Marvel ignore amount of materials which could be re-published in re-orderable format.
14. Publishers spread what marketing/promotional funds that are available widely among inefficient retailers rather than focusing on higher-volume producers.
15. Over-reliance on old distributor "solicitation/fast-freight forwarding" system for orders. Little or no tele-marketing, poor or no use of publisher representatives. Old system was characterized by emphasis on short-range promotion of "what's hot" rather than making the transition to building consistent, repeat business.
16. Insufficient information available to retailers concerning future, non-reorderable products.
17. Industry in transition from "Collector-based" to "Reader-based" model. A change in emphasis from profiting from conditions of scarcity (such as issue #1-8 of Valiant's titles) to profiting from repeat business based on re-orderable me rchandise (such as graphic novels collecting runs of issues or Bone being kept in print from issue #1 onward).

Overcoming Some of the Obstacles

1. Under-capitalization and small company size will go away as problems through natural evolution. Once there is a large ($20 million annual sales volume/12-15 stores) and profitable comics retail chain, regardless of its marketing model, there'll be a series of copy-cat retailer companies from outside the comics industry. Within five years of the initial pioneer being recognized by the investment community, I believe there will be at least five relatively successful competitors of equal size. This will galvanize the comics industry, as it will force change upon every component of the industry. This day is much closer than most industry participants realize.
2. Encourage comics retailer trade associations.
3. Insist on all comics having bar codes.
4. Offer significant advantages to retailers who submit orders electronically.
5. Design and implement industry-wide standards for Electronic Data Interchange (EDI).
6. Consider following the hardware industry model typified by "Ace Hardware" or "Trustworthy Hardware", where member stores are independent, owner-operated units that are members of a buying co-op named "Ace Hardware" or "Trusworthy Hardware" or "Capital City Comics".
7. Quit tolerating inefficient, incompetent retailers. The practice of carrying large, inefficient retailers who accumulate huge distributor debts is unconscionable.
8. Develop a two-tier or three-tier pricing scheme. One higher discount for non-returnable books ordered in advance of publication, a much lower discount for books ordered on a returnable basis. Other discounts based on number of units per title ordered, or based on early payment of bills, etc.
9. Have publishers remember that they are publishers and use retailers/consumer information to mine their archives for products based on old material which can be published as re-orderable merchandise.
10. Larger publishers should establish (or improve) sales forces. Sales forces should focus on "key accounts" while small accounts can be dealt with through tele-marketing programs.

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