Articles & E-books

Comments on the Size of the Direct Market

Posted: June 6, 2004 03:42 PM

Part of the problem in figuring out what goes on with the Direct Market is that different parts of the retail channel operate very differently from one another.

I often group stores in the retail channel into five groups:

"Lifestyle" stores <$149k
Medium stores $150-399k
Large stores $400-799k
Elite stores $800k-$1.2m

Merchandising behavior varies considerably by store group.

"Lifestyle" stores are stores that are not really economically viable, and which provide their owners a bare subsistence living if any living at all. The motivation for the owner/operator is the "lifestyle", in working with a product that they love.

I make it a point to know what the product mix and sales are for each subgroup. Graphic novels, for example, have penetrated fairly deeply as far as the Medium store level as a percent of total store sales.

Manga has not, and is heavily concentrated in the Large and Elite categories.

There are other interesting themes and trends between the various groups.

New comics sales tend to be fairly consistent across groups although the percent of total store sales drops significantly as total store sales increase.

Maximum New Comics sales per store seems to top out at $300,000 in annual sales per store, with $200-250k being much more common in Large and Elite stores. Moderate stores are in the neighborhood of $150,000 and "Lifestyle" stores are in the area of $70,000.

There are two ways to grow the Direct Market. One is for the Moderate stores to move up the food chain through better locations, better management and better marketing/merchandising.

That tends not to happen because of under-capitalization, the lack of free time to actually analyze store performance and the lack of understanding of what potential a given store could be.

The other is to add new stores. All of our research for nearly twenty years indicates that there is substantial untapped business "out there" that the current stores can't tap due to basic store location factors.

Whenever a 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. (This could be a whole column on its own).

But new stores, if they are to be cost-effective for their owners, are much more expensive to open than in the "old days".

And to be honest, I'd recommend that someone invest in a "Pollo Loco" franchise before opening a comics store if it's return on investment that you're most concerned about.

Way back when I said that, based on our research, that the Direct Market in North America could be a billion dollar+ industry. In 2004 dollars, it could be closing in on two billion dollars.

But I believe that the entire marketing channel (publishers, distribution and retail) is seriously flawed and that it will require major change if this potential is ever to be realized.

Best wishes,

Mel Thompson