Articles & E-books

The Real Problems with the Comics Marketplace

Posted: January 23, 2000 03:58 PM

From Comic Book Business, January 1995

I've just finished the 1994 comics retailer show circuit as you read this article, and as one of my clients said to me, "all I hear is doom and gloom about the market". The most commonly asked questions this year have been either "are the chains really going to put us out of business?" or "what's really going on with Marvel Comics?"

It's understandable that many of you are concerned about chain-store comics retailing, about Wal-Mart discounting current comics, or Marvel heading off on it's plan of the month for conquering the so-called comics mass market. But I feel that these aren't the issues that you should be concerned about! There are other problems which will pose a far more serious threat to your economic well-being. Let's talk about three of them in this month's column.

Lower Distributor Discounts
The Direct Market was created through relatively high comics discounts, and these high discounts have been the main reason many comics retailers have been able to stay in business in spite of poor business practices. Comics retailers must get ready for significantly lower discounts, as well as higher distributor minimums.

"What do you mean, lower discounts?" Well, try maximum discounts of 55% off for only the largest comics retail accounts, and discount structures which put the majority of comics retailers at 45% off for their comics products.

Why is this going to happen? The main reason why comics distributors will reduce comics discounts is that they need more money if they are going to transform themselves into something resembling a real distributor. Comics distributors were originally order consolidators and fast freight forwarders. The typical comics distribution company was a trucking company with a lot of stale backstock in their distribution centers.

As retailers diversify their product mix and expect more services from their comics distributors, the surviving comics distribution companies are trying to transform themselves into real distribution companies, complete with limited re-order capacity and inventories of saleable product. There's no such thing as a free lunch! This transformation is expensive to plan and carry out, and is expensive to maintain once it's done. The only way the distribution companies can raise this money is to increase profits, which means cutting discounts. Whether they choose to keep the current discount thresholds and cut the discounts, or to raise the threshold for each discount level; the net result will be the same. Your cost of goods is going to go up.

This means you need to increase your efficiency in writing your comics order, and need to put pressure on distributors to shorten the period of time between order and shipment. (As more and more comics retailers automate their ordering & inventory control, shortening the gap between order and shipment from 60 days to 40 days becomes more practical!)

You also need to increase your sales of sidelines products, and must ruthlessly prune newsstand comics titles which don't justify their shelf space. I believe that pre-paid in-store Subscription Services will take on new importance for comics retailers, since this will provide a way to service customers who want titles that only one or two other customers are interested in.

High Prices and Poor Value
The distribution community isn't going to be the only source of problems for comics retailers. The publishing community is contributing mightily to significant erosion in the existing comics market-place. A succession of price increases, gimmick covers and mediocre editorial content is burning out a whole generation of comics customers.

We talk to quite a few comics retailers every month. What we're hearing from everybody is that long-standing customers are either cutting their order significantly, or that they are dropping out of comics totally! The reasons which retailers are given for this behavior is that "comics aren't fun any more", "I'm really confused with all the stuff going on in the market", and "I'm tired of the publishers acting as if I'm an idiot!"

Marvel is particularly guilty in this regard, with their continuous price increases and their shoddy editorial content. ComTrac users starting reporting wholesale drops in their Marvel subscription orders about a year ago, and most Marvel titles' sales have dropped to mere shadows of their former glory.

But most other publishers are guilty as well.

Look, comics aren't classic entertainment. They are popular culture, and that means that they are bought and consumed in quantity. Most adults can and will spend roughly $20.00 weekly on their hobby or special interest. If the cost of the average comic was $1.50, that means they can get 14 titles each week. Figure 20 minutes to read each book and you have nearly 4 hours of entertainment. Allow another hour for re-reading choice scenes and you have a total of 5 hours entertainment for the customer's $20 bill.

That's a reasonable value-to-cost ratio for most people. Increase the average price of a comic to $2.50, and you drop to 8 titles for a little less than 4 hours entertainment, and suddenly the value-to-cost ratio starts to look marginal. Increase prices even further, and you'd better offer your potential reader some real value in the book or they will feel cheated. Get comics readers feeling that way often enough and you're going to drive them out of the hobby.

The case is even worse with teenagers and pre-teens. When a youngster has the choice of buying one pack of cards or two comics for $5.00, your friendly neighborhood comic shop is going to start looking a lot less attractive to young customers. And while 18+ readers are the source of 65% of comic shop revenue, the young readers eventually become older, more affluent readers.

(I'm indebted to Bill Leibowitz of Golden Apple who first drew my attention to this problem, and to Buddy Saunders of Lone Star Comics & Games for his observations on younger readers).

Lack of Profits/Lack of Capitalization
The last problem which I'll discuss comes from the comics retail community itself. Most comic shops don't make enough profit to let them compete effectively against new, more effective competitors. My best estimate is that the average comic shop in 1993 made 5% pre-tax profit or even less! Tax fraud, skimming, under-reporting of inventory and other marginal business practices kept many comics retailers in business; but just barely.

Too many comics shops don't have the funds to try out new merchandise lines in the quantities needed to make them successful, they don't have the funds to computerize key parts of their store operations, and they don't have the funds to hire additional staff to that the owner can step back for a moment and figure out what direction their store needs to head off to.

It takes money to make money. Most comics retailers don't have good enough financials to go to their bank and finance their corrective measures, which means that they have got to raise the capital for growth internally. That's the hardest money to get that I know of, and it's the slowest way of growing a business that there is.

The average comics retailer could have a prosperous, profitable business if they could just step back from the daily grind to figure out what is needed to upgrade their business; and if they could find the funds to finance the necessary changes. Because most comics retailers can't do this, some other comic retailer will reap the benefits of the missionary work that they've done in their marketplace.