Tuesday, September 20, 2016

The Case for Comics

Desert Sky Games became "and Comics" in November 2013.  Since then I've seen some peaks and valleys, but a general slow-grow trendline that became cash-flow positive in a few months and became authentically profitable right around the time I hired Dustin, the employee who is now my Media Manager.  While I had learned enough of the logistics of comics to make money on them, it was Dustin's product knowledge and understanding of how to cultivate a healthy clientele and a focused offering for comics that put us over the top.

June was gangbusters for comics, with the DC Rebirth cycle being a huge hit.  However, DC's resurgence largely masked a tepid, mild decline for Marvel beginning right around then.  July plateaued, with DC leveling off and Marvel continuing to disappoint.  Then August was down considerably across the board -- and the trend line continued into September.  It didn't help that Star Wars Darth Vader drew to an end and Dark Knight III was perpetually late.

Right around then, I learned that my efforts to find a new lease for the store had failed to bear fruit.  The logical business approach to the rest of 2016 was to run as efficiently as possible at my existing 2531 South Gilbert Road facility.  And with comic sales declining and the store badly out of space to store the various collections we had bought and our ongoing back-issue stock, I had to ask a serious question: Would the business be better off if I sold out of the category?

I will tolerate no straw men, so I will make the scathingly bare case for why stores considering comics should stay away, and how my situation applies.

Cost - It takes cold, hard cash, and lots of it, to get into the comics category.  I tell people, all told, no less than ten grand for an existing store to add comics right.  No comic collector will take a store seriously unless that store has essentially all the major new releases, every week, and stores must forecast and order months in advance.  Comprehensive DC and Marvel coverage is a must, while a modicum of Image, Dark Horse, IDW, Boom, Titan, and Zenescope will often suffice.  But the comics category punishes dabblers.  Think you're just going to have a few books and maybe some trades?  False.  You won't draw a comic audience so you might as well be bringing in flower pots if you're going to waste money on dead inventory.  Comics also spoil -- aside from keys and special issues, yesterday's books are virtually always worth much less commercially than tomorrow's books.  They still sell, but not nearly at the 26-turn to 52-turn velocity* of a store's new release wall.  Much older books that aren't keys or complete runs in top condition are sometimes worth next to nothing.  Donation or dumpster bait.  This aspect would put me into five figures of recoupment, assuming I could find a buyer, because while I know my stock is mostly depreciating, I have a metric ton of it.  Not even a figure of speech, DSG in fact possesses over 2,205 pounds of comics, which is the weight of a metric ton.

*A viable comic store will clear no less than half its new releases every week, counting box pulls.  If they aren't doing this, they are likely not profiting in the category.

Space - Comics must be presented well.  For new and recent releases, it's essential to cover-face out the books and make them maximally shoppable.  The public accepts that back issues will be in browse bins, but that also takes up a lot of room due to the sheer number of them as they grow.  As of this writing, DSG has even more comics just sitting in storage, off the main floor.  Any store getting into comics that is operating under space constraints already will be buying themselves quite a bit of additional grief.  The days of the old small hole-in-the-wall comic store are largely over; those stores still exist, but have mostly yielded to the money machine of Magic: the Gathering and/or Pokemon, which demand square footage for organized play.  This aspect would save me about 140 lineal feet (80 horizontal feet at almost double the standard merchandising height span) of wall space, rack space, and bookshelf space, for the new and recent releases and trades alone.  The back-issue library is so big I can't even host it in the store's daily merchandise setup.  For a store like mine that is struggling to find every last square foot to allocate to customer needs, the space savings from selling off our comics business would be game-changing.

Labor - The comics category is a festering labor hog, dominating your Tuesdays for new product intake and then requiring extensive admin to keep track of subscriber accounts, followup with delinquencies, handling Diamond damages and cover tears, and all of that is before you get into the profitable arm of buying collections for resale, for which you need expertise on the payroll and a ton of staff-hours to break down, sort, collate, package, prep, and merchandise the goods for resale.  By the way, if you want to sell online, the labor needs grow further.  Speaking of which, Diamond can be difficult to work with due to their fine-grained requirements and process quirks, most of which are the natural result of the immense scale of their operation.  You print millions of books every single week and get them collated, sorted, allocated, and delivered to a worldwide audience on time.  Go on, give it a shot.  We'll watch.  But even if you accept the reality that some amount of Diamond frustration cannot be avoided, it still sucks badly when you're on the receiving end of an expensive error.  My store largely has the process down pat, and the errors do still affect us sometimes.

The Present - This affects me more than most stores that might consider comics.  The return-on-investment for comics is many years long.  The economics of the category are focused on creating stable and continuous cash flow, punctuated by nice spikes where you get healthy, from such events as Free Comic Book Day, Halloween Comicfest, local comic conventions, and holiday shopping.  If you have less than three years left on your lease, maybe think again before adding comics.  I am in the final year of my lease and if I don't find a solution by late spring, the store could very well wrap up operations and close in August 2017.  (That would not be my preference, obviously.)  A downsizing step now where I separate from comics could buy me enough space and labor savings to put off further category contraction for eight or nine months, or in other words until I have a clearer picture of the store's outlook for future operations.

The Future - How long do you think tree corpse media is going to be a viable thing?  Comics have been dying or dead for decades now, according to the pundits, and yet are selling better today than they ever have in history, even during the 1990s glut.  But this can't go on forever.  All winning streaks eventually end.  Depending what your business horizon is, you have to consider whether there will be a long slide down (no problem!) or a sudden cliff-like ending (big problem!) to the category.  I'm already carrying comics so this factor is mostly speculative for me.  I think comics have healthy years ahead... but probably not healthy decades (plural).

With all that in mind, why would a game store touch comics with a ten-foot pole?  There are reasons, and they are compelling.  Just as I gave the nay side a strong argument, here is the pro side flexing, including how each aspect affects my situation and decision.

Profit - The bottom line is that comics are profitable.  Margins on the books themselves tend to be a little over 50% at volume, though that's deceptive because Diamond charges full freight on every box and you had better believe tree corpses are heavy.  The real effective margin, which does scale, is somewhat worse for comics than it is for board games and TCGs -- but you actually get it, because nobody balks at pulling a $2.99-$3.99 comic book off the wall and paying for it.  It is such a small expenditure in the grand scheme of things that only the most price-sensitive shoppers pay heed.  Them, and the devoted comic fans who buy many books, which adds up.  Of course they will subscribe to your pull box to qualify for a small discount, and it's still profitable and you get some risk mitigation.  It does not take long to get comics as a category to be cash-flow positive, and it does not take much longer than that to be profiting dependably, week into week.  I have to see other factors loom extremely large to consider disgorgement of a profitable business component.  The whole point of investing into new business components is so they may become profitable!  Why bail when I'm in the middle of enjoying the ongoing payoff from that risk and cost?

Bounceback - Comics generate arrivals.  They do this across multiple customer cohorts.  Those who subscribe to your pull box will be back at least once a month.  More often we see them first thing every Wednesday morning or on their way home from work.  A comic store becomes a destination for the mainstream shopper, even the dabbler, because everyone knows who Batman is or who the Walking Dead are or, increasingly, has seen Harley Quinn on every media outlet imaginable.  No category like comics gives a store the ability to see real footfall aggregation driven by a reasonably high-quality, clean, well-lit, inviting facility.  A comic store becomes a place that people remember.  Pure game stores, for whatever reason, don't tend to have that same social grasp, perhaps because everyone knows what a comic book is and recognizes the store's purpose in an instant, while tables of Magic players or a bristling army of Chaos Space Marines in the ruins are somewhat more opaque and uninviting.  Also, people naturally go to comic stores to sell or trade in all kinds of pop culture memorabilia.  I had a gentleman come in over the weekend offering to sell me a bunch of collector toys.  They were a bit outside my purview and I had to graciously pass, but it was awesome that he brought them in to begin with!  Any time we can feasibly resell a thing, we want to snap it up.

Crossover - The intellectual properties that drive comics reach deep into other domains, from tabletop games to video games to movies to toys.  And, the intellectual properties that drive tabletop games, video games, movies, and toys often end up being adapted into comics!  The crossover transcends comic content and reaches comics collectors and readers as well, being consumptive media as varied as the day is long.  Comics reach across genders, ages, backgrounds, and personalities.  In the entire hobby industry overall, nowhere is there greater diversity.  In terms of your store's ability to attract a blue ocean audience, you will have a hard time finding options as good as comics.  DSG is in an upper-middle-class suburb full of families who are going to be living in their single-family detached dwellings for the better part of the next two decades, on average.  With a local audience like that, crossover is the reach multiplier that makes comics nuclear strong for me.

The Present - Profit now!  I mentioned that before, did I not?  Comics are hot right now.  How much longer will they be hot?  Shrug emoticon.  Even in their down months, they're still selling.  For the fan who craves to be the first to know where the story's going to go, comic books is where they find out.  And mainstream commerce is aware enough about comics that the IP is a part of everyday life everywhere you are, so why not monetize what people are already consuming?  This does mean competition, but there is not wide knowledge within the rest of the hobby trade as far as what to do.  It's not easy to manage product flow via Diamond orders.  This means a comic store is often paying the bills without a hiccup during times when the greater game trade is in a trough, such as after a bad Magic set or during an economic downturn, without as much risk of nearby game stores grabbing at the comic store's low-hanging fruit.  I'm already there so this is an easy question for me; bailing out would be a good way to flip the bird to the sunk-cost fallacy, but ultimately I'd rather just keep churning revenue.

The Future - The IP lives on even if the books don't, and you can be positioned in the market.  But for sure, the championship window for comics is open now; they are not rebuilding.  Get in because you want to ramp up fast and turn product right away.  What's going to happen come 2021?  Hakuna Matata, buddy.  Life is short.  Take your shot.

So there you have it: The case for comics, positive and negative polarity offered as strongly as I think I'm currently knowledgeable enough to make it.  I hope you've found it useful or interesting, and please do feel free to leave a comment on this web zone and like and subscribe or however that newfangled stuff works.

Have a great week!--wait, what?  Oh yeah, what did I decide?  I should probably tie up that loose end, yes.  It's only fair.  You read the article this far, no lime-green golf ball jokes today.

On balance, I have not only decided to keep comics around, but to double down my focus upon them -- while at the same time taking the immediate step of clearing out space, the most acute of the current issues that was steering me toward the "bail" camp.  Dustin went ahead and did a preemptive cull of the recent release wall and pulled aside keys and top variants, and we commenced with a Comic Celebration 2016 sale offering the entire DSG back issue library for 99 cents per book.  Twelve books for $9.99, 25 books for $19.99.

The Facebook blast went up Saturday morning, and it took until Saturday evening for the sale to gain traction.  But once it did, oh, man, how it did.  Even with books reduced that far in price, in two days we grossed more than we'd have gotten selling off the entire lot to bulk buyers, so we're free-rolling now.  Every few days we'll refresh the bins with more comics from storage.  If I have my way I'll be down to 25% or less of the previous back-issue inventory level by Halloween.  Since this is all overload from two years' buildup, there isn't even a COGS component; it's just pure recoup.  Perfect as a way to lay in some more cash capital for our eventual move.

Following that, and with the ongoing inventory adjustments in other categories that I may perhaps write about in the weeks ahead, I hope to have comics featured somewhat more prominently right in the front area of the store, where mainstream shoppers first drift.  The more comfortable I can make them, the better the business will perform.

1 comment:

  1. You should add pictures of your setups to this article!

    Also, comics are not for dabblers. I notice you said "50% Margin", and actually books start at 35% margin. Any store trying to operate at less than 50% on books though, I would argue is better off not carrying comics.