Thursday, September 28, 2006

How Comic books are sold and distributed- It doesn't make dollars and sense

I'm a big time comic book fan. But there's something is wrong with the way the comic book industry sells its product. I mean, the books just aren’t selling like they used to. Way back in the 50’s and 60’s comics were selling one million to three million copies a month. Nowadays they barely sell between twenty to fifty thousand copies a month. After doing some research on the comic book industry's approcahes to business, I realize the entire business model for distribution of these 32 page magazines is just Bizarro.

A long time ago the Comic Book distribution system was similar to the one magazine publishers like Cosmopolitan and Vogue use today. Even book publishers like Random House and Viking still use this business model for the distribution for their hardcover and softcover books. The model was: Publishers provided retailers with the magazines at a low wholesale price, (usually 55-60? % off the cover price) retailers sold what they could, then returned the leftovers (remainders) for credit on next month’s issues or towards another magazine/book on the list. Thanks to this de facto distribution agreement comic books found themselves in supermarkets, drugstores, newsstands and big chain stores like Woolworth, Wal-Mart and K-Mart. The heavy discounts publishers gave allowed them access to shelf space in these big shopping venues and this access led to more readers finding the product. This led to big sales for everyone for many years, both making profits on the volume of books sold.

Somehow in the 90’s the distribution model for comic books changed. Comics Distributors like Diamond decided that their merchandise was so valuable they could create a new better distribution system for it. Under this new business model for distribution of comic books retailers are required to order their comics at a higher wholesale price (now 30-35 percent off the cover price). This means retailers pay close to full cover price for any books they order. Worse, they get no return credit on unsold copies towards other books on the list or next month’s products. That means if the comics don’t sell the retailer is stuck with them.

Thanks to this new distribution model, many of the smaller retailers like grocery stores; drugstores and newsstands that sold most of the comic books in the United States started dropping them from their inventories. Without the wholesale discount or the return credit for new merchandise, there’s no incentive for any retailer in the country to stock comic Books period. Due to the razor thin profit margin in retail, most retailers simply cannot afford the risk of stocking comic books.

So why did the comic book industry change its distribution model from one every publishing company in the world has used for decades? I’m still scratching my head about this one. Do comic book distributors know anything about retail outside of a comic shop? I don’t think they do. Holding onto old unsold comics may be part of the culture in the collectibles market, but in an retail establishment no businessperson wants to maintain inventories of old merchandise for years speculating whether or not it will go up in value.

In the retail business it’s all about moving merchandise and moving it quickly. The longer merchandise sits on the sales floor in a store the more money a retailer loses. To a retailer, a comic book is a product just like candy, cookies or a dress. The faster product moves, the faster profits can be made. Under the current distribution model it’s just not profitable for a retailer to stock comics. Having to pay near full price for comics at wholesale, they have to sweat for 30 days hoping to sell all of them and hope none of the merchandise gets damaged during that period. (merchandise will get damaged it always does). After 30 days they can’t give customers markdowns on leftover copies no matter how damaged they become because they’ll take a loss on that merchandise. Add to this the inability to get a return credit on unsold merchandise and it’s easy to understand why retailers don’t stock comic books anymore.

For small retailers like newsstands, drugstore and grocery stores who make their living on this razor-thin profit margin there are many more profitable products to stock than comic books. Stuff like candy, toys necklaces, balls and other novelty items that will move quickly and appeal to children. These items cost anywhere from 50 cents to a dollar; these cheap novelties move quickly and can be reordered and returned without a hassle.

Contrast this to the price of a comic book. Comic books costs anywhere from two fifty to four dollars and don’t move as quickly as those cheap sundry items; having little appeal to small children and less appeal to teenagers. Add to that the high wholesale price the inability to return unsold issues and it’s easy to understand why most retailers have decided to use the space on their sales floor for other merchandise.

Plain and simple the publishers in the comic book industry need to get real about the flawed distribution system they’ve adopted for the sale of comic books. The business model the industry has adopted for the sale and distribution of comic books in the United States is crippling the industry and preventing it from competing with the rest of the publishing world.

Looking closely at the distribution model for comic books business model it’s almost similar to the one subsidy publishers use to rip off their authors. In the subsidy publishing “industry” authors are often charged high setup fees ($10,000 to 30,000), demand authors buy thousands of books, offer low discounts, (20%to 30%), charge high list prices for merchandise ($20 for a paperback book, $35 for a hardcover) and make merchandise non-returnable. In the end the author gets box upon box of poor quality books unfit for sale and the subsidy publisher makes off with all the money.
Compare the subsidy publishing business model to one comic book distributors currently use. At the end of the day, Comic book publishers are actually paying distributors not to sell their merchandise on the mass-market. Thanks to the high setup fees compounded with the high production costs on a comic book, comic publishers, especially independents and small publishers who have tight budgets are operating at a loss every month. Due to the high cover prices, poor discounts and no returnability; major retailers outside of comic shops won’t stock comic books. That means Customers have no access to merchandise outside of a comic shop which means no profitability for everyone except the distributor. Bizarro.

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