Tilting at Windmills #292: En Garde

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By Brian Hibbs

Last month my store Comix Experience celebrated it’s 33 & 1/3rd anniversary (“we’re still spinning” was our tagline for those who remember phonographs, ha), which means I’ve been selling comics in my own store for a third of a century, yikes.

Besides the fact that makes my store more tenured than anyone in senior management at Marvel or DC – and older in total than publishers like Image comics or Boom! – that also makes me in this business long enough to remember just how horrible things could be. As a good “for example”, I vividly remember that when we started while we had at least a dozen wholesalers we could buy graphic novels from (though really only four properly viable choices in the San Francisco Bay Area), actually finding which one had something as core as, say, “Watchmen” in stock any given week was always a giant crap shoot. One week Capital City would have it, the next they wouldn’t, a different week Diamond would have it, and the third they wouldn’t, and so on. It made the very act of restocking your store to be a very complex and ever-changing process each time, that did nothing to actually sell more comics for those extra costs in time and effort.

I bring this up primarily as a prelude to this outing’s column because Beat Editrix Heidi MacDonald wrote me saying “I have to be honest, I have NEVER had as many emails and DMs about one of your columns as after the discount one! I have had a LOT of calls to run a rebuttal to your piece” – though no one writing her actually appeared to be interested in writing said rebuttal, go figure. What we do have, flagged to me by Heidi, is this piece by David Harper, as well as a twitter thread by Ryan Higgins who owns Comics Conspiracy in Sunnyvale, Ca.

(I do have to note that Ryan didn’t @ me on Twitter, so I didn’t even see it until David Harper flagged it weeks later – not that I would have done much there since I find the 280 character limit at Twitter to be nearly useless in discussing things with any level of nuance – though I did answer him in a private retailer’s group on Facebook; and for whatever reason my Google alerts for my name and the name of the store didn’t tell me about Harper’s piece [paywall, maybe?], and I would never have seen it without Heidi telling me)

So, since I was directly asked to address these concerns by my Editor, let’s try and tackle things head on, starting with the Twitter bit. Ryan said “I’ve seen some variation of this topic for months from Brian, and the math just doesn’t work. How does a 50% (or 46.8%) discount make you not even break even on the sale? You sell the comic, you make 46.8% profit. I don’t understand the math.”

So, I can’t speak for anyone else about what tools they use to evaluate their business, but what I have always done is gather my costs and look backwards at what kind of wholesale pricing I need to pay for those costs. The rest is the potential for “profit”. This is not precision math because, of course full costs can usually only be properly assessed after the fact, but it gives me a set of benchmarks to determine what’s “worth” carrying, and in what manner. I started doing this in like ’94 or something as I was trying to figure what all of those toys that were sitting around unsold were doing, and I realized back then that anything I wasn’t getting around 35% off on (a pretty typical wholesale toy margin) wasn’t then providing a meaningful amount of profit as a return on the investment being made when it eventually sold. If it eventually sold. It cost me, back then, something on the order of 34 cents to generate $1 worth of sales, so anything that’s only making me 35 cents on a dollar-of-sales is just barely breaking even, or losing me a small amount. I almost entirely stopped ordering toys after that as a result of this revelation, because I concluded I could make more (or, “any”) profit selling other goods in the same space.

While it is absolutely so that on that 35%-off toy I “make” 35 cents in gross “profit” when it sells, that isn’t “enough” in terms of our costs to do so when there are other options available. And because we don’t have an infinite amount of rack space (or “head space” for that matter to equally merchandise, market, and maintain knowledge about each individual product) to carry absolutely everything offered – a problem which has only gotten exponentially harder as SKU counts have skyrocketed in the intervening decades – then this seems like a pretty reasonable metric to consider, to me at least.

Just to be painstakingly clear: that’s not even remotely the sole metric I look at when I make a decision to carry or not to carry a product, of course – there’s plenty of things we stock that I know are essentially break-even propositions because I think they’re strong example of comics making, because I like the creator, because there’s an audience for a thing that if I serve it those customers might buy more profitable items (or even lose that customer entirely for not having the thing they want), etc etc ad infinitum. But at least considering the Return on Investment is a pretty normal thing to do in business forecasting, at least as I understand it.

To put it in more tangible terms, my current costs these days thanks to the expenses of being in the City in which I live, as well as the ways the economic scale has become weighed against comics retailers the last two or so years, is that it now costs me closer to 42 cents of costs to make a dollar of sales in 2022. Therefore things bought at a 45% or lower discount are essentially a wash (or worse) in terms of making an individual profit on an individual item. YES, I have “made” 45 cents of cash flow, but my actual profit is down to like three cents on-a-dollar, when it was more like seven cents in 1994 (or whatever the exact year I started thinking of things this way was).

Before DC pulled out of the single periodical distributor model (in April of 2020), my Marvel, DC, Dark Horse and Image effective discount (base discount minus the shipping costs) was roughly 52% for periodical comics. As of July 1st my business is looking at 46.8% for DC (from Lunar), 47.2% from Image and Dark Horse (from Diamond), and 50% from Marvel (from PRH) for the periodicals. Now I make almost a nickel on the dollar on a DC title, almost a nickel and a half on an Image or Dark Horse, and eight cents on the dollar on a Marvel title. That means, then, that selling a Marvel periodical is now roughly 60% more profitable than selling a DC periodical.

But, recall that virtually every graphic novel from publishers that range in size from DC and Marvel all the way down to pubs as “small” as Ahoy or Behemoth can be bought from a book distributor at 50% off — I can now make (roughly) a nickle-on-a-dollar by selling a “rack copy” of a DC periodical, or I can make eight-cents-on-a-dollar pointing those same discretionary dollars towards a different publisher or a different format.

This is, sadly, just as true as buying almost anything that is solely available from Diamond (which includes virtually all periodicals not published by Marvel, DC or IDW, and graphic novels and periodicals from Image or Dynamite since they have exclusive arrangements currently). And it is my philosophy that all “rack” copies are ultimately discretionary dollars: Probably the single biggest lesson the pandemic taught me is that I’m more profitable in selling out of 90% of periodicals the first weekend than I was keeping them on the racks hoping that non-subscribers would buy them. Those purchasing dollars are much better off being redistributed towards less perishable formats, especially given the new pricing differentials between periodicals and perennials that DC’s abandonment of the Diamond system inadvertently created.

So… That’s my math. I hope it is more understandable now?

(Imagine trying to say that on Twitter?)

In terms of the column from David Harper, it’s hard to know what to say other than I think that perhaps some of the seeming confusion is stemming from some misunderstanding of both motivation and positioning. This is almost certainly my own fault for being less of a writer than lives in my own head, but as a top level thing, I don’t think that at any point in last month’s column (which was, I thought, clearly a continuation of the one before that? And, is part of a running series of columns for a good long while now?) I was not explicitly clear that when I was discussing specific maths that I was solely referring to my own circumstances? Mostly because when we’re looking at final discounts in terms of the relationship to shipping costs those are pretty purely individual situations based on distance-from-warehouse?

Either way, I think it’s possibly worth making a few specific points here, the first of which is: none of my commentary was actually directed at Lunar itself whatsoever. I don’t believe that Lunar is an especially “real” distributor – I think they’re a consumer-oriented fulfillment company (terrifically difficult to call them a “retailer”, if you ask me) that DC has tried to scale up to handle wholesale, and I don’t believe they have any real control over what happens with DC products (the quotes from Merkler in Harper’s piece would seem to bear that out, too!). They don’t have a handle on basic data practices like series codes, they do bizarre things like entirely removing sold out books from their databases, they don’t have a way to speak to a human, and so on and so forth.

So, here is a “secret” about writing a column like this with nearly three hundred entries: a significant percentage I write actually starts life as something else. In this case, last month’s column’s core began as an email written directly to a senior VP at DC, and that’s a VP who indicated that they directly wanted to hear from me on issues like this by the way. But literally no answer of any kind whatsoever from DC caused me to repurpose it to be written to a larger and wider audience.

I don’t care about Lunar, or trying to change “their” minds. That would, I think, be pretty pointless for how I understand how things work. No, my column was actually entirely directly at DC, because airing things in public has a generally OK track record. It doesn’t necessarily change things on the spot (the column is titled “Tilting at Windmills”, after all!), but it exposes flaws to a wider number of people than an email might, in my experience. I think that setting up rules that can cause DC’s discount on their corest of core products (the serialization, since it is that serialization that funds and makes possible the perennial book format product) to be the lowest of any of the major comic providers, for some number of retailers, is prima facie a bad policy that will only hurt DC. Speaking for myself, I’m not motivated to spend more dollars on DC periodicals in this scenario – especially from a middleman company that clearly doesn’t have my best interests at heart

Harper says there is “zero evidence” that DCBS is a competitor to existing storefront retailers, but I can point to a list of names of customers who have directly told me that they’ve switched to DCBS purely because of the unprofitable-to-a-brick-and-mortar-storefront discounts that DCBS offers. And for every customer who was considerate enough to talk to us, and not just “ghost” out, I have to assume that there are several more that didn’t.

I strongly believe that publishers should have the best interest of stores that act as their showrooms at the very center of every way they act because it is those stores which hold the possibility of expanding the audience for specific goods by acting as those showrooms! I think that, nearly by definition, a discount vendor who only can sell things via a catalog is essentially incapable of expanding the audience or to exposing people to material they are not already inclined to purchase.

I further believe that because of the way in which DC upended how distribution works (for everyone!), they have an even greater responsibility to figure out how to appropriately reward retailers for doing business with them. While it may be true that the “average” comic shop primarily exists to sell the velvet trap of DC and Marvel periodicals, I think that the smartest retailer is the one who sells based on art and expression within the medium itself – I have no “loyalty” to DC, past the point where they are publishing “the best comics”. If they stop producing “the best comics”, I have hundreds and hundreds and hundreds of other choices to put on my shelf in its place. This is why volume-driven discounts modeled on market understandings built around a centralized distributor (where there was literally no where else to buy periodical comics than Diamond) just don’t make sense when you destroy that centralized market. Harper says “That’s an understandable complaint, albeit one with no easy solution given how distribution has divided”, which makes little sense to me – I’m not especially wise or smart, and I can think of multiple ways to solve that problem, the lowest-hanging fruit way is what Penguin Random House does which is “Here’s the same discount for all comers that allows you to at least keystone goods all the time”

Do I think that’s enough? Oh hells no. I think that should be the minimum floor that any brick and mortar retailer should be earning just from having a B&M location vending these goods. I then believe that any store doing more than the barest minimum (having an account) should be able to trivially earn significantly higher discounts so there’s actually an incentive to grow those vendor’s business. Look: I’m in business to make money for my store, for my staff. I have no incentive to make money for DC, unless they give me a specific one to consider. DC is aware of what my volume is between all suppliers they use (or, I should say, DC has the ability to pay attention to that, should they choose to do so) – and if there was a reason or a point to my last column it was exactly that: DC has set things up in a manner designed to make me fail, if I am not interested in funding a direct retail competitor.

(We’re still waiting for a lot more information on pricing and shipping costs and other things to see if DC’s newest distributor, Universal [who doesn’t compete with us at retail!] will be equally competitive to Lunar. From public information so far, this is far from a certainty. But I hold out hope!)

To try and tie this back to the opening paragraphs, it doesn’t really matter if it is “Lunar” or “DC” is the reason that I can’t consistently get [product x] from Lunar when PRH has it in stock, what matters is that I shouldn’t be asked to buy it from the “inferior” source because that creates wild inefficiencies in the work of stocking and restocking books. In 1989, I could always eventually find whatever backlist I wanted from someone, somewhere, but there’s a real world cost to having to use multiple sources to stock core product. It is meaningfully more efficient to buy the majority of my backlist from one source: having to place different orders in different ways, to receive and unpack different orders at different ways does nothing but cost time or money. To be obligated into having to choose less efficient sources in order to game discounts on purchases seems like a recipe for disaster to me, even when some people “don’t understand the math”.

Either way, at the end of the day one thing seems certain to this observer: overall, the ultimate discount against printed cover price that most retailers are receiving on periodicals and graphic novels as a whole has significantly declined over the last three years; and because of the “chancy” nature of the periodical, and the shorter windows to sell them (roughly: periodical comics are like milk, while graphic novels are like cheese), the risk/reward on the periodical has accelerated dramatically. In the private Facebook discussion groups a greater and greater number of retailers are talking about “getting out of” new comics, or of retiring early, or of closing their stores entirely. While some retailers are ecstatic about option x, and harmed by option y, and others are reversed in those positions, I don’t think there’s any question that for most retailers pricing and ROI has gotten meaningfully worse on the category overall, and that costs are escalating to squeeze those profits further. This, then, is a direct danger to the Direct Market as we know it, even if one aspect or another doesn’t impact all participants equally.

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Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989, was a founding member of the Board of Directors of ComicsPRO, has sat on the Board of the Comic Book Legal Defense Fund, and has been an Eisner Award judge. Feel free to e-mail him with any comments. You can purchase two collections of the first Tilting at Windmills (originally serialized in Comics Retailer magazine) published by IDW Publishing, as well as find an archive of pre-CBR installments right here. Brian is also available to consult for your publishing or retailing program.

 

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