The Self-Strangulation of the Direct Market

It's been a mean couple of weeks for bookstores, at least here in San Francisco.

First, I noticed that Cover to Cover, the oldest bookstore in my home neighborhood of Noe Valley, was closing.

Then, while taking the bus in to work, I noticed that A Different Light, the LGBT bookstore in the heart of The Castro was shutting down.

Then, I saw that the venerable San Francisco Mystery Bookstore (they only sold crime and mystery books!) is also closing up.

Honestly, at least two of those aren't particularly surprising to me -- Cover to Cover had flirted with extinction at least once before its move to its new, lower walk-by location; and I had actually thought that the owner of the Mystery Book Store had to have owned the building, or some other equally low/no rent situation. I have no idea what A Different Light's issues were, but I bet they suffered from crazy high rent in that main Castro location.

Bookselling is, even in the best of times, a tricksy business. You've got institutions on one side of you (libraries) that literally give books away for free -- legally! And on the other side you've got a retailer that is literally inside your potential customer's homes offering them essentially wholesale pricing, free shipping, and no sales tax. Add to that that while people may be reading more on average, it's probably more in 140-character bursts than anything else! Well, OK, that last one is hyperbole, but I do very much think that the internet changes the tenor and style of reading-for-pleasure.

The real problem, though, is that these aren't the best of times. The economy is in the toilet. All I have to do is look out the shop's window and see that most afternoons there are less cars driving our major-artery block, less pedestrians out for a stroll and shopping.

The comics industry retailer has a couple of nice advantages to weather this economic storm -- and like any storm, it really should pass eventually -- the first being that, actually, people really do like comics, it's just they've only started learning that. By that I mean that we've finally shifted from a near universal cultural derision of the form of comics in America, to a general awareness that, hey, they're actually pretty awesome. It used to be that passer-bys on the street would say things like "Huh, a comics shop, I didn't know they still made those"; now they're mostly "Cool! A comics store!"

Ultimately, I think we've really only started to reach the number of people who might be interested in reading comics -- I'm still seeing scores of new faces every week -- so there's still a lot of growth potential out there. It isn't necessarily easy to meet that potential, but it does exist.

The other advantage we have is the periodical comic book -- it provides a regular, steady, weekly clientele that provides the operating cash flow needed.

But here's the big risk: we have to husband that resource, not take it for granted and not overproduce beyond the readership's ability to absorb material.

Here's an example (taking an arbitrarily picked three-year window): for June of 2008 shipping books, assuming I'm counting correctly, Marvel offered for sale 90 periodicals, and 34 collections. For June of 2011, they're offering 98 periodicals (+9%), and an astounding 56 collections (+65%)

(For comparison's sake, DC dropped slightly from 92/34 to 86/31 in the same time period -- a drop of 7% and 9%)

Meanwhile, the overall market (again, if I'm doing the math correctly) dropped by about 2.5% on the terms of number of pieces sold between March 2008 and March 2011 (the most recent month available as I write this) -- so what I am constrained to ask is: how does a publisher knowingly increase production by that much in a declining market?

There is, especially in this economic climate, a finite number of dollars available to be spent by existing consumers, and once you produce material beyond that effective cap what you end up actually doing is fragmenting your own market. This is a very bad no good thing to do because, as stated, the periodical market provides the steady cash flow needed for the market to function at all -- sensibly producing collections is inherently less risky than producing OGNs! And periodical production is essentially a contract between publisher and consumer. Start breaking that contract, start pushing the market past its point to absorb product, and you risk the entire thing coming down.

And, certainly, it is beginning to. One thing you begin to notice if you compare the tops of the charts is that over the last three years, the average book in the Top 20 has lost a significant percentage of sales -- more than 10%, certainly, and perhaps as much as 20%. If you go back farther, say to five years ago, those top books are down by nearly a third.

What's been going on for a long time is that the top is really (and this may be too harsh of a word, but I'm not sure I have another?) collapsing, while the bottom is steadily growing, and the middle is no worse that flat. This maybe doesn't sound so bad (after all, we only lost about 2.5% in total pieces in three years, and with this recession that's pretty awesome!), it fundamentally changes the way the market operates.

Try thinking about it in terms of average-per-store. Diamond claims somewhere between 3200-3500 accounts, but I think we're all rational enough to understand that those aren't all "full line comic book stores" by any means. The number of those is probably much closer to 15-1800. Start dividing numbers in the charts by the number of stores and it's easy to see that anything not in the Top 100 is probably selling something at or less than ten copies per store. Anything below, say, #250, is probably selling less than three copies.

Direct Market comics are sold non-returnable -- we eat what we can't sell -- and so there's a mathematical point where you're just not making any money whatsoever. Depending on the specific store, break-even is probably somewhere in the 70% sell-through range, while actual profit is closer to 90%.

Here's the thing, though -- there's a "swing" for almost every book published. While my "baseline" sales for the newest Dweezleman might be 10 copies, in on-the-ground practice, I'm probably selling somewhere between 8 and 12 copies. Why? A certain number of people are "casual" readers of Dweeleman -- they're not picking up every issue. A certain number of customers only shop (say) 36 weeks of the year, rather than 52. A certain number of customers have $x to spend, so week-by-week they're picking and choosing what looks best, not necessarily on a set list. A certain percentage of customers are travelling -- maybe one week I'm getting two tourists from Chicago, while another week one of my guys is in New Jersey... and they don't want to wait for their comics until they get home. And so on, and so forth -- the point is: it is rare that numbers are static.

Because my swing is 8-12 copies, and I want to a) satisfy the most number of my customers and b) allow for growth, it's often in my best interests to order that full 12 copies of Dweezleman. If I only sell my base of 10 that month, well that's 83%, so I've at least broke even, and I might be making a few pennies of actual profit. If I only sell the 8 copies, then, ugh, 67%, lost money on that one.

The gist of that is that the economics of the Direct Market work really, really well when you're selling fifty copies or more of individual books. At 50, you've got "wiggle room" of 5 unsold copies to still maintain profit. And, better yet, when you're selling that many copies, there's a really good chance that having back issues months later will still continue to sell in some amount, so you'll probably recoup the last dribs of your investment over time. That back issue potential drastically reduces as your initial sales decrease: if you're ordering three copies and only sell two, that last copy should probably be thrown in the garbage. The economics of the Direct Market work really, really poorly when you're selling a lot of 5s and 10s.

Seriously, it's very, very rare that stores go out of business from over-ordering on "big books" -- an "X-Men" #1, a "Turok" #1, whatever -- no, it's usually the day-to-day "death of a thousand paper cuts" of having too many ones and twos left over that kills most stores.

I've been selling comics 22 years now in my own store, and in that 22 years we've moved from selling a lot of copies of relatively few titles at a pretty low price (seriously, in 1992 I would never even consider ordering less than ten copies of any Marvel comic -- even the really awful Star comics, or whatever, and even ordering just 10 meant you thought the book was an utter flop) to now selling much fewer copies of a lot more titles at a pretty high price.

This represents an inversion of the premise this business was built upon.

Like I said, once upon a time, I couldn't even imagine not ordering 10 copies of every single Marvel comic offered in a month. Today? I don't even rack somewhere between 5 and 10% of their monthly periodical output -- preorder only, and an awful lot of times those preorders are "none," so no copies are coming into my store whatsoever. I'm guessing that something like a third of what I do rack is in rack quantities of under-five copies, which makes simply breaking even a challenge. This would be "fine" if the top sellers were very strong, because if you're selling 100 copies each of your ten best-selling titles, then you have 100 copies "wiggle room" that you can allocate out over the line -- but as the national charts show it is the top which has dropped the most.

When people talk about "the death of the Direct Market" I usually groan, because they generally think that outside forces are far more corrosive than they actually are, or that the notion of a specialty store is somehow inherently flawed, but I firmly believe that the DM may in fact die in my lifetime, but that the culprit will actually be murder by the publishers (especially Marvel)

I also firmly believe that the publishers (especially Marvel) don't actually know that they're slowly strangling their own base -- oh, sure sure they can see how the national numbers move, but I think they don't actually know what those numbers actually mean in any individual environment. Largely this is because that as a "big business," they tend to only want to listen to the largest volume stores. I mean, duh, right? You probably would too, I'm not actually faulting them for that -- but the issue is that those largest volume stores absorb unsold books very differently than medium or small stores do.

What the Direct Market needs to be healthy is a lot more titles where the average store can sell fifty copies and no more titles (none!) where we're going to sell 5 or less.

The other side of this, of course, is that what you do publish should be released in a logical fashion. I frankly believe that my personal nadir of Direct Market behavior was reached on April 27 of this year, when Marvel released two separate issues of "Secret Avengers" (#12, and #12 "point one") on the same day. That is literally unfathomable publishing behavior. Why would you compete with your own product, especially with an iteration intended to serve on a "jumping on point"? How can that possibly make sense?

And, of course, I sold 10% less than usual of those two issues, but who has to pay for that? Certainly not Marvel.

It kills me, it literally kills me as I watch publisher after publisher, time and time again, walk up to their customers and say to their face, "Please stop buying my comics!". Whether that's feast-or-famine shipping, completely blowing the scheduling on new lines, not balancing a production schedule over the month, whatever. Behavior that we tolerate in the DM would never ever fly in any other medium. Can you imagine a TV show succeeding with the kind of stop-and-start, constant change-in-scheduling kind of production that we have in comics? No, the mass audience wouldn't be interested in those kinds of shenanigans.

Again, it would be one thing if we were dealing with a market of big hits, in a healthy economy, where the losses from the dumb stuff could be ameliorated. But we're not in a market of big hits any longer. We've lost most of our buffer.

The DM is interesting, because we also have the book format to work with as well, but the flat reality is that the majority of trade paperback (or, hardcover for that matter) releases have no legs whatsoever. We've completely overproduced reprints to the point that a significant percentage of people use it as their excuse to not buy something, but when the collection finally comes out you sell maybe one or two copies, then you never sell another one ever again.

The funny thing is that the math of a reprint really should be pure gold: with a steady turn rate, recouping your fixed costs comes absurdly early in the product lifecycle -- for a retailer by the time I've sold my third copy of, say, "Watchmen", every single copy sold after that it pure profit and essentially found money (the second "turn" of the book breaks you even on the cost of the product initially, as well as the replacement cost) -- but this assumes you only put out material that has strong turns, which clearly we're not doing.

The problem with the "bookstore model" is that dead inventory chokes all of the profit away. "Three turns and you're profitable" doesn't work if you're absorbing a whole lot of material that never turns the first time. These days Marvel and DC combined are publishing something like twenty new TPs/HCs each and every week. The market can't absorb all of that material from just two of the myriad of publishers, and I believe that we need to drastically scale down the amount of collections we produce if we want what we produce to sell well.

I don't know how other retailers feel about this, but I'm feeling squeezed by both too much, as well as inferior, product, and it has caused sales to drop to a point of sludgy profitability. And while a correction in the general economic climate might improve that single-handedly, it's a pretty awful business plan to have to depend on outside forces to turn things around.

I have no interest in joining the other San Francisco bookstores in going out of business, and I don't think I'm seeing any real strategic planning from my publishing partners other than "Well, maybe another crossover will bring the lapsed readers back", but we've all been doing this long enough to know that that trick really doesn't work in the long-run.

Brian Hibbs has owned and operated Comix Experience in San Francisco since 1989, and is a founding member of the Board of Directors of ComicsPRO, the Comics Professional Retailer Organization. Feel free to e-mail him with any comments. You can purchase a collection of the first one hundred Tilting at Windmills (originally serialized in Comics Retailer magazine) from IDW Publishing. An Index of v2 of Tilting at Windmills may be found here. (but you have to insert "classic." before all of the resulting links)

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