Broken Frontier

Welcome to the fourth installment of this series. We’ve almost made it to the end, so hang in there with me!  In the first three parts, I addressed why the current newsstand system isn’t viable, the needs of the retailer, and the requirements of a publisher to meet those needs.  If you need to catch up, all these past articles are available in the Outside the Box archives.

This theoretical model has retailers selling comics and publishers printing comics, but there isn’t anyone linking the two together.  This is where the distributor comes into play.  What will be required of a distributor in this new model?  Better yet, who is up to the challenge?

The Distributor

In the previous two installments, some requirements of the distributor were discussed.  I’ll review them:

• Co-develop a Scan Based Trading (SBT) system as an industry tool and retailer incentive
• Implement the three tier purchasing system
• Co-develop purchasing contracts
• Co-design a new method of displaying comics
• Co-develop and enforce an industry standard rating system

It sounds as if the distributor will be involved in many facets of developing a new distribution model, but they won’t be doing any of it alone.  They can take the lead on items like a SBT system, which will impact their daily business.  However, they can limit their role in other areas, so the burden is not so great.

The distributor must also fulfill the traditional roles of any distributor, which are:

• Collect retailer orders
• Tally total orders and pass to the publisher
• Receive product
• Break down product to fill orders
• Ship orders in a timely fashion
• Manage accounts receivable and accounts payable

Aside from the traditional roles and the new requirements already discussed, what else will the distributor need to do?  Here is a quick list:

1. Publish A Catalog: The distributor will design and publish a monthly retailer catalog.  It will need to be distributed through the SBT system to some, and in print to others.  In many ways, the catalog will be similar to the current Previews catalog used by the direct market; except it will be formatted to follow the three tier purchasing system.

2. Process Returns: The distributor will receive all retailer returns.  They will then forward them to the publisher, warehouse them for the publisher, or distribute them to third parties, depending on the arrangements made with publishers.  Third parties might include large direct market retailers such as Lone Star Comics or Mile High Comics.  These large direct market retailers may find it desirable to buy all, or a portion of, returns at or near publisher cost.

3. Marketing: The distributor will focus on marketing the entire industry to major retail outlets.  Publishers will continue to market their individual products, but someone needs to represent the industry without bias.  The distributor will be the primary source for marketing expertise on how the new distribution system serves the retailer.

In past installments I’ve discussed each of these requirements in more detail, but I’m going to throw a wrench into that plan.  Predictability is boring!  I think there is something more interesting to discuss.  Namely, who would be the distributor for this new model?  Who’s up to the challenge? I can think of four possibilities.

Diamond Comic Distributors

Diamond Comic Distributors is the current direct market distributor for the majority of the comic industry.  They move anywhere from 5-7 million comics through their warehouses each month.  In 2004, they grossed approximately $76.2 million from the sale of comics, trade paperbacks, and other related merchandise.

In the past decade, Diamond Comic Distributors has actually decreased in size through a series of warehouse closings.  They still have warehouses located across the US, with their three main distribution hubs located in New York, California, and Tennessee.  Despite the downsizing, Diamond is still by far the largest comic distributor in North America.  They have also spun-off a few smaller distributorships such as Alliance Game Distributors and Diamond Book Distributors.

With that said, Diamond would appear to be a logical choice for the distributor in this model.  They have experience with marketing comics and plenty of experiencing delivering them.  Diamond already has a catalog format that could be adapted.  They have prime warehouse locations.  From what I’ve gathered, Diamond’s warehouses aren’t being used to full capacity, so they may already have room to accommodate the new business.

Since Diamond has a near monopoly on comic distribution (estimated 85% share of the global market), it would make sense they would want to maintain their market share by pursuing any new distribution methods the industry may develop.  It would also be a boost to their business. 

For example, during the first year assume this new model lands only six large chain retailers (e.g. WalMart, Meijer, etc.).  That would still be an increase of $8-9 million in gross sales, or a growth of around 11% for Diamond.  If this model became a standard for retail chains of all types, there is long term potential for a growth of approximately 88%, or a gross of $67.2 million.  This is $67.2 million just from the sale of comics!  It could almost double the size of their current business selling comics, trades, and other merchandise.

Any Current Newsstand Distributor

There are numerous newsstand distributors in business today.  Some statistics say there are approximately 100 still in business.  However, there are only about a dozen large distributors with warehouse facilities spread across North America. 

Any of these dozen distributors are potential candidates.  Distributors, as a collective, have been loosing money as newsstand sales have declined.  Experts believe that if the newsstand business doesn’t improve within the next 2-3 years, possibly two of these large distributors may go out of business.

So there is a situation where large businesses are about to close because of lost sales.  They are basically cornered animals, and cornered animals are the most dangerous!  One of these distributors may be the perfect choice for a new model.  They too have an experienced sales and marketing team.  Current newsstand distributors also have connections in many of these large retail chains, something others may not have.  They also have under utilized warehouses in prime locations, and experience on filling large monthly orders.  Plus, they are hungry for new business.

Any new distributor would provide something that the current comic distribution scene is lacking, serious competition!  If a new company can get their foot in the door, they provide competition to Diamond, even if they don’t sell to the direct market.  Just the threat that they could is enough.  The result of this competition would be an improvement in services to retailers, both chain and direct market, and to the publishers.  Competition is always good for any industry!

Large Direct Market Retailer(s)

This possibility is more of a long shot, but it could work.  There are several large specialty retailers that might be able to spin-off a distributorship.  For example, a business like Mile High Comics is large enough to possibly expand.  They have a few prime warehouse locations, even though they may require expansion.  They also have experience in filling a large number of orders each month, even though they are of a different type.  There are several other areas that they lag, so it would definitely be more of a struggle.

However, an even more interesting possibility would be several large retailers forming a partnership and spinning off a new business.  Retailers like Mile High Comics, Golden Apple Comics, and Midtown Comics would all partner together to pool their resources and geographic locations.

Of course, there may be some conflicts of interest when retailers start distributing comics.  What would stop these stores from buying comics at distributor prices and putting them in their stores, thus having an unfair advantage over all other direct market retailers?  These types of conflicts should be minimized since this new model targets nationwide chain stores, and none of these direct market retailers could purchase from themselves, at least initially.  Still the potential for abuse is there.

As I said before, this is a long shot at best.  Still it is an interesting possibility with lots of potential.

An Entirely New Business

The last possibility I envision is an entirely new business forming around a new distribution model.  Someone with enough investment capital and know-how would need to start from scratch and build the business.

There is incentive there for someone to do so.  There is the possibility of $8-9 million for the first year’s gross sales, with long-term possibilities of $67.2 million.  If this new business were aggressive, they might go after the direct market and try to capture a piece of that pie too.  With some skill, commitment and support from the comic industry, it could grow into a very sizable business.

Summary

Just like publishers, there is some work that needs to be done by a distributor to meet the needs of a retailer.  However, I don’t believe I’ve listed anything that would be impossible.  I think the real question is who is up for the challenge?  If the industry threw down the gauntlet for a new distribution system, who would be there to pick it up?

There is the safe bet of Diamond, but several other interesting possibilities as well.  I think there is money to be made for any distributor that carries a quality product that retailers can sell.  If there is money to be made, then rest assured, someone will pick up the gauntlet. 

This fourth installment ends the meat-and-potatoes of my discussion.  I hope you’ll join me next week as I do my best to summarize all this information.  Can the comic industry have its cake and eat it too?  Join me for dessert next week and we’ll find out!

- Will Norris