Tilting at Windmills

Fri, August 15th, 2008 at 9:07am PDT | Updated: August 15th, 2008 at 10:40am

Comic Books
Brian Hibbs, Staff Writer

THE LEFTOVER BITS

Last month we discussed Comix Experience's Point-of-Sale system (we use MOBY, and it is awesome!), and how we identified a large number of items that hadn't sold even a single copy in a year.

So, the question is: what do you do with the unsold stock? (Warning: this one is more nuts and bolts than usual!)

Well, let's start a few steps back from there. To begin with, any kind of operation that deals with physical goods is invariably going to make mistakes. That's just as true on the top of the supply chain (the publisher) as it is in the middle (distributor) and the bottom (retailer).

Sometimes those mistakes are human error - for example, just this week I received 54 copies of "Batman Strikes" #48 because I was trying to change my order of 4 to an order of 5, and wasn't paying enough attention. Ooops! (though, in that kind of case, DC and Diamond are generally cool enough to take them back, and I'm only out shipping costs)

Sometimes those mistakes are just in being wrong - I have way too many copies of "DC Universe" #0 because I thought there would be more interest in a 50 cent lead-in to "Final Crisis" than there actually was.

In comics we have another particular problem that stems from how we order products. Generally speaking we're ordering material two months in advance of shipment, so we're trying to predict future interest based upon current sales. If I thought that the Millar/Hitch run of "Fantastic Four" was going to be a bigger deal than it actually turned out to be (which I did), that can leave a lot of copies sitting out on the racks, until I'm able to reduce the numbers down.

Now, in the case of both Marvel and DC, we have something called Final Order Cutoff (FOC) which means our orders aren't actually final until the "drop dead" printing deadline. In most cases this means that we have a week of sales of the previous issue to judge the success or failure before our FOC is due on the next issue. But even then, it's easy to over order, because you can not necessarily judge what the next issue's sales will be based on a single week of sales, and it is really easy to think "Well, this just needs a little more time to catch on."

However, for publishers other than Marvel and DC, we don't have a FOC, which means we're on the hook for that material. Further complicating this is that not all publishers are producing work on a timely basis, and Diamond allows them some 60-90 days leeway; and for a brokered publisher like, say, Image, it's up to that publisher to decide what the "grace period" actually is. For example, this week we're receiving "The Walking Dead" #51. But the current "Previews" catalog is soliciting "The Walking Dead" #57. That means there are six issues of that series in the pipeline. While it is possible that Image will make the "late" issues returnable, it's pretty rare that this actually happens.

FOC has pretty dramatically changed the way that comics retailers do business; in fact I'd suggest that it is one of the reasons that Marvel and DC are currently at or near 80% of the market in orders, because there's "less risk" in ordering their material in a FOC environment. Psychologically, the "ability" to lower orders means that you're more likely to produce stronger initial orders.

If anything, historically, one of the limiting factors in periodical comics sales was the innate fiscal conservatism of the retailer. Once upon a time (the 1980s and before), there were few enough titles being published, and there wasn't any other way for a reader to "catch up" on a title other than back issues, that the system encouraged retailers to order for backstock. It used to be fairly normal behavior to order extra copies over and above your predicted rack sales to be able to put in back issue boxes. But, as the number of titles scaled up, as cover prices rose, and (more recently) as the trade paperback collection of the material began to become available, that was no longer desirable behavior.

Basically, the math used to say that if you had a 75 cent comic book, and you could price that as a dollar as a back issue, that "extra" 25 cents (a third of the initial cover price) made up for the costs associated with stocking and storing those back issues. However, when you're talking about $2.99 books, and assuming the back issue price is $3.25, your "extra" markup is now under 10%, and the math doesn't work as well (or at all) to stock for the backstock.

I still remember a time when a customer would come in with $10 to spend, and they'd buy all of the new this week books they wanted, and they'd have change left over, so back issue diving was common customer behavior. These days? Not so much.

Further, as I noted, the trade paperback has changed the economy of the periodical, fairly significantly. In most urban markets, where rent is expensive, carrying an appreciable amount of "common back issues" is a real brake on profitability, unless you're turning enough "high priced" books to change the math towards your favor. Some stores do this by dramatically marking up "hot" books, or limited run variants, but that isn't a business model that works for everyone. And, even then, there's isn't a ton of unfilled demand for, dunno, something like "Ms. Marvel."

Thanks to the availability of the TP, it became significantly more sensible to not stock any "common" back issue, and instead capture what demand there was with the TP. The beauty of the TP, throughout the end of the 90s, and the beginning part of the 21st Century was that you didn't have to have everything in stock, all of the time. "Ms. Marvel" can now be stocked on the TP level, and only ordered when there's "live" demand for it.

However, over the last few years, there has been an explosion of book-formatted material, to the point where material that is meant to be perennial is, instead, selling in a sales pattern like a periodical - you sell the overwhelming amount of your stock in the first 2-4 weeks, then maybe you trickle out a copy or two each year after that.

This has also lead to a great deal of "stock creep" where stores are stocking more and more "one copy" here and there, that don't turn that often, and suddenly you're looking at twenty linear feet of spine-out books that turn once in a blue moon, if that.

So the name of the game for a 21st century comics retailer becomes all about "inventory management." This is the key reason that I strongly urge every modern comic book store to invest in a POS system in order to get a real handle on what inventory is moving when. It used to be "easy" to manage these things in your head, and with simple pen and paper systems, but that hasn't been true at all for the last 3-5 years.

It also isn't as true for publishers (or distributors) for that matter - all one needs to do is to look at all of the "holes" in Marvel and DC's backlist, where volumes 1, 3, and 5 of a series are available, but you can't get v2 or 4, to see that this is true. For the non-brokered publishers, you can see it in distributor stocking levels, where even though all of our hypothetical five volumes might be in print, again only three (or none!) of them are available in open stock through the distribution channels, be they Direct Market driven like Diamond, or bookstore driven like Baker & Taylor (and we'll get back to that in a minute)

Here at Comix Experience, once I installed POS it rapidly became clear to me that management is our key problem right now. Approximately 20% of the books we were carrying were turning rapidly, and were very profitable. About a third turned regularly, and were positive to cash flow with regards to rack space, labor, holding costs and so on. About a third turn poorly, and aren't making anyone any money, but they add to the "character" of the store and/or the "product density" that I believe a specialist store needs to have. And the last 20% are dogs that were foolish mistakes of my money.

This week at Comix Experience, we're receiving 29 different brand new book format products. There were at least double that which I could have stocked, but couldn't see an audience for. (And we probably carry 50% more books than any other store in San Francisco.) Either way, data suggests that at least four of those twenty-nine won't sell a single copy, and will eventually have to be deleted from stock. The question is: which four? Because in a perfect world, I don't even want to bring those in in the first place!

Bookstores have a slightly different economic picture - they can return a percentage of their total purchases, typically 20%. So, if they spend $10,000 on new stock, they'd be allowed to return $2,000 of it. It sounds like a good deal (and certainly books have been sold that way for a great deal of time), but they're trading discount for it. In some cases, very extreme amounts of discount. If you can properly manage your stocking, that's profit being sucked right away. Further, you're still tying up your money in that product, and to return it, you have to pay for the not inconsiderable labor and shipping (books are heavy!) I think it's an awful model, myself.

In the Direct market, in virtually every circumstance, we don't return anything. You buy it, it doesn't sell, you eat it. Yum yum.

Different stores approach stocking in different ways. I know at least one store that runs a weekly report of periodical comics, and if they haven't sold a copy in the last four weeks, they remove that comic from their shelves, regardless of what it is. There are other stores that keep anything up to the last year's worth of periodical issues out on the rack, at cover price, regardless of what it is. Some of these decisions are based on practical physical racking decisions (number and type of "pockets"), some are based on "what kind of a store I want to have,",and both of those extremes of methods, and everything in between are absolutely valid ways to run a store.

For myself, we're attempting to keep the "most recent three months" up on the shelves - for a weekly book, like a "Trinity," or a near-weekly like "Amazing Spider-Man," this may translate into as many 6-12 issues up at a time, while a book published infrequently may only get a single facing. Other books might have enough velocity to attempt to keep every issue back to "the end of the most recent TP" on the racks - I do that currently with "Buffy Season Eight" for example. Still other titles might be competing for shelf space among multiple titles for the same line - there are two currently running "Battlestar Galactica" comics, so they spilt their designated shelf space, as if they were one title, between the two. And still other books that we carry only token amounts, to be able to say we do, and we only leave a single copy of a single issue up, and if we sell it, we do a little happy dance (something like the "Marvel Illustrated" serial releases would fall into that category). Really, the method mostly is one of "feel" and space and "flow."

Each week, as last week's "New Comics" filter throughout the store, I pull off what needs to get yanked. Every week my goal is a third of a short-box (say, 50 individual pieces) - I tend to actually average about a half a short box, but it tends to be disproportionately weighted to one or two big misses, rather than a lot of little mistakes. About every five weeks or so (or about when we fill up a long box), I take this chum and remove it from inventory. We call the stuff that gets removed from the racks "biffage" (man, and I'm not even sure of the etymology of why we call it that, we've been doing it so long), so we "sell" it (at 100% off) to customer "Biff Age," so I have a clearly marked record of what's coming off, and so the POS decrements the inventory properly.

I then take that Box O'Biff and split the books out into five piles. Pile #1 is anything that we're lucky enough to have a "set" of, or things that I am pretty sure we'll have sets of in the future - typically this is short run mini-series, where we'll slap all four in a bag for a couple dollars off the cover price; essentially a TP without a spine. I also keep some inventory to make "first issue" sets or "movie/TV," things like that. However, in actual practice, it's rare to get an even number of leftover copies of things to actually make this happen. More likely you're actually taking issue #'s 1, 2, and 4 off the racks, and you don't have any #3's!

Pile #2 is a copy for the back issue bins, if deserved. 10-15% of the titles in the box might make that cut. Pile #3 is one or more copies for the backroom to sell later if the copy for the bins on the floor sells. In almost all cases, if I think a book should be in front backstock I'll pull a few more (but seldom more than five copies) for the back room, but there are always exceptions. For example I might want to have a single copy of a low-selling book which ties into to the company's current big crossover, but not extra stock past that.

Once we've pared out the potentials for longer-term sales, which is typically about a third of the biffage, I then pull for our two bargain bins. We've got a "dollar" box and a "quarter" box. The quarter box is also "ten for a dollar" because the point for us is for the customers to take these books away. We've got reasonably good "churn" on these two sales mechanisms, and have about two long boxes of "backroom" dollar books, and about six of the quarter books. We generate dollar books just a smidge faster than we sell them, and quarter books just a smidge slower, so I'll sometimes flip dollar books into the quarter pile to reach some kind of equilibrium. So pile #4 is the dollar book pile, and pile #5 is the quarter books. I put these newest entries into the back of the appropriate backstock boxes so that it will be six-to-nine months before they filter into the front-stock, making the consumer waiting for things to go on sale an impractical notion.

Clearly, I am losing money, sometimes lots of it, on the biffage that comes off of the racks. But it's better, in my opinion, to get something for that leftover stock, then nothing at all. It could be worse, we could be in a food related business, and have to throw away our mistakes in purchasing for and judging current consumer interest!

Books have a different nature to them than the comics have. While old recent comics are, in the main, not even worth the paper they are printed on, I've found that things with a spine work a little differently. We've two bins filled with Sale books that we've stickered at roughly 40% off. If a customer buys three or more, they take another 10% of the printed price, and five or more takes 25% off that price. In most cases, this allows us to come close to breaking even on our inventory cost, and in some happy ones, allows us to make a few pennies profit.

Up until this Big Purge of the 1400 books, most of the stuff we had in the Sale Books bins was damaged and/or a colossal screw up on my part. Even still, it was churning faster than I could replace it, and I was on the verge of reducing the two bins to one. Now, of course, I have a whole lot of new stock to put in there.

The first thing I did was to hold a private sale for our best customers. My wife gets into the "customer appreciation" sales at Nordstroms, where they basically give their "best" (usually, highest spending, as far as I can tell, but a few others as well) customers an advance crack at the stuff they're going to put on sale. I thought that was a great idea, one worth stealing. So we picked a Sunday and opened two hours early, and gave all of our subscribers, and a handful of other favorite customers first crack at the 1400 books. Got rid of about 15% doing that, so it worked out very well.

Next, I'm going to remove all of the current books that are on sale, and consider them dross. I'll box them for the moment in the back room, in case we churn through the new books I'll be putting out next faster than I expect, but otherwise with an eye of donating them away in roughly a year's time.

I use colored pricing labels when putting out back issues and sale books, and we've switched to a new color with the latest batch, so we'll be able to see how and what moves or doesn't move. If you change colors every 6-12 months, it's a really easy and cheap way to manage boxed inventory.

My expectation is that a year from now we'll have virtually none of those books still in the store. If they are, they can be donated away.

Managing your "dead" inventory is largely about getting it out of your store faster than you get it in. You always want to try and get your initial investment back, but taking a loss is preferable to building up vast amounts of stock you can't move, and that you have to pay tax upon.

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) You may discuss this column .

TAGS:  retailing, moby, over stock

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