Evolution of the
Direct Market Distribution Part V

In last week's column, I presented my personal theory of how the competitive scales were tipped in favor of the larger Direct Market comics distributors during the early and mid-1980's. Given that I was involved in many of the events that transpired during that formative period in the history of selling comics through comics shops, I could go on and on with anecdotes that I believe would support my hypothesis. After all these many weeks on the same subject, however, I think it's time now for me to lay out the specifics of how I believe the comics market descended into the miserable state in which we find ourselves today.

I'll begin by returning briefly to the subject of DC management's preferential treatment of larger distributors during the 1980's. While providing larger distributors better access and discounts offended my personal sense of fairness, it seemed to make quite a bit of business sense for DC Comics at the time. Not only did they minimize the number of distributors with whom they had to interact (thus lowering their staff labor costs...), but they could also select only those business that they perceived as having the best long-term prospects for survival. In taking this route, they greatly minimized their credit losses as compared to Marvel. This decision had even greater positive impact for DC when you consider that each time that one of the distributors who was not allowed to purchase from DC went out of business it had nearly zero impact on them, but caused their arch rival Marvel to absorb yet another uncollectable accounts receivable.

While only backing the larger distributors seems like a slam-dunk smart business decision, I would contend that it also may well be one cause of the current malaise within the comics industry. When Marvel made the historic decision to open up their distribution in 1979 to anyone who could clear a $3,000 monthly check, they attracted a swarm of new distributors. While not all of these distributors would have survived in any event, the fact that Marvel initially gave everyone the same discounts led to a relatively level competitive environment. This allowed for the establishment of dozens of regional warehouses specifically designed to service individual comics shops. Even very small markets, such as Honolulu, Edmonton, and Denver were able to have their own Direct Market distributor warehouse. Some major cities, such as New York and LA, had as many as three, or four, Direct Market distributor warehouse at the same time.

There is no question in my mind that it was the explosive growth in the number of local wholesale comics warehouses that led directly to the huge surge in the number of comics shops opening during the 1980's. With at least 18 distributors competing for accounts at the same time, a comics retailer rely on obtaining not only very personalized service, but also readily available credit, and generous wholesale discounts. With both distributor support and easy credit available to potential new comics stores, the number grew from under 1,000 in 1979, to about 6,000 comics stores in 1988. At the same time, however, the number of distributors began to decline steadily as competitive disadvantages, combined with the usual slew of fatal internal operating errors, combined to gradually eliminate most of the regional distributors. Sadly, I can recall only one new distributor (Scott Rosenberg's Sunrise Distributing) that was allowed to open after 1985.

At first, this decline in the overall number of distributors seemed to have little impact, as the larger distributors continued to operate many of the regional warehouses that they absorbed from their defunct brethren. Eventually, however, the battle for market share between the two largest distributors, Diamond and Capital City, became so heated that they began opening up as a "bona fide accounts in good standing" anyone who could clear a $300 monthly check. This was a catastrophically bad decision, as it led to approximately another 4,000 retailers jumping into the comics business between 1988 and 1993. A great number of those would-be comics retailers were so ill-prepared and under capitalized as to be laughable. The joke was on the established comics retailing community, however, as many of these new "retailers" had no greater marketing plan than to cannibalize the business of an existing comics shop. While this increase in the number of "retailers" did temporarily expand the overall size of the comics business, it also grossly overinflated the comics market. Many of these poor "newbie retailers" had no idea about how to order new comics, nor did they understood that you needed to sell at least 80% of what you purchased from your distributor each month. As a result, they grossly over ordered new comics, and gradually tied up more and more of their working capital in unsold new comics that they stored in their back rooms. Initially this was great for both the publishers and the surviving large distributors, as new comics sales went up, and up, and up. Inevitably, however, all overinflated markets crash. In my mind, the end of our world began with the remarkably ill-advised "Death of Superman" marketing fiasco, in late 1992. I'll wade bravely into those treacherous waters next week.

To be continued...

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