Do Not Ever
This month, I am going to write about one of my most expensive failures, and how the lessons that I learned from that debacle are (hopefully) saving my company today. This story begins at Wondercon, in late February, 1993. Jim Shooter was a guest at that convention, promoting Defiant Publishing, the company that he formed shortly after being squeezed out at Valiant. Among the upcoming titles that Shooter announced at the show was THE GOOD GUYS, a story about a group of young comics fans who gain super powers. Making a long story very short, at an early morning breakfast meeting Shooter and I entered into an agreement that he would base these super teens in a comics Mega-Store that I would open up specifically for that purpose near Disneyland.
On April 25th, 1993 I signed the lease for an 8,000 square foot store in Anaheim. That date remains stuck in my mind as being particularly important, as that was specifically the day that DC Comics officially released the titles that brought Superman back from his much-hyped "death." While that particular individual publishing event certainly wasn't the only reason why the world of comics went into a terrible down spin for the next five years, it certainly was the catalyst for an incredible amount of anger by members of the general public who bought into the representations in the press releases from DC that Supermen would actually die. Those of you who were around in spring of 1993 may recall that nearly simultaneous with the Superman disaster, Image Comics also began to implode. Image began with an incredible burst of sales in 1992, with nearly every Image title released that year selling over a million copies. The contents of those comics left a great deal to be desired, however, and the speculators who had been purchasing mass quantities of the first Image issues quickly began to realize that they had bought into yet another false promise. Valiant then became the "investment" of choice, but Shooter's departure soon left that company without any editorial leadership, and it, too, soon saw collapsing sales.
I mention these historic events because they establish the context for the eventual collapse (13 years later...) of my California comics retailing adventure. The store that I opened in Anaheim to house The Good Guys actually started off incredibly well, with not a single day's gross being under $3,000 for the first 90 days that the store was open. When the comics industry collapse began, however, our sales began to plummet. When we were forced out of our wonderful location by the I-5 freeway, sales fell even further. Then there were staff difficulties, theft, and the overall general mismanagement that results from trying to run an operation 1,000 miles from the main company. Surprisingly, however, I don't think that any of those factors were fatal to our efforts. After having an 18 months since the closure to contemplate why our beautiful store in Anaheim/Garden Grove failed, I have to lay the blame squarely on my own failure to react to a clear and present danger. Understanding that one factor is critically important, as it has immense implications for our future.
The opportunity that I missed in California is that I did not react properly to a phenomena called "Frank & Sons." When we opened in Anaheim "Frank's" had only been open for a short while. Frank's is a former moving and storage warehouse, located about 15 miles east of Anaheim, that has been converted into approximately 250 retail stalls. Similar antique/collectible malls are open all over the country, but to the best of my knowledge Frank's is the only one devoted exclusively to cards, comics, and toys. The rent at Frank's is incredibly inexpensive, at about $65 per week for a 10 X 10 booth, and the amount of time vendors have to devote to selling at Frank's is extremely limited, as it is only open on Wednesday evenings, and Saturdays. This is a perfect arrangement for someone, who wants to be a collectibles dealer, but who is a student, or working a full-time job. Assuming no labor costs, the break-even point for a Frank's dealer is negligible. That has turned the place into a seething snakepit of vicious discounting. It was not at all unusual for us to go to Frank's on a Saturday and buy the new comics released on the previous Wednesday at 40%-50% off of retail price. Brand new card boxes could be purchased at $2-$5 over cost. Toys and statues were also available at just tiny percentages over Diamond wholesale cost.
Because prices at Frank's were so low, our strategy was that we used the place as a restocking warehouse. We'd order what we thought we needed for any given week from Diamond, and then go to Frank's on Saturday mornings to replace anything that sold out. That system worked really well for us for a couple of years, as we were able to keep darn near everything we needed for our customers in stock, with a minimal outlay of working capital. A disturbing trend began to occur around 1995, however, as we began to see more and more of our customers at Frank's on Saturday mornings. I held several staff meetings in the California store to brainstorm about what we could do about this erosion in our customer base, but our end decision was that we could not afford to react. Our reasoning was that we still had an excellent base of customers who were willing to pay us to make the trek to Frank's for them (on the notoriously crowded freeways), and that the dollars that we would receive from the customers who had left us were insignificant compared to the huge margin cuts that we would be forced to implement to bring our pricing anywhere near that of the vendors at Frank's. Besides, with Frank's so darn far away from our store, we concluded that the number of our customers who would drift away from us would eventually slow to a trickle.
Boy howdy, were we ever wrong, wrong, and even more wrong. By ignoring the competitive challenge from the Frank's weasels, we let them bleed us to death. Rather than slowing down, the erosion of our customer base actually accelerated during the late-1990's. Toward the end, instead of needing to go to Frank's to restock, we eventually found ourselves swimming in unsold merchandise as more and more of our best customers left us, in favor of shopping at Frank's. While some of our sales decline I can blame on the aforementioned overall comics industry considerations, and even more on our own internal management failures, but the fact remains that we put exceptional effort into trying to revive the California store, completely to no avail. In the meantime, we used those same techniques to revitalize our Colorado stores, with excellent results. Upon considering the how's and why's, I came to realize that Frank's was the one factor that California had to face, that the Colorado stores did not.
Having reached the realization that Frank's was the problem, my next question is how we could possibly have competed with a competitor that sells at darn near cost, and who has practically no overhead? In the case of our California store, I now believe that we could never have won that battle. While our first two California store locations were quite nice, once we lost both of them to imminent domain, we were forced into a building that was large, but ugly. That denied us the one positive factor that we had over Frank's warehouse atmosphere. Even with our original very nice store locations, however, I think that we would have still been doomed. From the moment that Frank's opened, there was a kill zone around the place in which no independent card or comics shops survived. It took nearly a decade for that kill zone to broaden to the point where it encompassed our store, but it was going to get there eventually, regardless of our best efforts. After all, with rent of $7,000 per month, we needed to generate huge sales volume just to cover that one immense cost. Then throw in staffing, insurance, taxes, utilities, health insurance, etc. and it becomes clear that there was simply no possible way that we could survive. As word of mouth about Frank's spread through our customer base, the financial noose that was strangling the store tightened steadily, until by early 2001, our California enterprise was effectively dead. I kept it open for another couple of years out of sheer stubbornness, and threw quite a bit more money into the pot trying to revive the place, only to eventually lose my entire investment.
The reason why this history is so important is that it is now repeating itself on a worldwide basis. Those of you who are regular readers of this column may recall that I have strongly advocated in the past that all comics retailers establish an Internet sales presence. That has now come to pass with a vengeance, both through individual websites, and via aggregation sites such as eBay, Amazon, and Yahoo. As a rough guess, I would estimate that there are now well over 10,000 unique comics retailers selling online. I keep track of these things, and I can tell you that the number of online comics retailers has increased by about 100% since just this time last year, and that phenomenal growth shows no signs of abating. Of even greater importance is that many of these comics retailers are based in environments of no overhead, such as basements and garages. They pay no rent, no labor costs, no utilities, and in many cases, no taxes. As a result, they can price their books with margins as low as the Frank's sellers, and sometimes-even lower. That being the case, it should come as no surprise that prices on all elements of comics collecting are in total; free fall right now. Those lowered prices are an incredible boon for comics collectors and readers (unless you're trying to sell a back issue collection...), but an unmitigated disaster for long time comics retailers. Especially those with high fixed overhead, such as my company, Mile High Comics.
To now get to the point of this entire column, the bitter lesson that I learned from my mistake in California is to not ever concede my market share to anyone. That being the case, by the time this column is published, I will have completed the largest reworking of our pricing structure in the entire history of Mile High Comics, dropping at least 75% of our prices by a minimum 30%, with some prices dropping by as much as 80%! While I certainly can't match the idiocy of selling comics for a penny (but charging a fortune for shipping...) that some online comics sellers have adopted, I do believe that we can steadily squeeze our overhead costs down during the next year, and then be able to pass those cost savings on to our customers in the form of radically lower back issue prices. Those reduced prices, combined with our incredible selection, should provide our existing clients with plenty of positive incentive to keep purchasing from us, and should also keep us growing vigorously as even more comics fans make us their supplier of choice. It may even turn out that the new business that we gain from these dramatic price reductions will add enough operating earnings to offset entirely the margin reductions entailed by the price reductions. Whatever the case, after 36 years in the comics business, I think that I am well prepared to guide my company through the radical changes entailed by this new disinflationary comics environment. Especially after learning in California that doing nothing is sometimes the worst thing that you can do.
In closing, if you are an existing comics retailer, I hope that you take heed of the fact that the Internet is going to have a major impact on you over the next 12 months. No one is immune. The same is true for comics collectors and readers. You should see a lowering of prices in many areas of collecting. Because everyone is going to be cutting costs, however, many of the services and amenities that you've come to expect may well disappear. In reality, the same fundamental changes will probably take place in every single retail marketplace, regardless of the products being sold. The promise of the Internet to increase market efficiencies is now coming to fruition with a vengeance. The changes this will bring about are going to be quite radical, however, and may very well have implications that none of us have yet anticipated. All I can say is hold on tight, because this next year is going to be one heck of a wild ride!
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