Evolution of the Direct Market Part III

While the distribution system Phil Seuling devised to deliver new comics directly to comics shops during the early 1970's was both innovative and highly efficient, it had some very significant flaws. The first was that Phil demanded up front payment with any order submitted. This was a dreadful hardship on many stores, as they were typically undercapitalized, and could not well stand the burden of having their new comics dollars tied up for a minimum of two months ahead of shipment. Making this matter even worse, many comics shipped late during the 1970's. I rememeber distinctly paying for one Uncanny X-Men annual in February (shipping in May) only to have it ship in November, six months late. That was a lot of money I could have used in my business that was tied up due to Phil's policies.

While late shipping books were a huge drain on cash flow, books that were canceled were an absolute nightmare. While Seagate Distributing did a pretty good job of shipping orders for items that were printed on time, they had no effective methodology for crediting customers for items that were solicited, but never shipped. As a result, retailers were forced to fend for themselves in trying to figure out what they were owed. One large California dealer, who was good friends with Phil, solved this problem by taking a vacation each year in New York. He stayed at Phil's house in the Seagate ( a gated community at the tip of Coney Island), and spent his days in the Brooklyn warehouse/offices auditing his account. He then spent the missing credits he discovered during the audit on material in the warehouse basement, frequently on choice items that Phil didn't even know he owned.

If it seems odd that Phil had great material that he'd lost, consider the fact that his up front payment requirement was an absolute cash flow dream. He was getting at least 60 day billing from his publishers (probably 90 days...), while his accounts were forced to pay up front by a minimum of 60 days. As a result, Phil had between 120 days-180 days of "float" on every dollar sent to him for books. This was in addition to the fact that his operating margin on his wholesale sales was a nice fat 33%. While those two factors were great, rapid growth in the Direct Market was the real key to Seagate's success. As I explained in last week's column, Phil's system allowed most comics shops a one-week advantage in delivery over newsstands service by traditional wholesalers (ID's). This advantage allowed most comics shops to quickly attract in comics readers and collectors from a wide area. This success on the part of his retailers translated into progressively larger sales for Seagate, as well as a steady increase in up front payments. Phil utilized the cash he had available from this massive "float" to purchase huge quantites of books, magazines, and posters, which he then wholesaled back to the very accounts who had provided him the cash. Is it any wonder that Phil had no idea what lurked in the unmarked cases in Seagate's warehouse basement? In reality, he didn't need to know, as his cash flow was growing so quickly that it more than compensated for the inefficiencies of his warehouse staff.

Another problem with Phil's system was that he made no attempt to provide advance information on upcoming titles. Today's retailers and fans are incredibly spoiled with knowledge about upcoming projects. Between Diamond Previews, fanzines, and the Internet most comics projects are well analyzed before they are ever solicited. During the mid-1970's all we got was a one-page order form from Seagate that listed titles, issue numbers, cover prices, and projected shipping dates. That was it. No plot information, no creators, zilch. We had to order totally on the basis of past sales on given titles (or related titles...), which I've always considered akin to driving a car by looking our the rear window. Utilizing that technique you have a reasonably good idea of where you've been, but only a very vague concept of where you're going. When a title turned out to be bad, retailers took it on the chin. But Phil still made his profit, and he still had our cash to play with for many months. This was a situation that was ripe for a revolution, and in the end, Phil unwittingly set the stage for his own downfall.

To be continued...

Mile High Comics, Inc.
Attn: Chuck Rozanski
2151 W. 56th Ave.
Denver, CO 80221