Rocket Bomber - article - retail - commentary - Rethinking the Box: Numbers

Brian Hibbs comments on the last column :

For a “big 4” publisher (Marvel, DC, Dark Horse, and Image), buying “onesie” quantities of backlist restock (and that’s how 90% of it is going to turn), a mature comics shop is likely to be receiving a fifteen percent better discount buying non-returnably.

That’s a, what?, 27% better profit margin?

If there’s a modern generalist bookstore working on a margin of more than, say, five percent (and I suspect that is VERY generous), I’ll be surprised.

I believe that unless you are at a certain margin of returns (Like if you’re making boxfulls of returns every single week), returns are a horrifically inefficient system of doing business: you’re spending inbound and outbound shipping, and employee man-hours to paperwork, pick, and pack something you’ve generated ZERO income on. Twice. Plus you’ve lost the opportunity cost of that cash.

Jinkies!

…and he had another point that I’d like to speak to, but let’s start with numbers.

From the Retail Owners Institute posted benchmarks for bookstores:

The gross margin on books is 40%. That is to say, for every dollar of a book sold, the store can pocket 40 cents.

Average turnover is 3 to 3.5 — as explained on their site turnover is how often your inventory is (theoretically) sold through and replaced. It’s a ratio of sales (in dollars) to inventory (in dollars) so it doesn’t mean that every book sells 3 copies, just that if your standing inventory (books on shelves) costs, say, $1000 then most book stores will sell $3000 to $3500 worth of books over the course of a year. It’s not like an investment of $1000 automatically triples, though;

Let me phrase it another way: If you have room for 1000 manga in your store, and the turnover ratio on manga is 3.6, then you sell on average 300 manga a month — which you then have to reorder to replace. (Reorders that will cost additional money). Turnover is not so much an indication of sales, rather it shows how well inventory performs. Knowing this ratio, particularly if you break it down by category, can help an owner in determining how much shelf space and floor footprint to allocate to each chunk of her business.

Let’s go back to that margin: 40%. You might think that sounds good. Maybe it is, I’m not sure. I looked at some other retail types on the ROI site and it seems to be average. But 40 cents out of the dollar is the gross profit, and we need to start paying bills out of that.

Sure, the book is paid for when you make the sale; that was the other 60 cents. Rent, payroll, power to keep the lights on and run the register, set-asides for maintenance and upkeep, interest on debts… not much is going to be left. In fact, the ROI lists the average profits at a scant 1% — in an OK year, that is, the last couple of years have been very rough and they cite numbers for 2007 and 2008 at only .4%.

Less than half a penny for every dollar in sales. And that’s before taxes so the take-home is going to be even less.

The good news is that all those ha’pennies are profits — Rent’s paid, the lights are on, your employees can afford the fancy ramen in the styrofoam cup — so even very thin margins are good, so long as you don’t have a mountain of debt you were hoping to pay off.

Borders, for example.

1% (or less, these past years) is an industry average. B&N and Books-a-million both reported profits for 2008 that were higher than that (1.8 and 2.1 percent of sales, respectively) and they made money even though sales were down by about 5% for the year.

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Thanks to the Retail Owners Institute and their fine site, I was able to share some of my knowledge of the financials of the book trade without sharing proprietary information (which I’m sure my corporate overlords would frown upon).

Brian posits: “I believe that unless you are at a certain margin of returns (Like if you’re making boxfulls of returns every single week), returns are a horrifically inefficient system of doing business:”

Let me reveal a little bit of proprietary information: Yes, we’re at a certain margin. It’s a pretty big fraction. (Not half, or even a third, but bigger than a breadbox.) Yes, we process boxfulls every single week. And yes, as much as I like the idea of not having to pay the publisher for stuff that doesn’t sell, returns are in fact a horrifically inefficient system.

There are options: one could (if you’re a big chain with a lot of buying clout) negotiate a deal where instead of shipping the book back, you mark it down by 50% (below your margin) so long as the publisher agrees to share some of the pain — I take a hit, you take a hit, but the book stays in my store and maybe even sells at that price. It’s kind of like getting that extra 15% discount, only negotiated after the fact.

And this does happen — but on such a small percentage of titles that it’s almost not worth mentioning.

Other options:

• more risk taken by the retailers, buying on a non-returnable basis.
• Print-on-demand and Print-on-premises publishing models (the Espresso Book Machine has been around for a few years and may be one answer, or one type of answer)
• A much larger emphasis on customer pre-orders and a longer lead time on books — Market books months in advance, encourage readers to go to the store and reserve a copy, so that demand is known even before the book goes to press. (Kinda like what Marvel and DC do through Diamond) (It’s a legitimate model)
• stocking fewer books and forcing (‘force’ is such an awful verb but it fits) your customers to special order less popular, slower moving titles. The drawback here is there is no guarantee they’ll order it from you. They might just go home and order it from Amazon. If fact, they often tell me exactly that right before they walk away from the customer service desk.
• do nothing and hope the old, creaky system doesn’t kill off the publishers.

There might be ways to sugar-coat some of these to make them more palatable to the customer base — we need to move away from that term “special order” I think, come up with some more bland, ordinary, routine word so the customer doesn’t feel so put out by the process. (Ironically, it’s not an inconvenience at all — it’s both a convenience and a service to the customer to provide a book he wants, within a week, so long as the book is one of millions of available titles still in print. Millions. What did you people do 15 years ago? or even 10 years ago? It’s a freakin’ miracle and yet you act like it’s such a chore to give me your name — it can even be a fake name, we don’t check — and wait a week or less for a book that you want to buy and I want to sell to you.)

To Hibbs’ other point, responding to my assertion “The current Local Comic Shop sells dust, nostalgia, and good will. And the occasional graphic novel. And the same 5 recurring titles to the same dozen people every Wednesday.”:

“Your” local shop, maybe. But not “the”.
More importantly: stores like that ARE NOT EVEN WORTH DISCUSSING. While it is just barely possible that they are the numeric majority of comic book stores, they are, as a total, certainly the overwhelming minority of SALES in the Direct Market. The 80/20 rule applies in comics as much as anything: 80% of your sales are going to come from 20% of your outlets.
I’d much rather we focus the discussion on what Hanley’s or Chicago Comics or Earth-2 or Lone Star or Laughing Ogre or any of the hundreds of store I could type out who have/are making the transition from wholly-periodically-delivered to something much closer to a “bookstore” model, and, in fact, did that years ago as the market shifted. Economic Darwinism will take care of the “bad” stores soon enough.

It could be that the shift I propose in the column (away from periodicals to a graphic-novel-only store) is one that is already taking place, or that took place, and I was too busy working in my bookstore to notice it.

Fair enough.

The last time this sort of thing made the rounds, folks came down on both sides with anecdotal stories about comic shops both good and bad. And it was unfair of me to generalize. Let me just say that my comments are intended to spur those stuck in the 50s (or the speculator’s boom of the 90s) to come to terms with present-day realities. If there aren’t any comic shops like that left, well, that’s a good thing.