Rocket Bomber - article - retail - commentary - Rethinking the Box: 7th Grade Algebra

Rethinking the Box is a collection of ruminations on retail: a unique combination of sober (and sobering) business analysis mixed with drunken, inflammatory personal invective.

Previously:
Study your History. Recognise your Motives. Know your Customer Base, and your Staff. Find your Niche. Consider your Product Lines, take a second look at What the Customers Want, and then stare again in dismay at the Profit Margins.

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And I’ve a new slogan to introduce this week:

Rocketbomber.com: We combine retail with Math!
Because no one else Dares!
[that, and we have beer. The beer really helps.]

This post is a consideration of inventory, turn ratios, and affordable rents. [yeah, I know: click here to Skip the Math and get to the Punch]

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In 2007, rent for a Fifth Ave. Flagship Store would have been $1035/sq. ft. Obviously there are spaces available for less — and that was 2 years ago when the economy was in much better shape — so we’ll take this as the upper limit.

Almost always, I see rent (for retail) expressed as a dollar figure per square foot. Which is handy, I suppose, for realtors — excuse me, that’s Realtors™ — who have no other frame of reference when it comes to retail since they are focused first on their commission, secondly on sales, and perhaps only fifthly on the simple math, that when applied to the price offered to the customer (a leasee in this case) will earn them said commission. I’d complain, but real estate is a combination of magic, marketing, and chutzpah and when it comes down to it, I have no basis from which to complain. All Hail the Mystic and Learned Realtors™. …now let’s get back to rent.

One must negotiate a lease, and it’ll have a dollar figure in it, and odds are good that figure is based on, or actually denominated as, rent-per-square-foot.

Since both you and I know these facts (you now know it because I just introduced you to the concept) and since we’re looking to open a bookstore (because this is my blog) then we can take a look at some basics of the business, apply some math, and figure out how swanky of a street address we can afford.

SO, let’s set it up as a series of word problems.
[yeah. If the title wasn’t a big honking clue: warning, math ahead]

First, consider the ‘umble bookcase:

For most of the rest of the article, I’m assuming this hypothetical bookcase: five shelves, three feet wide, and a shade over five feet tall. We can build ‘em wider, certainly, and taller easily, but this is a good base model (and starting point) to consider.

Say you want to open a graphic novel bookstore. Just throwing it out there; you can do your own math if you want a different product line.

Manga volumes average three-quarters of an inch, such that we can fit at least 16 volumes on a linear foot of shelving — and also average ~$10 each (at least they did last year, everyone is raising prices) — and a 96-page ($15) graphic novel will run somewhere in the neighborhood of a third of an inch [thinner — but also in full colour; it costs more to print] so that’s 36 to a shelf-foot.

Some graphic novels are even thinner than a third of an inch; more like a quarter. We’ll take it at 36 to a linear foot for the math below — but keep in mind that they might pack denser.

We’ll also assume a 50-50 product mix. I haven’t done the research to see just what the ratio would be, but 50-50 sounds good for now.

If one considers the retail footprint

a single bookcase takes up a footprint of 15 sq.ft., contains 15 linear feet of shelving (interesting… it’s almost like the person setting up this math problem selected a bookcase design that would match…) and with a product mix of half-manga-half-mainstream-GNs that’s

7.5 feet x 16 vols per ft x $10 a volume, plus
7.5 feet x 36 vols per ft x $15 a volume

so a bookcase holds $5250 worth of merchandise. This is a bookcase (at 5’) that is almost certainly shorter than you are. Most of us would, um, aim a little higher (if I can be forgiven the pun) but $5000 a bookcase is a good starting point.

Before I complicate things:

15 sq.ft. of carpet, 15 linear feet of shelves, and $5250 in books:
If we turned this one bookcase over once (‘turn’: a retail term for sales; that is to say, if we turn it once, we’re selling a $1 worth of books for every $1 of inventory on the shelf — and with our margin of 40% that’d be gross income of $2625.)

One 3-foot wide bookcase, on average selling one book once each year for every volume stocked, $2600. With no other expenses: gross annual income / 12 months per year / square retail footage

= a possible rent of $14 per square foot. Not a downtown address, but we can find a space for this.

—

The thing is, a bookshelf doesn’t sit all by it’s lonesome in the middle of the floor. To make the best use of space, we tend to cram them against the walls — or if there aren’t enough walls — we’ll install them back to back to form stacks, and aisles.

If we take the same model bookshelf, and combine 8 of them in a logical fashion,

we get 120 linear feet of shelving in 120sq.ft. of retail with plenty of room to walk around. According to the ADA we’ll need enough room to navigate a wheelchair around these displays, but we can still pack things a tad more densely…

In this crude approximation (which excludes exterior-wall-mounting of bookshelves, which is vastly more efficient) (and easy to add on later) we multiply our shelf-feet-to-sq.ft.-density by a factor of 1.5 over a baseline consideration of the 1-bookcase-to-15sq.ft. initial assumption. Plenty of room about and around each set of shelves, too, and this is a floorplan that scales-up very nicely: from 128 to 512 to 1024 sq.ft. — on up to 25,000 sq.ft. — or double that.

So let’s consider this book-store-chunk:

[Pop Quiz!]
You’ve a 1500 sq.ft. bookstore with 1024 sq.ft. of retail space as indicated in the diagram above. Your store contains 96 bookcases, each with 5 shelves and each 3 feet wide. You are currently stocking a mix of half graphic novels, and half manga. Manga averages .75 inches a volume but turns at a rate of 3 volumes a year. Graphic novels pack more densly, .33 inches a volume, but only turn at a rate of 2 volumes a year. You can currently buy stock at a 40% discount on the cover price. Given the data as stated above, assuming a price point of $10 per manga and $15 for other GNs, and assuming you’ve no other expenses or income, What monthly rent can you afford?
[/quiz; show your work]

12in / .75 inches per volume = 16 manga volumes per linear foot

12in / .33 inches per volume = 36 mainstream GNs per linear foot

single bookcase = 5 shelves x 3 feet = 15 linear feet

48 bookcases x 15 ln.ft = 720 shelf feet for each product line.

Manga contribution to sales:

16 vols/ln.ft. x 720 ln.ft. x $10/vol x 3 sales per volume, per year x a profit margin of .4 =

$138,240.

GN contribution to sales:

36 vols/ln.ft. x 720 ln.ft. x $15/vol x 2 sales per volume, per year x a profit margin of .4 =

$311,040

Total Gross Annual Income of $449,280; or a average monthly income of $37,440.

And let’s consider: while we have a sales space of 1024 sq.ft. (which might point to a possible lease at $36 a square foot) the problem above stipulates the whole store is 1500 sq.ft. (and you need to pay rent even on the bathrooms) so maybe, maybe we could afford $24 or even $25 a square foot.

We can’t afford a Manhattan storefront yet. We probably can’t afford a downtown-anywhere location to be honest. But $20-$24/sq.ft. can buy some decent looking retail space, and in a pretty good location out in the suburbs, out by the mall.

[reality check]
Part B. while considering the same floor layout, stock mix, and other assumptions above: consider a turn rate of .25, that is, only $.25 in annual sales for every dollar in inventory. Now what’s your maximum rent?
[/this is going to hurt]

((720 × 16 × 10) + (720 × 36 × 15)) x .25 sales per volume, per year x a profit margin of .4 =

Gross Annual Income of $50,400, a monthly take of $4200, and an affordable rent of $2.80 a sq.ft. We’re talking warehouse space, out by the docks and downwind of the tanners & meat packers. Or a better location where one is also going out of business.

Our worst-case scenario shows us going out of business (that or being the best-kept secret out in the Blight, known to only a few willing to embrace the unique joys of Urban Renewal Districts — and only able to operate while the rest of the neighborhood is crap, because as soon as things pick up we won’t be able to afford the new rents) and our best case relies on luck, close-to-impossible sales, pre-existing lottery winnings, or some other factor not considered up to this point.

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The Bookcase is the driving engine of the bookstore business.

The bookcase presented in the above thought-problem is a tad small, actually. One could easily find 6-shelf bookcases that aren’t that much taller — the same space outlined above, with that extra shelf, adds 288 extra linear feet (the equalent of close to 20 extra bookcases) without changing a damn thing. One could add bookcases along exterior walls — 10 each on the 32’ walls of the model, for another 20 or 30 bookcases, easy.

Adding a shelf per case, and bookcases along 3 walls, and suddenly you’ve added close to 60% more shelves (2268 ln.ft. over the previous 1440 ln.ft.) without substantially changing a thing. And now for that same 1500sq.ft. we’re in the range of $4—which really is the worst case, and if we’re in this range we might as well install floor-to-ceiling bookcases and skirt the very edge of ADA-compliance, say, 3750 on up to 4000 shelf feet; or go full on indy-slash-Shakespeare-&-Co., cram a bookcase onto any and all vertical surfaces, and some horizontal ones, buy any and all books one can get one’s hands on, and throw cerebral math out the window—

or, still relying on the above mathematical model, with our 1500sq.ft. storefront with an actually-conservative 2268 ln.ft. of shelving, if we can get it to perform like a BigBoxBookstore we might be able to afford an oh-my-gods-I’m-Dreaming upper limit of $35 or $40 per square foot

$40 a sq.ft. won’t buy us downtown space in Manhattan — in Minneapolis, sure; and $40 would be downtown-or-landmark-worthy space in a lot of urban areas.

In this case, it’s not about the books. …necessarily.

To work up to that $40 mark (and while the question I’ve asked is “What rent, that is to say, how nice a place can we can afford?” we can easily reverse it and ask “If I want a ‘landmark’ store, How Do I Afford It?”)

so:

• What are you stocking, and how can you sell it?
• What are your other profit centers?
• (If you haven’t considered alternate profit centers, you should probably forget downtown and start shopping spaces in the warehouse district)
• What’s your niche? What are you offering that Wal-mart isn’t?
• ‘Books’ ain’t a niche: What are you offering that Borders, Books-a-Million, and Barnes & Noble aren’t?
• What can you offer that Amazon isn’t already stocking — shipping within 24 hours, tax free and without shipping charges for orders over 25 bucks?

• If you’re stocking comics, then why not open a comic shop? This is a proven model, the difference between a ‘bookstore’ and a ‘comic shop’ (or between a newsstand and a comic shop) is largely semantic, and a matter of public perception — that and a business relationship with Diamond Comic Distributors.

The Local Comic Shop is a proven model. We don’t need to reinvent the wheel.

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I don’t want a comic shop. I want a large-scale, landmark, graphic novel bookstore. A Bookstore. There are many, many differences. A comic shop might fit comfortably in one corner on the monstrosity I’m envisioning — if we bothered to back-stock comics. In comments, here and there, at least one person has noted that my dream of a Graphic Novel Bookstore already exists. He points out that it’s called a ‘comic shop’ and that a GN-only bookstore should best be referred to as ‘a shitty comic book shop’ — his wording, not mine.

Since I sell books for a living (a $25 Billion dollar industry, I’d like to point out, as opposed to just $160 Million for comic shops — and citing that same source (John Miller @ ComiChron), book stores sold $215 Million in graphic novels over the same time period — $50MM over and above the direct market, and book stores don’t usually sell floppies; and those that do can’t claim the Wednesday crowds.) I feel bookstores are a much better business model.

One could argue that there’s no need to re-invent the wheel — unless the differences we’re considering are like the difference between a wheel and a tank’s continuous track — or between a wheel and the skirt of a hovercraft.

There’s always another way to cross the same old ground.

$50 Million in sales over and above the ‘comic shops’, just in Graphic Novels. And I’ve salt for this wound:

In past columns I’ve estimated there are 1500 or so book ‘superstores’, the big box stores run by the likes of Borders and B&N; from the Diamond PR Boilerplate,

DIAMOND COMIC DISTRIBUTORS, INC. — the world’s largest distributor of English-language comic books and related merchandise — is based in Timonium, MD, with strategically located Distribution Centers servicing more than 4,000 specialty retailers worldwide.

— and at this point I’ll ask the readers to consider the Graphic Novel selection available at their local bookstore: 4 whole bookcases? 6? 10? … 2? —

And even so, the ‘bookstores’ are selling more comics. In a recent column, I also cited this source estimating there are 11,000 bookstores — I might say, a mere 11,000 — that constitute the $17 Billion Dollar Book Retail Market

If you asked me if I wanted to run a glorified-newsstand-and-collectables-shop or a bookstore — I’m picking bookstore. Let me rephrase that, with the math: If you asked me if I wanted to run one of 4000 outlets in a $160 million dollar niche of the publishing industry [established, well defined, but still only a niche and averaging $40,000 gross annual sales per outlet] or to take a chance in the wider bookstore business — even considering the Big Box majors have wrapped up 75% of the market and I might have 10,000 competitors in the book biz:

¼ of $17B / 10,000 = $425,000.

The potential of books (trade paperbacks, graphic novels, something more than 32 page pamphlets is what I’m sayin’) is easily 10 times the comic ‘book’ market.

And I hope I’m not comparing apples to oranges: I already took into account that 75% of the market was dominated by the top 1000 bookstores. The remainder, that 10,000, have to scrap and scrape for the rest. It’s just a much bigger pie to begin with.

In my stated goal of opening a graphic novel bookstore, am I limiting myself? Yes.

But not so much as if I insisted on calling it (and running it like) a comic shop. By selling books, I open the product mix to comic strip collections, art collections, art technique manuals, graphic novels of all stripes; if I wanted to, and with established relationships with major book distributors, I could carry sci-fi and fantasy, RPG manuals and RPG novels, game theory and web programming… any sort of book carried by any one of a dozen major book distributors, half of which are also major book publishers.

There’s no need to think of “the big two” or even “the big two, Dark Horse, and Image” or “DC, Marvel, DH, Image, Viz, & Tokyopop” as the be-all-and-end-all of my product mix. If it’s a comic, out there, somewhere, and I have to order the Sterling reprints of Orion Comics for the American market to have Asterix comics on the shelf, then as a bookstore dealing with book publishers, I’m hardwired to deal with that. And a bookstore doesn’t have to ignore Diamond; hell, I could dedicate one whole wall of the bookstore, 8-10 bookcases, [144-180 ln.ft.; 18-20 face-out featured titles] to new comics every Wednesday. It’d be a mere fraction of my total sales space: the only question is if it would pay for itself. If the comics don’t make business sense, then like my customer base, I can just wait for the trade paperback. The big difference is treating comics like magazines: After a month or two, if unsold, they go in the trash.

They Go In The Trash.

They’re just a magazine; ephemeral content, with ads, that will eventually show up in a collected edition [without ads] later. Why polybag and cherish this sort of periodical, especially when the content presented is almost guaranteed to be re-published in a more durable, better presentation later?

Hm?

Business, and Math.

It may be a shitty comic book store, Mr. Metafilter Commentor, but I see more potential, and more of a future, in a Graphic Novel Bookstore than in chasing the Diamond Dragon.