Wednesday, October 6, 2010

Thanks for the compliment, now buy something!

I know some of you appreciate me telling you when I have a particularly wonkish entry, so this one is mostly about business.

So how is it that I've managed to create the store I like, and yet have it perform so lacklusterly sometimes? How can I have a store that so many people find intriguing enough to compliment me, and yet have so few of the same people buying from me?

I think it's because we're off the beaten track, out of the mainstream. The same thing that intrigues everyone and so interests me, is the same thing that most people aren't interested enough to buy.

Because if it was product that was in the mainstream, they could find it at the mass market outlets. (Comics sell to a very small percentage of the population -- but that's why I'm the only guy selling them.)

The reason I sell the "out of the mainstream" material, is because it's the only material that is left in the marketplace that I can realistically sell. It's what the market has given me.

If it was just price, I think I could compete. I could get within shouting distance of the mass market prices, and make up for it with service, selection, convenience and knowledge. But pricing isn't it.

It's a much bigger fabric of intertwining advantages that the manufacturers have given to the mass market. Most people don't even seem aware of this. They think it's all about volume discounting and more efficiency and the bigger size. They think that independents haven't been able to compete, and thus don't deserve to survive.

But it isn't a level playing field. Not even close.

I repeat, it isn't about the price.

The only way I know to explain this, is to use a couple of products as examples.

People come into my store all the time looking for Marvel toys. You'd think Spider-man and Hulk and Daredevil and Wolverine toys would be a natural fit, right? I carry Marvel comics, and I carry toys.

So here's the problem. One, admittedly, is price. I'm paying about the same price that the mass market sells the same toy. But, as I said, I could compete if that's all it was. I'd accept a smaller margin and be within acceptable range. Say, sell a toy a chain store has for 5.99 for 7.99. A couple dollars difference.

But....I know from experience that I'm likely to get that case of toys two to three months AFTER it's already shown up in the mainstream marketplace.

Secondly, every case of toys has twelve figures. I have no choice as to what figures I get, or what quantities. There may be 6 figures available, overall, but I may get 1 each of 3 of them, 3 each of 3 of them of them, and none of two of them. At random. (In the last case of Lord of the Rings toys, I got 6 Gollum toys, which no one wanted at the time.)

Now if I'm a mass market store, if I get 10 cases those numbers might even out. Me? I can afford one case, maybe two.

But actually, for the mass market it doesn't matter how uneven the distribution. Because at the end of the selling period, they are either given a credit for unsold toys, which they can then blow out for a further profit, or they send them back.

So....assuming I've accepted the smaller profit margin, I need to sell about 9 or 10 out of the 12 figures in every case just to break even.

As I said, the toys come in randomly and vary from series to series, but a good rule of thumb is that out of every case, 3 toys are sure sellers, 3 toys are probable sellers, 3 toys are possible sellers, and 3 toys are real dogs which will take years to sell if they ever do.

As I said above, it doesn't matter to the chain stores -- they put all the toys out for the same price, so Spider-man costs the same as the Taskmaster toy.

What ends up happening, of course, is the Spider-man and Hulk and Daredevil toys sell instantly, and the rest become what is known in the trade as "Shelf-Huggers."

The mass marketers just apply the credit for the unsold toys to the next wave of toys, which they get in three months before me, and I'm still sitting on the last batch of shelf-huggers.

I have figured out only one way to fight this -- charge more for the better figures. So now, the price differential is 5.99 versus 14.99, or something. And even that only brings me to a break-even situation. And makes us look bad.

The only toy line I carry that I'm willing to do this with, are Star Wars toys. I get a case of 12 toys in, and there is one Yoda in there, or a Boba Fett. I put it on the wall for 19.99. Six months later, the toy can't be found anywhere, and someone may actually buy the toy from me.

And yet, I probably still have three or four toys left out of that case, and even selling Bobba Fett and Yoda for 19.99, I probaby have only broken even. So I look bad, breaking even. I do it for Star Wars, because love Star Wars and because people accept that five years after the toy came out, it might cost more.

Even if I am successful at selling all the toys, it's still less than half the margin I get on most of my product, and I'm probably better off using the cash, space, time and energy selling other stuff.

I'm not even talking about the shipping, credit terms, and other advantages the mass market has.

But even all the above would be something I think I could compete with, at least some of the time, except for one thing -- Exclusives.

Exclusives come in two flavors. One is, a unique item only offered to that outlet. And secondly, unique packaging only offered to that outlet.

Packaging is important. If I have a box that looks exactly like a box in a chain store but which costs 5 times more money, which do you think Grandma is going to buy? She's not going to look to see that there is only 20% of the packs.

Or that I have to pay 5 times as much, for the privilege of carrying a the minimum amount.

The best example of exclusivity I have is an old one, back when Fleer was first selling basketball cards. They had packs that you could buy at the mass market that had "exclusive" Rookie Sensations. For the hobby, we had the "exclusive" Foreign Stars.

So you could buy from a grocery store, a Rookie Sensation Kobe Bryant, or you could buy from me, a Foreign Star Detlef Schremf. You can imagine how that worked out.

A really good example of both advantageous packaging and exclusivity is when Marvel -- probably my biggest supplier of material -- created Marvel Masterworks in two editions.

These were the original Spider-man, Hulk, Daredevil, etc. silver age comics everyone remembers. The comic store version was hardcover and 49.99. The softcover version was 14.99 -- and available only through Barnes and Noble. Nice.

This kind of thing isn't 'competition' unless you think bringing a knife to a gunfight is competition.

Packaging and exclusives are almost always in the favor of the chain stores. Even if they weren't, their sheer volume ends up making those the items people are looking to complete.

Not coincidentally, both of the above examples are products that generally don't have a printed Suggested Retail Price -- which means the mass market can price less and I can price more -- and it's acceptable either way.

Much harder -- if not impossible -- to carry anything above the SRP. Books and comics have suggested SRP, and that's what I sell them for. People may understand they can buy them cheaper from Costco, but they aren't usually outraged that you're selling them for regular price.

You just don't sell them much.

So that's the direction I've been moving into. Carrying mainstream product as regular price and hoping I can make enough to make it work. Because of my location, I've needed to move as close to the mainstream interests as I can get, and that has been books and boardgames.

At the same time, keeping the specialty product than no one else carries.

I think this is going to be the model for specialty stores in the future -- independents are going to need to compete both at the mainstream level, and at the same time look for niches that they can exploit.

It's a very fine line between popular and uncompetitive, and obscure and uninterested.


RDC said...


You are missing a key point. The mass media buys are usually leading manufacturer production planning. That is why they get the terms that they do. It is not a case of manufacturers producing and then mass market just placing orders that happen to get filled first. Mass market often drives the decision if a production run is done at all. For hot items, they then lock up the complete production runs. Only after those are satisfied do you get uncommitted production which is what small stores have access to.

If the mass market companies did not commit to pre-production buys then most likely the production runs would not occur at all. Build it and they will come is NOT the approach of manufacturers today.

Duncan McGeary said...


I'll agree tot that.

We small stores are an afterthought.

Duncan McGeary said...

"Mass market often drives the decision if a production run is done at all."

Yes, but not all product starts at mass production level interests. In fact, I'd submit that most truly innovative product doesn't start at the level.

It often takes small stores to generated the original interest, to build it until it gets big enough.

Sports cards were almost ignored for a good 5 or 6 years, before they moved in masse to the chain stores.

I'd also submit, that a good deal of the sustainability of interest in a product comes from small stores.

Both the chain stores and the internet are relatively sterile as generators and sustainers of product interest.

I know I'll get an argument from the internet folk, but I'll think for a Real, Live product it still needs actually physical presence, with Real, Live people to SUSTAIN longterm interest.

I'm guessing we'll all find that out the hard way -- that content producers can't just throw it all on the internet and keep longterm interest.

Music, books, games, etc.

Maybe I'm wrong. Maybe the internet will be enough.

But again, I'll go back to sports cards. Without brick and mortar stores who were actively buying and trading cards, and -- hell, just talking and displaying and interacting with people -- the hobby declined to basically nothing...

Anonymous said...

"The mass media buys are usually leading manufacturer production planning"

Over time there's been a shift in power from the manufacturers to the retailers. The emergence of big box chain retailers has changed everything -- now it's all about "slotting allowances" that manufacturers have to pay to get their product featured.


I'd also say that while Duncan has an awesome store, the fact that sales are mediocre is just a sign of the times:

Read these headlines at
"All That's Left Of The "American Consumer" Is The Richest 20%"

"The Recent Collapse In Consumer Growth Has Been WORSE Than The Great Recession"

RDC said...

Yes, for those things that mass market doesn't carry mass market does not drive production. However, once it is on the mass market radar screen production ramps up dramatically and then mass market drives the production.

RDC said...

The hobby declined to nothing because over supply killed it off. As with many things, first there is interest (at a reasonable volume), then the interest attracts attention and you get a bubble in both consumers and suppliers. Once that happens the "uniqueness" that drove the initial interest goes away and it collapses. Happened to baseball cards and beany babies as well. Baseball cards started as something largely for kids, then it became a collectors hobby, then it became flooded. Now it is pretty much back where it started with the general population of kids being less interested. However for all of its collapse I wouls suspect that todays sales are probably similar in per capita sales numbers to what they were in 1970 (back before the big hobby boom, before you really had card stores and most were purchased in the mass market of the day, super markets). In other words it has returned to its real sustainable level of business.

Best way to kill off a hobby - over supply.