Stock Options Part Two

Sorry, no post yesterday, this is a long one and its got a lot of math. Part two today, part three tomorrow or Monday.

We left off last time discussing the legwork that may be necessary to carry certain products, namely Understanding Comics. Immediately surrounding it on Amazon’s sales list are In Cold Blood and Lolita two solid backlist titles for the chain bookstores, which means a direct market store should be able to sell the heck out of this book.

So, how to get it on our shelves? The same way Amazon and Barnes & Noble do: buy it from a wholesaler. Now, this is dicey territory because wholesale book suppliers, like Ingram and Baker & Taylor, are only going to give a retailer 40% discount off of the retail price of the book versus the 45% to 50+% it is possible to get from Diamond and Cold Cut. What this requires of retailers is to apply all of that “free time” to analyzing which supplier is the best to actually purchase the product from. Each retailer has to determine that for their own individual circumstances but I’ll walk you through my own thoughts on this.

As I mentioned at the beginning of the previous Stock Options post, there are two primary factors, availability and cost, in determining which supplier to use with a delicate balance of the two being the determining factor. First, availability trumps cost when a title is available from only one supplier. Since it’s been so useful thus far, let’s return to Understanding Comics. Diversity of material is goal number one at MacGuffin and as such we subscribe to the mile wide, inch deep philosophy of retail. There was, therefore, zero chance that we would not carry Understanding Comics if it was at all possible to do so. Availability trumped price and we ordered it through Ingram, at a 40% discount.

Let’s assume for a minute, though, that as a result of an improbable temporal singularity, Diamond, Cold Cut and Ingram all had this title available at the same time. Availability is not necessarily equal at this point because, while all three can ship in stock items almost immediately, cost becomes an element of availability. But first, let’s look at simple discount as the primary cost factor in this decision.

Any store’s discount from Diamond is primarily based on monthly pre-orders. For a much better, more detailed breakdown of this, check out Brian Hibbs excellent Tilting at Windmills column on the subject. Go ahead, I’ll be here when you get back.

Ready?

Okay, in general, MacGuffin gets a 50% discount on everything we order from DC, Image and Dark Horse, regardless of when we order. We’re still young so Marvel is nice enough to give us 53% on everything we order. We get a 50% discount on items from several other publishers if the order is placed with our regular Previews preorder (due 2 months before books ship). This is an incredibly inefficient way to manage inventory, however, because it virtually guarantees a title that has just sold will be off the shelves for several weeks at a minimum. Therefore we reorder with our weekly shipments, limiting our time without said title to roughly a week and a half. To do this, however, we’re penalized 3% by Diamond (Marvel, DC, Image and Dark Horse absorb this cost for us, hence the any time part). For most other publishers, however, particularly the bigger “independents” like Fantagraphics and Drawn & Quarterly, our initial discount it limited to 45% or 40% with another 3% deducted from reorders.

Here’s where Cold Cut and Ingram get our business. Understanding Comics is published by HarperCollins and would come at a 37% discount from Diamond (as a reorder), realistically a 45% discount from Cold Cut (I’ll break down their discount system in part 3), and a 40% discount from Ingram. With a cover price of $22.95 that’s $14.46 from Diamond, $12.62 from Cold Cut and $13.77 from Ingram. Unless Diamond is the only option, we will never order this title from them. Now Cold Cut would be cheapest, but shipping costs are a factor. Ingram offers free freight for orders of 50 items or more while Cold Cut offers a 90% rebate on shipping for orders over $2000. So the one thing that can tip this order in Ingram’s favor is free freight, but only if we’re ordering 50 titles, which is not (at least yet) feasible on a weekly basis. This is the only area where Diamond wins, because we have a shipment coming from them every week regardless and adding one or two extra titles is not going to affect the shipping cost (20 or 30 titles on the other hand, probably means another box and additional cost).

Basically the way it breaks down is this-
Marvel, DC, Dark Horse & Image:
If available from Diamond you’ll get the best price there

A few select other publishers who offer a 50% base discount from Diamond:
If available from Diamond you’ll get the best price there

Fantagraphics, Drawn & Quarterly & everyone else:
Cold Cut is option number one, but only if providing a 50% discount and several items can be ordered at the same time to save on shipping; otherwise Ingram is the best bet.

There’s one final element that occasionally makes Ingram a better, though potentially controversial, bet and that’s returnability. Sounds perfect for those fringe titles: doesn’t sell, just send it back right? Not exactly.

Up Next: The math of the market