Restructuring Diamond Discounts
Two big and directly related stories in the world of comic retail that I haven't seen much mention of recently.
First, DC has announced that as of their August solicitations (i.e. the Previews that arrives on Wednesday) they will be implementing an FOC (Final Order Cut-off) system similar to the one that Marvel has been using for several years now. This is a big step in the right direction in terms of helping retailers since it makes all DC comic orders fully adjustable up until 3 weeks before release (approx. 4-5 weeks for trades and graphic novels). The obvious benefit here is the opportunity for retailers to be more nimble in adjusting to sales trends, rather than ordering 2-3 months before an issue hits shelves, allowing for much better planning and resource management. Marvel's FOC helped us avoid selling out of the Halo GN on its first day of release. We'd had no pre-orders or interest expressed when initial orders were due at the end of May so we ordered a few copies for the shelf, but over the next few weeks interest built to the point that it has outsold everything but Eternals, Civil War and its tie ins this week. Of course, DC already allowed retailers to increase order up until 4 weeks prior to release, but the ability to decrease orders has allowed us to adjust to 52 leveling off at a level below what we were hoping for.
The more important of the two stories, though, is the impact this change will have on discounts, both for DC and for Diamond in general. There's an obvious loophole created when retailers are allowed to adjust their initial orders after discounts are set by ordering ridiculously high numbers and then cutting them via FOC while keeping the higher discount. Marvel adjusted their discounts by working on a rolling average of all orders over the previous 12 months, making for a much more static discount (a benefit of which being that fewer retailers are tempted to order more product to hit a new discount level, almost always a mistake). Since we employ a just in time inventory strategy (wherein we stock a low level of a very diverse array of graphic novels and replace each title as it sells), the best part about this rolling average for MacGuffin is that it includes reorders rather than just initial orders. Between 1/3 and 1/2 of our monthly purchases are reorders and at present only those from Marvel count towards any sort of discount.
That changes with DC once they institute their new discount structure (particularly important since close to 1/4 of our weekly reorders tends to be Vertigo titles). Remove DC and Marvel from discount calculations, though, and Diamond is a much tighter spot. They have to develop a new set of discount tiers that is revenue neutral for them but equitable to retailers. Of course, we don't really have much alternative but to accept whatever we're given. If DC's discount becomes completely independent of Diamond's discount (as Marvel's already is), though, Diamond would be relying on many fewer exclusive publishers to set each retailers standard discount (for example we order over half of our non-Marvel and DC graphic novels from other distributors). Details are still being released (I haven't been able to track down a press release yet and Diamond's site is being a bit wonky today), but Diamond has indicated that it will be freezing current discounts based on a 6 month average and developing a system that takes into account all product ordered rather than simply initial orders. Likely we'll see everything at Diamond employing the same rolling average discount that Marvel has been using.
There are certain to be more details and analysis to come out in the near future and I'll be back to post my thoughts on those as they hit.
First, DC has announced that as of their August solicitations (i.e. the Previews that arrives on Wednesday) they will be implementing an FOC (Final Order Cut-off) system similar to the one that Marvel has been using for several years now. This is a big step in the right direction in terms of helping retailers since it makes all DC comic orders fully adjustable up until 3 weeks before release (approx. 4-5 weeks for trades and graphic novels). The obvious benefit here is the opportunity for retailers to be more nimble in adjusting to sales trends, rather than ordering 2-3 months before an issue hits shelves, allowing for much better planning and resource management. Marvel's FOC helped us avoid selling out of the Halo GN on its first day of release. We'd had no pre-orders or interest expressed when initial orders were due at the end of May so we ordered a few copies for the shelf, but over the next few weeks interest built to the point that it has outsold everything but Eternals, Civil War and its tie ins this week. Of course, DC already allowed retailers to increase order up until 4 weeks prior to release, but the ability to decrease orders has allowed us to adjust to 52 leveling off at a level below what we were hoping for.
The more important of the two stories, though, is the impact this change will have on discounts, both for DC and for Diamond in general. There's an obvious loophole created when retailers are allowed to adjust their initial orders after discounts are set by ordering ridiculously high numbers and then cutting them via FOC while keeping the higher discount. Marvel adjusted their discounts by working on a rolling average of all orders over the previous 12 months, making for a much more static discount (a benefit of which being that fewer retailers are tempted to order more product to hit a new discount level, almost always a mistake). Since we employ a just in time inventory strategy (wherein we stock a low level of a very diverse array of graphic novels and replace each title as it sells), the best part about this rolling average for MacGuffin is that it includes reorders rather than just initial orders. Between 1/3 and 1/2 of our monthly purchases are reorders and at present only those from Marvel count towards any sort of discount.
That changes with DC once they institute their new discount structure (particularly important since close to 1/4 of our weekly reorders tends to be Vertigo titles). Remove DC and Marvel from discount calculations, though, and Diamond is a much tighter spot. They have to develop a new set of discount tiers that is revenue neutral for them but equitable to retailers. Of course, we don't really have much alternative but to accept whatever we're given. If DC's discount becomes completely independent of Diamond's discount (as Marvel's already is), though, Diamond would be relying on many fewer exclusive publishers to set each retailers standard discount (for example we order over half of our non-Marvel and DC graphic novels from other distributors). Details are still being released (I haven't been able to track down a press release yet and Diamond's site is being a bit wonky today), but Diamond has indicated that it will be freezing current discounts based on a 6 month average and developing a system that takes into account all product ordered rather than simply initial orders. Likely we'll see everything at Diamond employing the same rolling average discount that Marvel has been using.
There are certain to be more details and analysis to come out in the near future and I'll be back to post my thoughts on those as they hit.
posted by Sam Hobart at 1:23 PM
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