I Both Respect and Loath Wal-Mart

I received an e-mail from Bob Conway last evening about my column of two weeks ago. Bob is one of my best friends, having been the my fellow co-founder of the Colorado Springs Comic Book Club, waaay back when we were both sophomores in high school. Bob picked up on the statistic that I gave out in that previous column, in which I revealed that our net earnings for last year (after tax) were a little less than 2 cents on the dollar of gross sales. Bob was incredulous that our operating margin was so low, as during his part-time forays into selling non-sports cards, he reported that he was typically able to achieve net margins of about 13%-15%.

Well, Bob is quite right in his assessment that an owner-operater can generate double-digit margins when operating a collectibles business. The problem you run into, however, is that the overall gross volume is frequently too low. Even with higher margins, the actual total return is too small to justify the continued existence of the business. That lack of sufficient gross volume is one of the primary factors that has caused so many comics retail shops to close over the past decade. Their gross margins were good, but their overall sales were insufficient to cover their costs, plus provide a positive rate of return on invested capital.

Returning to my column of two weeks ago, I also mentioned in that essay that I based our business model at Mile High Comics on a premium-priced, high service oriented business in Boulder, Colorado, called McGuckin's hardware. In another e-mail I received on that column, the writer begged the question of why I didn't instead base our operating philosophy on Wal-Mart, and emulate their "Lowest Price, Always!" marketing plan. That's a darn good question. In point of fact, I both respect and loath Wal-Mart. I respect their astounding efficiency, and their fantastic success at applying technologic innovations to improve their business. Sam Walton was the first major retailer to adopt barcoding, and it allowed him to leave the rest of the general retailing world in the dust. Give the man credit for being an incredibly smart and hardworking entrepreneur.

The elements of Wal-Mart that I loath are their dismal pay scales for their staff, their incredibly brutal negotiating tactics that they inflict upon their suppliers, and their ready willingness to censor any books or music that they (in their infinite wisdom...) deem "unacceptable." I also find myself enraged by their predatory pricing tactics, which I believe are clearly designed to drive out of business the service-oriented small businesses that I believe make America great. Simply put, I see Wal-Mart as a cancer that is destroying much of what is good about America.

All that having been said, I could easily implement Wal-Mart's business tactics. Our pay scales for our staff at Mile High Comics are, I believe, the best in the comics retailing world. If you've been with us for a year, $10 per hour is our minimum wage for full-time staff members. Managers make salaries that are comparable, or exceed, what they could make in the "real world." Plus paid vacations and medical benefits. That's one of the primary reasons why our net earnings are only a couple of pennies on the dollar. If I were so inclined, I could cut our staff's salaries dramatically, replace any staff that left with relative ease in this depressed economy, and put a whole lot more money in my pocket. I could also use those cost savings to dramatically cut our prices, and to "go for the throats" of all of our online competitors. The resulting price war would be (in the short term) great for consumers, but I would probably drive a great many good people out of the comics business in the process.

While many of you might initially cheer such a move on my part, I believe that consumers would ultimately be savaged by any price war I might inflict upon the business. Think back to my last column, in which I praised Bob Overstreet for keeping the prices for back issue comics rising at a steady 8%-10% per year for the past three decades. Bob, more than any other person, has helped solidify the values of scarce collectible comics. Consider for a moment, however, what would happen if I used our almost instant ability to reach 250,000 online consumers to spark a massive back issue comics price war. With 10 million back issue comics already in my war chest, I think I could keep dropping prices (and using our massive cash flow to restock cheaply from dying competitors...) until a sickening disinflationary price cycle hit the entire back issue comics business. I believe that even Bob Overstreet wouldn't be able to ignore that kind of downward price pressure, and would ultimately either have to either hold prices static for a year, or perhaps even lower them. I believe that a decline in Overstreet prices might well be catastrophic to the perceived values of collectible comics. In effect, emulating Wal-Mart would be a great methodology for me to get rich very quickly, but might well also create near total devastation in the back issue comics market as a result.

To be continued...

Mile High Comics, Inc.
Attn: Chuck Rozanski
2151 W. 56th Ave.
Denver, CO 80221