Evolution of the Direct Market Part IV

Once Phil Seuling's new distribution system to comics shops got rolling, it quickly helped comics shops take over new comics sales in whatever region that they were based. In the early years (1973-1976), however, there were very few "real" comics shops, so the impact on overall comics sales were minimal. I doubt, in fact, that there were even 100 stores that were primarily comics shops during the mid-1970's. Most stores that sold comics had some other business (such as used books) as their main business, with comics adding only incrementally to their overall sales.

One bit of historic background that must be remembered during this discussion is that the comics industry was in dire straits during the period of the middle 1970's. As I mentioned in one of my earlier columns on this subject, the unsold copies being reported to comics publishers by the traditional Independent Wholesalers (ID's) who put comics on to newsstands were becoming a huge drain on cash flow. With printing and paper costs rising precipitously, sales declining, and large numbers of traditional outlets for comics permanently closing their doors, the future of the comics industry looked quite bleak. The publishers responded to declining sales by raising cover prices, but this had the effect of simply decreasing overall unit sales even further.

It was during this period that I was struggling to keep my four Mile High Comics retail locations open. I can personally attest to the fact that the Seagate distribution system kept me from failing during that era. This is somewhat ironic, as I was not buying through Phil. I was instead working with the ID wholesaler who controlled the Boulder, Colorado region. This man, Emil Clausen, liked me very much, and made me an incredible deal. When I told him about the onerous Seagate prepay policy he sold me my new comics at Phil's same 40% discount, but then also gave me 30 day billing! This meant that I could avoid having my cash flow squeezed by having my money tied up endlessly with Phil. In reality, the exact opposite was true, as Emil gave me such generous credit that I was frequently getting 120 days to pay my bills. He also gave me the comics one full week before he put them out for sale in his other accounts, including his own huge newsstand! Without a doubt, Emil did more to help me in the beginning than any one other person. I will be eternally in his debt.

In the end, however, I had to switch from Emil over to Seagate. I learned in late 1977, or early 1978, that Seagate had started setting up regional subdistributors. These subdistributors were buying from Seagate at a massive 50% discount ( the same discount that ID's like Emil received from the national wholesalers). I don't know all of the reasons why Phil decided to set up these subdistributors, but I image that part of the reason was simply to cut down on his own paperwork. Another good reason to have subdistributors was that Phil's minimum order requirement per issue was five copies. There were a great many shops who simply couldn't justify ordering five copies of many smaller titles. By shipping to one large account in a region, and then allowing that account a 10% better discount, Phil encouraged the creation of a localized distribution system that could deal with selling comics in increments smaller than five copies.

The reality of the sub-distribution system is that Phil ran it like a monarchy. He was the Overlord, and every one of his subdistributors swore allegiance to him. Some subdistributors were large retailers in the beginning, but as distribution became more profitable as a result of the inexorable growth in the number of comics stores, it became common for them to gradually switch their focus entirely over to distribution.

The situation in Denver was that there were five comics stores (aside from my four) that were all being serviced by the dealer who controlled what was then the largest comics store in Denver. This gentleman was very good friends with Phil, at least in part because they were both of Italian heritage. When I learned that Phil had elevated him to subdistributors status, and that he was now buying his new books at a 10% better discount from cover price than I was from Emil (which works out to about 18% less net cost than I was paying at 40% off) I was very, very concerned. That kind of price advantage for another company in a competitive situation can be ruinous to your future. You work just as hard as your competitor, but they earn 18% more on each dollar sold? Not a good scenario... The irony of the situation was that my four stores actually sold just about the same amount of new comics as all the other stores in Denver, combined. Phil wasn't getting my business, however, because Emil was giving me such a sweetheart deal.

When I finally figured out Phil's subdistribution plan, I asked Emil what I should do. He told me that there was no way that he could match a 50% discount, since that was the same discount he received (but with return privileges). He told me that the extra 10% of margin was well worth fighting for, and encouraged me to work out a deal with Phil. That was far easier said than done, however, as Phil's initial response was a flat out refusal to make me a subdistributors. He told me that he already had one subdistributors in Denver, and that was all he needed, even if my purchasing volume were the same (or greater...) as the other guy's.

Needless to say, that cavalier response irked me more than a little bit. I was only 23 years old at the time, but I had just finished taking a great number of business and finance classes at the University of Colorado, including one on the evolution of anti-trust regulations. This background in anti-trust law prompted me to seek out the advice of one of the largest law firms in the Denver region. I wanted to see if there was something I could do in order to compel Phil to sell to me as a subdistributors. Their answer was that I had a good case, but that it would take $50,000, and up to ten years of litigation, to settle the case in my favor unless I could get the Justice Department to intervene on my behalf.

Since I had no desire to waste $50,000 of my money (and $50,000 of Phil's money), in such ridiculous litigation, I decided that I would try a diplomatic solution. I called up a person I knew who was friends with Phil, and told him exactly what the attorneys had told me. I then explained that I was still mulling over what to do, but that it seemed insane to me that so much time and money should be wasted to resolve such a simple issue. While I didn't exactly ask this man to call Phil, I made it clear that I needed Seagate to work with me, or that I would have no choice but to meet with the attorneys again.

The very next day, I received a call from Joni Levas, Phil's girlfriend of the time and partner in Seagate Distributing. She told me that Phil had reconsidered my request, and had changed his mind. Effective with the very next month, I was to become a Seagate subdistributors!

To be continued...

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