Steve Geppi's Diamond Comic Distributors

At the end of last week's column, I promised that I would describe the means and methods by which Steve Geppi's Diamond Comic Distributors eventually gained total control over the distribution of new comics within the comics specialty market. Any discussion of that topic needs to begin with the efficiency, or lack thereof, of moving freight. Distribution is not rocket science. You receive bulk shipments of product from the publishers, and you then deliver in some fashion the individual orders you've received from your customers. In between you have to deal with the usual business issues of advertising, logistics, paperwork, etc., but the fundamental effort is one of delivering products to your customers.

As I tried to emphasize last week, distribution of any mass consumer good is a function of economies of scale. As a general rule, the more product you're shipping, the less it costs per unit. In trucking, this is most clearly defined by the difference in cost between shipping Less-Than-Truckload (LTL), or by full trailer. When I am out at conventions these days buying bulk back issues, I most frequently ship entire trailers. As a case in point, at last year's April Atlanta show I had a "Pup" trailer (a shorter version of the typical 45'-53' trailer) parked in a loading dock at the convention over the weekend. As we purchased long whites of comics from the dealers at the show we were able to use the trailer as an on site storage facility, which then doubled as our shipping container. The total capacity of the 28' "Pup" trailer was 24,000 lbs. Given my shipping cost of $1,600, that works out to about 7 cents per pound.

That great rate only works out, however, if the truck is fully loaded. I actually ended up losing money on that particular trucking deal, as the April Atlanta show was sparsely attended by dealers, so I was only able to purchase about 200 long whites. Due to my huge volume of outgoing packages I provide to UPS in Denver, I have a special backshipment rate with them (for boxes I ship to myself) that would have allowed me to ship the 200 long whites at considerably less than the $1,600 freight charge. For anyone without that special UPS deal, however, the full truck, even only partially loaded, would still have been a better deal than shipping LTL. I haven't checked rates lately, but the last time I did an LTL, a shrinkwrapped pallet containing 40 long whites cost about $400 to ship from Atlanta to Denver. Since 200 long whites end up being 5 full pallets, the LTL cost of my shipment would have been about $2,000. Paying the full cost of the "Pup" trailer saved me at least $400 over the cost of sending the five pallets LTL, even though the "Pup" was more than half empty.

Understanding just how enormous the cost savings are for full truckloads makes it much easier to grasp why the jostling for customers among the 18 or 19 Direct Market distributors who emerged after Marvel opened up their terms in 1979 eventually became so nasty. The large distributors sending partial truckloads of comics each week into the densely populated portions of America could essentially ship any additional freight they could capture in their dedicated trailers for free. At the same time, the smaller distributors were forced to pay crippling LTL rates for the couple of pallets they received each week. Until you managed to grow from the point of LTL to having your own dedicated trailer, you gained absolutely no cost advantage from additional orders. Simplifying this concept, this meant that if a large distributor lured a customer from a smaller distributor, they usually accrued no additional freight cost. If a small distributor won a new customer, however, their freight charges immediately rose by an exactly proportional price per pound. In a business with thin margins, this cost differential proved to be a key to the big guys ultimately wiping out most of the smaller regional distributors.

An interesting sidebar to freight costs is the issue of freight rebates. Under the 1979 Marvel terms of sale to distributors, Marvel paid the cost of delivery from the printing plant in Sparta to each of the individual distributor warehouses. Under this original scenario the differential between full truckloads and LTL had no impact, as Marvel paid all the freight bills. Starting in about 1983 (if my memory serves correctly...), however, Marvel began offering distributors the option of taking a set weekly payment based on estimates of what it would cost Marvel to ship freight. They could then utilize this rebate to move their own freight in whatever fashion they chose.

It was this decision by Marvel that allowed the larger distributors to start self-shipping. Steve Geppi, in particular, gained sufficient funding from the freight rebates that he was actually able to set up his own truck line! Diamond Trucking is a hidden jewel in the Geppi empire that was entirely funded in the beginning by the freight rebate program. By controlling his own trucks, Steve was not only able to gain huge cost savings over his smaller rivals, but was also able to cleverly route his trucks so that they cut many hours off the delivery time to each of his warehouses. That meant that his warehouse teams also gained precious time in which to unload, sort, and package shipments for their customers. These were critical competitive advantages.

My particular bitterness about the entire freight rebate program is that the origins of this delightful boon for the larger distributors were very cloudy. Nanette was just informed one day that she now had the option of shipping her own Marvel freight, and here was the formula that Marvel had worked out for her particular shipments. She asked at the time what the rates were for the other distributors, and was told that was proprietary information, and couldn't be revealed to us. I don't know how you would feel in a similar situation, but that made us both very apprehensive, and very angry. By giving out unspecified freight payments, Marvel put themselves in the position of no longer being able to prove that they still had a level playing field among their distributors. The degree of that competitive differential is unknown to this day, but clearly played a significant role in the later consolidation of the distribution system. In my opinion, I absolutely don't believe that the Marvel freight rebates impeded in any way Steve Geppi's plans for eventually taking over 100% of the distribution of comics into the Direct Market.

To be continued...

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