Buying A Comic Store

[1407graymalkin]

I recently started exploring the possibility of buying a comics and collectibles store in the New York-New England corridor and wanted to reach out to some of the professionals on these boards to get their perspectives on a few things:

 

1. Value - What is considered a fair value for this type of business and how is that value determined? My sense is that some multiple of cash flow or value of the inventory is the best way to approach it.

 

2. Financial Performance - What kind of profit margins are typical for a comic book store that does annual gross sales in the range of $200,000? What do sole-proprietor shops pull in versus those managed by W-2 employees?

 

3. Due Diligence - Aside from standard business due diligence (i.e., review of contracts, leases, financial records, inventory, furniture and fixtures, etc.), what kinds of things should I look at that are specific to the comic and collectibles business?

 

Needless to say, any input from the experts on this board, particularly those in the trade, would be very helpful. Thanks in advance for your consideration.

[joe_collector]

Want to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

[the blob]

I'm no store owner, but I do know that people get burned ALL THE TIME buying retail stores based on alleged "gross sales" or "cash flow" because the sellers usually cook the books. I know a guy who shut down his comic shop to buy such a business and he essentially wiped out his life savings because the cash flow figures were bogus. he lives in his mother's basement right now.

 

i know two other guys who had shops (that had been around for a long time in decent locations) who had to run out on their leases.

 

Fact is, the comic shop is worth what you think the inventory is worth (from a wholesale perspective), the fixtures, and if it has a good, assignable, lease, whether that's lower than FMV for the property. "good will", etc. has some value, but I would not attribute too much to it in an industry where about 75-80% of the shops have gone under in the last 10 years. If the lease is just FMV, I'd assign no value to the good will because you will be buying an obligation (and the seller will be getting out from under one).

 

Personally, I would not believe anything you're told.

 

I'd also consult an attorney about whether it makes sense to buy the business (get the name, customer lists, etc.), or simply buy the inventory and fixtures and work out a new lease. If you buy the business, you may find yourself on the hook for their old debts (any sales agreement will say the seller is obligated, but what if he goes bankrupt or skips town? you're on the hook.) Like what if he hasn't been withholding sales tax for the last 5 years? A lawsuit appears out of nowhere? State laws differ on how you'd need to structure this (and nobody here should be relied on for this specific sort of legal advice).

 

Anyway, good luck. I fantasized about this myself, perhaps doing a law office next to a comic shop in one of those towns near the Mass/NY border that have gotten "hot" as of late. getting out of the big city rat race.

[Stromm]

What to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

I'll second That!

 

[Aces]

What to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

I'll second That!

 

 

Some free advice...

 

Don't buy someone else's headache!

[jbud73]

Want to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

 

Classic JC.

 

[PedigreeMan]

Want to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

 

Classic JC.

 

 

Don't encourage him.

[Stromm]

You'll have a choice between having a Life or running the store, you won't have both. Unless you want that for a life. Of course you could get lucky and marry the help, then you would have Comics, Sex, Work and Bills. what more could you want!

and YES, I left money out. Because people selling you books want you to pay half guide, and customers wanting to buy your books only want to pay half guide.

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[Sharkey]

Hey Gray,

 

Just curious: what is your background? Do you have experience running a retail business? Do you have a solid knowledge of how the comic book direct market and distribution channels work? What the percent discount is for comics shops (ie, based on quantity, etc) and thus, based on the store's traffic, what will your discount be? Does the store have a strong customer base with regulars on a pull list? If so, how many? How about future growth? Is the market in the vicinity of the store conducive to new customers or not (aging demographic vs young families, etc)? Do you plan to focus only on comics or other areas of collectibles and related stuff (ie, comics, toys, gaming, etc).

 

I could go on. Bottom line is there is much more to running a shop than just the bottom line for the past 3 years or the potential foot traffic. No, I have not owned one, but a very good friend did for years. When he sold his shop I considered buying it. But after doing some serious digging and deciding whether I really wanted to make that my bread and butter I decided against it, for a number of reasons.

 

Having done comic shows since the 1980s, I also know a LOT of people who opened or bought comic stores thinking it would be a fun way to make a living. Many of them ended up losing their shirts, shorts, and bunion pads.

 

I also know a lot of successful shop owners. But it's hard work, and it takes a lot of savvy both in business, promotion, and understanding of the collectibles marketplace.

 

So think long and hard about it. If you decide to pursue it, good luck!!

[PedigreeMan]

Good time to open a comic book store? thread from 12/03.

[jbud73]

Want to know how to put $1 million dollars in your pocket?

 

Start with $10 million and buy a comic shop.

 

Classic JC.

 

 

Don't encourage him.

 

C'mon Alan that was funny. On a more productive note I purchased a few more MH2's. I'm compiling quite a nice pile of COA kindling and be sure to alert you when the bonfire occurs. One way or another the MH2 pedigree injustice will be corrected.

[comicworm]

Want some advise:

 

 

you are better off starting small and selling items and collectibles on eBay and the internet. There are way too many expenses associated with a traditional brick and mortar store. Think of it this way: on eBay you have access to an unlimited number of buyers (and increased competion, mind you) but you also have low overhead

 

If you store is located in an area with 50,000-150,000 people, ask yourself, how many of those individuals collect and buy comics?

 

Think about it! I am not against buying a store, but consider the costs and make sure you have at least enough operating capital to last three years or more...

 

another thing, if this last statement makes little sense to you, don't even consider going into business for yourself....

 

just some friendly advice....

[BassGMan]

Go read the "I Miss Lighthouse" thread from a day or two ago and you will find a nice little debate between Lighthouse and I about whether to open a comic shop or not.

[shadroch]

If having enough operating capital to last three years was a pre-requisite of opening any bsiness,very few would get started.A comic shop will need well in excess of $100,000 in operating expenses.I've yet to meet anyone in NY that opened a store with $300,000 in his pocket. And I was a founding member of the NY/NJ Comic Retailers Association.

I've investigated getting back into the biz by buying an existing store but have not found one that was worth anywhere near what the sellers were looking to get.If I get back in,it will be in a new operation.

Best of luck, whichever you way you go.

[shadroch]

One more thing- remember that in this day and age,the idea is to sell thru everything.Inventory is inventory because it hasn't sold.With the exceptions of Very HG Golden,Silver or Bronze books,don't pay more than pennies on the dollar for any other merchandise in the stor. Remember-as a store owner you'll be able to pick and choose your purchases at wholesale from your distributors. If the owner knew how to order,he wouldn't have much leftover inventory.

[1407graymalkin]

I appreciate the advice that people have posted so far. There has certainly been some solid input as well as some healthy skepticism. I suspect that the skepticism is born of the challenging realities of this industry.

 

My goal is to find an existing comics and collectibles store that has a solid market position, positive cash flow and limited competition. Ideally, the store will have an owner/operator that will be willing to stay on as an employee to run the business and help pursue new opportunities that can be enabled with additional capital.

 

In addition to the feedback that people have been kind enough to post so far, I'm really curious to know what kind of profitability is standard for retail stores in this business. Is anyone willing to share that information or point me in the right direction?

[lighthouse]

I certainly don't know every successful comic shop owner in the country, but I know plenty of them. And the first thing that came to mind when I read your post is that I don't know a single one who bought a comic shop outright that didn't fit one of these two categories:

 

1) They bought a shop that was a direct competitor in order to increase their local market share.

 

2) They bought a shop they were already connected with for some time (such as an employee buying the store they worked in from the previous owner).

 

Plenty of successful store owners have bought out competitors for market share. And I know of several great stores run by people who bought out the owner of a store they were working in. But the idea of someone buying a shop they were not connected with as their first store? I don't know of a single example I could point to and say it has worked in the past.

 

Buying someone else's store really only makes sense if you are adding it to your own chain (and removing the competition in the process), or the store was already "yours" as far as the customers were concerned.

 

It is possible for that situation to work out for someone. But I honestly can't imagine a situation where it would work out better than just opening a shop on your own. The kind of person who is likely to succeed with buying someone else's store is probably just as likely to succeed with opening a store cold, and going it alone is the safer choice.

 

That said...

 

On the question of valuation...

 

Unless you are dealing with someone you would trust with a bag of uncounted money, assume that the comic inventory is worth 2.5 cents per book for all books priced under $20, and between 5-15% of sticker for books priced over $20. Value the fixtures at around $1 per pound if made of glass (such as display showcases) and 25 cents per pound if made of wood or metal. Doesn't really matter if you are talking about tables or counters or coloring book racks, that rule of thumb is about right. Figure light-up signage at $25 a square foot if you plan to keep it (worthless if it is name specific and you plan to change the name).

 

It's very easy for a prospective seller to fudge their cash flow records, as you would expect. A simple way to see through that is to look at their last 6 months of orders from their distributors (Diamond, Bulldog, GW, UD, WOC, etc...) The store has sales to support that level of ordering and you can backtrack from those numbers to get legitimate sales expectations. Yes, a collectibles shop also buys off the street (and probably under the table), but those patterns will change with your new ownership so I wouldn't include them at all.

 

Hardest thing to value is the customer base. We found out last week that a cable subscriber was "worth" $4400, not bad for someone likely spending around $60 a month on product. Cable subscribers are more stable than comic subscribers of course. But I think you can legitimately value the active subscriber list at a typical comic shop at around $250 each, assuming you are taking over the existing location and don't plan huge changes to the product lines offered.

 

If you are taking over the existing business's distributor accounts, there may be value to the credit terms. Net 7 Terms from Diamond are probably worth around $2K. Net 14 Terms around $5K. And Net 21 Terms around $10K. If your own FICO score is 800+ there will only be value to you for the first six months, since Diamond's typical policy is to start new accounts at Check COD and give an initial credit review at 6 months for an upgrade in terms.

 

It is highly unlikely that there will be any value to a comic shop's lease. Very few shops have leases long enough for a premium to emerge. When you are renegotiating every 3 years, you're paying FMV every time.

 

What kind of profit margins are typical for a comic book store that does annual gross sales in the range of $200,000? What do sole-proprietor shops pull in versus those managed by W-2 employees?

 

There isn't any difference between what a sole-proprietor shop pulls in versus one managed by W-2 employees. What you have to remember is that if you plan to work in the shop you own, you have two revenue streams from that shop. One is your distribution of the profits, the other is your salary for working there. If your expertise justifies a $50K a year salary, your store will pull in the same sales as if you hired someone who justifies a $50K a year salary... Too many people who go into business for themselves forget that there is a substantial opportunity cost in running a business, and you can only legitimately define your business's profits if you are being paid the salary commensurate with your own performance.

 

If you are looking at buying a shop as an investment with the idea that someone else will run it for you, don't. You would almost certainly do your portfolio better by calling Monex and buying gold...

 

If you are looking at buying a shop as a career change with the idea of running it yourself, you would nearly always be better off just opening a store on your own. There IS one exception I can think of... If you really wanted to own a shop in a particular town of say 50,000-75,000 people, and there is one and only one shop in that town, it might make sense to buy out the existing store (with an ironclad non-compete agreement of course) rather than opening a competitor. But with that exception, you would nearly always be better just opening one on your own...

 

As for whether it makes sense for you to buy a store, no one knows that but you. There is a lot to be said for following a dream, and there is a lot to be said for doing what you truly love. But before embarking on a career as a comic shop owner, I would suggest going out and buying 8-10 books on retailing and read them all. As odd as it may sound, Retailing for Dummies is a good place to start, especially since much of the book tries to talk you out of doing it in the first place. Anyone who can be talked out of opening a retail store didn't belong opening one in the first place... There are currently 35 books on retailing and store design on my shelf, and I still buy new ones about every other month... Comic Shop Retail is more about Retail than it is about Comics, and shop owners that don't recognize there go out of business very quickly...

 

 

 

This has been another post by lighthouse... winner of the 2003 award for Most Informative Poster on the CGC Boards... and leading contender for the 2004 award for Forum Drama Queen...

 

We now return you to our regularly scheduled programming... Ian Mahinmi

[FFB]

I'm no store owner, but I do know that people get burned ALL THE TIME buying retail stores based on alleged "gross sales" or "cash flow" because the sellers usually cook the books. I know a guy who shut down his comic shop to buy such a business and he essentially wiped out his life savings because the cash flow figures were bogus. he lives in his mother's basement right now.

 

i know two other guys who had shops (that had been around for a long time in decent locations) who had to run out on their leases.

 

Fact is, the comic shop is worth what you think the inventory is worth (from a wholesale perspective), the fixtures, and if it has a good, assignable, lease, whether that's lower than FMV for the property. "good will", etc. has some value, but I would not attribute too much to it in an industry where about 75-80% of the shops have gone under in the last 10 years. If the lease is just FMV, I'd assign no value to the good will because you will be buying an obligation (and the seller will be getting out from under one).

 

Personally, I would not believe anything you're told.

 

I'd also consult an attorney about whether it makes sense to buy the business (get the name, customer lists, etc.), or simply buy the inventory and fixtures and work out a new lease. If you buy the business, you may find yourself on the hook for their old debts (any sales agreement will say the seller is obligated, but what if he goes bankrupt or skips town? you're on the hook.) Like what if he hasn't been withholding sales tax for the last 5 years? A lawsuit appears out of nowhere? State laws differ on how you'd need to structure this (and nobody here should be relied on for this specific sort of legal advice).

 

Anyway, good luck. I fantasized about this myself, perhaps doing a law office next to a comic shop in one of those towns near the Mass/NY border that have gotten "hot" as of late. getting out of the big city rat race.

 

Solid advice all around! I particularly agree with the asset purchase structure as opposed to an outright purchase of the business for the very reason blob states.

[lighthouse]

In addition to the feedback that people have been kind enough to post so far, I'm really curious to know what kind of profitability is standard for retail stores in this business. Is anyone willing to share that information or point me in the right direction?

 

There isn't really a standard...

 

But you can assume a landed cost at around 50-54%, rent between 5-10%, advertising 2%-7%, utilities 1%-3%, wages/salaries 18-30%...

 

Those are very rough numbers, but it gives you a rough sense of the EBITDA you can expect...

[shadroch]

If you find a shop that meets your three criteria-solid market position,positive cash flow and limited competition,ask yourself why the owner would want to sell,particularly if you want him to stay on as an employee.

Perhaps you might be better off buying in as a minority partner.

I sold my first two stores,one to an employee and one to a retired school teacher. In both cases,the stores failed before they had finished paying the notes I let them take,and I ended up taking back most of the inventory . My third store,opened 1500 miles away,I ended up letting my partner buy me out as we had different paths in mind,he wanted to push gaming and I didn't.He recently sent me an invitation to his 15th anniversary.

 

BTW-Lighthouses post got me thinking,and in twenty years,I can think of exactly one store,Fourth World Comics on Long Island where a new unrelated owner took over an established store and it worked out well.