Magazine Article | December 12, 2014

Prospering On A Niche

Matt Pillar

By Matt Pillar, chief editor

You might argue that Diamond Comics Distribution isn’t a VAR, but its retail IT service model offers important lessons for the channel.

Photo By Carl Caruso

Diamond Comics Distribution, Inc. is the nation’s leading distributor of comic books, graphic novels, and pop-culture merchandise to more than 3,000 independent and small-chain retailers. The company has been in business for 32 years, serving a good portion of that time as the sole distributor in the niche industry it serves. If there’s a comic book or pop-culture specialty retailer in your neighborhood, it buys merchandise from Diamond Comics.

What’s that got to do with the retail IT channel?

Chris Powell, VP of retailer services at Diamond Comics, says everything. Powell oversees all of the customer service teams, including a staff of seven in a division of the company that serves as a veritable VAR within a merchandise distributorship. “Our unique role in a niche retail market gives us a certain responsibility to it,” he says. “It’s in our best interest to make sure retailers are as strong and successful as they can be, so we do more in terms of providing services, support, and education than most merchandise distribution companies would.” Those offerings include the sale and support of a commerce platform that’s custom-designed for the comic book and pop-culture retailer.

Building A Business On A Unique Market Need
The VAR-within-a-distributorship concept kicked off in 2006, when Diamond Comics’ retail customers began inquiring about Microsoft RMS customizations to facilitate interaction with its ERP (enterprise resource planning) systems. Over the years, the company had worked with Microsoft on modifications to RMS that accommodated the massive SKU turnover unique to publishing and selling comic book periodicals, where new products are released weekly, monthly, or quarterly. On the retail side, the data buildup resulting from the input of thousands of new and unique SKUs was resulting in major headaches for Diamond Comics’ customers, many of whom were operating systems that required employees to hand-key new SKU data into their systems. Many of the company’s customers place orders as often as daily to meet customer demand, but the volume and frequency of that ordering activity creates inventory management challenges. “Because they sell a periodical product, our customers have a unique need for cycle sheets to accurately track how many of each SKU move per day, week, or month,” says Powell. “One of the biggest risks our customers face is over-ordering. Seat-of-the-pants ordering without data to support it can quickly result in dead stock.” But in the periodicals business, the link between order accuracy and consumer demand isn’t just about order volume; it’s about order accuracy. “If you’re selling a tenbook series and you have plenty of volumes 1-4 and 8-10 on hand, but no 5 through 7, you’re hurting yourself,” says Powell. “Without actual data and real forecasting tools, this would be difficult to realize.” The off-the-shelf POS software that most independent and small-chain comic book retailers were running didn’t accommodate subscription sales either, an important feature in the business Diamond Comics serves.

The distributor spent much of 2007 developing an add-on to Microsoft RMS for its customers called ComicSuite, which it formally launched in 2008. ComicSuite eases the burden of new SKU entry and inventory management through select automation and integration with Diamond Comics’ inventory. It also features unique tools that enable visibility into inventory availability and trends. It also facilitates retailers’ subscription needs through an optional subscription management module. A hardware distribution deal with BlueStar iced the cake, and a VAR of sorts was born. What began as an altruistic intent to support its customers’ needs — with no profitability expectations in place — became a full-scale POS solution sales operation that’s been generating profit since its inception.Subscribe to Business Solutions magazine

Diamond Comics’ singular focus on serving the unique needs of its customers — whether those manifest themselves in the company playing the role of VAR, ISV, product distributor, or a holistic combination of the three — is instructive for POS solutions resellers.

Developing The Market For A Custom Solution
With a solid, custom POS platform ready for market, Powell and Diamond Comics turned their attention to building a customer base. The company’s approach to marketing is equally instructive to niche-serving resellers. “Because we distribute merchandise to our retail customers, we have a built-in team of inside and outside sales representatives who maintain very regular contact with our customers. By training those reps on the benefits of ComicSuite, we’ve exploited that outreach as a sales vehicle.” Before joining Diamond Comics, Powell worked for an 8-store chain that was a Diamond Comics customer. “I was a retailer who had purchased POS before. I’ve been sold to and know how the process works and can work better. I think that, combined with our laser-focus on this market, gives us an advantage in our sales approach. The ability to speak the same language as our prospects from the outset means we don’t have to spend the entirety of a first call trying to understand the customer’s business.”

Diamond Comics also hosts an annual summit for its retailers, where the POS offering takes center stage. “We host customers from all over the country, and we put together a full educational program on business issues and tips. Demonstration of the POS platform is a key part of the Summit,” says Powell. The company also displays ComicSuite at the trade shows and comic conventions it attends and hosts regional user conferences throughout the year.

By 2011, Diamond Comics had gathered a trove of data on the success of the retailers running ComicSuite. Most notably, Diamond Comics’ customers running ComicSuite were enjoying considerably larger sales volume than their peers. Powell took this data, along with information on the market opportunity the comic book and pop culture retail industry presents, and began meeting with vendors to develop strategies to encourage those retailers to adopt POS. “We put a proposal together for vendors to subsidize the cost of POS implementation with free product. If a retailer purchases a POS solution from us, they get free products from 12 different vendors, the savings from which cover the cost of the solution and its implementation,” explains Powell. “Our customer base grew rapidly from that point, because sweetening the offer made the adoption of POS an easier decision for our customers.” Powell says the untapped potential the market offers in the form of retailers who have yet to move to a modern POS system keeps his team busy giving demos on the virtues of modernization. “In our presentations, we emphasize that adopting POS in general is a good and necessary decision,” he says. “Would we prefer it if they chose ComicSuite? Of course, but we make it clear that any POS is better than no POS before demonstrating why ours is the best. Generally, they see the advantages of a solution that integrates e-commerce, subscription management, POS, and sourcing, so we work hard to demonstrate that it’s easier to accomplish that integration if they work with us.” The effort is paying off. Powell says the company furnishes POS to about 15 percent of its customer base, a figure that’s rapidly growing.

Monetizing Hardware And Service
Powell keeps the POS sales, implementation, and support structure at Diamond Comics as simple as possible. The company offers its ComicSuite platform in three tiers; an entry-level system built on the HP RP3100, a deluxe system based on the HP RP5, and a premium touch screen offering. Customers pay for their hardware, their RMS license, and a one-time add-on fee for ComicSuite. Their first year of software maintenance and 90 days of unlimited phone-based tech support are included in the purchase price. Financing is offered at zero percent interest for 18 months, an advantage Diamond Comics enjoy s compliments of its pre-existing financial arrangement with retailers it serves. “We’re already billing them for merchandise, so another $50.00 to $80.00 per week for POS is generally an easy thing for them to swallow,” says Powell.

After 90 days of unlimited tech support, retailers can contract for 6 months of unlimited support or per-incident support at a rate of $50.00 per hour in 15-minute increments per incident. Email support and website forum support are included for free for the life of the system. Customers are assured they’re getting the latest iterations of the RMS/ComicSuite software. “We make modifications and improvements continually,” says Powell. At press time, the company was working on build number 153.

To keep its costs down, Diamond Comics services customers remotely. “We’ve done very few in-person implementations, and our customers are generally okay with that once they see how easy it is to implement and service the system remotely,” says Powell. He says his company’s ultra-focused market approach is also cost-effective for the business. “Because we have very deep knowledge of our market, we can be very efficient with a small staff,” he says. A key element of that small staff is its Manager of Customer Development and Training, Cheryl Sleboda, who Powell says is tasked with refining implementation, education, and ongoing support processes. “Because we’re constantly updating the software and our educational materials, this position makes the entire division much more efficient. We can add users without adding headcount, because Cheryl automates education and support by developing training videos and other digital collateral, and BlueStar then images those materials directly onto the hard drive,” he says.

Mobile POS On The Horizon
Diamond Comics is beginning to pilot tablet-based POS systems with select customers. “We’re evaluating an HP tablet right now, which looks a lot like a POS at the counter but can be undocked to accommodate line busting and in-aisle sales,” says Powell. “We have a customer that averages 1,000 transactions per day, and when there’s a hot new product release, they want to be able to stand in the store with a tablet, bar code scanner, and magnetic stripe reader and maintain a connection to the RMS database.”

Powell says there’s growing interest in mobile as a customer service differentiator as well. “We sell RetailHero because its loyalty offering is a great fit for specialty retailers like ours, and in mobile environments they offer e-mail receipts. Most customers don’t want to spend money on Bluetooth printers, so the e-mail receipt is a high-value item.”

Powell says the company’s developing approach to mobile POS won’t change its sales model in the short term. “We’ll continue to offer POS as a service, regardless of the form factor the POS takes. If a customer wants to use an HP tablet or iPad for POS or subscription management, they’ll still need RMS, ComicSuite, support, and add-on services that are tied back to the RMS server in their stores.”

Whether the retail technology division that Powell heads at Diamond Comics is considered a VAR or an ISV is debatable. But the fact that channel providers can learn something from the success it’s achieved through focused provision of an industry need certainly isn’t.