Kathy Mullen and Tim Schwindinger are betting there's an increasingly sophisticated customer base for comic books and a new kind of retail environment in which to buy them. The good news: Kathy and Tim may be right. The bad news: some big established companies think Kathy and Tim are right, too

* * *

Few things lift Kathy Mullen's spirits as much as the death of Superman, last November. Not that Mullen has a vendetta against the caped comic-book idol. On the contrary, she and her husband, Tim Schwindinger, have staked their livelihood on Clark Kent's alter ego and his fellow superheroes. As proprietors of Comic Attitudes, an $813,000 minichain of two comic-book stores with headquarters in Piscataway, N.J., Mullen and Schwindinger are more likely to be aware of recent events in the lives of Spidey, Hulk, Sandman, and Captain America than events in the lives of their family and friends.

"Superman died in a giant fight with a space alien called Doomsday, who basically came just to wreak havoc. And he died saving Metropolis," relates Schwindinger. "After a last kiss from Lois," adds Mullen. Their cause for celebration, then? "We sold out -- 1,000 copies of the Death of Superman issue in nine hours," he says.

Since the seventh grade 31-year-old Schwindinger has been hooked on comic books' serial nature, which appeals to the collector in him. "Give me something with number 17 on it, and I want to pick up numbers one through 16," he says. Schwindinger began following the adventures of Spider-Man when the webbed wonder was a teenager. Years later, bored with his job as an administrator in South Brunswick's recreation department, Schwindinger took to hitting comic-book conventions on the weekends, trading, selling, and upgrading his collection.

Conversations with distributors and retailers at the weekend shows, as well as reconnaissance visits to some local retailers, convinced Schwindinger people were making money at his hobby. Besides, Mullen, his girlfriend at the time, was less than thrilled at the prospect of spending endless weekends rising at 5 a.m., loading up the car with comic books, and heading off to yet another convention. So the two decided to draw up a business plan for a comic-book store and leased a 1,300-square-foot space in a newly renovated New Brunswick mixed-use project.

Mullen and Schwindinger then spent $35,000 (from personal loans, including one from Mullen's father) to paint, carpet, and furnish the space and buy inventory. Precisely six months after the couple noticed the For Lease sign, Comic Attitudes opened its doors for business, on November 15, 1989.

The mission statement of Comic Attitudes' business plan outlines an ambitious goal: "to become the first and dominant national comic-book specialty-store chain . . . to usher in mainstream acceptance of comic books as entertainment." To accomplish that Schwindinger and Mullen are looking to raise $2 million to expand to 25 stores in the Northeast by 1997, with the eventual goal of becoming a 400-store nationwide chain. They plan to open 1,000-square-foot stores in upscale malls and supplement them with larger superstores in less costly locations.

"Six months ago I read a book called Beyond Entrepreneurship: Turning Your Business into an Enduring Great Company," remarks Mullen, a 36-year-old former nurse. "One of the things it said was to pick for your mission a 'big hairy, audacious goal.' I think 400 stores fits that," she deadpans. Endlessly upbeat, Mullen is quick to point out that of the approximately 6,000 specialty comic-book retailers today, no one leads the pack. There are 500 multiple-store operations in North America, though none are larger than eight stores. To date there is no such thing as a true comic-book specialty-store chain.

But the race is on.

* * *

Despite the fact that they typically showcase guys in skintight suits punching each other out, comic books are serious business. The consensus among aficionados of the art form is that it's a nearly $800-million industry in the United States if sales of specialty products like Batman figures are included. About $600 million of those revenues are generated by the direct market, specialty retailers like Comic Attitudes. The remainder comes from the independent distribution market -- the newsstands, Wal-Marts, and K marts of the country. Roughly 800 titles are published annually, 75% of them by the industry's Big Two: Marvel Comics (which puts out tales of Spider-Man and X-Men) and DC Comics (which chronicles the exploits of Superman, Batman, and Swamp Thing). Revenues for the direct market have doubled three times during the past 20 years and are on track to double again over the next 5, according to industry consultant Melchior Thompson of Burlingame, Calif.

"The comic-book industry today is like the Oklahoma land rush," declares Thompson. Contenders in the race include everyone from the Blockbuster Videos of the world to mom-and-pop stores like Comic Attitudes.

In terms of household penetration the industry has slipped from its golden age, in the 1940s, when comic books were in 90% of all U.S. homes with children, to about 50% today. Even so, signs of comics' increasing presence in society abound. Comics grace the silver screen and the TV screen, the hallowed auction halls of Sotheby's and the literary academy. (The 1992 Pulitzer Prize for literature was won by a comic book, Maus, which chronicles the Holocaust.) Even Wall Street has been affected: Marvel went public in July 1991. The U.S. Army even publishes a comic book that teaches soldiers how to load a gun.

Comics are no longer just for adolescents, says Schwindinger, and recent demographic studies bear him out: while comic-book readers are typically males from ages 8 to 45, 67% of comic-book consumers are over 18 years old. The typical adult consumer has above-average levels of education and affluence and spends $1,200 a year on his (or increasingly, her) hobby. While Comic Attitudes wants to serve all kinds of customers, its tidy upscale stores are designed to appeal to older, affluent, and more-educated readers.

Mullen and Schwindinger think the industry is ripe for a make-over. "Most retailers have the approach I used to have," says Schwindinger. "They have a love for comic books, and their store's an extension of their hobby. They think that the customer is going to come even if their store is located in a lousy neighborhood and looks like the bottom of somebody's shoe. They don't understand that they should have a nice place for their customers to come to."

Thompson, who has seen the inside of thousands of stores all over the country, concurs. "The traditional comics store has a marginal location in a marginal part of town. It's dirty; it's dark. All the windows are covered with posters." Buddy Saunders, owner of the eight-store chain Lone Star Comics, based in Arlington, Tex., agrees: "In many ways we're a very backward industry." There are very few trade journals, and the only one to offer business-management advice, Comics Retailer, is barely a year old.

It is precisely the industry's backward reputation that propels Schwindinger and Mullen forward. Mullen views it as an engraved invitation: "There's so much opportunity, and so much that could be done." They are both convinced the American public is ready to support a national chain of comic-book stores.

* * *

Comic Attitudes opened its second store, 972 square feet bathed in neon, in New Jersey's upscale Menlo Park Mall in September 1991. Last year the store's revenues were $474,400, compared with $338,000 for the New Brunswick location (called Kilmer Square), or $488 versus $243 per square foot. The national sales-per-square-foot average for all mall retailers is $275. The rent for the Menlo Park store, even in what Mullen concedes is the worst location in the mall, costs $51.72 per square foot, nearly four times what Comic Attitudes pays in Kilmer Square. The buildout, even at the lowest bid, cost $142,500. "I imagine you're standing in the most expensive comic-book store in the world," says Schwindinger with a wince.

The Menlo Park store is the model Mullen and Schwindinger plan to replicate nationwide. Every detail has been calculated. The storefront windows, designed to resemble the front panels of a comic book, are filled with icons like Batman and Disney characters. Throughout the store, as in comic books, a four-color scheme predominates: red, yellow, blue, and black. The wall space above the racks is covered with Velcro, to which posters of superheroes and fantasy characters are affixed with peelable tabs (enabling the merchandise to be sold as new).

"In general, merchandisers don't consider anything above your eye level as specific retail space," says Schwin-dinger. "We decided right off the bat we wanted to open the ceiling up. We wanted to create something interesting and visual in what would normally be considered dead space, to promote or sell things."

The ceiling treatment continues the comic-book theme, with the lighting fixtures shaped like dialogue balloons. Neon Spider-Man and Superman fixtures hang from the ceiling. Below Superman lies a particleboard New York City skyline.

To offer something for everyone, Mullen and Schwin-dinger have taken the smorgasbord approach to stocking Comic Attitudes: new comics make up 35% of merchandise; magazines, price guides, trade paperbacks, and graphic novels, 16%; back issues, 15%; role-playing and strategy games, like Dungeons and Dragons, and their accessories, another 10%; 4,000 titles of science-fiction and fantasy paperback books, 4%; supplies for collecting comics, 3%; and what Mullen and Schwindinger dub "sidelines" -- an eclectic product mix that includes non-sport trading cards, Japanese animation videos, T-shirts, posters, original comic artwork, a variety of pewter and ceramic fantasy figurines, and even Danish lottery dice -- the remaining 17%. The merchandise mix is based on previous sales, and tinkering with the percentages is still an ongoing process, says Mullen.

Gross profit margins on the merchandise vary considerably, ranging from 45% on some sideline products to a rare but achievable 1,000% for a back issue. Those margins, particularly for back issues, can be misleading, cautions Thompson. A back issue purchased for a dime can be sold for $2, "but the turnover rate for back issues is abominable," he notes, "between one-half and one turn per year." The inevitable result is an inventory that balloons out of control, sucking away at retailers' cash flow. Mullen and Schwindinger know that all too well. Currently lining the entire back wall of their 1,300-square-foot office/warehouse are 10 storage racks holding 20 boxes each of back issues, for a total of 50,000 to 60,000 comic books worth approximately $40,000.

* * *

Compounding the problem is the fact that for comic-book retailers, inventory is nonreturnable (which is not the case for book retailers). Eighty percent of the distribution market is locked up by two multimillion-dollar giants, Diamond Comic Distributors, in Baltimore, which has a 55% market share, and Capital City Distribution, in Madison, Wis., which has a 25% market share. The remainder is occupied by 10 small operators. Distributors receive new titles, which are typically discounted 61% off retail from the publishers (the extra 1% covers damaged copies, which are also nonreturnable and must be swallowed by the distributors), and turn around and sell them to retailers for anywhere from 40% to 57% off the cover price (with 55% being the standard discount). The system is very efficient: distributors get a product on retailers' shelves within 48 hours after it's released from the printer. Hot titles typically fly off the shelves in a matter of days (or hours, in the case of Death of Superman).

There is a catch to that scenario, one Mullen and Schwindinger are quick to point out. Like many of the superheroes showcased on their shelves, the retailers need to have the power to divine the future if they wish to survive. Because the inventory is nonreturnable and must be ordered two months ahead of time, the retailers "take on all the risks," says Mullen. Unlike many stores, adds Schwin-dinger, Comic Attitudes never orders to sell out. "Our goal is to be in stock for the entire month," he says. Not only do retailers need to be up on the latest titles, plot twists, and events in the lives of the fantasy characters, but they need to be enormously educated about the buying habits of their customers.

"Your success will depend on your knowledge and intimacy with the product," says DC Comics publisher Paul Levitz. Product knowledge is even more critical in comics than in other retail fields, he says, because of comics' short selling window (of which consumers are very aware) and the lack of an effective mechanism for selling off unneeded inventory. Whereas clothing retailers can move their slower-selling goods to second-tier stores or discount outlets, with comics "you have 30 days to make your value from them or they're pulp," says Levitz.

Some retailers try to give themselves a hedge by soliciting orders ahead of time from their customers. Catalogs announcing upcoming titles provided by the distributors facilitate the process. "If you do that," notes Schwindinger, "then you're safe, but you've also missed an opportunity to make the extra sales on a product that becomes hot, and you've prevented yourself from bringing in a new customer." While as many as 90% of all comic-book stores offer subscription or reserve ("pull and hold") services to their customers, Comic Attitudes made a deliberate decision not to do so. Before opening his stores Schwindinger polled 50 owners who offered those services and learned that 80% or more of the reserve customers come in at least once a week. "Those customers are so interested in the material that they're going to come in anyway," he says.

The key for retailers is to have tight inventory tracking and order systems in place. Thompson estimates that roughly a quarter of all comic-book retailers in North America use a personal computer to run their stores, and more-sophisticated software is coming down the pipeline all the time. Comic Attitudes has spent $21,000 to date on automation and has a point-of-sale computerized inventory-management system in the works. Schwindinger firmly believes automation will provide Comic Attitudes a competitive edge over other retailers, but with large companies like Marvel and Blockbuster possibly entering the fray, how long that competitive advantage will last is anyone's guess.

* * *

Try telling that to Mullen and Schwindinger. They are both single-minded in the pursuit of their goal, blocking out any obstructing or worrisome facts. "There was definitely a time when I would have probably been very happy with a few stores, increasing their sales, and making it work," says Schwindinger. "But over time you become obsessed. Because our lives are the business."

Mullen concurs. "We don't go anywhere or do anything that's not Comic Attitudes related." The couple are planning a vacation to Disney World this year, and just as soon as Schwindinger decided they would drive to save airfare, Mullen presented him with a plan for what malls they would be stopping at along the way. Whenever they get in a car, he drives and she reads management books aloud.

Last September Mullen, who's currently president of the New Jersey chapter of the grass-roots trade group Comic Book Retailers International, co-organized the first retailer-run trade show. (Most in the industry are sponsored by distributors.) The event attracted 100 retailers ("fewer than I wanted," she says), but increased Comic Attitudes' profile in the industry.

On the eve of the opening of the film Batman Returns, Schwindinger arranged for a private preview in one of the Menlo Park Mall cinemas. He bought out the entire theater, 225 tickets at full price, and sold them to favorite customers for face value, handed out Batman buttons and trading cards at the door, and, after the screening, raffled off a few posters. True, the promotion generated more sales of Batman paraphernalia, but like Mullen's trade show, what it really generated was more word of mouth and goodwill for Comic Attitudes. "There was a real sense of community," he recalls.

Schwindinger's and Mullen's determination is expressed on the walls of their office/warehouse. Among the numerous superhero and fantasy-character posters lining the walls are two large sheets of paper with neat capital letters printed in magic marker. The first sheet delineates Comic Attitudes' mission statement in a three-part outline: To be the first and dominant national chain of comic-book specialty stores; to provide customer service that ensures customer satisfaction; to maintain comic books as an entertainment medium. The other sheet enumerates the essential components of "a great company," which Mullen lifted from the forward of Beyond Entrepreneurship: Performance. Impact. Reputation. Longevity. For Mullen and Schwin-dinger, those words define a strategy.

Performance. At Comic Attitudes performance is monitored daily. Cash registers tally sales for the day at closing time, and store associates enter the figures on a calendar that lists that day's sales from the year before, as well as the target sales goal for that day. The numbers are then discussed at weekly senior-staff meetings.

Sales-to-salary ratios, rent, debt, and inventory costs are also discussed openly with Comic Attitudes' staff at the meetings; particularly thorny terms and equations are not only spelled out on a blackboard but typed up on sheets to be added to the associates' policies-and-procedures manual. Mullen is shooting to have $9 in sales for every dollar spent on payroll and thinks sharing that number with associates is key to providing them with a frame of reference. Toward that end, associates are encouraged to spend no more than 10 minutes with a customer; any longer is "just idle chitchat, and you're not likely to make a sale," Mullen says.

Revenues at Kilmer Square are now running 18% ahead of last year's, and Menlo Park's are up 85%. Mullen and Schwindinger are counting on the latter figure to attract more financing. "We want to be able to say, Here's the prototype and it works."

Impact. Comic Attitudes seeks to make an impact through the design, layout, and cleanliness of its stores -- the associates are even supplied with uniforms: custom polo-style shirts with the company insignia -- as well as through customer service. Schwindinger describes the approach as an "attentive" sell as opposed to a hard sell.

Reputation. Like impact, it is hammered home through superior customer service, special promotions and trade shows, and the breadth and depth of Comic Attitudes' merchandise mix. "We don't want to turn anyone away," says Schwindinger. "We want to be viewed as the source." To help employees uphold what he and Mullen believe is Comic Attitudes' growing reputation for quality in merchandise and service, a communications book in the back of each store serves to update sales associates and remind them of areas they need to work on and of upcoming company events.

Longevity. Mullen is "the dreamer and the planner," says Schwindinger; "I'm the doer and the fixer." It's Mullen who has put up several maps of the eastern United States on the walls in a corner of the warehouse and has covered them with different colored pushpins. "Red is the warehouse. Blue are our existing stores. Green ones represent malls we want to get into." There are currently 10 green pins on the map, and three lease negotiations are under way: two for this year and one for 1994. "Soon I'll be putting up my West Coast maps," she says, grinning.

* * *

Mullen and Schwindinger's far-flung plans will be radically altered if the couple can't obtain additional financing for expansion. In that case they plan to grow through reinvested earnings, albeit at a much slower pace. Melchior Thompson cautions that the maximum growth rate they could achieve taking that route would be one new location every two years.

By contrast, Comic Attitudes' business plan projects a minimum return of $15.4 million on $40 million in sales by the year 2000 on a 1993 investment of $2 million. That represents a 45% compounded annual return, a figure Mullen arrived at after research among retail venture capitalists indicated they look for compounded annual returns of 30% to 60%. Mullen and Schwindinger anticipate achieving that kind of return through an initial public offering.

The two entrepreneurs are not oblivious to their plan's potential flaws. Their 1992 pretax profit, $25,000, or 3% of revenues, is below the industry average of 5% to 6%. Mullen cheerfully notes that once the debt service is removed from her balance sheet (the couple now owe $157,000, $115,000 of it in a 15-year mortgage loan), Comic Attitudes' margins rise to 8%. The company is also working on getting payroll, now running at 26% of expenses, down to 16%; and companywide occupancy costs, now at 12%, down to 10%.

On the advice of their Small Business Development Corp. consultant, Mullen and Schwindinger have made complete financial projections for Comic Attitudes only through 1995. "Any further out and things get too fuzzy," says Mullen. While the 4% to 7.5% profit margins they expect for the next three years are feasible, Thompson says a more ideal range for a multistore operation is 10% to 20%.

Assuming the couple can locate capital, and assuming the newly installed point-of-sales automation is able to keep a tight lid on ordering and inventory, the operation could still be thwarted as it expands by the company's lack of a sophisticated personnel or training system. At present, Schwindinger is responsible for all hiring and training. He interviews candidates, even for part-time jobs, two and three times and has had great success so far with his hires. (Jim Donnohue, senior buyer for the sidelines division, was so enticed by the way Schwindinger treats employees that he took a 21% pay cut from his former retail position at Banana Republic to come work for Comic Attitudes.) Schwindinger plans to build his management team from the ground up -- starting everyone as a sales associate -- and then gradually to shift training responsibilities to the more experienced associates. The system has worked beautifully with just 16 employees and two stores but begs the question: Can Schwindinger's personal touch be expanded nationwide?

Most in the industry agree that the growth of a national comic-book-store chain is inevitable. At a recent industry roundtable, Marvel Comics president Terry Stewart made it no secret that he had been in discussions with Blockbuster, with bookstores, and with record-store chains. If retailers from within the industry don't beat Mullen and Schwindinger to the finish line, a Blockbuster or similar entertainment retail chain might start carrying comics; easily scale the hurdles of capital, systems, and training; and blow everyone else out of the race.

* * *

Piscataway, where Comic Attitudes is headquartered, is a Native American word meaning "It's growing darker."

"No, I don't think it's an omen," says Schwindinger emphatically, though he confesses that speculating about the national-comic-book-chain race puts him into a funk. But, taking his cue from his wife's perennially upbeat mood, he cheers himself up by ticking off their accomplishments in 1992: they moved the Kilmer Square location, opened a warehouse, added staff, bought a computer system, were featured in Chain Store Executive, and made central New Jersey's list of top 20 businesses. "It's been a big year," he comments, adding, "I think every year is going to be a big year, and I think I'm starting to like it."


Company: Comic Attitudes, Piscataway, N.J.

Concept: To become the first and dominant national specialty comic-book-store chain, providing superior customer service and selection. Elevate comic-book stores' image with well-lighted, brightly colored stores located in upscale malls

Projections: Double the number of stores, from two to four in 1993, posting a profit of $57,000 on sales of $1.35 million. Obtain $2 million of private-placement (or venture-capital) funds to expand to 25 stores in the Northeast by 1997. Go public and roll out across the country, eventually becoming a 400-store national chain

Hurdles: Staving off competition from more-established, less capital-intensive shops or deep-pocketed entertainment chains that may enter the market. Raising the money to expand nationally and ensuring that inventory-management, training, and personnel systems can support growth

* * *

Kathleen Mullen and Timothy Schwindinger
36, 31

Family: Married to each other

Personal funds invested: $12,000 (plus $23,000 from Mullen's father)

Equity held: 100%

Salary: Mullen, $0; Schwindinger, $74,000

Last job held: Mullen -- administrative nurse in a family practice; Schwindinger -- administrator in a Central New Jersey municipal recreation department


Comic Attitudes' Income Projections

($ in Thousands) 1993 1994 1995

Number of stores 4 7 12

Gross sales $1,350 $2,649 $4,838


Cost of goods sold $675 $1,324 $2,419

Payroll $312 $500 $705

Rent $146 $324 $651

Other overhead $160 $360 $700

Total $1,293 $2,508 $4,475

Pretax profit $57 $141 $363

Pretax margin 4.2% 5.3% 7.5%



Buddy Saunders

Founder of Lone Star Comics, in Arlington, Tex., one of the largest and most successful multiple-store operations in the country

Schwindinger and Mullen have done some of the necessary homework, but I don't think they appreciate that what works very well at 2 stores fails at 4, and solutions at the 6-store level begin to break down at 10, and so on. Their strategy is too ambitious for their very limited resources. Without a massive infusion of both capital and personnel already experienced in retail expansion, the kind of growth Comic Attitudes envisions cannot be telescoped into their desired time frame.

And why would anyone fund them when they themselves have so little to bring to the table? Comic Attitudes has just established itself as a comic-book retailer and has no experience whatsoever with the challenges of chain-store operation and expansion.

On the other hand, I'm impressed with their mall sales per square foot. They have to be doing a lot of things right to be getting those sales numbers. A key element, I suspect, is a strong focus on customer service.

Their low profit margin is almost certainly a consequence of excess comic-book inventory. Comic Attitudes might do well to concentrate in the short term on less ambitious goals, beginning with bringing its profitability up from a pretty disappointing pretax margin of 3%. A 10% pretax margin is possible.


Melchior Thompson

Consultant to the comic-book industry for the past 10 years; Burlingame, Calif.

I am impressed by Schwindinger and Mullen's dedication, drive, and ambition, but I am very concerned that their ambitious growth plans require skills and experience they lack, and I believe potential investors will share that concern.

Their strategy of opening primarily in 1,000-square-foot mall locations doesn't seem to be well-thought-out. Well-chosen strip-center locations can rival regional mall sites in sales potential and carry far lower opening and operating costs. I don't see how they can generate the sales and profits they'll need for such aggressive growth with such high costs.

I also believe they underestimate the amount of effective competition they will encounter from existing competitors, many of whom have larger sales, higher profit levels, and more sophisticated administrative structures.


Gabriel Friedman

An 18-year-old freshman at New York University and a comic-book fan since the age of 10. In February Friedman visited the Menlo Park store incognito

I think the mall concept is a good one, because when I was a kid I used to have my dad drive me out to the comics stores, and they were always miles away from my house. And they were these dark, dank, dusty little places, where these really goofy guys hung out. Condescending people, not very helpful. My dad hated it. Putting comics stores in a mall is a good idea because the parents can drop off the kid and do whatever they want.

The Menlo Park store didn't have much of a back-issue selection. It had a lot of current issues and a wide selection of T-shirts -- but I never really liked those; they're kind of corny. They had a great selection of trade paperbacks and a nice selection of animated videos, which I liked. I thought that was cool, because I've always liked Japanese animation, and it's hard to come by. The store clerk was really helpful. I was questioning him, pretending I was a beginner. He was nice, and he wasn't trying to trick me into just buying stuff.

And the store was much brighter, much more mainstream. It looked like a music store; it would definitely interest people. There was a mix of customers in there: parents, over-30 dorks, and the usual Trekkies -- 40-year-olds who live in their parents' garages. It was pretty well integrated. So I think it was a pretty good store. Pretty cool.

I don't really think hard-core comics fans will be turned off by Comic Attitudes' stores as long as they've got the comics, as long as it's not a limited supply. And I don't think their supply is limited. I asked the clerk about a really hyped-up new comic, Spawn 8 or 9, and he had ordered a huge supply of it because he knows it's going to sell out fast, so that was cool, too.


Steve Gursky

Proprietor of 6 Steve's Comic Relief stores in northern New Jersey and Pennsylvania (including a store three miles from Comic Attitudes' Menlo Park location), a chain projected to grow to 20 stores within five years

I think Mullen and Schwindinger's sales projections of $1.35 million after opening 2 more stores in 1993 are low. They did $800,000 this year, which means they're expecting their new stores to average only $200,000 apiece. Based on the types of stores they're doing and where they place them, I would think they should be able to do more, depending on the time of year.

Expanding to 25 stores by 1997 -- putting up another 21 stores in three years -- I think is ambitious, based on the setup they have and the systems currently available to all of us. Eventually becoming a 400-store chain? Well, heck. Sure does sound nice. I see that there's no date for that. I would think that even if they are successful, 400 stores nationally is at least a decade away. And the competition for doing that is going to be great.