1.What did you do before you joined Diamond? Well I got involved in comics and the comic industry in 1971, working with my brother in a company called Pacific Comics. We started as a mail order company selling to consumers via ads in the Comic Buyer's Guide, starting with issue #13. Later on we took out full page ads inside Marvel comics. As our business built up we decided to add some retail stores and as that built up we realized that we couldn't get merchandise for our stores, so we opened up a distributorship in order to get more merchandise for our stores. Other stores in the area didn't have a distributor to buy from so they started ordering from us. In 1981 we started publishing comics as Pacific Comics the publisher of Captain Victory, Silver Star, and several other titles. In 1984 we sold our Sparta distribution center to Capital City Distribution and our southern California distribution centers to Bud Plant Inc. Shortly thereafter, we closed our company, and in 1985 I came to work for Diamond.
2.Describe your career path since you joined Diamond. When I first got here in '85, we were a rather small home office, so each person wore many different hats, and performed many functions. So when I got here I was working in customer service, sales, marketing -- many different jobs. As time passed -- we took over Bud Plant in 1988 with their more deluxe catalog system--I took on the role of supervising Diamond's graphic arts department to help promote that part of this business as well. As we grew as a company we specialized our upper management team a little more. During the Bud Plant acquisition we brought in Roger Fletcher and Cindy Fournier, who shortly thereafter moved to the home office.
3.What are your current responsibilities? Well my current responsibilities focus primarily on the purchasing of new product for Diamond. This includes reviewing all our contract negotiations with our suppliers, our vendors, making sure that the discounts and prices set by our Brand Managers are within our target goals to allow our customers to be competitive in the marketplace, while at the same time meeting our margin requirements. We've got about 25 people in the home office who report to me as does the Diamond UK purchasing staff.
4.Do you see the number of monthly product offerings from Diamond increasing or decreasing during the next year? I think that right now our current offerings are around 3,300 products. I would say that we going to go down about 10% during the next 12 months.
Why do you think you are going to cut the number of monthly offerings? Are there fewer products out there? Well right now the licensing business in general has been very slow. What I mean by licensing is the character merchandising off some core movie or comic property -- this has been very bad for the past year or so. Also a lot of our individual product categories right now -- we haven't been rigorous enough in reviewing our product histories and sales trends as we should have been, therefore some of our items that should have been dropped previously have not been dropped. So we are going to be a little more attentive to that in the future. That will probably cause most of the adjustment.
5.What are the current sales trends as you see them in comics, toys, games, anime/manga, etc. over the past year? The comics industry I think is very steady. I think the larger publishers, DC, Marvel, Dark Horse, and Image have a nice assortment of books -- all are doing a pretty good job of getting the books out on time -- doing the fundamentals very well right now. Image has done a good job over the past six months restructuring themselves, being more attentive to the retailers needs, getting more books out on time, canceling late books, things of that nature. DC and Dark Horse's dominance of the backlist business has been particularly strong during the past year, and I would expect that to continue as well. They are very good at those areas.
Toys are broken up into two areas, one of them domestic toys, what I mean by domestic is companies like Hasbro, MacFarlane, Irwin , Moore, and Bowen, and the other is import toys, which might be European or Japanese toys. Right now the domestic toy market is very contingent on licensed goods, and last year was a particularly difficult year for licensed goods, so domestic sales are down a bit. Our Japanese toy sales are doing fantastic. We are introducing many new product categories to our US. customers, and we have had just great access to the Japanese toy makers, and this has resulted in our sales going from virtually nothing 2-3 years ago to something very substantial now.
Anime and manga sales have been particularly strong. They tie right in to our toy sales -- a lot of the toys are based on the animes, we have Gundam on Toonami, WB network has some anime as well, so we have a lot of good things happening that really help Viz and Tokyo Pop and CPM and all the other manga and anime publishers. On the anime video side our sales have gone up every single year, there are lots of new titles. We also started on DVD and that has been growing very fast for us. With the recent release of Sony Playstation 2, the number of DVD players in the market is going to be magnified by tenfold in the next year, year-and-a-half.
Tell us more about the anime-related toys you are carrying. It's been great for us. The number one and number two toy companies in Japan--Bandai and Tomy (they're like Hasbro and Mattel here in the states) -- are still doing their own US distribution, but from #3 to #15, the other top companies are using Diamond as their primary or sole US distributor. So we really have reached a strong penetration of the top Japanese toy manufacturers in the action figure category, model kits, statues, and plastic kits as well. It's very exciting.
And you're offering those toys at very reasonable srps! Our pricing strategy has been what I would call 'very un-Japanese-like.' In the Japanese market what happens is the maker tends to sell to a national distributor, who sells to a regional distributor, who sells to a local distributor, who sells to the retailer. Each one of these companies makes a 10-15% margin, so a toy that might have cost originally US$10 wholesale, might end up with a US$30 retail to make sure that each distributor in the channel has his margin built in. We've been able to eliminate all those middlemen, and convince the Japanese toy manufacturers to allow Diamond to present these toys at what we call 'US-style pricing.' What that really means is that just for a dollar or two more than a traditional US toy, we are able to bring over exciting, authentic Japanese toys to US consumers and retailers at prices and margins that have been unavailable in the past. It's been great.
6.What about games? I think for Diamond it has been a little bit difficult during the past year. We have had some internal difficulties with staffing, which have been frustrating for us, and has resulted in some sales being missed that shouldn't have been missed. But the recent acquisition of Alliance will absolutely assist Diamond. We are looking to them to help us gain expertise. I think our game sales in 2001 will increase over 2000.
7.What about books, how are they doing for you? That category is also very contingent on the licensed categories. This last year was a very down year for books, since there was not a movie property, a television property that really killed. That doesn't mean there weren't individual successes here and there, but as a category, books was a little lower than expected.
8.What about trading cards? Trading card sales will be down in 2000 versus 1999 and the main reason they will be down will be because of Pokemon. We had huge sales of Pokemon cards last year; that will not happen this year. Some of the Pokemon replacements like Digimon skewed a little young for our market and didn't end up with nearly as many sales as Pokemon. It's good to see the sports card market has some life, and its good to see Inkworks, Rittenhouse, Comic Images, and other non-sports manufacturers have some success.
9.How has Diamond adapted to the lingering sales declines of cards and comics over the past five years? I think that probably since the last big boom with the Death of Superman, etc. we have diversified our offerings with import books, Japanese toys, a bigger apparel section, all our different categories have expanded. Our overall sales are down slightly, but we've made up a lot with our expanded offerings. We want to keep on top of all the current trends, and get them while they are new and fresh, so our retailers can benefit before the mass market takes over.
10.How many toy skus did Diamond Select release in 2000? Probably under ten, a very small number. We are expecting a great increase in sku count in 2001.
11.Have you acquired any new licenses for Diamond Select? We've got a license from White Wolf games for action figures based on the Vampire and Werewolf characters. We also have a continuation of our Playboy program for next year. We've also got licenses with Sega to do to do Virtual On action figures. We have acquired some anime licenses to do action figures and trading cars. We are also introducing a new line of 'orbs' which we are having manufactured now featuring two of Chaos' most popular characters.
Tell me how the orbs are manufactured? It is actually a very interesting idea. Aizhu Jiang, who is in our Accounts Payable Department, came to us and said she would like to develop some new products for us based on her understanding of the Chinese manufacturing process. So over the past year, she has developed some of these categories, one of which we have dubbed, 'Orbs,' which are a crystal clear glass ball that is hollow on the inside, not hollow like a snow globe, since the orbs are very thick and heavy. The Chinese artisans take a single bristle brush and working through a hole in the orb, paint the picture inside out. It's harder than it sounds and difficult to explain. I think that what will happen is that when they first come out, sales will be a little slow, but when consumers see them, they will marvel at the quality of the painting. Each one will be unique, though based on a common theme. I think they will be very successful next year.
12.Can you explain the different channels into which you sell Diamond Select toys? Sure. Diamond Select has the potential for utilizing three or four different channels at once. When we acquire licenses, we try to make sure that the licenses are applicable to the various channels. Our core channel of course is the same channel that Diamond Comics services, the comic shops, the game stores, hobby retailers in general. Then we sell to what is called specialty mass market, and that would be like Musicland, Tower Records, Spencer Gifts, companies of that nature. Then there is the mass, mass market, which would be Kay Bee Toys, Toys R Us, Walmart, K-Mart -- the real national players, and then there is the international market.
How do you make the decision about which channels to sell into? Well, it's really license-specific and driven by what the market will bear. We are doing a large line of items with Chaos Comics right now. Many of those items are very hobby-oriented, with high retail prices -- and mass market stores won't be buying those anyway, since they aren't interested at toys at those higher price points, but hobby consumers and retailers like those kind of items. The lower price point items are much more applicable to the mass market.
13.Diamond's direct importation of Japanese toys has been great for consumers. Do you plan to increase these offerings during the next 12 months? Absolutely. Our plan started about 5 years ago. It took us 3 years just to get them to talk to us. In the last 18 months we have done a very good job of getting the doors opened to us, explaining our methodology, our US-style pricing model -- which has proven to be very successful -- so we are looking to expand our offerings of Japanese toys to about double the 2000 level. It's really been a great program and I expect our offerings to expand greatly in the next year.
14.When you bring in Japanese toys, do you import a large percentage of extras or are you planning to offer the more popular items repeatedly in Previews? Well there are several ways you can handle imports. One is when we are doing pre-buys, we buy the toys in advance. We take in to account what we think the market will need and (A) buy just a little bit above that demand or (B) look at the item and decide it has long term shelf life, so we buy significant extras on those. If we can list them in Previews first and get the orders in, based on the response to the orders we get and how cool the toy is, we decide whether to buy just a few extras or to buy enough to have reorders for weeks or months. It's hard to describe on an overall basis, since it's such an individual decision driven by the toy itself.
15.What do you see as the next major trend in the marketplace? Right now I think the continuing trend is that the anime and manga categories will continue to be hot, not only next year, but the next couple of years as the cartoon networks continue to exploit those opportunities, and anime continues to get mass exposure on TV and major motion pictures. There are more and more anime videos and DVDs being released right now. The books and magazines have also done very well, the toys are doing well, to me it's like, pardon the pun, a tsunami effect all with the direct market retailers in position to benefit. A lot of them have gotten on board early, and to me, we are still early in the cycle, so hobby retailers can still get into this stuff and prosper while it takes the mass market years to catch up. I think there is lots of opportunity there.
16.How do you see Diamond's product offerings evolving over the next five years? I always think that we will remain a comic book distributor, that will be our core focus, but I do think that we will be much more focused on some of the other merchandise categories, such as the apparel category. I think as our retailers become more and more confident with those items, Diamond will start doing licensed apparel so we can control time of release, getting hot properties, licensing for the direct market first, and if we can get some sales in the mass market, we will get them
With a lot of consumer carry-over from comics. Absolutely. If a store gets known for carrying those kinds of properties, you've got tens of millions of dollars of advertising sending people to your store. That's a good thing to grow on.
17.How many items are currently on the Star System? I think that we're about at 6,000 items at this time, both what we call Diamond property, things we buy directly, and items from our brokered vendors, DC, Marvel, Image, and Dark Horse.
18.What is your current fill rate on Star System orders? It's never as high as everyone wants it to be, but with that said, the last time I looked, which was several months ago, it's about 88-89%, which is pretty decent for that kind of item count. A lot of the outages are based on (A) maybe Diamond's not doing a great job of restocking in time; or (B) the publishers are out of stock at the same time as well. It's a combination of things keeping that fill rate from getting higher, but it's pretty high -- and it's getting better every month.
19.Do you expect the number of Star System items will grow substantially during the next year?
Actually, I think it will grow. First of all you have to remember with the four premier vendors, they add items quite frequently, so those items grow almost exponentially, but we are trying to make our Star System 'worthy' so we are going to add items from all categories. If the fill rates are high it's great for retailers, because it doesn't tie up their cash flow in inventory, they can buy small quantities, and get reorders once a week on a direct ship or a reship basis. It's a very good area for us.
20.Have you noticed any effects from the Magic, The Gathering TV ads? Right now I haven't noticed a lot from our side, but again I thought we lost some opportunities the last calendar year or so. I do like their ads and I am glad they are doing those kinds of ads. Hopefully retailers will benefit from those over the next year.