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Checker Addresses Diamond Cancellations Date: 4/20/2010 |
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Checker Publishing will no longer supply Diamond Comics with any product nor will the company re-solicit any product through the distributor. Checker Publisher Mark Thompson explained the move in the following open letter: In the comic book industry there is one company which dominates distribution. That company is a privately held firm. The owner is a gentleman named Steven Geppi. Despite protests to the contrary for business purposes Geppi is Diamond Comics, and Diamond Comics is Geppi?period. Checker BPG became aware of extensive legal actions against Mr. Geppi in the Spring of 2009 to our extreme dismay. The frequency and number of the lawsuits is staggering and I list them simply for factual underlying basis for our separation from Diamond Comics, Inc. of Timonium, Maryland: Mr. Geppi had ongoing legal suits which he has since lost with PNC Bank and Harbor Trust Bank of Maryland for 16.4 million and 3.5 million dollars respectively. Mr. Geppi has also had legal actions against him filed by Creditors Trade Association, Westview Center Associates, LLC., The Heirs of artist Bob Montana, and the Maryland Stadium Authority which has been settled amidst controversy. All clearly shown in public court filings researched by Checker BPG last year. Our legal counsel briefly reviewed several these suits last spring and advised us to leave. We lost count and interest in the legal train wreck which is Steven Geppi after four or five lawsuits. Local Baltimore media is reporting that Mr. Geppi?s home was repossessed by the Bank of America. To clarify: Not sold, not traded, not settled, -YANKED BY THE BANK! Mr. Geppi?s wife has filed legal action against him seeking a divorce, alimony, and child support. Every single asset Mr. Geppi owns; including Diamond Comics, Inc., is at risk in these divorce proceedings. As a publishing company it has been a rule of thumb policy by Checker that; when the owner of your distribution company has his house repo?d(sic) by the bank it is time to move on. As a general practice banks hate distributors and prefer equipment auctions to taking over the management and operations of said business entity. These banks now have substantial judgments against Mr. Geppi. Also to consider: for the most part divorce lawyers don?t care about the Harvey Awards or men in tights; especially if the fleeing spouse sees the business as unstable- the lawyers just want cash. The ramifications of multiple banking lawsuits are amongst the laundry list of troubling aspects we evaluated in continuing with Diamond- In our opinion Mr. Geppi, and vicariously Diamond Comics , Inc., will no longer have any access to normalized capital markets. So at this moment the entire comic book publishing industry, with the exception of Checker Book Publishing Group, is at the complete mercy of Mr. Geppi and his financial ability (or lack thereof) to continue efficient functioning business operations. We have seen no tangible public evidence; save ostentatious spending, that Mr. Geppi has sufficient assets to continue adequate distribution service amidst the substantial challenges we will list below. The total lack of transparency of Diamond?s internal financials in this economy is tantamount to Russian roulette. Financial bravado alone does not cut it anymore. These publicly filed and successful lawsuits against Diamond ownership and smatterings of financial information discussed with Diamond led us to believe that there are going to be substantial hurdles for Diamond going forward. We believe insurmountable hurdles in a climate of already conservative lending and spending. Checker could not justify continuing with Diamond to anyone with which we have a business relationship. Diamond had shown a rapidly deteriorating capability to process inbound projects and publications which resulted in nothing less than a complete inability to sell Checker product. This preceded their move to a new facility in late 2008 as Checker saw ongoing substantial losses of inventory which negatively affected our best selling titles. Checker BPG warned our key client list of severe disruptions through Diamond in the middle of 2008. In early 2009 this situation came to a head with several policy changes which, amongst other things, violated Checker?s supply agreement. Checker?s publication Milton Caniff?s Steve Canyon 1955 was one newly printed project which was lost for nearly five months, destroying any and all publicity and marketing efforts. This was the final straw which brought our publishing plans to a pause. Throughout the process Diamond refused to supply Checker with critical reporting data despite repeated requests. Upon recent receipt of that data through our own internal audit of product retrieved from Diamond last month we have discovered that 20% of all inventory in Diamond facilities in 2009 was lost/ or unreported sold. The raw percentage of inventory missing; if proven to be sold, translates into 37% of all sales revenue for the year 2009 unreported and unpaid. We feel that the move of Diamond?s facilities was in fact: not the reason for losses, but simply the catalyst for uncovering the ongoing inventory problems we saw manifested prior to their move. The reality is that Diamond sales reporting is less than forthcoming. For example; two years ago Diamond inexplicably stopped the online reporting of damaged units to suppliers. Other publishers will have a difficult time doing audits based on lack of damage units reporting and other inventory inaccuracies. I know of one specific premier publisher that Diamond employees stated had not had their damage units touched in years. I mean no disrespect to any of Diamond?s employees at lower levels who clearly are as frustrated as Checker and communicate to us in a weird despondent helplessness. Logistically, most suppliers simply ship from their printer directly to Diamond. That being the case- if a publisher needed to audit their inventory against Diamond sales reporting to catch irregularities they need a hand count on-site to shore up the accuracy of Diamond inventory numbers. I know of no other publisher besides Checker BPG who has done both a hand count and retrieved a damage count - therefore our results; we reluctantly believe, will be consistent in the rest of the industry if diligent audits specifically of consignment product are conducted by other suppliers. Currently other publishers can only see title by title red flags of specific projects where they notice all available stock disappearing, fractions of stocking irregularities go undetected for the reasons stated above. We feel Diamond has inadequately explained ?other? unit sales recording in their sales reports in potential violation of generally accepted accounting principles. We felt that the results of widespread inventory management problems similar in percentage ratio to Checker, and if not an isolated incident to Checker BPG; potentially, would be crippling to Diamond as an entity if it spreads across all suppliers. In regards to inventory problems discussed herein the suppliers who remain with Diamond are in the no-win situation of ? ?Do we want to know?? When discussing these issues last year with our buyer at Diamond he replied: ?? we kinda thought this would hit the small publishers first? - ?this comment demonstrated to us that Diamond in fact knew of these problems and that Checker BPG was not an isolated case. Additional alarming amounts of Checker BPG inventory with purchase orders attached would languish for an entire calendar year even though we had ample inventory to fulfill the orders and the clients? in question did not seem to be on bad debt terms with Diamond. During a sales call repeated amongst dozens of publishers regarding the economic downturn in February of 2009 Checker was informed of a number of policy changes and actions to ?bolster? the industry, which included snippets of financial information communicated to Checker which shockingly included enormous financial extensions of credit to a Diamond book trade retail chain which Checker BPG found to be reckless. We estimated by market share that this retail chain was Diamond?s fourth largest customer. We researched the Securities and Exchange Commission 10-K filing for said retailer which listed over 350 million dollars in ?trade debt? for this publicly traded entity - a portion of which Diamond was claiming owed to them spanning three calendar years. We felt any involvement in this; once we became aware, could substantially damage Checker?s reputation in the book trade. Additionally; Diamond explained an explosion in their debt consolidation program with comic shop retailers in a phone call last year. This is a program where Diamond consolidates their debts and starts them on repayment programs. Diamond communicated that this number had ballooned to nearly 30% of their comic shop retail clients. To clarify the percentage did not seem to include retailers who had totally gone under, nor retailers who were simply a little behind. This is not a negative indictment on all these retailers in question, except for that the situation is not made public by Diamond and the retail base is in fact; dangerously too close to having the raw numbers of retail establishments that CAN?T pay, exceed the establishments that DO pay. This equation gets more dire if you factor ?treading water? retail stores out of the mix- that is; both comic shops and book trade stores serviced which are not necessarily losing Diamond money, nor making them profit. This entire situation creates an invisible at risk class of retail stores and chains solely reliant on credit from Diamond. If Diamond has to cease this credit, as we mentioned due their own cash flow problems or Mr. Geppi?s legal problems?these stores could face catastrophe. We feel several Diamond policy changes and shipping inefficiencies outside of client credit discussed throughout this release are only making these store by store financial strains worse. Further; marketing policy changes such as canceling the PREVIEWS re-list policy, once debated with Diamond, had no real underlying reason to their motive with the exception of Diamond referencing discussions and sales results regarding DC Comics. Our graphic novel product re-lists were consistently 10 times the DC reported re-list numbers on a per title basis. We found this discussion troubling on various levels- we presume even DC would find this discussion troubling. We pointed out our recent re-lists were in fact still above the new controversial 2009 higher thresholds for FIRST TIME product listings, but received no response. In our opinion every policy change that Diamond discussed last year with Checker BPG was in fact a SMOOT-HAWLEY type wrong turn which would only exacerbate the financial problems the industry was already facing. At best we can only describe Diamond?s marketing environment in ?The Great Recession? as frenetic and unstable. Staffing reductions at Diamond announced last year and subsequent rumors of wage reductions only demonstrated to Checker BPG that fulfillment and shipping capabilities; already in collapse and abysmal, would only get worse. Amongst all the moves the wholesale cuts of small press publishers were callous and ill-advised, as seen by later reversals of policy. Checker BPG communicated to Diamond through our buyer on April 16 of 2009 that we would in fact, not supply them with any of the new product orders generated. Additionally, we instructed Diamond through their national sales manager to cease and desist the sale of all Checker product on May 28, 2009. Diamond ignored both communications and continued to sell, hold orders which were worthless to them and other wise conduct business without a valid supplier agreement without our consent, co-operation, or permission. Checker ceased all shipments to Diamond in March of 2009 as all distributor operations; at least for our product, had completely collapsed. Prior to this date we have come to later learn that in a situation of apparently dwindling resources that all publishers would not see cut backs spread evenly across Diamond?s limited ?forklift? time. After careful considerations it was determined prior to these notifications in the Spring of 2009 that it would be in Checker?s best financial interest not to supply Diamond Comic Distributors with any product due to the fact that there was no reasonable probability that Checker would be compensated for product shipped, let alone stabilize back list sales. Informal phone conversations with other suppliers showed recurring problems to different degrees. After the financial phone calls with Diamond one well known publisher told us he was simply quitting the business and going to the beach. Thankfully, he did not act on his frustration. The summer of last year we began to make inquiries with other distribution options attempting a change which had not been foreseen. We also instructed Diamond at that time for legal reasons that we would no longer communicate with them verbally nor informally and only by registered letter. Diamond continued to attempt all communications informally and verbally against our instructions. In the November of 2009 with negotiations with other distribution partners completed we supplied in writing a registered letter instructing Diamond to again cease and desist the sale of our product and cancel all orders as we would not supply them with any product whatsoever. During the entire process Diamond management treated Checker in a heavy handed almost thug-like nature. We were told that: ?We were troublemakers and that the other publishers did not mind missing product?. ?This is something that we found puzzling assertion as every publisher in the trade catalog PREVIEWS has a legal obligation to creators, shareholders, investors, licensing partners, and employees to act with due diligence if their product sales show such substantial irregularities as Checker BPG. Based on initial indications we feel other suppliers simply are not aware of the potential inventory problems. Further it was stated by Diamond management: ?If we did not like it we could leave-? ?So we have done just that. Checker determined that any distribution company is only as financially strong as its biggest clients. Said clients can be prone to not renew contracts or otherwise change distributors simply with a pen stroke. At which time the situation would be chaotic and not to Checker?s benefit. Checker BPG evaluated this possibility and acted on the potential scenario to protect our interests. That being said, there seems to be no visible back up plan to Diamond in our industry in a time of historic worldwide financial uncertainty. Others can go by ?grin and bear it? or -?too big to fail?, yet Checker BPG evaluated that there is zero possibility for government intervention in our industry which is fractionally small compared to the auto and financial industries. Again, we came back to the gamble of how much money Geppi has in his pockets as the only consensus plan to keep everything afloat. This gamble is further complicated by his sole discretionary decision making as to where and when to put these seemingly dwindling assets and additionally who is going to know what and in what time frame are they going to find out when disclosing these frantic decisions. We have a complete lack of confidence in Diamond to neither act rationally nor act in Checker BPG?s best interest under this scenario. PNC BANK and others took the gamble on Geppi and lost- and they supposedly know more than we do and are better at loaning money than we are. Under normal circumstances it takes a year to change distributors, in this case we feel Diamond muddied the process. Diamond did not even communicate an acceptance of the second November 2009 cease and desist instruction directly to Checker. We had to find out indirectly through retailers that Diamond had finally cancelled our orders as per our wishes of the Spring of 2009. We were gravely disappointed that Diamond was not clear in communicating to the retail base; who in turn communicates to our readers, that it was in fact; Checker BPG that canceled the orders. More accurately to the point that we had been attempting to get rid of Diamond for nearly 8 months. For the past two years our own distributor was our single worst enemy. The net result is this: Checker Book Publishing Group has unilaterally cancelled all projects solicited through Diamond Comic Distributors. Checker Book Publishing Group product is no longer available through Diamond Distributors or the Diamond STAR System. Many retailers received notification of these cancellations in December 2009 and January 2010 without explanation. We want to clarify that the products in question would not be re-solicited through Diamond Comic Distributors. These cancellations are unrelated to Diamond?s ?threshold? fluctuations for minimum orders for new products solicited through Diamond?s trade catalog PREVIEWS. Checker BPG has never solicited a product in PREVIEWS which did not generate orders well in excess of the stated minimums of Diamond policy and the cancelled orders last year represent over a quarter-of-a- million dollars in retail value sales. The cancellation was initiated by Checker BPG, and not by Diamond. After exiting Diamond?s distribution services; substantial clerical errors negatively affecting sales very similar to the recent Diamond/Amazon debacle have been found regarding the Checker account. Individual press releases will be sent regarding the rescheduling of projects and contact information for new distribution representation for Checker product. In addition; our website will soon contain the information regarding re-scheduled projects and when, where and how retailers can get them. Checker Book Publishing Group has spent the past eleven-months negotiating with other distribution firms, entering into agreements with said entities, and supplying these new distribution partners with product. THE SPEED OF SAID TRANSITION WAS PREDICATED ON GETTING Diamond to STOP sale of all Checker product. Their actions materially delayed our efforts. We feel our new partners are on better footing financially going forward in a challenging economy. Public details of these agreements will also follow in more detailed press releases regarding the unplanned changeover. The results with these new distribution outlets once supplied has been immediate. Our shipping success went to 100% with them as opposed to a 40% success ratio with Diamond Comic Distributors over the previous two years. Product is in place and orders are being filled. The situation regarding fulfillment of Checker product to the retail base in North America has been stabilized in the first quarter of business 2010. Consumer interest in our product has never waned, the apparent financial problems with Geppi and Diamond negatively affected the ability to physically move the product into place for consumer purchase. Once they were removed completely we returned immediately to functionality. Checker BPG has re-located during this unforeseen nightmarish process to a new 15,000 sq. foot facility. Checker BPG has several million dollars in printed inventory which is fully paid for and ships almost daily to locations around the world. The move was made to help facilitate vastly increased bulk shipping. Checker BPG holds the publishing rights to numerous successful properties which will be announced in short order. It is somewhat short sighted given the substantial financial upheavals in every industry in America to think that comic books would not see similar severe changes. We have seen almost complete collapses in historically similar industries to ours like the newspaper publishing and magazine distribution industries. Comics themselves have a well chronicled history of boom to bust then repeating the boom to bust. The modern comics industry won?t go unscathed. The changes and problems simply are not yet apparent publicly. Last year we came to the conclusion that Mr. Geppi is in a race against time he simply can?t win. In a multi-front war he has already lost the legal battle. He now has to hope that a large portion of the retail base can magically start operating at a profit- and fast as he burns through cash essentially to help pay for their product. He also has to hope that an expensive new facility can somehow snap into efficiency and in the process guess correctly whether it was the facility, the move, or the systems in place which are the cause of the inventory and shipping chaos. We feel he has scant financing options with no access to outside capital except maybe from a large supplier who would simply drive other suppliers away with any ownership stake(Checker BPG itself would not have stayed if a supplier owned Diamond), he won?t be able to cut staff/overhead further without deeply cutting into sales, and he can?t cut off the desperate retailers in bad debt or their absence would sheer off huge chunks of publisher sales. If the lawyers are the wolves they are no longer at the door they are in the house. As mentioned; in our opinion, the marketing is an absolute disaster which while playing favorites does not allow a sufficient platform to service actual consumer demand. Quite simply the situation we removed ourselves from last is best described as Geppi Enronomics. In all cases of the lawsuits against Geppi and dealings between Diamond and Checker BPG once publicly debated the reply simply is ?no comment?- this speaks volumes to the validity and truth of our reasoning behind a move which on the outside might seem curious. We now feel compelled to state our case publicly lest the Geppi taint stink us up. We feel the litigants in these legal actions are not ?making this stuff up? as legal victory after legal victory demonstrates. We feel we are in a substantial advantage to all our competitors still with Diamond Comics, Inc. as far as financial risk going forward. We are confident going forward we can easily circumvent Diamond to reach both the retailer and consumer. We can document every written communication referenced in this release. We openly invite journalists to research every public document referenced in this release for authenticity. We can lead any supplier; no matter how big or small, step by step through their own necessary inventory calculations free of charge regardless of how long it takes us to do so. Mark Thompson Publisher |
| Source: Broken Frontier.com |
