Posted in: Comics | Tagged: diamond, gamestop

What's Behind Diamond's $3 Million GameStop Lawsuit?

Last week, Bleeding Cool broke the news (only followed up by Comic Book so far) that Diamond Comic Distributors was suing the largest gaming retail chain in the USA for almost three million dollars. $2.8 million but what's a couple of hundred thousand between friends?  The lawsuit alleges that GameStop refused to pay for products that had been ordered from Diamond, and told Diamond they were going to cancel almost 3 million worth of product, against their contract with the direct market and that "the products at issue were already ordered and paid for by Diamond Comics (or that Diamond had partially paid for and was obligated to pay the full price for those goods). Diamond reminded Gamestop that pursuant to the agreement(s) and/or decades-long course of dealings between the parties, accepted orders were not subject to cancellation without consent from Diamond. Gamestop nonetheless confirmed that it did not intend to accept or pay for the products." While reiterating that it "operates on a "production to order" basis, meaning it receives purchase orders from retailers, and then places production orders with vendors to begin the manufacturing process. The goods ordered are then specifically manufactured for the Buyer and are generally not suitable for sale to others. Often, the products ordered are specifically designed for one unique retailer, and therefore there are no other available vendors for the products that were ordered and manufactured. In order to submit its production orders to vendors to begin manufacturing, Diamond is required to pay some or all of the cost or become obligated for the cost of the goods charged by the manufacturer in advance (i.e. before the manufacturer accepts the order and begins manufacturing the product(s)). For that reason, in its agreements with retailers, Diamond does not permit cancellation of submitted and accepted purchase orders since it is unable to recoup the costs once a production order is placed."

GameStop has yet to file a court response, something we will be interested to read. But why is this happening and why is it happening now? Suing a large customer may not always be a wise decision for any business and given the size of GameSpot's account that they can run up such orders in the first place, and will have placed millions of orders in the future that they would have accepted, would it not have been in Diamond's interest to have sucked this one up? Well, firstly, Diamond is in a more vulnerable position after losing almost all of DC Comics' business, almost all of Marvel and IDW, and a chunk of Scout, Oni and more. But also, Diamond Comic Distributors has the reputation of being a defacto banking system for comic shops the country over. Many shops have been in debt with Diamond over long periods of time, and Diamond has extended generous terms and helped shops come back into the black. Diamond has worked with many shops over their account issues over the years. Many comic store owners over the years, even as they were complaining about Diamond shipping issues, would tell me that extending lines of credit, or making certain lines suddenly available at discount, were the difference between survival or not. It is not entirely altruistic, when a comic shop goes bust, the biggest creditor is always Diamond. And Diamond has always had to come with bankruptcy debt. Over the pandemic and during lockdown, that Diamond Generosity may have stretched further than before.

But it is also in Diamond's interest for shops to realise they shouldn't take the piss. And if Diamond is willing to sue one of their biggest customers for $3 million of product that they ordered but no longer want… well, it's a shot across the bow. Yes, Diamond understand you have gone through a tough time. Yes, they want to help you as a comic book store, survive. But no, don't take the piss. Diamond has lawyers…

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