Add-On Sales Become Hot Commodity

Add-On Sales Become Hot Commodity

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From his mezzanine office, Concord Camera Store owner Michael St. Germain has a bird’s eye view of his sales floor. Last November, it was hopping. Customers were in checking out a wide selection of the latest sub-$1000 digital SLR’s and the ever more affordable point-and-shoots, pleased to be getting a lot more camera for their money than the year before. St. Germain’s staff had good offers for customers that day, showing an 8 megapixel Kodak 875 for $199. The year before, he says, a comparable camera would have gone for around $700. Surveying the busy registers from his desk chair, St. Germain could cross off “generate foot traffic” from his daily to-do list and turn his attention to number crunching.

“So I was sitting at my desk looking at inventory levels and purchases,” he remembers. “We have a very good POS system. I saw that in 2006, I spent $12,000 less on cameras than I did the year before but actually purchased more units. What does that tell you? I realized I was going to have to do 175% of last years’ business in cameras and hard goods to be ahead. That’s a staggering number. There’s just no way I’m going to sell twice as much stuff. I almost got up and jumped!”

Dealers have to be brave in the new world of consumer electronics/imaging retail, and no one knows this better than photo specialty retailers, who’ve watched more than a third of their competition close up shop in the last five years. It’s not just that they’ve seen hardware, both cameras and memory cards, turn into a virtual commodity. The margins on those items have always hovered around or below 10 percent. But more damaging to their bottom line, photo retailers saw their profitable printing operations also dry up as film cameras became relics. Customers no longer needed to make prints to see their images, and even when they did decide to turn a hard-drive full of digital files into actual photographs, many decided that self-printing, online discount operations or drug store kiosks would do the trick.

“What happened was, we democratized production,” says St. Germain, who’s owned his Concord, New Hampshire, store since 1980. “The customer can do all this processing. They have that ability. We have to realize now that no one product will ever be the majority of our sales, not even 4×6 prints.”

Manufacturers and industry watchers agree. The key to profitability in 2007 and beyond, it seems, will be a retailer’s ability to find or invent a variety of imaging products and services that will, en masse, move photo dealers back in the black. St. Germain puts it like this: “What’s going to make the brand and the value for customers come together and make this niche work for us? I don’t have the right mix yet, but I keep looking at it.”

Wallet Openers

The retailer is not alone in the search for the magic profit formula in the digital imaging industry. Vendor partners are developing new kiosks, online platforms, and increasingly personalized categories of products they hope will capitalize on the American public’s love of snapshots and home videos. Digital camera sales are at an all-time high, after all. In fact, millions of Americans (50% of all camera owners according to the NPD group) are now on their second or third upgrade. Sales of digital cameras as gift purchases were way up in 2006 as well. With so many cameras out there and so many images languishing on memory cards, phones, and computer drives, it only stands to reason that the market is ripe for solutions about how to put all those images to good use.

“There needs to be a quantum leap in revenue generation,” says Yogesh Sharma, a Bay-area entrepreneur who’s founded a new company called Pictureal. “Even the photosharing companies don’t turn a profit. Why? Because they make it hard for people to do anything on their site! Customers don’t want to spend 45 minutes customizing photo books. They want, ‘Here it is. Click. Order.’”

Sharma’s idea with Pictureal is to provide a service that takes a customers video and digital images (in any format) and turns them into a variety of finished products, from slideshows to feature-film style DVD’s. “There are billions of hours of video sitting in shoeboxes, and bazillions of magical moments in there. Families need to say, ‘Wow, it’s cheap (for you to do the editing for me)? Here’s all my tapes.”

Pictureal, still in Beta online but expected to make an appearance this year at retail outlets in the form of a kiosk, charges $99 to turn three hours of raw home video footage into an “uncannily good encapsulation” (Sharma’s description of the resulting movie DVD), $179 for 6 hours.

Kodak will introduce an even cheaper DVD option to consumers this year, though their concept is to make a video slide show (complete with licensed popular music as the soundtrack) from 20 stills only, no video as of yet. “Your Pictures in Motion with Music,” is the ad line for Kodak’s new “Picture Movie DVD” product, available to consumers on selected Kodak kiosks. “Kodak can instantly render and burn the DVD and print a customized 5×7 for the DVD cover, all for $10-$20,” according to Kodak spokesperson Erin Foster, depending on how much the kiosk-hosting retailer wants to make on the deal.

“We’re just starting to see people want to do more with their pictures,” says Kodak’s Rowan Lawson, a panelist at a digital imaging retail seminar called “Photography Strikes Back!” at CES this year. “The consumer is in control here. They want an easy user interface and they want convenience.”

Accessories manufacturers love the margin discussion because they can offer retailers the most easily marked-up products in the store. In a market where many people are buying their camera at a big box store and then wandering into a smaller camera shop to learn how to use it, accessories have become an important way for photo specialty retailers to help customers get the most out of the digital imaging experience. Brandon Kirk, VP of Marketing for Tamrac, Inc., a camera bag company, says accessories sales are where you make friends. “Handholding the consumer is really a wonderful opportunity to get the margin dollars that you need,” says Kirk. “It’s the collection of accessories which dealers know gives consumers a reason to keep coming back.”

“Margins on accessories can be up to 40 to 60 points, depending on the accessory,” agrees Gary Pageau, Publisher, Content Development, Strategic Initiatives, PMA. “Mass retailers don’t always carry the accessories and customers won’t be happy if they don’t have the right battery or bag. When you sell an accessory, you’re solving a consumer’s problem.”

Profit Pioneers

Pageau is convinced that current market conditions are giving retailers an opportunity to be creative like they never have before. “Traditionally, the photographic industry relied on manufacturers to create products,” he says. “What’s happening now is that retailers are starting to invent their own products. Look at Starbucks. They are not waiting around for someone to come up with a new coffee bean. They are inventing new products and services, their own music and books based on their clientele.”

Photo specialty retailers around the country have come up with unique ideas to reach their specific target markets. In New Orleans, Lakeside Camera Photoworks owner David Guidry recently made a major investment in a versatile new “printing press” from HP, the Indigo, which allows his employees to produce custom greeting cards, buttons, stationary, and business flyers with a customer’s digital images.

In Allentown, PA, Mike Woodland and Kevin Harayda of Dan’s Camera City are having luck with “back door business,” using their lab facilities to fulfill the printing needs of online scrapbooking, interior design, and stock art companies. If a designer needs some large-scale art photography to decorate the office suites of a corporate client, they look to Dan’s for the fine art prints.

In Vacaville, California, seasoned proprietors Fred and Jamie Ernst expect to be flooded when they start offering digital imaging classes at their Quick as a Flash lab this year. “You wouldn’t believe how many people are totally ignorant about their digital cameras,” says Jamie.

What’s Old is New Again

Sometimes, profitable inventions are about a new way of marketing something that’s always been easy to provide. Back in Concord, NH, Michael St. Germain came up with a new way to move glass. “Ready-made frames don’t come with non-glare glass, so we put little post-it notes on all our frames that say, ‘Ask us about our non-glare glass upgrade.’ Now, 20% of our frames are being sold with the more expensive glass.”

St. Germain came up with a “matts on demand” concept too, offering customers the chance to have custom matts for their photographs cut while they wait. “We’ll do ovals, multi-matts, one vertical and two horizontal, whatever. They don’t make matts like that. Today we had a customer leave with a $20 frame and a $20 matt and he didn’t have to wait for it. That’s an add-on.”

Industry analysts say that as long as retailers are willing to explore ways to evolve their showrooms to comfortable, experience-based environments with plenty of custom imaging products on display, the future of profit in digital imaging retailing, even in a commodity market, is by no means bleak.

“Age 13 to 24 is the biggest growth group in digital camera purchase,” says the NPD group’s senior imaging analyst Liz Cutting. “This age is really into accessories and personalizing and they’re likely to use retail over online. They actually like brick and mortar. If you have the right display for them and show them creative ways to use their images, then the experience is where the profit is. That’s what will keep a customer for life.” yy

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