Competition and low prices set stage for 4Q digital boom - Photo - Statistical Data Included

DSN Retailing Today, August 26, 2002 by Laura Heller

Two trends are fast converging in the photo category, making digital imaging an even more pressing subject for retailers in the photo category: declining unit prices and more players in the category.

And with the fourth quarter and holiday gift-buying season fast approaching, suppliers and retailers alike are preparing for an increase in digital camera sales. Last year, approximately 30% of digital cameras purchased were gifts, according to data from NPD Techworld. In contrast, only 16.5% of total units purchased for the 12 months ending in June 2002 were bought as gifts.

The Consumer Electronics Association anticipates approximately 7.5 million units will be sold to retailers this year and NPD forecasts are even higher. But nearly everyone expects the product to top holiday wish lists. "I think it will be a pretty popular gift," said Stephen Baker, director of IT research for NPD Techworld.

Lower-priced entry-level cameras and increased retail participation is expected to help. During the first six months of this year, sales of digital cameras overtook sales of film cameras for the first time, said Baker. Last year, digital units accounted for 36% of all still cameras sold in the United States, according to the Photo Marketing Association. And though sales data from the various associations and agencies differs (not including sales formation from Wal-Mart), most report household penetration rates at or near the 15% deemed necessary to move a product category from early adopters into the mass market.

Moreover, according to a survey from digital imaging research firm Future Image, the early adopters or digital imaging "enthusiasts," as identified by the report, have a big influence on the market. More than 50% of camera owners have bought a friend a digital camera and the same amount have purchased one for a family member. Nearly 85% have used their influence to convince another to buy a digital camera, clearly demonstrating early adopters have an enormous value as "recommenders" for the consumer market, said the report.

And with now lower prices stabilizing even as units offer more enhanced features, the fourth quarter sales prospects become even brighter. "The $200 and under models will do well around holiday time," said Baker. "[But] $300 is the sweet spot, where you're getting the most for your money."

Consumers have plenty to choose from in that price range. New models geared toward value-conscious consumers are being released into the marketplace fast and furious. Fujifilm has added new entry-level models to its FinePix line, which the company describes as perfect for the first-time digital photographer. Both offer movie recording and video conferencing capabilities, with point-and-shoot ease of use.

Kodak has added two units to its Easy Share line, which last year was the No. 1 selling camera among all digital models thanks to an aggressive marketing campaign, easy digital transfer from a cradle to PC and a high perceived value. Olympus has revised its camera pricing downward with entry-level units starting at $199.

With the new digital cameras expected to be in circulation and in sue after the holidays, getting prints from digital images is likely to be an even more pressing issue. Which is another good reason for retailers to begin incorporating and marketing digital print options. Discount department stores in particular are in the best position to capitalize on hardware sales and service, while drug chains, which rely heavily on photofinishing services as both a profit center and consistent consumer draw, have the most to lose as hardware sales increase. Drug stores don't sell much in the way of cameras other than one-time-use products and have been reluctant to carry the relatively higher-priced, more complicated digital models.

As more business moves to digital, other retail outlets have an opportunity to establish themselves in both hardware and print services. Which is exactly what CE specialty stores are counting on. Both Best Buy and Circuit City have been testing kiosk programs, and now RadioShack has launched FotoShack, a twofold initiative to capture digital imaging dollars both online and in stores.

"We are looking at digital imaging as a burgeoning business for us," said spokeswoman Kay Jackson. "You're going to see more in this area." Late last month, the retailer added an expanded selection of digital cameras and camcorders, and an online service for storing, sharing or printing images. Stores will carry between five and eight models of digital cameras and camcorders each this holiday season, compared with a single token model in 2001, she said.

Traditional photofinisbing outlets also are looking more aggressively at updating equipment to better accommodate digital printing, be it in a minilab or kiosk form. While equipment manufacturers have been pushing both solutions heavily for more than a year, many report that retailers are beginning to get serious about capturing more digital print dollars.