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Retail Industry

Industry balances needs of repeat buyers and first timers

DSN Retailing Today, Feb 27, 2006 by Laura Heller

The digital camera has now largely replaced film as the photography tool of choice, and as the Photo Marketing Association's annual conference and trade show begins this week in Orlando the industry readies for its next phase.

With becoming a mass-market industry comes all the corresponding issues: declining average selling prices, margin erosion, less tech-savvy consumers in the marketplace and concerns over the number of prints being made.

"Digital camera sales are expected to peak in the United States this year," said Ed Lee, director for digital photography trends and services at InfoTrends. "Household penetration rates finished 2005 at 55% and we expect 20 million units to sell through this year, then there will be a slow, gradual decline."

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With so many consumers already owning a digital camera, the market is now being driven by repeat purchasers or first-time buyers in lower economic strata.

"We're heading toward a late majority," said Lee. "We're starting to talk to people who just aren't as interested in photography and it's a harder sell."

It's also harder to make money. Low-priced digital cameras are now sold in clamshell packaging and require little more than a pegboard display. Business has shifted significantly to the discount department store sector according to Lee. "Later-adopters tend to be more tech-challenged and careful with their spending, looking for something that's affordable and easy to use," he said.

THE UPGRADE CYCLE

"Repeat buyers are still much more affluent than the average American," said Liz Cutting, analyst with The NPD Group. "First-time buyers are matching census and more profitable growth will be driven by repeat buyers." Cutting doesn't expect digital camera unit sales to peak for two or three more years, later than InfoTrends' estimate, but she does see it splitting into different markets.

"There will be two markets: the laggard who really needs to be taught about digital imaging and the repeat buyer," she said. "But this repeat buyer may need to be re-educated about printing and that's also a great profit opportunity."

And repeat buyers are looking to resolve any issues they had with their previous cameras, many of them first- or second-generation models, as the technology rolled out. Reduced shutter lag, longer battery life, more powerful zoom lenses and image stabilization are all attracting attention. These features are being marketed by manufacturers and offer retailers easy selling points for upgraded cameras.

"There are more camera buyers around than ever," said Cutting. "The repeat buyers are moving up, but not all are getting rid of their first camera, they are passing it along to other members of their family." In 2004, 38% of cameras sold were to repeat buyers and in 2005 that number jumped to 44%, according to NPD. And of those buyers, more than half were passing along their previous cameras.

"This is really great news for retailers because they can promote accessories like batteries, memory cards and cool carrying cases," she said. "Accessory sales will really drive growth this year."

DSLRs

One big and profitable trend among this second wave of buyers is their urge to upgrade to not just another point-and-shoot camera, but to a digital single-lens reflex camera. Of the nearly 26.5 million digital cameras sold in the United States last year, approximately 1.3 million were DSLRs, according to Chuck Westfall, director of media and customer relationships at Canon. While that number may seem relatively small, this is an extremely profitable and growing category.

"Of total digital camera sales, one-third was money from DSLRs," said Westfall. "They really have a strong contribution to the bottom line. The average selling prices are higher but very importantly, DSLRs are sold with profitable add-on accessories, most notably lenses."

"It's one of the bright points in the whole digital camera space," said Lee. Unit sales for the category grew 80% in 2005, and are expected to nearly double this year, according to InfoTrends. With entry-level prices below $1,000 for a DSLR and units to be had during promotional events for almost half that, consumers are finding these more-advanced cameras offer great benefits. Reduced shutter lag, more flexibility in low-light situations, removable lenses that are interchangeable with existing film cameras and an increased interest in printing are all driving more experienced digital photographers to pick up a DSLR.

"We're seeing an even split between customers who previously invested in film SLRs and already have lenses that can be used on a DSLR, and customers that are replacing existing compact digital cameras," said Westfall.

And the trend is not only benefiting the photo specialty stores. Bundled kits that include cameras, a lens and a memory card are making it easier for mass-market retailers to successfully offer this option. And new players will soon be entering the DSLR market: Panasonic, Samsung and Sony have all announced DSLR cameras soon to be launched. A move that should help boost consumer awareness and aid bigger-box stores that have strong existing relationships with these more mainstream vendors, raising all boats.

Retail Industry

Industry balances needs of repeat buyers and first timers

DSN Retailing Today, Feb 27, 2006 by Laura Heller

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