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Retailers Report Mixed Bag On Digital, Analog Camcorders

4/30/2001 02:00:00 AM Eastern

NEW YORK — With a staggering (some would say stagnant) economy and wavering consumer confidence, retailers are reporting fluctuating trends in the camcorder market.

Sales are up, sales are flat or sales are down versus same time last year, they say. But they speak with one voice concerning a dominant trend in the category: the move is firmly toward digital. Many of the retailers we spoke with reported that 50 percent, or more, of all camcorder sales were digital and that this percentage was moving rapidly in digital's favor.

With higher profit margins reported for retailers selling digital camcorders and a growing consumer awareness of the product due to aggressive advertising on both the manufacturer and retail sides, it's little wonder why digital camcorders have made significant inroads.

The most recent statistics from the market research firm NPD Intelect testify to the transition: Digital camcorder sales were up 72 percent in January/February 2001 versus same time in 2000, while analog sales were up a modest 11.6 percent. (See chart on p. 90.)

"Analog is a dead issue," said Paul Roberts, owner of Mass.-based Newtonville Camera. "We try to discourage people from it whenever we can. We tell them that if they can work a computer, they'd be better off with a digital camcorder." Digital camcorders make up 90 percent of his total camcorder sales.

"We see many analog models disappearing," stated Wolf Camera VP of purchasing Greg Bragg. "With Sony no longer offering 8mm at all and only a handful of Hi8's, plus the price drops in Digital 8, we feel as if it is only a matter of time before we see the entry level digital camcorder at $399." That number, he said, would clearly signal a major step toward mass-market adoption.

In many specialty retailers, like Wolf Camera, the Wiz, Sound Advice and Newtonville Camera, digital is already outselling analog, sometimes by extremely large margins. Even in those locations that predominantly sell analog, most retailers predict percentages to swing toward digital's way by the end of 2001.

"The momentum is certainly with digital camcorders," said Steve Childs, VP of RC Willey Home Furnishings (Salt Lake City, Utah), who's camcorder sales are roughly 40 percent digital.

"We're definitely migrating that way," said Dean Hanby, video merchandiser for Conn Appliances (Beaumont, Texas), who also estimated that 40 percent of total camcorder sales are digital. "I wouldn't be surprised if the split is 50-50 or even 55-45 in favor of digital by the end of the year."

Nebraska Furniture Mart's video merchandise manager Mark Shaw is a little more cautious about his customer base. "Digital definitely won't overtake analog this year for us. But I think it will eclipse it in 2002 or 2003."

However, individual retailers reported varied sales during the economic winter of discontent that was January through March of 2001.

"Camcorders [analog and digital] have been flat versus last year," said Newtonville's Roberts. "We're still moving a decent number of camcorders but it's leveled off, I think in large part it's a function of the current economy. People tend to regard camcorders as a capital item and they're not going to upgrade if they have one that works."

Mike Blumberg, senior VP of Dania, Fla.-based Sound Advice, echoed this sentiment. He claimed that since consumers have less and less disposable income, camcorder sales have slowed and are down since last year. His specialty store just recently landed the analog business, prior to that they had strictly sold digital.

Not all retailers have felt the pinch. Wolf Camera's Bragg reported that his chain has experienced a 42 percent growth rate in digital camcorders since last year. That figure represents double Wolf's analog sales, which have grown at a more modest pace.

"We've had very little inventory, because we're transitioning to new models, but our sales in both categories were up 35 percent," related Hanby.

New York area retailer the Wiz has witnessed both sides of the camcorder coin. According to senior buyer Matt Howell, digital camcorder sales were up 34 percent from last year but analog sales were down 17 percent. These numbers were consistent, claimed Howell, with what he feels to be a national trend away from analog models.

In the battle over analog formats, most retailers claimed that Hi8 appeared to be trumping VHS-C as the analog format of choice for consumers.

"For us it's Hi8 by a mile," said Bragg. "Despite the market share claims of VHS-C, we are doing virtually nothing in the category. I think the claims are based on a few isolated mass merchants."

Shaw and Howell concurred that Hi8 is the more popular analog format in their respective markets.

"VHS-C is not having a good year at the Wiz," Howell remarked. "I think that Sony, who leads in Hi8, did more to enhance the product line. Panasonic, who leads in VHS-C, did nothing but lower the prices a little. They didn't update the look or feel of the camcorders or give consumers more features for the dollar."

Bucking the trend was Conn Appliances. Hanby stated that his chain sold more VHS-C than Hi8 and attributed it to the promotional muscle of Panasonic.

The incentive is clearly behind selling digital, as the majority of digital camcorders out-price their analog brethren and carry higher margins. However, certain retailers have seen their digital margins slip and cited a variety of factors.

"For us, we get about 4 to 8 percent margins on analog versus 15 to 20 percent from digital," said Wolf's Bragg. "It's a very profitable category for us."

Shaw concurred, saying the category is "much more profitable" than analog.

That was not a consensus opinion, however. "Both categories are getting less and less profitable," lamented Blumberg. "It seems that any time you can hook something onto a computer you get less of a profit."

"Starting last November and up to today we've found that the margins in both analog and digital took a dramatic slide," said Childs. "The real pinch was in Hi8 and analog in general."

Childs attributed the drastic margin crunch to price pressure from national chains that he suspected might have had too much inventory during the last several months.

Margins were augmented, however, by successful after-market sales. The retailers we spoke with reported a fair amount of success at appending add-ons during a camcorder sale. Many claimed that more than half of the camcorders they sold featured an add-on of some kind.

In both formats an additional or longer-life battery topped the list of popular peripherals, followed by a camera bag. For analog models, an extra tape lead the way, while digital buyers were interested in additional flash memory cards and image editing software.

"I would say at least 50 percent of all our camcorder sales come with an accessory, usually a battery or tape but also we have success with tripods and camera bags," said Hanby.

Roberts estimated that nearly all, 99 percent, of the camcorders they sell come with an add-on. Generally those included an extra battery but also microphones and wide-angle lenses.

"People know they're going to burn through batteries and we make sure to send them off with extra," Roberts said.

Howell agreed. "Most camcorders come with a one- or two-hour battery so it makes sense to sell customers a longer-life battery. They'll be happier with the product if the battery doesn't cut out on them in the middle of the shoot and it will let them use it more freely."

Bragg noted that with the rise in digital camcorder sales, customers are also looking for additional flash memory cards and his store has seen an increase in that category.

While many stores advertise digital because of the advanced features, they also consistently advertise analog camcorders as well because of the lower price points. Most retailers we spoke to advertise the analog models as an enticement to get a curious customer into the store where they can then be sold on the merits of digital.

"Even though you can buy a full featured analog model for under $300," said Childs, "we try to discourage that. We try not to make it any easier for them to go under $500" where they're suddenly in the range of a lower-end digital camcorder.

"Though we're definitely transitioning to digital, we do like to advertise our analog models because of the price," Howell said.

"The feature sets and price points on many analog models, especially with JVC and Sony, are very appealing to a mass audience," claimed Shaw. "The digital features and higher price points are still for a relatively smaller, more advanced audience."

The question of what features on the digital camcorder resonate with consumers brought little consensus.

"I wish manufacturers would really stress the editing capability," said Roberts, who tethers demo models to an iMac to show what can be done with entry-level image editing software. "That also helps us sell some basic image editing software."

Shaw concurred. "The ability to manipulate video and still images and send them over e-mail is big."

"We might be a little different, but people are really looking for big LCD screens and good picture quality," said Hanby.

Howell agreed that picture quality is a big issue and he felt it would only become more important. "As digital televisions really begin to penetrate the mass market, the quality from a digital camcorder will become that much more obvious to the consumer," he said.

A number of retailers claimed that the digital camcorder's ability to capture a still image as well as video impressed consumers, but these retailers also noted that they do not cross-sell digital still cameras with camcorders or attempt to steer digital still customers to video. In nearly all cases the digital still cameras are sold in separate (occasionally adjacent) locations from the camcorders and in some cases, digital still cameras are sold with computers.

"There's not a lot of interrelated selling because those are really two different customers," Howell said.

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