Retailers See Profits In The Digital Camera Picture - Twice

Retailers See Profits In The Digital Camera Picture

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NEW YORK -Though winter frosts harden the ground, digital cameras are growing deep roots toward the inevitable (and proverbial) summer of digital photography.

According to industry analysts, digital camera sales are strong and getting stronger. With dropping prices, improving picture quality and ease of use, and a concerted marketing effort, the digital camera is making inroads into the conventional photo sales market, said Neil Portnoy, senior manager of imaging at the market research firm NPD Intelect, Port Washington, N.Y.

Portnoy reported that from January-September 2000, 2.1 million digital cameras were sold, a figure that represents a 121 percent jump from January-September 1999 when 937,000 units were sold.

Tracking photo specialty, electronics specialty, discount stores, computer mail-order and computer/office superstores, NPD predicts that approximately 3.8 million units in total will be sold by the end of the year.

One factor spurring sales is lower prices. Last year the average price of a digital camera was $563, but today the average cost is $499, representing an 11 percent decline-and the trend is expected to continue as the market expands.

"We haven't seen the digital camera eat into the traditional, analog camera sales yet, so they have a way to go. But as prices come down and they become easier to use, you'll see large growth," claimed Portnoy. Overall, his forecast for the market is very positive: "The digital camera has a great future."

Electronics superstores have made the biggest inroads selling digital cameras. According to NPD figures, from January-September 1999 the channel garnered 21 percent of all digital cameras sold and jumped to a 30 percent share in that same time frame this year.

"It took electronic specialty, the Best Buys and Circuit Cities, longer to recognize that the digital camera was a hot product and to understand how to sell it," said Portnoy. "Now that they are pushing it, they're having success. They also carry a lot of the ancillary products that make up the 'digital darkroom'-printers, scanners, media, etc.-that not everyone in the photo-specialty channel has."

These retailers have the advantage of consumers now understanding that the digital camera is a computer peripheral, something that should be bought at a computer store, and not simply a new type of film camera.

However, photo specialty shops still have an edge when it comes to selling digital cameras, and this is reflected in their dollar share. While the electronics superstore dollar share rose 31 percent during the first nine months of 2000, compared with the same period the year before, photo specialty sales were up 35 percent. This indicates that the photo specialty channel is selling the higher-end cameras, Portnoy said.

Michelle Lampmann, an analyst at the market research firm InfoTrends, Kansas City, Mo., agreed that the digital camera is poised for growth and predicts that by 2002, digital camera sales will reach 20.4 million units. Revenue from the sale of digital cameras this year, InfoTrends predicts, is expected to reach $1.9 billion, jumping to $3.8 billion in 2002.

But despite impressive revenue gains, digital camera penetration in U.S. households hovers under 10 percent, said Lampmann, and InfoTrends projects that just 6-7 percent of American households will own a digital still camera by the end of 2000.

Clearly, there is room to grow. One factor that will spur growth is a finishing infrastructure, including in-store kiosks and online services, that is as widely accessible as conventional film-processing services. To this end, many manufacturers have begun to bundle appropriate marketing materials with their cameras to educate consumers about where and how to get prints.

Kodak, for instance, advertises the company's Print@Kodak online print fulfillment service with many of its consumer digital cameras.

Sony is shipping some of its digital cameras with promotional material directing consumers to the Sony website when it's time to print their photos. Sony offers print services on its website through a partnership with the online printing service Ofoto.com.

Retailers are also stepping into the mix. Best Buy has a deal with Shutterfly.com to promote the website's digital photo sharing and printing abilities to the retailer's digital camera customers.

Picture quality is another hurdle that is slowly being addressed by the higher-end cameras.

"Digital technologies in audio and visual electronics have meant aesthetic improvements over and above their analog predecessor," Portnoy said. "That has not been the case with digital cameras, which at lower resolutions do not produce a 'photo-quality' image."

However, the higher-priced, 2- and 3-megapixel cameras that will dominate 2001 CES have largely mitigated this problem.

There is good reason for optimism among retailers who sell digital cameras: In the next five years, industry analysts predict they will usurp the traditional film camera's crown as the No. 1 image-capture method, capping off a period of phenomenal growth.

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