Photo Finish

Focusing on its image as a full-service photography retailer has helped make Black Photo Corp. Canada’s largest photo shop chain with 155 locations. “Our claim to fame is that we produce quality photo finishing,” says Phil Chapman, director of imaging and business development for the 75-year-old company.

But like all photography retailers, Black is riding a sea change in its industry, as consumers trade in their film-based cameras for digital versions, lured by the ease of taking, sharing and storing images electronically without having to buy and process film.

A $4 billion market

This year, U.S. consumers will buy about 25 million digital cameras, bringing market penetration to 55%, and then 81% in 2010, according to a report released in June by InfoTrends/CAP Ventures Inc. U.S. consumer purchases of camera phones will reach market penetrations of 31% this year and 81% in 2010, the report says.

Rising digital camera sales, meanwhile, are pushing up revenues from the printing of digital images. Consumers printed 7.8 billion of the 28.5 billion digital photos they took last year, creating a multi-billion-dollar digital printing business. Including prints ordered online, in stores and those made at home, digital photo printing generated about $2.66 billion last year and is expected to reach $3.72 billion by 2010, says Jill Aldort, senior consultant for Internet imaging trends at InfoTrends/CAP Ventures.

To Chapman, the digital revolution is a no-brainer that presents a clear opportunity to engage retail customers in a new range of photography products and services that revolve around the Internet as a distribution vehicle. “It’s bringing incremental store traffic and sales,” he says.

To capitalize on the digital trend, Black Photo and other traditional photography retailers ranging from Wal-Mart Stores Inc. to drug chain Walgreen Co. to single stores are offering their customers the option of loading their digital images onto a web site and ordering prints and photo-engraved items like coffee mugs and T-shirts for in-store pick-up or home delivery, helping to generate traffic to web sites as well as to stores.

“We’re seeing growth of more than 200% year-over-year in revenues and number of images,” says Kyle Hall, executive vice president of PhotoChannel Networks Inc., a Vancouver, B.C.-based provider of digital photo services software to Black Photo and 47 other retailers in the U.S. and Canada, including Eckerd Drugs and Wal-Mart Canada Corp.

Blurry picture

But the digital revolution has its blurry side for retailers, for whom it is both a boom and a potential bust, experts say. While digital cameras and imaging services are causing excitement among consumers, sparking consumer electronics sales for the likes of Wal-Mart and Best Buy Co. Inc. as well as at Black Photo and other specialty photography stores, they’re also offsetting the traditional business of processing and printing film, reducing the number of times photo buffs walk into stores, Chapman says.

So instead of going into a store three times to buy film, drop it off for processing and pick up photographs, consumers may come in only once to pick up prints of digital images loaded online. Another impact, though less clearly defined, is the effect that consumers’ preferences for using, sharing and storing digital images will have on the overall retail photo-printing market itself.

While no one doubts that growth of digital prints will surge over the next several years, consumers are printing a good number of these at home. Almost all, or 94% of digital camera owners who print their images did at least some of that printing at home last year, up from 90% in 2003, and only 13% said they print digital images most often through retailers, according to InfoTrends/CAP Ventures.

The multiple challenges of digital photography can add up to a reduced market share for retail stores, some experts say. “When it was only photographic film, retail stores were 95% of the film processing and printing market,” says Ben Nelson, general manager of HP Snapfish, the online photography service that Hewlett-Packard Co. provides on HPShopping.com as well as a third-party service to other retailers. “But in digital photography, retail stores now have about 30% of the market,” the rest going to home-printing and online home-delivery-only services like Shutterfly.com.

Long-term opportunity

Indeed, the move into digital photography presents an uncharted path rife with uncertainties, experts say. “There are a lot of variables at play,” Aldort says.

Although 40% of U.S. households have at least one digital camera, many digital photos never get printed, she notes, and no one knows if some new technology or service will persuade consumers to print more. And then there’s the digital camera phone phenomenon. Although surging in sales, current camera phones operate with low pixel counts that are good for sharing images electronically but not for prints, Aldort says. But now some camera phones are coming out with higher pixels, raising the question if consumers will begin to print images from them, she adds.

Still, there are ample signs that digital photography presents long-term growth opportunities for retailers. Particularly encouraging to retailers is that 33% of consumers who expect to acquire a digital camera this year plan to go to retailers for their printing needs, InfoTrends says.

As a result, prints ordered online for either home-delivery or in-store pick-up are expected to grow, Aldort says, adding that the fastest online market growth is expected for in-store pick-up services. “Online orders for store pick-up are now 5-10% of the total digital photo retail market, but we think it could get to 25% in the next few years,” she says. “Retail digital printing is growing so quickly, that there could eventually be an even split between retail and home printing.”

That growth, of course, will draw in more retailers as digital photography creates a new age of competition. Traditional photography retailers have several options and price ranges for implementing online photo services through companies including LifePics Inc., PhotoChannel Networks Inc., HP Snapfish, Pure Digital Technologies, Fujifilm e-Systems and Silverwire Inc. Online photo centers can range from basic services that let customers upload their images online and order prints for home delivery, to more complex systems that integrate with networks of kiosks, in-store printing labs and third-party providers of imaged-embedded gifts.

That means retailers are not limited by the geographic reach of their stores, but can target their competition’s customers with products and services through the web and strategically placed web-based kiosks.

New entrants

New players also are entering the digital photo services market, often with competitive pricing and large numbers of registered customers. Comcast, the big Internet services provider, for example, is using the Snapfish online platform, including the ability to store, e-mail and print digital photos for home delivery, for its Photo Center on Comcast.net. Target Corp. has entered the market in a so-far exclusive deal with Yahoo Inc. to offer Target.com customers access to digital photo services.

Then there’s Shutterfly, a web-only service that lets customers load and manage their digital images on Shutterfly.com and order prints for home delivery. Shutterfly also accepts referrals from other web sites, and it has entered the business services market by providing and managing the online photo center at Panasonic Consumer Electronics Co.’s Panasonic.com.

If traditional photography retailers are happy with 30% of the growing digital market, Nelson says, they can get by with offering only in-store services that let customers load their digital images into an in-store kiosk for printing in the store’s lab. To get back to 95% in their local market, he asserts, retailers should offer customers the three options of in-store, web-to-store and web-to-home. “If you want to play in digital photography and have a complete relationship with the customer, you have to play in all three areas,” he says, adding that retailers offering complete digital photography services should sell printers and paper supplies as well as image-loading and printing services.

That tripod approach is working for HP Snapfish, Nelson says, noting that it has close to 15 million registered users and has stored hundreds of millions of digital images.

Companies like HP and Panasonic, of course, want to sell printers as well as cameras and photo services, and so link their online photography centers directly to their computer products pages, a strategy also followed in the digital photography services offered by major consumer electronics merchants like Best Buy and Circuit City Stores Inc.

IRCE 2008 Conference Multi-Media CD-ROM

But for photography specialty retailers not interested in adding to their inventory with print-at-home equipment, the digital photography market still offers multiple customer-serving options and a broad range of new products—many of them offering higher profit margins than basic prints, experts say.

“There’s no common way to deploy digital photography products and services, because every retailer has their niche,” says Chris Johnson, vice president of Silverwire, which provides several options for processing digital photo orders, including hosted order management and image-editing software that retailers can offer through their web sites or kiosks.

Kiosks and prepaid cards

The software can also run locally on an in-store kiosk, or consumers can download it from a retailer’s web site to run on their personal computers. Consumers who do heavy editing of large volumes of photos are more likely to download the software, providing for faster editing, Johnson says.

7-Eleven Inc., working with PhotoChannel Networks and payment card provider DataWave, is selling private label prepaid cards through 500 stores in Canada that let customers order and pay for digital prints at 7-11photo.com, then pick them up at any of 7-Eleven’s Canadian stores. The $25 card provides customers with up to 55 prints ranging in multiple sizes.

Rite Aid Corp. launched an online service this summer on RiteAid.com, using an image-management platform provided by Pure Digital Technologies. The service lets customers load images online for printing and pick-up within one hour at a RiteAid store. The program is being rolled out initially to about 800 West Coast stores before becoming available throughout the 3,400-store chain.

Online photography represents the only version of e-commerce offered by Wal-Mart Canada Corp., which it provides under contract with PhotoChannel Networks through WalmartPhotoCentre.ca. Images loaded online can be picked up at any Wal-Mart or Sam’s Club store in Canada.

At Black Photo, Chapman says he expects his overall photo printing business will rise slightly this year, factoring in both the decline in film and the rise in digital photography, even if overall industrywide printing declines. He attributes Black’s expected performance to its early start in digital photography, including its broad number of accessory products. “Some experts say people won’t print as much any more, but there are so many new things we can apply digital photography to,” he says.

$139 photo blankets

Black Photo has developed in-house software for making greeting cards and other text-based items embedded with customers’ digital photos, and it relies on PhotoChannel to connect its online customers to third-party developers that embed digital images in things like T-shirts, coffee mugs and calendars, Chapman says.

Although these other products can take longer to process and deliver, they offer higher profit margins that can offset any decline in traditional photography business, Chapman and others say, adding that consumers have responded in surprising numbers to items never before thought of as photo-related products. “We offer things that we think won’t sell, like photo blankets for $139, but e-mails on them get a great response rate,” says Joe Parkinson, director of marketing for PhotoChannel.

Wal-Mart has been expanding its range of photo-related products, an effort that e-mail is helping to sell to shoppers by bringing images into their inboxes that are often timed to seasonal demand. The winter hockey season, for example, coincides with e-mails showing suggested gifts such as player cards inserted with photos of team members or coaches. For Mother’s Day, a big seller is blankets adorned with the image of a child’s photograph. E-mail has also been effective at promoting personalized photo calendars that can be designed to begin with any month of the year. “Instead of selling calendars in January and then offering them at 75% off the rest of the year, we can e-mail offers for photo calendars for Mother’s Day that runs from May to April,” Parkinson says.

The cost of setting up a digital photography service can vary widely, depending on how many services a retailer wants to offer. PhotoChannel Networks, which is changing its name to PNI Digital Media as it enters other digital products markets including DVDs and CDs, charges a one-time set-up fee of about $25,000 for basic services that let consumers upload images online and order prints, but the price can go up to high six figures for a full-blown system with complex image-editing features and connections to third-party providers of accessories like image-adorned gifts, Hall says. PhotoChannel also charges a per-print fee of a few cents or more depending on volume, while prints retail for about 20 cents or more each, depending on size and volume.

In addition, stores that tie into the PhotoChannel system can expect to pay about $90 per month to maintain a DSL Internet connection. And in-store digital photo-printing labs can run from $100,000 for a used machine to several hundred thousand for a new one with the latest editing features, experts say.

Ahead of the curve

But the investment is worth it, Black Photo’s Chapman says. “It’s not inexpensive to stay ahead of the curve, but we search the Internet daily for new technology,” he says, adding that Black has added its own software to its in-store photo-printing lab to enhance colors.

Black’s strategy is to further develop as a multi-channel photography retailer, bringing online customers into the store. “When they walk in, we’ll help them choose a new camera, help them take better photos and help them display them,” he says.

This time next year, he adds, Black Photo will also expand its reach beyond its stores through a network of strategically placed web-based kiosks that let customers load and edit images and send them to a Black store for printing. “I see the future of us having kiosks in partner locations—coffee shops, airports, tourist destinations,” Chapman says. “Within 12 months, we’ll be in a number of different public places.” l

paul@verticalwebmedia.com

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Capturing customers with kiosks

Dan’s Camera City operates out of a single 15,000-square-foot store in Allentown, Pa. But thanks to a little Internet search advertising on Google, it gets online orders for prints of digital photos from customers as far away as Italy and Israel. Now it’s also expanding throughout its local area in customer foot traffic without the expense of opening more stores.

Rather than build more stores, Dan’s operates ten web-based kiosks strategically located throughout the Allentown metropolitan area, including two hospital gift shops, a hobby shop, parcel-shipping stores and a florist. Customers can load digital prints, edit them and send them to Dan’s for printing. “It works very well for us,” says CEO Mike Woodland, noting that kiosks cost about $2,000 each. “It’s vital to our store traffic, and we get a high percentage of business that we wouldn’t have in other neighborhoods.”