Robbo: Take a cold, hard look

September 7, 2011: Richard Robertson, until last month managing director of Ted’s camera and chairperson of PMA Australia, tells it as he sees it the first part of a wide-ranging discussion on the present and likely future of Australian photo retailing:

Do you miss going to work yet?

No way. Haven’t been off long enough to miss it. To be quite honest I’ve probably stopped thinking about it. I’ve got so many things on at the moment – grandchildren and people coming to stay from overseas, and trying to get my head around the things I want to do and in what order I want to do them.

How tough to you think photo retailing is today compared to previous difficult times?

The technology is fantastic. The disappointment is that at every level, no one’s actually been able to make an ongoing profit. So many people have fallen out of the equation. That’s the thing that puzzles me – the only people the digital revolution seems to have given an advantage to is the mass merchants. Coupled with the demise of minilabs, it’s basically obliterated the specialty photographic trade – especially in the mum-and-dad areas.

Forever?

Forever, amen. There’s no way back. I can’t think of an industry which has come back…You’ll get the little niche markets. The problem for someone trying to get into the business now, it’s a very expensive business to get into. You’ve really got to get into the high traffic flow street or a shopping mall, and the cost of fit-out is just unbelievable – around two-and-a-half to three thousand dollars per square metre for a shop fitter to do it from beginning to end.

The days like we did in the 1970s of opening up a store and building our own cabinets, with crap lighting and crap carpet or even bare boards, but with a good range of stock and happy, intelligent staff with good product knowledge, are gone.

That’s another problem – where do you get all the product knowledge-driven staff and ones that want to work in a retail industry working seven days a week on a five-day rotating roster for a reasonable income, when they can go out and get another job. In the ACT for instance the standard rate for an entry level clerk is $40,000 plus to start, on a five-day, 36-hour week, plus all the other generous benefits of working for the public service. We’ve lost a lot of staff over the years to the government.

We have a lot of trouble keeping staff. We have the transient staff which come in sort of in between jobs – but you can’t build a business on those. You’ve really got to have that core of knowledgeable people who love retailing and love photography

‘If you are a small independent retailer now coming up to a rent review you’d have to have absolute rocks in your head to sign up for another five years.’

If it’s that grim, what’s the future for Ted’s?

Over the next five years all companies – Ted’s, Camera House, and the big independents of which there are only one or two left, will have to find a way to survive in an environment that’s very hostile. Hostile from all angles. The customers have more rights than they have ever had, especially under the new ACCC consumer laws. Running a business is more onerous thanks to the new governance issues – health and safety, equal opportunity, sexual harassment, etcetera.

They are under attack by the CE channel – your JBs and Dick Smiths – who except in a few pockets don’t have any staff really dedicated to the product range. They are dedicated to the odd product within a range or they’ll pick on one supplier and support them, but there’s not the breadth of accessories and lenses, bags and batteries, and bits and pieces that you used to find, and still can find, in the bigger specialty stores.

Probably the most concerning attack on the industry is through the internet, and our government’s inability to create a level playing field. People don’t pay GST on goods over $1000 dollars whenever they feel like ordering from overseas. It’s not only the 10 percent but also the convenience of online shopping. But if we were to match the prices of the overseas vendors, the customer would still get that 10 percent bonus. I just find the whole scenario alarming that a government says it’s alright for people to buy offshore more or less duty free when they are not travelling overseas. Nowadays duty free purchases are available to anyone with a computer.

Australian retailers cannot compete with the American or Asian cost of doing business at all because we are so regulated. We just can’t employ people at the cost that stores in America do, and we don’t have the volume – the critical mass, 24 million Australians versus America’s nearly 300 million. The margins are slightly less [in the US], but the cost of doing business is lower too – I think the average salary for a retail salesman is around $7 or 8 an hour compared to here where it averages at $20, and they don’t have the compulsory super, etcetera, that we have here. So the speciality store retail business in Australia has to re-invent itself on several fronts.

There are heaps of retailers in shopping centres now who aren’t paying rent or have just packed up and gone, and we’ve seen over the last two years the number of retailers who have said it’s all too hard, and some are big names. The big boys are finding it hard even when they can vary costs and cross-pollinate and carry a store which isn’t doing so well. If you’re an owner occupier and your business isn’t travelling well you can’t hide it and you can’t carry it, so you get out.

And hopefully you get out while you’ve still got a profit. My advice to anyone who owns a business today, especially the mums and dads of the world, is: Do not sign a new lease until you’ve done some serious five-year planning and also look around for a better opportunity as far as rent goes.

If you are a small, independent retailer now coming up to a rent review you’d have to have absolute rocks in your head to sign up for another five years. The best you could do would be sign up for another one or two years and see how it goes, but I predict that within the next five years we’ll see a very rapid exodus of speciality retailers in a whole range of areas, for all those reasons we’ve spoken about.

The mass merchants and the internet have taken away the cream, and of course we now have a new entrant into retailing which is Canon. We now have Sony and Canon – Nikon will be next and then the others will have to follow because they will be at a disadvantage – they’ll have a great excuse to do it. Cutting out a whole level of distribution.

How do you rate Australian photo retailing stores and the staff?

In the ones that are still currently trading the stores are excellent and the staff are very good. The difficulty for the owners of those businesses is keeping the staff engaged.

In any industry you have a range of people who are pathetic through to exemplary, and there will always be a greater collection of people at the bottom than the top, and that’s really driven by how little margin and how hard the business is. It’s very hard to be imaginative and come up with a fantastic marketing program – going on the airwaves, letterbox drops, in-store promotions and the like – if you are making sweet bugger all.

I think in Australia we suffer from too many brands, too many retailers and the other things that I spoke about. There’s natural attrition going on at the moment where the big will get bigger and the little will disappear. Why? Because that’s the way marketing goes. There’s not the margin in it so you need lots of volume, lots of floor space and little or no other costs.

Unfortunately the online solution gives anybody the ‘perfect storm’ for success – little or no overheads, no retail landlord to put up with, no shop fit at $3K/metre to put up with, no staff at $50,000 and upwards, and they can buy from whichever supplier and whichever country they like. How perfect is that? (They are building the warehouse on top of my garage as we speak!)

As a consumer I don’t have to park, don’t have to battle the crowds, can go to as many shops as I like in 10 minutes without leaving my armchair, and find the right product at the right price – so long as I think I can trust them.

So, if you look at it unemotionally, online retailing solves the problem for everybody who doesn’t like driving around congested city streets to go into a shop to find out they sold out yesterday or never had it.

How about the performance of CE stores in photo retailing?

I don’t think I’ve been into a CE store with what you’d call dedicated photographic retail staff. A lot of them are very knowledgeable, but only to the point that the suppliers have trained them. I don’t think I’ve met many, if any, who have any fundamental idea about photography – the art side of photography, the technique of photography – but they can tell you the difference between Brand X and Brand Y, And unfortunately that’ about all the consumer wants to know. But more importantly, how much is it? How many megapixels for my bucks?

What do you see as the biggest threats?

Online, suppliers becoming retailers, and the CE channel being able to junk photographic products out. They don’t have any real costs in holding the stock, merchandising, etcetera, because most of them only have 10 – 20 square metres dedicated to photography in their stores, or maybe a big JB might have three or four cabinets.

Operating costs are out of control. The compliance costs and operating costs, rent, taxes, wages and all – and god forbid if you have to do a refit.

Biggest opportunities for speciality retailers?

The big opportunities lie in acquisition. In a small number of businesses operating a chain of specialty stores where you would have the economy of scale. That’s where Ted’s is looking. Acquiring heritage sites from those very people who are under threat. Who are finding it difficult to re-finance or reinvigorate themselves because they’ve been doing it for 10 or 20 or 30 years and it’s really tough at the moment.

Buying power is another one. The more stores we put under the Ted’s banner the more profitable the business will be. We don’t have to add to our basic structure to take on another four or five million dollars of business. That’s really the saviour for the staff who work in those stores. In the two stores we’ve just acquired the option was Ted’s buys them or they close, and if they close those people would lose their jobs. If they lose their jobs then they’ll step out of the industry and go somewhere else, and they’d be lost forever.

If the future of photo retailing is challenging, how about the future of PMA?

The future of PMA is directly linked. It’s a challenge. It will never be the same again. Whether it survives more than five years, who knows? From PMA Australia’s point of view, we have a financial agreement with PICA, we’ve got trade shows coming up we’ve got conferences coming up. We are looking at other ways to change our model to suit the current conditions.

Now if the people who run PMA in America and Australia can get their act together there’s no reason why it can’t represent the people left in the business. Albeit on a smaller scale.

I was told the other day that Jackson’s [PMA head office] staff have gone from 80 to 16. They probably didn’t need 80 in the first place – they probably only needed 40 or 50. With the GFC and the state of the American economy I probably would have thought they need to go down to 10 because you’ve got to be able to keep alive to fight another day. You can’t go broke protecting every job in every department. The PMA in Jackson was created by the affluence of the last 40 years. Maybe there’s been a lack of vision by people within the PMA of the rapidly changing environment.

Now they have taken the hard decisions – they’ve been forced to – and that’s good. Let’s hope they can re-invent themselves just like the photo specialty trade has to re-invent itself. When you look at it, how many other trade associations are there that are a parallel to PMA?

In Part Two next week, Robbo rates the performance of the photo industry’s market-leading companies, Canon and Fujifilm (as market leaders), and continues his analysis of the prospects of photo retailing in Australia.


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