Low margins, sales-tax free sales from competitors, rebate promotions and a collapse in photographic printing are punishing photo specialty retailing in the US. Sound familiar? Phil Mistry reports on the demise of Showcase Photo & Video, the last dedicated camera retailer in Atlanta, Georgia, population 5 million.
Forty years ago, Bob Khoury (pictured right) and Warren Steinberg started selling used photo equipment out of a showcase in an Atlanta, Georgia, flea market. Soon they moved to a brick and mortar store which, to incorporate their earlier experience, they called Showcase. The store grew to be the largest in Atlanta and sold photo and video equipment to amateurs and professionals alike, and last year they celebrated their 40th anniversary.
To provide the best customer experience they hired knowledgeable sales people, some of whom have been with the company for more than 20 years.
Fast-forward to 2017 and they are the largest camera store and the last one left standing. However, dark clouds have been covering the horizon for some time and on January 5 Showcase announced: As you are well aware, the coming of the Internet and high-volume consumer electronics stores have progressively shrunk our retail market. We have adapted to these changes in as many creative ways as we could and have survived to be the last photo and video store in Atlanta. But we have reached a point that we can no longer sustain a retail business. So it is with great regret that we will be closing Showcase Photo & Video on Tuesday, February 28th.
Showcase general manager John Williams, who has been around for nearly 50 years in the photo field and as a manufacturers’ representative, believes the business is unsustainable based on the current combination of factors and pressures on the photo retail business (eg, there are several things that are going on now that are affecting most all photo retail stores in the country). Williams outlined three main reasons why independent camera stores are going the way of the dodo into extinction:
1: An uneven playing field
‘The first thing is that we’re all operating in an uneven playing field which has been influenced by the failure of states, in this case Georgia, to require the collection of sales tax from retailers operating outside of state,’ Williams said. ‘Failure to come up with a way of collecting sales tax has put a burden on our company and others in the state that is currently 8 percent, soon to be almost 9 percent, so I’m operating at an 8 percent disadvantage.
‘Now I can tell you that the state is collecting their 8 percent from me, and that in many cases far exceeds the percentage of profit that I’m making on merchandise. The state makes more on many of my sales, which strikes me as being an unsustainable number.’
2: Information Boom
‘The second issue has to do with the amount of, shall we say, digital information that’s now available,’ Williams says. ‘In the old days customers would sometimes seek information or seek pricing for a product by using one of the several photography magazines that were available, so they thumb to the back, find the product and see what the price was in the back of the books.
‘Sometimes that was reliable and many a times it was not. Well today the consumers do not have to worry about a magazine as they have a computer in their hand in their smartphone that will tell them instantly what the product sells for here and elsewhere so they have an instant comparison shopping. And well, I’m fine with that and we are very competitive with most everybody else in the whole country.
‘However the consumer, more often than not, now is not coming in to listen to our conversation about the product, the value that we bring to the product and what special offers that we might have. What we’ve seen over the last couple of years is steadily declining store traffic and as the store traffic has declined the sales volume follows that and has been shrinking.’
3: Manufacturer Marketing
‘The third unsustainable issue is that manufacturers have come up with a marketing strategy that involves rebates, often referred to as instant rebates, when we take them out immediately,’ says Williams. ‘As an example a $1000 camera might have a $200 instant rebate so the way it is set up to work is that, I have a choice whether to offer the rebate or not. But I can assure you that the consumer knows there is a rebate and I’m having a gun held to my head and told by the manufacturer you basically have to offer this to your customers.
‘Here’s how it works: I sell the $1000 camera to the customer and then I deduct the $200 instantly, so $200 of my money is gone. In order for me to collect the rebate from the manufacturer I have to file various documents on a timely basis and hope that they honor and fill those requests in a timely basis. That could be weeks to months so in a fact they’re holding my money for weeks to months. Now when they reimburse me for the $200 instant rebate they do not reimburse me 100 percent. The way it works is they reimburse me 80 percent, so it’s an 80-20 arrangement where the manufacturer reimburses me $160 and I’ve essentially given up $40 of my money on the sale.
‘So as I said before, this is just another unsustainable proposition that’s going on in the industry and dealers are putting out tens of thousands of dollars and in some cases hundreds of thousands to support the manufacturers’ rebate programs, which are only being reimbursed to the tune of 80 percent. Once again, it’s an unsustainable model.
‘Unfortunately, the industry has become driven by product, so that the manufacturer regularly introduces new products. Of course we see the pick up in sales but if they’re not introduced by the manufacturer then sales tend to tail off or decline at the end of the life cycle and that’s unfortunate.
‘Just as unfortunate is the beginning of the life cycle where the manufacturer introduces a product and is unable to supply the product in sufficient quantities to fill the existing demand. So not only are you unable to fulfill a sale but in many cases it basically stops the sale of other merchandise. The consumer decides I want that particular model so you have kind of a Catch-22 of not selling one cause you can’t get it and you can’t sell the one you have because it’s not the current model.’
‘People come and ask me what happened with Showcase, a company who’s been in business for 40 years, and the answer is that the curve between making a little money and losing money has intersected, so now we’re at the point we’re not making but losing,’ said Williams. ‘And a business can’t be sustained very long if you’re losing money, so that’s kind of where we’ve arrived.
‘It’s very interesting from an economic viewpoint where you have essentially a city of almost 5 million people and here we are the only photo-video specialty store in the city, with a 40-year track record, and we found that we are unable to sustain our business in a profitable fashion.
‘Now, I often think to myself maybe it’s something we’re not doing or something we did wrong and so forth. But we have a lot of experience and I have spent my whole career in the photo business, and that’s about 50 years. I’ve seen from both sides of the desk not only this position but out on the road and I visited hundreds of dealers (as a manufacturer’s rep in the past) and did business with them so it’s a very difficult position.
‘As I look around the country, just a few months ago a major West Coast dealer, Keeble & Shuchat Photography out of Palo Alto, CA shuttered his business and if you read his remarks, they’re not a lot unlike those that I just made about the state of the industry.
‘Now what’s going to happen going forward is really difficult to say but the manufacturers have not done themselves a favour. The state of Georgia has not done itself a favour. Georgia is not only going to lose the sales tax that was generated on a regular basis out of this location, but also there are other fees and taxes that they collect during the course of the year which is immediately going to drop to zero.
‘So the State is essentially forfeiting in excess of a million dollars, which is a small amount and before you know it is a 100 million and then 500 million and now it is almost approaching ‘real money’.
‘The decision to close the business is extremely difficult for a lot of different reasons most of it is that I’ve never done it before and there are no guidelines as to how to go about it. How do you deal with personnel, all kinds of issues and insurance? It’s kind of unfortunate especially when you have personnel who have been with the company, not perhaps for the entire 40 years, but we have a number of employees that have been here over 20 years. And they didn’t stay here for 20 years because they weren’t good at what they did, but they happen to be very good at what they do.
‘They are excellent technical people, they are excellent sales people, they work well with people and the customers relate very well to them and we’ve had literally hundreds of customers come in and say they were very disappointed that things have played out this way and they were very sorry and wished us well.
‘Another casualty of this whole process, besides the State and the manufacturers, will be our customers who will not benefit from our employees’ expertise and the ability to come and visit us and talk about photography and video in general. And unfortunately our sales staff will have to find other homes in order to do what their specialties are.’
The scourge of showrooming
Showcase owner Bob Khoury says his business kept on growing till 2012, when it started to plateau off. They were pretty flat for 2013 and 2014, then dropped off a little in 2015 and more in 2016. This was enough to paint a picture that they could not sustain their current business model and they had to either dramatically make some changes and cut overhead or they had to close.
Showcase did not want to reduce the staff or their level of service as their customers had come to expect that from them, and any thing less would not have been fair for the loyalty they had provided to the business. When it came to inventory they had to stock all the popular lenses and cameras and held as much inventory of everything as they possibly could — if customers were told that items were not in stock, then they would go home and order online and not come back.
Showcase’s demographic was aging, better cameras on smartphones were eating into the digital camera market, less customers were coming into the shop and even those that came were often showrooming. The word ‘showrooming’ gets underlined in red by my Microsoft Word spellcheck, so I go to Merriam-Webster but it is not there either. However, showrooming has become a legitimate word in the last few years and Wikipedia defines it as the practice of examining merchandise in a traditional bricks-and-mortar retail store and then buying it online, sometimes at a lower price. Here they were not just examining the merchandise but getting the input and advice of the experienced staff to figure out which model was the most suited for them, holding it in their hand, picking on their knowledge, using their time… and then buying online.
A Canon EOS 5D Mark IV DSLR camera with 24-105mm f/4L II lens used to cost US$4599.99 at Showcase, which is exactly the same at most major players, but the added 8 percent sales tax of $368 is what the customer gets to keep as a bonus by buying out of state. Canon and other manufacturers provide a MAP or Minimum Advertised Price and when the main players stick to that the others have to follow. Amazon does charge tax in Georgia because they have warehousing facilities in the state, but that does not apply to online photo retailers.
‘Amazon is not my major competitor,’ says Khoury. ‘My major competitor is New York.’
Sales tax is not the only reason that Khoury has to shutter his doors: margins is the other. In the past margins were around 20 percent, today it is half of that on cameras and lenses and even less.
‘One of the main reasons — and I in no way want to come across as a victim — is the manufacturers, and I lay a lot about it on the manufacturers, who have been cutting my margins for years and fixing Minimum Advertised Pricing to the point where it’s very difficult to make any money in this business,’ said Khoury. ‘My margins have fallen 5 percent over the past eight years. To give you an idea, the minimum advertised price on Canon lenses is 5 percent [ie, includes a 5 percent margin]; we make 5 percent on Canon lenses. Others are 10 percent, but even that’s not enough to sustain the business.
“The margins have been cut so low on our major products and then the manufacturer say, well the reason you know we’re doing this is that it drives business to your store. Fine, but if somebody comes in and buys a lens that I make 5 percent on and if they pay me with an American Express card I have to give American Express over 3 percent of that. Where are my margins? I have no margins.
‘Camera bodies are a little more, anywhere from 7 to 10 percent, still not much, not when I used to be able to make 20 percent on cameras years ago, back in the good old days. Those good old days are gone.’
A small item like a filter might have margins of more than 50 percent, but unless a dealer can accessorize a camera/lens purchase there may not be sufficient margin on the sales. And even then a small item like a filter may not be enough to compensate on an expensive lens being sold at a low margin.
Bricks and mortar stores have to go online to survive, but Khoury says: ‘I never had the resources to properly do it. In order to do it right it needed $500,000 just to create a website that works well! We did our best when digital came on to embrace it and to sell, but unfortunately it’s just become impossible to make any money, enough money in this business to sustain this business model.’
Big online sellers are getting special deals and that is okay with Khoury as they are buying in bulk at a level that he can’t, as that is their business model.
‘More power to them,’ Khoury says. ‘The only complaint that I have is the sales tax issue, because everything else I can fight. I am in business and I realize if somebody else has a better business model or a different business model, I can change and I can adapt, but I cannot change the federal government giving my competition an unfair advantage.’
Khoury says that after his store closing on February 28 and after he has paid off all his vendors, he will ‘go up to Washington DC and see if I can lobby somebody to get this (sales tax) bill passed, because what has happened to me I don’t want to happen to anybody else. When Keeble & Shuchat Photography went out it devastated me. It made me realize that the writing was on the wall and I really had to look hard and fast at it to determine where I wanted to be.’
Another one bites the dust
Terry Shuchat, who owned Keeble & Shuchat Photography in Palo Alto, California, for 51 years and closed in October 2016, said: ‘The photo industry is really in trouble. So many people are no longer buying cameras. They’re quite happy with pictures from smartphones and that has taken away a nice chunk of the photo business. So few people are printing pictures and that was also a nice part of the business.
‘Its [slow down] been happening gradually for the last three or four years. It has been accelerated for the last year and a half. I own both of the properties where we were and I did not have the problem where high rents have forced other stores out of business. But just the lack of sales forced us out of business.
‘We started losing money about four years ago, first it was just a little bit and then it got greater each year. But we made a lot of money for a bunch of (earlier) years. I have a lot of the same employees for 20, 25, 30 years and more and I felt really badly for them. That was one of the reasons I kept it going perhaps a little longer than I should have because I had great respect and cared for them. But then it just reached that point when it was becoming just a money pit instead of a manufacturer of money.
‘We started in 1965 and lasted 51 years, which is a good run. We were even profitable in the first year in 1965. I enjoyed retail. Back in the days of film, customers came in to see us often, when they would come in to buy a roll of film and we talk to them, then they bring the (exposed) roll of film back for processing and we talk to them, and then they come back to pick up the pictures and then we saw them again and we had a close rapport with our customers.
‘Once the digital age came particularly in the last few years when cameras have gotten so wonderful that we would sell a camera and they had no reason to come back again. We gave classes and the enrollment went up dramatically the last few years but they did not produce the kind of sales increase we would have hoped.
‘And the other thing is that places like B&H Photo Video and Adorama, which are huge, are very honest and good places to deal with, so customers aren’t taking any kind of chances when they are buying from them. Whereas back in the days of mail order, there used to be a lot of dishonest dealers, so mail order had a bad reputation and it wasn’t hard combating someone buying mail order but in the Internet Age there is nothing bad to be said of them.’
Profits have gone down dramatically ever since cameras became part of the electronic industry. Earlier there was a huge, separate photography trade show put on by PMA (Photo Marketing Association) and in 2011 it got merged into the CES (Consumer Electronics Show) annually in Las Vegas. Back in the days of film cameras models were out for longer and the profit potential was much higher. Today it is minimal.
‘The manufacturers allow us to make so little profit,’ says Shuchat. ‘Quite often the value of the instant rebates is more than our profit, so we would sell a camera at a loss until we received the instant rebate back from the manufacturer. And there is always a lag time there, so cash flow became a problem. The rebate was reimbursed at 80 percent and the manufacturer justified it saying our profit margin was the same.
‘I say we are still making whatever we are making, 15 percent or 13 percent but our actual dollar amount that we made is less. So we have to sell more cameras to take in the same amount of money except that camera sales have been going down every year. So it was not possible to make it up in volume what we were losing in each sale. Even if the margin on a camera is 15-17 percent, if the customer gives you a credit card you are out 2 percent there, and the customer will sometimes say OK, I’ll buy it as long as there is no sales tax (like online), then we would agree to pay the sales tax and now we are out 2+8=10 percent and then we have to pay the sales person, so we could conceivably lose money on a sale.’
Keeble & Shuchat Photography had an online site as well but the locals mainly used it as a reference and there were not much national sales. ‘When Amazon started collecting sales tax in California three years ago, we initially noticed a little increase in our sales,’ he adds. ‘But the ratio of customers going to New York retailers as opposed to Amazon is 75/25.’ He is not bitter at his store going away and even adds, ‘We made a lot of money the first few years from digital as it was very profitable.’
Ritz Camera which was started in 1918 ended up being the largest camera-store chain in the US with 1200 stores in 48 states plus the District of Columbia and estimated annual revenues of $1.34 billion as reported by Forbes in 2002, but today has almost vanished with only five stores remaining and being run by another company which bought out the name. This huge number was achieved by acquiring and merging with other photo chains, including Wolf Camera which had 700 of its own stores nationwide — 70 in just Atlanta alone (with one mall having 2 Wolf Camera stores), and 50 in Chicago and lesser amounts in Dallas and other cities.
Wolf Camera at one time had 70 percent of the Atlanta camera, lenses and accessories market share. Ritz Camera/Wolf Camera had a business model that failed. Both based it on film processing or 1-hr processing especially in malls where you could drop off the film roll, finish your shopping and then pick up your prints. Digital ran them out of business when people could view their images without having to pay for paper prints.
Chuck Wolf (pictured right), a relative of Benjamin Ritz (who started Ritz Camera almost 100 years ago), said, ‘Ritz Camera and Wolf Camera were about the same thing and sold a lot of cameras, but mostly the business profit was from photo finishing. So 40 percent of my business was photo finishing and 60 percent was other sales including cameras and accessories. And the 40 percent that I sold on photo finishing was a lot more profitable.”
“In my days you made 20-25 percent on a purchase (camera sales), but we probably averaged about a third as we sold accessories with it, camera bags, service contracts, filters and tripods and now it is below 10 percent (margin) on just cameras or maybe even 8 percent, and have to wait for rebates, I understand, and you don’t make any profit.
‘It’s not a real healthy thing to be a retailer of cameras right now. Photo finishing was 70-75 percent gross profit, maybe more. People used to bring 3-4 rolls of 36 exposures and that was about $15 a bag (each roll).’
Wolf who says ‘a photo is not a photo until it is printed’ has been beaten by electronic devices, which have made viewing prints easier than shuffling through paper albums. And cheaper too!
(Chuck Wolf still operates a single store in Georgia, Chuck Wolf’s Photo Design Bar, specialising in photographic print services.)
Phil Mistry is a photographer, teacher and writer based in Atlanta, GA. He started one of the first digital camera classes in New York City at International Center of Photography in the 90s. You can reach him here. This article was originally published in Petapixel. Reproduced by permission of the author.