Wrong or Right Strategy?

The discussions of the first quarter camera sales that are going on all around the photographic community—they're bad—keeps popping up a comment that I believe is incorrect.

That comment is something along the lines of "the continued and now rapid drop in sales shows that the strategy of going up-scale doesn't work." 

Well, it does and it doesn't. 

What the camera companies are doing is trying to keep profitable, despite the declining marketplace. You can see that best in the mirrorless camera market, where volume is not increasing, but the dollars taken in are. That's a direct result of a high-end push (e.g. everything from the X-T3 to the GFX cameras for Fujifilm, and the full frame cameras from Canon, Nikon, and Sony). 

Pretty much everyone seems to be in the position where they think they'll live with the contraction in units as long as they can stay profitable. Canon and Sony have already reported being profitable for the terrible Q1 2019 quarter, Nikon probably will, too. 

So the repeated comment I keep seeing is incorrect.

Except that it might not be.

That's because there clearly will be a tipping point after which this strategy stops working. I note, for example, that Nikon is already making some adjustments that will help them if the decline continues. The Sendai plant, for instance, is now partnering to make Lidar components for Velodyne. Sendai is where the D5, Z6, and Z7 are made. In essence, Nikon is trying to make sure that the asset they have on their books—a manufacturing facility—stays productive even in a strong downturn of camera sales.

Still, there's going to be a point where that strategy causes write-downs if sales continue to plummet. We've seen both Nikon and Olympus shut down plants in China, and we're seeing more and more consolidation of manufacturing among all the players. In the early digital era we saw the opposite.

Thing is, Canon, Nikon, and Sony are probably going to be able to survive whatever the contraction turns out to be. Their market shares might end up something like 45%, 20%, and 20% in the end, or the same 85% of the market they've had for awhile now. If the market is only 6m units, that 20% share implies 1.2m ILC units. That should be enough volume to put your camera group on a diet in a way so that it remains viable and profitable. 

It's the companies sharing the remaining 15%—Fujifilm, Olympus, Panasonic, and Ricoh/Pentax—that really have the big problem with the declining market. I just don't see any of them getting to and sustaining a reasonable profit if things continue as they are. Olympus could hit a 3% market share, for instance. 3% of 6m units is 180k units, which is way fewer than they're making at present. Even with their recent plant consolidation in Vietnam, they're still overbuilt for a volume that small. 

The trick is to find any stable market or growth market within dedicated cameras. Growth, you say? Yes, I believe that there are areas where you could build some modest growth. If Olympus made a Tough camera with an m4/3 sensor, it would be unique in the market, for instance. Clearly able to do things that your smartphone really can't be relied upon to do. (Yes, I know some smartphones are waterproof now, but they are still prone to damage when used for something like snorkeling. One rock encounter and you've got a non-waterproof phone and a cracked screen.)

Full frame is where the camera companies found some traction. Pros and serious enthusiasts understand and appreciate the advantages of a large sensor, and they already have lenses in their closet that support that format. At the end of the film SLR era, it was the top-end cameras that sustained Canon and Nikon through the buying lull. Both are going to test that again.

I'm actually much more worried about the ecosystem around cameras than the big three camera makers. Continued volume drops means we'll lose camera dealers, software makers, accessory makers, and maybe even some lens makers (especially given the competition that's popping up with China for lenses, now). Web sites you like to visit are going to get challenged to survive. 

But I long ago learned that Darwinism can be applied to business, too. Those that keep trying to survive as they are probably won't. Adaptation is key. 

So instead of complaining about dynamic range or feature sets or ergonomics or product lines you were in going away, maybe you should be thinking about which camera makers are clearly working through adapting to the changing market. 

One would have to argue that Sony started doing that some time ago and is still trying make small adjustments. Canon, as I've pointed out, is trying to turn their big battleship now. How well that's going is difficult to measure yet, but it seems they're trying to adapt, too. Nikon pretty much stopped what they were doing (iterating DSLRs mindlessly), did a rethink, and came back with the Z's, and I don't think they're done showing us how they adapted.

Fujifilm and Panasonic have both placed additional bets on the table (medium format and full frame, respectively). We can debate whether those are the right adaptations, but it shows that they're thinking outside the box they were in. 

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