Note: A number of people were kind enough to provide me with more information on this topic after we first published this article. I’ve revised it as of May 9, 2009 Additions are in green font or in the addendum at the end of the article.

If you don’t buy a lot of camera gear, you might not have noticed it too much. If you hang out in the online forums a lot you’ve probably heard people whining about it. And if you have bought gear lately, you might have noticed things are very, very different. You probably expected the lens you wanted had increased in price (although you might not have realized how much it had gone up until you looked). You might have been a bit surprised to find out how much it had gone up, and that NOBODY was offering a discount over list price. Chances are good that you even found the lens was out of stock at your favorite store. And most other stores. And if you did find it in stock the store may have been charging a lot more than list price, something virtually unheard of a year ago.

We are a lot more aware of it than you are: we buy between 80 and 140 lenses a month, many of them from the same retailers that you use, some directly from the manufacturers, some from places you don’t want to know about. That experience makes the recent changes in the camera market more apparent to us. We’re also on first name basis with the owners and/or salesman at a dozen camera stores, and we are ourselves dealers in some brands. (FULL DISCLOSURE: We would not and did not include any information in this article that we received from a manufacturer’s representative. We are under agreement not to do so with any manufacturer we buy from directly. All of the information here are things you can find out and verify independently.) At any rate, this little blurb is to provide some information about how the SLR marketplace has changed recently, and to speculate where that might lead. I’ll try to clearly separate known facts from my conclusions (which are just my opinion).

The Retail Camera Market of the Last Few Years

First, some things you might not know (or might not want to believe) about the retail camera market. Selling SLR lenses, in general, has been a loss leader or breakeven proposition at best for retailers. Ask any local camera store owner – his cost from the manufacturer is about the same as what you’d pay at B&H or Adorama, which is usually the MAP (minimum advertised price) at which the lens can be sold. If the store sells it for a lower price, they may face problems with the manufacturer. Camera bodies may have a bit more profit. Accessories – filters, cleaning supplies, bags, etc. are where the retailer actually has a markup and makes good money. The markup on a $1,000 lens is about $30-$50, maybe a bit more if you turn over a large quantity every month.

Over the last decade photography superstores such as B&H, Adorama, Buydig/Beach Photo, Calumet, and Samy’s, have become very efficient and move very large volumes of gear, mostly via internet sales. (According to a third party, for example, B&H Photovideo has up to 6,000 transactions per day in their walk-in store. Their shipping warehouse at the Brooklyn Navy Yard obviously handles a lot more.) If I can sell 1,000 lenses a day lets say, at a $50 profit each, I’m doing OK. If I sell 3 or 4 lenses a day I probably barely pay the rent. Small, local stores can’t possibly complete on price or volume and most of them have closed.

Please don’t mistake me: I’m not bashing the big stores. In fact they have my total admiration not only for being so successful, but in almost every case for providing superb customer service while remaining profitable in a very tough, low-margin business. Some local retailers have managed to stay viable through a combination of internet and walk-in sales, even though they historically can’t quite match the big boys in price or selection. Other “online stores” degenerated into sweat-shop scam houses, advertising unrealistically low prices and using bait-and-switch and all manor of scam tactics to make money. But for several years the trend has been clear: superstores thrived, chain stores survived (until recently) and small shops closed.

In this environment generally the price was the price. The big stores all watched each other, matched each others prices (if not always service level) and while you might occasionally save a few bucks finding an item on double secret sale somewhere, chances were if they beat a big stores price they were scamming you. And everybody had whatever you wanted, at least most of the time. Once in a while a certain lens might be out of stock for a few weeks, because the manufacturer hadn’t sent enough to the U. S. in the last shipment. Occasionally a lens, usually a less popular lens like a professional grade prime or a tilt-shift, might be out of stock for a couple of months because the manufacturer hadn’t produced enough in their last assembly run. (For those who don’t know, a lens assembly line is set up to produce one certain lens. After x number of copies are produced the line is taken down and reset to manufacture a different lens. Not a quick process. I heard from an uncertain source a few years ago that Canon had 6 assembly lines total. I have no way to verify if that’s accurate, but its the only number I’ve heard.)

The only other thing that changed during this time frame was the manufacturers began taking a page from the computer software developer’s handbook and announcing new products months and months before they were actually available. The Medium Format folks were the worst. If they announced a product you might see it someday, you might not see it ever. Recently Canon has become nearly as bad. Their product announcements went from a couple of months before availability to 4 to 6 months recently. Nikon has a more schizophrenic approach. They announce an item, sometimes supply it immediately (most cameras) or supply it a bit, and then trickle more copies out over—well given that its still about impossible to find a 600 f/4 VR, I’m not sure how long.

A lot has been made about the recent closing of the chain stores, Wolf/Ritz and Circuit City. I think this was mostly about business practices and not a reflection of the SLR market in general. Cameras were only a small part of Circuit City’s lineup and Wolf/Ritz was always an odd bird in the camera market. It had very different business practices. They made most of their money in photorefinishing and also owned Boater’s World Marine Centers, a chain of 130 boat supply centers which had done very poorly. If you want to laugh a bit, look at this page from BoatersWorld.com. Yeah, my first thought is I bet Boater’s World is just the place most people think of to buy their 1DsMarkIII. Someone has made comments that the manufacturers raised prices because Ritz/Wolf listed $40 million dollars of lenses in their bankruptcy filings but I think this is rather silly: the manufacturers will get most of that back (either lenses or cash), and with $5.8 billion in imaging sales, Nikon, for example is not going to go under because of a piddly $40 million dollar loss (most of which they aren’t really going to lose anyway).

The Retail Camera Market of the Last Few Months

Shortages

The first hint of new issues came in mid 2008. During the summer, the new Nikon VR supertelephotos weren’t to be found anywhere. Bribes were sometimes paid to buy a copy (trust me here, this is firsthand knowledge), but we all realized it was because the lenses were first placed with pros for the Olympics. But that didn’t really explain the 70-200 VR shortage of the summer of 2008, nor the fact that 600mm and to a lesser extent 500mm VR lenses are still difficult to find a year after introduction. (A former Nikon representative, has informed me that Nikon has had chronic problems producing enough supertelephoto lenses since the 1970s, so perhaps this is less notable than I thought.) So, at first we assumed it was because Nikon had an increasing market share of SLR sales and hadn’t ramped up lens production to match. At any rate, during all of 2008 there were 4 lenses that become unavailable for purchase (Other than the Nikon VR telephotos) for a periods of 3 to 6 weeks. That’s four (4) lenses during 2008 that just weren’t buyable anywhere. As best we can recall (we didn’t keep that number in 2007) that’s about the same as most years.

In 2009 the shortages really hit, and it wasn’t just Nikon, it wasn’t even mostly Nikon. At LensRentals we have to be aware when a lens isn’t available because we guarantee availability for our reservations. If a lens is damaged or stolen we have to get a new copy right now, so we spend some time (and have some little computer programs) that tell us where various lenses are in stock and at what price. At this moment (April 2009) there are 17 lenses that we can’t buy copies of anywhere, and there’s at least one unavailable lens for every brand we carry. So four times as many lenses are out of stock in April of 2009 as there were during all of 2008. That number is probably low: that only concerns the lenses that we stock. We don’t bother to check on lenses we don’t carry.

One interesting phenomenon we’ve noted is that the superstores are generally out of stock first (makes senses, that’s where most people go to buy now). Its so striking that in the last 4 months we’ve established new relationships with 6 smaller camera stores: they can get us stock when the big stores can’t (I assume because their turnover is slower). Even in the cases where we can’t buy directly from the manufacturer, we can often find a short-supply lens at one of the smaller shops even when the manufacturer’s U. S. warehouse is out of stock. This is a very new thing. And one side effect I’ve noted very clearly in this bad economy is that my contacts at some of the big stores are very worried about business, while my contacts at several smaller shops are happy as can be, business is great. I assume that the lack of availability is leveling the playing field a bit.

One other phenomenon I’ve noted that I’ve never seen before: some online stores are selling lenses at prices way above the manufacture’s MAP. Again the reason is pretty obvious: supply and demand. If there’s plenty of supply you’d better meet your competitors price or you won’t sell any. The competitor will sell all of his and order some more. If supply is short you can raise the price and after your competitor has sold out, people will have to come to you and buy at the higher price. Sure, some people will decide to wait on the purchase, but others (say a rental house desperate to replace a damaged lens 🙂 need it now and will pay your price. If you watch carefully (and we do) you’ll notice as some stores start running out of a lens, at least some of the remaining stores are increasing their price.

The final comment I’ll make about shortages is that some are single-country. For example, Canadian stores are often out of lenses that are still available in the U. S. Others are geographic. For example Canon 35 f/1.4s were recently out of stock all through North America and Europe, but readily available from Asian sellers (yes, we buy there when there are no options—want to know the postage from Hong Kong to Memphis? Not pretty.). Other shortages are global – like the Nikon VR Supertelephotos. We make the assumption that regional shortages mean the company underestimated how many of their lenses to put on the ship this month (or however often the ship leaves), while global shortages would indicate the company didn’t produce enough the last time they tooled the assembly line for that lens.

Prices

This summary is short and sweet: up, up and away! Nikon has raised prices twice this year on most lenses, as has Canon. The third party manufacturers have all raised once (or are about to May first). Olympus and Sony don’t seem to have followed too much, but that’s probably a matter of time. Pricing for us consumers appears to have taken a big jump from the manufacturers, and at least in some cases a smaller jump from retailers who aren’t selling lenses under MAP anymore. And at times are actually selling them above MAP. Careful shoppers have gotten used to cutthroat discounts from the retailers. The fact that those discounts are gone makes the real price paid a bit larger than the manufacturer’s increase.

So What’s Happening?

Wrong Expectations

When it became obvious the recession was upon us, I know many photographers were expecting the prices of cameras and lenses to fall. This was a simple error in expectations, they were applying the Department Store Bad Christmas concept inaccurately. The Department Store Bad Christmas concept is 1) Store buys all their Christmas stock, 2) Christmas sales are bad so they’re left with lots of stock which they mark down drastically and sell. This idea didn’t apply to lenses for a couple of reasons. First, department store merchandise has a high markup (50%) so drastic markdowns are possible. Second, department store goods go out of style in a few months so selling at a loss is better than never selling at all. Camera lenses don’t have high markups, and a good lens now will still be a good lens in 6 months, so holding on to it is often better financially than selling at a loss. Plus its often possible for a camera retailer to return unsold lenses to the manufacturer for credit.

The Dollar versus the Yen

The party line for most of the price increases has been that the buying power of the dollar has weakened significantly against the yen. This is true, the dollar dropped from 110 yen in August, 2008 to 90 yen in January, 2009. On the other hand, the dollar has rebounded to 100 yen by March, 2009. When you consider that most multinational companies hedge currency pretty effectively the change doesn’t seem enough to justify the price increases, but I’m sure it does contribute to them to some degree. Or at least justifies them to some degree. The Euro has had a slightly greater loss against the yen than the dollar and European prices seem to have increased more than U. S. prices, so maybe there is something to it. But Japanese prices have increased too, so maybe not all that much.

Several people have contacted me to provide more evidence that the slide of the dollar and Euro against the yen really are a major portion of the pricing problem, using examples from the auto industry. I was surprised to learn that Nissan had moved production from Japan to Mexico and Toyota had declared openly that the strong Yen was largely responsible for price increases and weak sales.

Manufacturer’s Cuts

Say what you want about their R & D and quality control departments, but all of the SLR manufacturers are huge multinational corporations with decent business sense. They knew a worldwide recession was on the way and took action fairly early. Nikon laid off 10% of their manufacturing force in November 2008. Canon laid off 1,200 Japanese workers and cut input from its suppliers in December 2008. Sony has laid off many thousands of workers, although its impossible to find how many were in their imaging division. Canon also delayed opening a new manufacturing plant and numerous reports say that all the camera manufacturers have cut orders from their suppliers. So there’s no question the manufacturers have consciously cut production.

One can debate whether the manufacturers planned to create a shortage which would raise prices, or whether they overreacted and cut production more than was warranted. Everyone understands that you can sell more items at a lower profit, or fewer items at a higher profit. Businesses spend a lot of time projecting (often inaccurately) the ‘sweet spot’ of price where total profit is maximized. Whether the current shortages were a plan to raise prices, or a miscalculation of how much to cut production makes for an interesting discussion devoid of facts. Either theory is plausible and no one outside of their boardroom knows the answer. I suspect many don’t know for sure inside the boardroom either. It also doesn’t matter much, the deed has been done. Production has decreased more than demand, and therefore prices can be raised.

Several people have sent me references regarding the overall Japanese response to the current economic crisis that reinforces what I said above. Japanese automobile companies don’t seem nearly as secretive as the camera companies. They state openly that one of the major solutions to the world economic slowdown is to decrease production as much as 40% to maintain demand for their products. While only the automobile companies are stating it openly, its obvious that most Japanese industries have consciously decreased production. Japanese industrial out put overall decreased 8% in November, 2008 , 10% in January and 8% more in February. It seems clear that the overall response of Japanese industry to the economic crisis is NOT to lower prices in an attempt to increase sales volume; it is to cut costs and reduce production sufficiently to maintain demand despite increased prices.

So Where Do Things Go Now?

OK, the facts are mostly behind us, we’ve now reached the point of this article where I subtly move to unfounded speculation. But I’ll try to list these in order from “Pretty Obvious” to “What are you smoking?”

Shortages will be with us a while.

The manufacturers have made cuts and until the economy perks up they aren’t going to rehire. The corporate heads, worrying about their company’s survival in tough economic times, are not primarily concerned about camera and lens production rates. They will be conservative.

New technology will continue to be released

All of the cuts I’ve been able to find have been in manufacturing, not in Research and Development. That’s good news long term.

Some of the manufacturers might not make it through this economy.

Remember, that most of the SLR manufacturers are not PRIMARILY camera manufacturers. Nikon is primarily a camera company. (It is a member of the Mitsubishi keiretsu a group of companies loosely affiliated around the Mitsubishi Bank, but it functions completely autonomously. Thanks to Eamon Hickey for explaining what a Keiretsu actually is.) While Nikon has significant Industrial Equipment and Scientific divisions, imaging products are their largest and most profitable division so Nikon will obviously remain fully committed to imaging.

Canon, Inc. is a large conglomerate of companies including business machines, industrial equipment, optical equipment, and cameras. While Canon is the world’s the largest camera company, within Canon the camera division plays second fiddle to the business machine division, in revenue, profit, and growth. To sum up the situation, Canon’s entire camera division accounts for 18% of Canon corporate revenue. SLR lens sales account for about 2.7% of revenue. I would assume restoring lens production isn’t Canon’s top corporate priority, but on the other hand the world’s largest camera company isn’t going to close up, either.

Olympus actually makes more money in medical imaging than in consumer cameras and the medical division should be much more recession proof than digital imaging. One would assume they would protect that business at the expense of the camera division if necessary. Pentax is a moderate sized division of Hoya. Even within the Pentax division, much of the revenue comes from medical imaging equipment, so one would assume they would behave similarly to Olympus. Sony is a huge, seemingly chaotic electronics corporation. I can’t make sense of where the camera division fits in the corporate structure, but their primary emphasis has always been on point and shoot cameras. Who knows what they want to do with their SLR division given the massive cuts and layoffs they’re going through.

In the long term one has to wonder if we might lose another camera brand. The economy is going to be slow coming back and there will be a lot of pressure. Nikon’s obviously not going anywhere, cameras ARE their business. Canon’s camera division is huge even if it isn’t the biggest part of the company, so the idea of them closing is laughable. Sony’s an even bigger company, but apparently in more distress than the others and SLR cameras aren’t the biggest fish in their pond by a long shot. Not even a minnow. Maybe plankton. I’d guess corporate pride would keep them from closing the SLR division, especially since they consider it a status market, but who knows? Olympus, Panasonic, and Pentax are all camera divisions of conglomerate companies who make most of their money elsewhere. I don’t have a clue what will happen to them, although Olympus USA recently made some layoffs and cuts that appear frightening, and Pentax hasn’t been very active with new releases on the SLR side of things lately. Hopefully they will all survive, but I don’t think any of us would be shocked by a merger or acquisition involving one of these three.

Camera retail sales may change (here’s the pure speculation)

A shortage gives the manufacturer a lot of control over the retail market. If he has a warehouse full of lenses common sense would indicate he sells them to whoever, within reason, places an order. If he has only a few copies in stock, he gets to decide which retailers get their order filled, when it gets filled, and how much of the order gets filled. I won’t give out any proprietary information here, but if you’ve watched for lenses that are out of stock to return to stock online, you’ll certainly see that not every store lists them in stock at about the same time. Now certainly some stores may have had so many backorders that their shipment never showed up ‘in stock’, but in some cases the stock never showed up. (You know this if you have a backorders in at 10 different stores and the sales director you know well tells you they never got a shipment 🙂

One noticeable recent activity has been some attempts on the manufacturer’s part to ‘clean up’ some of the shady online camera shops. I know some of the borderline stores (not the true scammers) pretty well and several have told me they’re being told to toe the line or lose their reseller status. Its also only logical that manufacturers want to maintain a competitive retail environment. If there are only 2 or 3 camera stores left standing, they probably will be a lot less likely to scratch and claw with each other to keep their prices down. Manufacturers these days are all too aware of the Walmart phenomenon where a large retailer has enough power to dictate terms to a manufacturer. For all these reasons, it makes perfect sense for the manufacturers to make sure a number of different camera retailers survive and none becomes too much bigger than the others.

So how will it affect us consumers? First I think we’ve seen the peak of the camera superstores. The remaining mid-sized stores in reasonably large cities seem to be doing pretty well these days, at least considering the economy. I personally think that’s a good thing. If interstate internet sales become subject to sales tax (seems likely) the local stores will get another boost. Second, in the near term at least, I expect lens shortages are with us for a while. And while I don’t expect prices to jump up much further, I’d be surprised to see them come down significantly either. I am curious to see what happens when ‘Canon rebate season’ (usually announced in May) occurs this year. I’m expecting pretty small rebates on fewer items, but this is just my speculation. I don’t have any insider information (and if I did couldn’t share it).

It should be interesting, the next couple of years.

Roger Cicala

Lensrentals.com

Addenedum 5/9/09: When Canon’s rebates were first announced I thought my speculation was way off the mark. I was pretty impressed with the number and amount of rebates this time around. Within a couple of days, though, it became apparent that prices were raised almost as fast as the rebates were announced. I do NOT know for certain how much of the price increase is Canon originated and how much is retailer add on. Every retailer I have spoken with says their purchase cost has increased, but they would probably tell me that regardless. It remains clear, however, that there are not enough lenses and a number of rebated items are pretty much sold out everywhere.

One strong hint, though, that at least some of the recent price increase is manufacturer driven can be found by looking at prices for 70-200 f/2.8 IS lenses. The lens has a $200 rebate, but soon after the rebate started several camera superstores raised the price of the lens to $1799, making the post-rebate cost $1599. Most stores followed but a few kept the original price (at least through the weekend of May 9), leaving a net price of $1499 after rebate. Several of the stores that have kept the lower price have changed their web page to not list the price, but rather “add to your cart to see the lower price”. Since stores are not allowed to show a price lower than the Minimum Advertised Price on their website, this would be what they should do if they are actually selling it below the MAP, meaning Canon, not the retailers, raised the price after the rebate was announced. Only two stores are still advertising the $1499 price: one big-box retailer for whom camera lenses are a small sideline, and one small shop that observes the Jewish Sabbath—I suspect both are just slow to update their advertised prices over the weekend.

OK, and one final thought, and this is totally my speculative opinion not to be confused with anything factual. But the dollar (and to a lesser extent the Euro) seems to be strengthening against the yen. I’m beginning to see people talking about ‘buying lenses before the price goes up again’ and even more notably ‘buying lenses now because they’ll only be worth more in the future’. I consider this sort of like the talk that occurs in the stock market before a bubble bursts. Or even more appropriately, what people once said during the ultimate manipulation of supply and demand of all time: Beanie Babies. Buying lenses is for taking pictures, not an investment.

But people talking like this makes my gut instinct say that the manufacturers have driven prices up to a profitable point (I’d assume we’re there) and will soon ramp up production to take advantage of that profit margin. Ramping up production takes time, at least 6 months and probably more, but after that has occurred I would picture shortages disappearing and a little price pressure holding prices steady, perhaps even dropping them a tiny bit (although never back to the glory days of 2008).

Roger Cicala,

Lensrentals.com, March 2009

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