PROFILE: Digital Camera Warehouse - A model for success

Digital Camera Warehouse is one of the few unqualified successes in photo retailing over the past few years. With something like 5 percent of the DSLR market and year-on-year growth of 60 percent, DCW's hybrid online/phone order/bricks-and-mortar model is clearly working. We asked business development manager Sharyn McKissock to explain how…

PIN: When did DCW start, who are the principals, how many employees, etc?

Sharyn McKissock: Digital Camera Warehouse was founded in 2001 by Tracey Beckler. Tracey recognised the emergence of the internet as a sales channel and the synergy between the internet, digital photographic equipment, and people’s desire to have more freedom in their research methods and shopping choices. Digital Camera Warehouse has four directors; Tracey Beckler, Celeste Hough, Lucinda Dalton, Robyn Hall. We currently have 29 full-time staff.

Did the people who started DCW have a background in the photographic industry?

Tracey has always been interested in photography and can often be found photographing community events and festivals. Tracey, along with the other directors, have built a team around them that share their passion. Our sales teams have photographic backgrounds, whether they are from within the photographic industry or passionate enthusiasts.

What are the milestones in DCW’s growth since 2001?

We registered as a business at the beginning of 2001 and commenced trading later that year. Turnover for the first three years in business was around $4 million. In late 2004 we opened our first store in Sydney. We relocated to larger premises in November 2007 and opened our first interstate store in Melbourne the following month.

Could you give a “ballpark” idea of turnover and levels of annual growth?

Over the past 4 years we have sustained growth levels of around 60 percent (year on year) in a very competitive market.

A brief explanation of how it works. For instance, do you warehouse? Handle warranty issues?

We believe our warehouse is one of the reasons for our success. Customers are now experiencing “time stress” and are no longer willing to wait while an item is ordered in. We order stock for delivery direct to the stores, and then the bulk of the inventory goes into our warehouse. We have a customer service manager who deals with any customer warranty or user issues. We provide a secure purchasing environment, we do not ship outside of Australia and our internet payment portal is security encrypted and extremely easy to use. To give you an idea of how secure our processes are, fraudulent activity is less than .0001 percent of our sales.

Some (of your bricks & mortar competitors) might assume running an online business is virtually cost-free – but there must be some areas of considerable investment – what are they?

Let me start by burying the misconception that we are just an online business! We have had a store in Sydney since 2004 and Melbourne since December of last year. Each store is around 170 square metres - no token attempt! Many people incorrectly believe that the majority of our sales come via the internet. While our sales (from all three streams: online, phones, and stores) continue to increase, the internet – as a total percentage of our business – is decreasing.

Currently the internet accounts for about a third of our total business. The largest areas of expenditure for our business are inventory and staff.

What are the biggest challenges in running an online photo products business?

It is getting customers to see beyond price comparisons and to act on the value that we offer them. This means communicating the benefits involved in buying cameras and accessories with legitimate Australian wholesaler warranties. The other challenge is partnering with the Australian wholesalers to create and implement effective, long-term strategies to combat the growth of the grey market. While most wholesalers now use cashbacks as a way of offsetting cost differentials, we would like to see more suppliers gathering and registering serial numbers, PR campaigns showing the benefits of buying locally, and stricter controls of licensed service agents. As always, continuously falling unit prices mean that we must continue to increase the volume of sales.

Who do you see as your key competitors?

That is a hard question to answer. The answer should be that our competitor is everyone that sells the same boxes that we do. But we feel that we offer our customers a complete experience that they cannot get from everyone.

Is Ebay among your competitors?

No. Customers are seeking a different experience when they choose to shop on eBay.

Do you enjoy good working relationships with your suppliers?

Yes, but it hasn’t been an easy road. Our business model has challenged the traditional thinking of some suppliers, so in some ways we feel like we are pioneers! I think we will continue to challenge our suppliers, which is part of the fun for us – and them! There is one hole in our brand line-up but we have a dialogue with the supplier and we hope that they can see the benefits that we can offer to their brand. We hope to have them on board by the end of the year.

It’s regularly noted (sometimes, unfortunately, in the press!) that camera prices seem to be higher in Australia than ther parts of the world. What do you think the reason for this is?

I think that the Australia photo industry enjoys “quirky” terms of trade, such as rebates. When we talk about “net net” pricing, I am sure that there is not a vast chasm between our pricing and overseas pricing. But I think suppliers need to acknowledge that we are now retailing in a worldwide marketplace. It must be a difficult situation for suppliers; they are essentially manufacturers of a product. Once that product is sold (irrespective of which market it is sold into), it’s job done. I guess that is why Australian suppliers are now marketingoriented subsidiadies, as opposed to sales.

Added to this are the tax intricacies of each country, exchange rates, fuel costs, etc…and these forces are beyond our control.

We are here for the long haul and are committed to consistently bringing the best experience (which includes price) to our customers.

Do you feel that the “traditional” parts of the photo industry recognise DCW as a valid and integral part of photo retailing in Australia?

If you can use the recent PMA convention as a yardstick, then the answer is “No”! While we understand that we are the relative industry newcomers, we are essentially doing what everyone else is doing, albeit with differing overhead and margin requirements. We have beautiful stores, world-recognised brands, educated staff, and great customer service. We believe that we are an integral part of photo retailing in Australia currently, and will remain so in the future.

If more retailers continue to “de-tune” their support of the Australian wholesalers (as punishment for uncompetitive prices and broadened distribution channels), we will wake up one day to see shopping carts on their websites. I know that this is something that we do not wish to see, nor afford.

Do you see the grey market as a problem for DCW?

We see it as a challenge rather than a problem – but we must remember that it is not just isolated to our industry. It means that we must continually work hard at creating value in the total transaction for the customer if we wish to continue our expansion. But in saying that, we don’t think of them as our competition; what they are offering is differentiated from what we are offering. They are offering a product that does not have an Australian wholesalers’ warranty. The big question for us all is, how much is that worth? (According to a recent conversation with one of our suppliers, they value it at around $50 in monetary terms.)

Are offshore (eg: Ebay) or local (eg: CamerasDirect) grey marketers more problematic?

We do not consider one more problematic than the other. We cannot affect their behaviour, wherever their location. We set our strategy independent of these retailers in our competitor mix. We focus on our strategy of providing great value and quality service to our customers. To date this has worked well for us.

Do you sell to smaller retailers who sometimes can’t access product from key suppliers, like Canon and Nikon?

No.

Do you think Australian consumers are aware of the difference between people offering locally and OS-sourced cameras and equipment (warranty issues, electronics standards compliance, etc)?

I think that the Australian consumer is really quite savvy. At the end of the day I think they weigh up the price advantages of purchasing overseas and what they will be forgo in doing so. If the difference is too great, they will swing one way or the other.

Are you surprised that some of the larger groups such as Camera House have been slow to move into the online space?

No. It must be a huge undertaking for them – or any group consisting of independent businesses – to agree on their combined proposition and take it to market. And while they are all members of the same group, they are all in competition. To challenge them even further is the fact that some of their members already have a successful online presence. This has allowed those group members to flex their muscles internally due to the volumes that they purchase. Why would they give up their individual competitive advantage?

Why have you opted for physical stores in Sydney and Melbourne?

Sydney was an organic step for us. Our head office and warehouse were already established here, and it gave us an opportunity to test the retail waters. We can closely monitor what works and respond to those things that don’t.

Melbourne was decided after extensive research and it has been a positive move. We set ourselves a six- month “breakeven” goal with Melbourne and this was achieved within four months!

Plans for expansion/plans for the immediate future of DCW.

Yes – absolutely. We have a few challenges internally (implementing a new business software system) that should be overcome by the end of this year but look out for us in 2009!

Specifically, have you looked at offering print services?

Yes (and we do advertise a print service on our website) but it is not a value proposition for us. When we looked at what was happening in the market we acknowledged that we would be unable to compete with the 15 cent proposition. We have a relationship (with a print fulfillment company) for those customers that wish to have their printing done through us.

Any other comments about the state of the industry?

I think we need to migrate from traditional tactical (product and price) advertising. While I acknowledge there is a place for the “sub- $199 bulk stack” I do not believe it should be within this channel. To continue chasing the 50 percent of the units that deliver just 26 percent of the value doesn’t sound like a good return on investment. We need to be creating an experience for the customer. Take the lead from recognised imaging companies’ marketing. Canon Photo5 and Sony ALPHAbet marketing campaigns [both photo competition-based promotions] are about creating and maintaining relationships with their brands; campaigns that are independent of product or price. We need to make sure that the experience we deliver emulates what they have created.