The JC Penney Problem, Only Worse

Not to long ago, the department store chain JC Penney was hurting. It was offering nearly 600 sales a year. Yes, 600 sales a year, or an average of two announced almost every day (hope you weren't subscribed to their email list). Simply put, JC Penney hooked its customers (and its management) on sales. Things on sale often went on sale, and then went on further sale. 

Now, what does that tactic teach your customers? Wait, the price will come down. So many of them did wait until The Price Was Right that it basically killed margins at the department store. 

Well, guess what, the camera companies are playing the same game, and it's that time of year when the playing accelerates. I've stopped trying to count the discounts being offered. Even new, in-demand equipment is showing significant discounts, but the really big offers show a worse problem: inventory build-up. 

For example, the latest offer to cross my desk is a Panasonic GH2 for US$500 (Amazon Gold Box Deal). Yes, we know a GH3 is coming (at a list price of US$1300, body only). But a GH2—and the deal includes a basic kit lens—is a pretty competent camera, even today. Videographers love it. US$500 is a pretty darned good price for a darned good video camera, and not even a bad price for a still competent DSLR-like mirrorless still camera. 

So what is Panasonic teaching customers? The same thing JC Penney did: wait for the sales. Indeed, since Panasonic's distribution priority for the US is so low, they sell very few new products in the US. They try to sell all their initial production of products overseas in their "hot" markets (which are all weakening significantly). By the time the US sales roll out in any substantive volume, the Panasonic product is actually on discount in the "hot markets," meaning that the clever US shopper can pick them up new on eBay for less than they pay in the US (and get them faster), which further undermines Panasonic's US sales. Eventually inventory builds up and the sales start. At the moment, every Panasonic product introduced in 2012 appears to be on sale in the US. The ones introduced in 2011 are having big time sales. There are even a few lingering pieces of Panny gear from 2010 that command massive discounts. 

This is not just a Panasonic problem. Olympus has the same problem, so does Nikon, so does Canon, so does Sony, so does everyone. They all overproduced to demand, had lingering inventory when new products hit, and thus now have to discount the old product to get rid of it, eroding margins and teaching customers that the actual value of the product is far lower than the initial list price, which then devalues the new gear. For companies like Panasonic, who has no real reach into the camera dealer chain in the US, the problem is compounded by their products being pushed with further price discounts by Amazon, B&H, and Adorama. Right now the yet-to-be-shipped (in the US) GH3 already has a 2% loyalty discount from those chains, so the price isn't really US$1300, it's US$1274. 

I'll repeat, the camera industry has started teaching customers that big discounts are the norm. This season it will not only be evident all over the place, but in many cases, the discounts on gear phasing out will reach epic proportions. Yet, much of that gear is not just competent, but more than the smart user needs. So the customer will gladly take the discount. 

This is happening at every level of camera sales now, from lowest compact to FX DSLRs. We have a global oversupply of camera gear, and the camera makers haven't really slowed their production, let alone to the levels that actual camera sales would dictate. Thus, the problem is going to continue and get worse. As I noted on my other site, the two-month old Nikon D600 FX DSLR is already available at an effective 11.4% discount! 

Yet the Japanese companies still overproduce. Worse still, they overproduce when the yen is worth less against the dollar and Euro, then complain when they are still trying to sell those products at discounts later when the yen is worth more. 

From a customer standpoint, this is great (other than the fact that the gear you bought last year is worth less than 50% of its cost now, so you won't be getting much back on selling used gear). We're getting supremely good new gear at very low prices. But it's also bankrupting the camera manufacturing industry. I call this "the race to the bottom." The pressures on the Japanese companies are: cut costs, reduce inventory, don't lose market share, increase profits. But "cut costs" ends up with less customer support and potential lower quality products; "reduce inventory" just reiterates those sales that have lowered product value in the first place; "don't lose market share" means that you'd better be ready to take a loss on product, putting more pressure on "cut costs"; and "increase profits" is simply a pipe dream for these companies at the moment, just as it was for JC Penney. 

This is a spiral downward. I've watched other tech industries take this path. It doesn't end pretty. But while it lasts keep your eyes peeled for bargains. There are a ton of them out there, and especially in the mirrorless world, where the camera companies far overproduced to demand.     

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