Potential price shocks ahead

I had a look at the most recent CIPA data (Jan-Sept 2016) and the digital camera market has continued to soften. Unfortunately that very likely means some potential price shocks ahead.

A quick scan of year-to-date CIPA digital camera data compared to 2015 reveals that the worldwide digital camera market is down 36.9% in terms of camera shipments.

There is also interesting data by geographic region terms of camera shipments:

  • Europe is down 40.4%
  • Americas are down 39.9%
  • Japan is down 32.2%
  • Asia is down 31.5%

Here are how many camera units have been shipped to various parts of the world thus far in 2016

  • Europe 5,200,284
  • Asia 4,560,307
  • Americas 3,994,657
  • Japan 2.539,029

Let’s have a look at fixed lens digital cameras overall and by geographic region.

  • Worldwide shipments 8,581,645, down 48.7%
  • Europe shipments 2,989,943, down 51.9%
  • Americas shipments 2,127,230, down 51.3%
  • Japan shipments 1,632,116, down 35%
  • Asia shipments 1,607,438, down 49.4%

It is obvious from these numbers that Smartphones are still eating into fixed lens camera volume around the world. That’s one of the major reasons why manufacturers like Nikon have been designing higher-content fixed lens cameras like the DL Series. Unfortunately the rapid decline in the overall fixed lens camera market volume will likely lead to price hikes in the future…but more on that later.

Now, let’s look at the interchangeable lens camera (ILC) market globally. So far in 2016 unit shipments total 8,068,085 which is a 16.5% decline compared with 2015. I suppose the good news here is that the market for ILC units is more stable than the fixed lens market. DSLR volume currently is 5,999,981 and mirrorless is 2,068,104. DSLRs are 74.4% of the ILC market. In the chart below we can see that the product mix in the digital camera market is shifting dramatically.

shipments-by-type-ytd-2016

Let’s break the ILC market down by region and camera type.

  • Asia 2,952,869 (DSLRs 1,975,172, mirrorless 977,697). Overall ILC shipments down 15.1%. DSLRs down 21.2%. Mirrorless up 0.7%.
  • Europe 2,210,341 (DSLRs 1,738,781, mirrorless 471,560). Overall shipments down 11.9%. DSLRs down 13.1%. Mirrorless down 7.2%.
  • Americas 1,867,427 (DSLRs 1,615,040, mirrorless 252,387). Overall shipments down 18%. DSLRs down 16.5%. Mirrorless down 26.3%.
  • Japan 906,913 (DSLRs 596,870, mirrorless 310,043). Overall shipments down 26.4%. DSLRs down 18.7%. Mirrorless down 37.7%.

We certainly need to remember that earthquakes in Japan disrupted camera production which has no doubt affected the overall number of unit shipments in 2016. I don’t think there is much point in analyzing the data much further given that 2016 market volumes were impacted by this ‘one time’ (hopefully) event. Having a more detailed look at the market once all data for 2016 is available is likely a more prudent thing to do.

Even if we assume that the effects of the earthquakes in Japan were responsible for half of the decline in unit volumes thus far in 2016 we are still looking at some fairly significant erosion in unit volumes, especially with the fixed lens camera market.Declines in market unit volumes will inevitably lead to price increases on cameras.

Manufacturers obviously need to cover their fixed costs and still sell sufficient volume in order to make a profit. A simple truth is that fixed cost / average contribution margin by unit = unit volume break even point. So as the unit volumes of cameras continues to erode manufacturers are left with difficult manufacturing and marketing choices.

Do they become more aggressive with marketing and pricing to gain more market share in a declining market? Cutting prices is an easy strategy to copy and as competitors ‘race to the bottom’ all they do is reduce their per unit contribution margins and drive up the unit volumes they need to break even.

Do they cut costs? Most companies accepted the notion decades ago that they need to be tight operationally. Some like Nikon have been really focused on driving their costs down, but after a while it is almost impossible to get ‘more blood out of the stone’.

Do they eliminate unprofitable models from their line-up? I think we will see that happen as market volumes continue to fall. In terms of the Nikon 1 line-up the J-Series looks like it will survive. I don’t think the AW-Series has any hope. The V-Series is still a question mark.

Do they scale back R&D and introduce fewer new models? We’ve seen that with the Nikon 1 line, and I think more manufacturers will follow suit.

Do they increase pricing to maintain or increase their average unit contribution margin to lower their break even point in terms of unit production? We definitely are seeing evidence of this happening and as overall market volumes decline we’ll see more price shocks hitting the marketplace.

Manufacturers will have little choice but to adjust their pricing upward to do their best to cover their fixed costs and squeak out some profits. That means that all of us will need to be more prudent with our buying decisions, and perhaps keep our current gear longer than we may have in the past.

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9 thoughts on “Potential price shocks ahead”

  1. Tom:
    Maybe the camera manufacturers are too much on the cell phone treadmill? Too many new models with only small incremental changes/improvements in the hope that the public will continue to buy the latest at continually higher prices? Can this business model stand the test of time? I think Apple are experiencing the same slipping sales.
    Stay well

    1. Hi Dave,
      I agree with you that camera manufacturers have been on the ‘incremental’ change treadmill for quite a long time now. As a result they are wasting R&D dollars and training camera owners to buy a new camera every second or third generational change.
      Tom

  2. Interesting to know how the market is going. Maybe It will help people to slow-down in debt by buying all the time new gear instead of learning to use the ones they already own.

  3. Great job on the production numbers. It seems like there might also be opportunities for consolidation of camera manufacturers, especially the lesser known ones (Pentax, Olympus, etc.).

    1. Hi Jim,

      I’m glad you enjoyed the article! The figures quoted are actually shipment numbers, not production numbers – those are a bit lower than the shipment volumes. It would appear that the camera manufacturers drew down inventories. As far as consolidation goes…I’m not too sure that would happen. There may not be much motivation for one manufacturer to buy out another one. With volumes slipping as they have been I think its more likely that some brands may just quietly slip away…like Samsung appears to have done.

      Tom

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