The air is draining from Kodak and Rochester

After having spent almost 40 years in the photo industry with both Kodak and Fuji, driving innovations ranging from dye sublimation printing to 1 hour web to in-store printing, there are some major issues “between the lines” of today’s Kodak Q3 press release. Although not specifically mentioned in releases, their 10Q contains this ominous statement:

“The Company and one of its significant Retail Systems Solutions customers will not renew a contract that expired on September 30, 2009. The Company plans to replace a significant portion of this volume of business, although the timing and extent is uncertain.”

As many industry observers have noticed, it appears that Kodak Picture Makers, Kodak’s last remaining customer facing brand presence at retail, have recently begun being replaced in some Walmart stores by a new HP instant printing system. In addition, Walmart was noticeably absent from their upbeat enumeration of major and minor “dry lab” and kiosk customers which was released yesterday. We can now be pretty sure that this “significant” customer is in fact Walmart US. While Walmart stores in the US represent less than 4000 of Kodak’s 100,000 “locations”, US retail print volume numbers would predict that this loss should represent at least $100M in annual media sales. In the US market, mass merchants are where the retail printing volume is and Walmart is by far the leader in the category.

While an ongoing loss of $100M in annual sales to Kodak is a very serious issue, their complete loss of customer facing brand presence at US photo retail locations could be even more important. What will this mean to the remaining Kodak retailers, like CVS with its 15,000 Kodak kiosks? Where will Kodak media cost (and therefore price) go with such a significant loss of thermal dye transfer media manufacturing volume? Time will tell, but at least we finally have some closure on the death of the world’s original photo market mover.

The digital transition has been difficult for everyone in the photo industry. Traditional market movers have abdicated leadership roles due to very significant consumable and service volume losses. Many retailers have either disappeared entirely or abandoned the photo category, while the consumer has been left to figure out how to personally manage the entire transition themselves, at the risk of losing personal memories forever.

This now leaves retail photo dependent on HP, Fuji and a few others.  While HP has installed systems at much smaller retail chains, Walmart would be their first major, mass merchant “print at retail” customer. Fuji has enjoyed the dominant share in “behind the counter” solutions for quite some time, and while challenged to lead or follow the industry’s evolution to all digital, is still quite comfortable in this market. Clearly, Kodak and Fuji practiced détente for years; retail photo is a very unique market and where we go from here is much more complicated, depending on how Fuji reacts to HP and whether HP can adjust its focus to become a real “turnkey” retail photo solution provider.

Even at today’s digital printing volume, there is a lot of money on the table!