HP’s New Beachhead at Walmart…

By now many know that during their earnings call, Kodak acceded to losing the US Walmart account, even though they intimated that it shouldn’t be terribly material.  I believe that the $100M or so in lost sales could turn out to be pretty significant, and their inclusion of the contract loss in their Q3 10Q, followed by the comment that “The Company plans to replace a significant portion of this volume of business, although the timing and extent is uncertain” certainly sounds a little ominous.

Perhaps far more important than the lost revenue itself, assuming that Kodak plans to stay in the consumer imaging business, is the loss of the customer facing brand exposure provided by the nearly 8,000 Picture Maker kiosks currently located in Walmart US locations. These stores, in aggregate, represent the largest retail photo operation in the entire world. Since Kodak consumer ink jet (and commercial printing) products generally compete head to head with HP, losing the brand exposure to HP just represents more salt in the wound.

From my own experience with Walmart, a chain wide kiosk and printer switch out on the retail floor is a logistical nightmare and I would estimate that HP won’t  manage to convert more than 500 stores before the Christmas holiday “lockdown,” when photo gifting seasonality is at its peak. The remaining Kodak systems will still burn a tremendous amount of Kodak branded consumables, and this should go a long way to soften the earnings blow for Kodak in Q4.

As time passes, it will be very interesting to see how Fuji responds to the HP incursion into Walmart.  Fuji enjoys a somewhat broader product portfolio than Kodak,  supplying  production software, Fuji branded consumer kiosks and “behind the counter” printing equipment, not to mention almost all of the conventional photo paper and ink jet consumables used by Walmart associates to produce 1 hour photo orders.  Fuji also performs “off site” production of a significant number of prints and photo gifts which can be ordered on 12,000  Fuji 1 Hour kiosks located in Walmart photo departments.  These  orders are transmitted “by wire” from Walmart stores and delivered back to the store in 3 to 5 days, but are produced  by Fuji’s wholesale  labs or subcontractors. Fuji has also integrated and installed full color, plain paper printers, sourced from their Fuji/Xerox joint venture, at a growing number of Walmart locations, but has yet to really develop a “photo document” market for consumer retail.

With this one deal, HP has made very significant progress in positioning themselves to become the “Kodak” of  consumer digital imaging.  Walmart will add immense brand visibility at retail (not to mention consumables burn) to their already powerful arsenal of competitive weaponry.

Without a doubt I’m sure Fuji would be much happier looking across the isle at Kodak!