Parsing Nikon

(news & commentary)

Nikon has posted some follow-up Q&A to their first half financial results, and, as usual, it’s a mumbo jumbo of boilerplate Japanese excuseplanations along with some reading-between-the-lines truths. Here’s my translation:

"As the market for digital cameras expands, sales of digital SLR cameras have expanded among not only professionals and high amateurs, but sales of entry-models such as the D3000 Series have also skyrocketed, expanding the customer base globally. For this reason, sales have been affected greatly by the economy and consumption trends of each country.

This is your basic non-sequitor. What Nikon is trying to say here is that entry-level DSLR sales have dropped, and they blame the economy. In almost every Japanese excuseplanation of a problem, you’ll see external factors being the problem. This is a bit cultural, as to admit that they might have been the problem is a no no in Japan. But that’s exactly what the between-the-lines truth is saying. Go a bit further down and note the “we expect a shift from older products” and you’ve got the thread to pull it together: Nikon continued piling low-end inventory into markets at a time those markets were not buying. Last year’s excuseplanation of this was that Nikon said they built extra of these DSLRs when the Thailand factory re-opened because they thought they might need them in case of additional floods. 

The real story here is that DSLR sales, especially consumer models, started to lag quite some time ago. The nearly yearly update of the D3000 Series (previously D40, D40x, D60) brought that model forward quite a bit in a short time, but that’s also not a group that re-buys DSLRs regularly. I’ll have more to say about this further down.

"The market in Japan has been favorable, but the market conditions in the U.S., Europe, China and Asia have been severe, and a downward revision of the market was made from 19.5 million cameras predicted last August, to 18.7 million.”

Yes, the CIPA figures tend to agree with this (131% shipments year-to-year in Japan, versus shipments in other areas in the 70-80% range). But since Nikon doesn’t break out Nikon 1 versus DSLRs, we can’t really see what might be happening. Based upon the other Japan sales figures we see, I don’t think Nikon DSLRs are booming in sales in Japan, so this is likely the mirrorless versus DSLR shift we’ve seen in parts of Asia at work, with the Nikon 1 driving it. 

But what Nikon isn’t telling you is that they control how many cameras they ship and where they go. Also, that number they cite in their explanation only explains 4% of the drop ;~). We’ll get to the real reason for the drop in a bit, this is one of those “external” excuseplanations. It’s US, Europe, China, and Asia’s fault. 

"Though the annual growth of 20 to 30% experienced previously will be difficult to achieve given the current economic environment and consumer confidence, the penetration level of digital SLR cameras is still quite low in markets in China and other neighboring Asian countries.”

Wait a second, Nikon, I thought you’d just blamed China as one of the problems! What they want you to believe is that the Chinese market stopped buying DSLRs for some reason, but they will as soon as that problem goes away. They sort of identify that problem as “economic environment and consumer confidence.” True, in China, the whole China versus Japan thing related to old World War II issues raised its head again this past year, and Japanese goods did get more difficult to sell into China. 

But there’s more that needs to be analyzed here. The Asian markets have the highest penetration of mirrorless to DSLR sales. Nikon seems to be saying they can break the trend of mirrorless in Asia and sell more DSLRs. That has nothing to do with consumer confidence, that has to do with convincing people that there is something to be gained by buying a DSLR over a mirrorless model. It’s also telling that most of Nikon’s roll back of forecasts and production in interchangeable lens cameras has been in Nikon 1 models, not DSLRs. It’ll be interesting to see how this one plays out. But I think I’ll have to add some of Nikon’s recent statements to my Claims to Remember page.

I also love the use of long-ago numbers: (20-30% annual growth). Nikon has been positioning themselves as a growth company. Short of some new thing that restarts the camera market, that ain’t going to happen. Moreover, we’re going to get any growth in camera sales from a much lower sales number. Using the overall camera sales number, we’re probably down to 65m units this year from peak years well over a 100m. It’s hard to imagine 30% growth in any segment of the camera market again with the current camera designs and technologies. Unless we have a completely disruptive approach appear that causes people to strongly desire replacing their current cameras, I think that any year that even shows 10% gain in a camera segment is going to be a good year, and we probably won’t have one of those years until we truly hit bottom in sales, and I’m not sure we’re there yet. 

The Japanese camera companies have been using the “new markets with low penetration” as an explanation of where their growth will come for a long, long time now. They’ve had some moderate success with this, but in low income emerging markets, most folks are likely going to skip most dedicated cameras and just use their smartphone camera. It’s good enough, it doesn’t cost them extra, it’s convenient, and it doesn’t require them to carry and protect another thing. Now, if those markets get to the point where they do demand “better” cameras, then high-end compact, mirrorless, and DSLR sales have a chance of growing. But as we’ve seen with quite a few of those emerging markets, they have strong downs as well as ups: years where it’s difficult to push unneeded consumer goods into them and others when they’ll start consuming anything. It’s really a high risk situation to rely upon those markets for the future of your company, I think. Not that you wouldn’t take that risk, but it is a risk, not a given as Nikon seems to want you to believe.

"We are keeping inventory of our digital SLR camera at the extremely low level. In the latter half of the fiscal year, we expect a shift from older products to newer products that have higher profit margins."

Bingo. Here’s the mother lode of between-the-lines truths. And I don’t think it’s quite accurate. I believe Nikon meant that they’re “keeping production” at a lower level, thus not building more inventory unnecessarily. It’s that second line that’s the giveaway. “Older products” is a proxy for D3000, D3100, D5000, D5100, D7000, and even some D90, D3x, and D300s that are lingering around in their inventory and didn’t get unloaded when the new models appeared. Several times this year the best selling DSLR in the US has been the D3100. Why wouldn’t it be? It’s at a great price for what it does, and the D3200 doesn’t exactly make it not worth buying at the right price. 

What this statement really says is that they have older products in inventory they need to sell at discount (reduced profit margin) before they can push new products out (at higher profit margins). I’ve commented on this several times now. But the net is that the camera companies didn’t see that they were hitting peak DSLR sales volumes: they kept pushing their yearly and biannual model changes into subsidiaries without first unloading the previous models. This is a bit like auto makers pushing out the 2014 models while they still had 2012 models in stock (and plenty of 2013 models, too). If you do this, you will always see a correction event down the line. Nikon has hit the point where they can’t ignore it and must endure the correction event, simple as that. 

The real answer to the question they were asked is: “We goofed and pushed too much inventory into the channel because we didn’t correctly see that DSLR sales were slowing, and now we’re in a correction phase. We believe we’ll be able start growing sales again once we’ve managed our inventories properly.” 

"We are adjusting production in accordance with the shrinking market. We have an extensive lineup ranging from high-end to entry-level products, and we have secured the leading or nearly top share of the market in various regions around the world since last year or so. We plan to maintain this product mix, but we will cut costs and ensure profitability by reducing the number of models.”

This answer was in response to compact camera sales and their future strategies towards them. And it’s mostly a non-answer, or at least a slightly overstated answer. “We are adjusting production” means “we’ve lowered (and maybe in some cases stopped) production of various Coolpix.” To Nikon’s credit, they’ve endured the compact collapse better than the other camera makers, which is why they can make that claim to have the leading market share. 

I really don’t like the last sentence, though. First, it’s not totally consistent (“maintain” versus “reduce”). There’s no acknowledgment of the “why” this is happening (smartphones) and no response to how they’ll deal with that problem (“Coolpix that play in the modern connected world better”). Instead, it’s “we’ll make the remaining cameras more cheaply.” 

Some people, by the way, are mistakenly combining the answer on Coolpix with the answer on interchangeable lens cameras and coming to the conclusion that Nikon is going to eradicate DSLR models. Well, not exactly. Here’s a little experiment you can perform in your home country (I’ll do it for the Americans, who are probably too lazy to actually do it ;~) (Just kidding folks. I’m an American, too.): Look to see what the currently available DSLRs that your Nikon subsidiary lists. Simple as that. In the US, that’s surprisingly 16 models:

  • FX: D600, D610, Df, D800, D800E, D4, D3x
  • DX: D3100, D3200, D5100, D5200, D5300, D90, D7000, D7100, D300s


Can you see it now? This list really needs to be (in 2014):

  • FX: D610, Df, D800/D800E, D4, D4x
  • DX: D3300, D5300, D7100, D400 (and maybe let some D3200, D5200 linger for bargain shoppers)


(An aside: my dealer pointed out to me that from their viewpoint things are even worse, as currently Nikon has about 36 different stocking units [SKUs] for DSLRs that he needs to keep in stock. The additional units come from colors available on some cameras, and the camera+lens kits that Nikon keeps juggling. The just-announced Df, for example, comes in four variations: two body colors and with or without the 50mm lens.) 

In other words, Nikon really needs to reduce the “available now” lineup from 16 DSLRs to 10, and three of those 10 don’t exist yet (and most dealers would want to see the SKUs reduced some, too). A number of years ago I wrote in my newsletter that I expected Nikon to get up to 8 models in the DSLR lineup (I believe they had five when I wrote that). Frankly, that’s probably where they should be (that would be D610, D800E, D4, D4x, D3300, D5300, D7100, D400), but I’ll give them the Df as a nice nostalgia play, so say nine. 

But no matter how you slice it, “reducing the lineup” however it was worded really means clearing old model inventory in the DSLR models. In Coolpix, it means actually stopping production of near identical cameras, various colors of cameras, and more.


The Q&A responses looked like reasonably “hardball” questions and “direct answers” in Japan (the questions came from the Japanese business press). But they’re far from it. These are “softball” questions and vague to non-responsive answers. Moreover, it’s pretty much the same answers as everyone else: cut inventories, reduce costs, claim that emerging and growth markets and a global economic recovery will eventually save you. Nope. Not the answer to the problem. (And by the way, the US has been growing for several years; maybe not strong growth, but we’re not exactly in a recession here. Companies with strong products and good control are growing here. ;~) 

Imagine that you’re in a plane that stalled and is now spinning out of control towards the ground. Imagine that you’ve said that you’ll “throw some weight off the plane so it starts to lift again and we expect that when the downdrafts end we’ll see updrafts again.” Not the right answer, is it? The right answer is that you have to pilot the plane correctly and might have to make a risky maneuver to regain control. No matter what, you’re going to lose altitude until you do, so the sooner you acknowledge what you have to do and start doing it, the higher off the ground you’ll regain control. 

Nikon’s problem is enhanced by its terrible communication with customers. If we actually knew what maneuvers they were doing, we might have more patience with them to deliver the products we as customers want. Virtually every other company in mirrorless has produced a lens Road Map, for example. Nikon? Mostly silence. We as customers are investing in systems. We want to know where that system is likely to be going to invest in it. Right now what Nikon has told its system users is “we’re going to cut costs.” Uh, sure, but you just had some very severe QA issues with high-end cameras. How’s cutting costs going to stop that from happening again? 

Lack of clear communication with customers. Nikon’s number one problem at the moment.  We’re passengers in that stalled plane and the pilot has come on the intercom and said “we’re throwing off some weight and waiting for an updraft” but all we see as customers is that the plane is still spinning and headed for the ground. Do we have confidence in the pilot? Unfortunately, my In Box shows that more and more long-time dedicated Nikon users don’t. 



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