Canon is Suing “Get It Digital” and Others to Stop Gray Market DSLR Sales
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The Japanese photo-video companies do in fact have a global monopoly pricing power as a loosely joined cartel. IMO, this will hurt them in the long run, as people will only use the ever improving photo-video capacity of smartphones and forget about the ILC's entirely. I believe that the pre-digital sales of film based ILC's were about 15,000,000 units annually. At the height of the digital era, there were over 120,000,000 units sold but it's down to ~ 45,000,000 now. The ILC's are still going relatively strong at ~ 15,000,000 but the prices and the margins are disappearing at an alarming pace (G7/kit lens for $600, A6000 body only for $400 for the Black Friday deals) and, in that regard, Sony, Canon and Nikon will soon wish that these cross-shippers were their biggest problems. As I'd mentioned in the Samsung thread, I tend to concur with the South Koreans that the consumer grade photo-video market is going by the way of the dodo bird. Furthermore, even looking at pro level cameras, URSA Mini and FS5/FS7 type of products will be in the sub-$5,000 range for the full shooting package within a year and their quality will be perfectly acceptable for the vast majority of paying assignments outside of the big budget TV and features.
And then cameras will become loss leaders and all these Get Digital type outlets will move onto some other line of goods.
And then cameras will become loss leaders and all these Get Digital type outlets will move onto some other line of goods.
Barry_Green
Moderator
"Solved" as far as the company is concerned, but the customers who have been cheated should be and will be furious. The problem is that liars are exploiting Canon's name, using Canon's images and trademarks and even direct lies, to represent themselves as if they are offering the same product as a legitimate, authorized dealer is. When they're not. Which is why Canon is suing.
Andrius Simutis's explanation is pretty much spot-on as to how these companies work. And it's how they've worked for decades. But it has a perhaps unintended consequence of pitting Canon USA against Canon Canada against Canon Singapore against Canon Australia, etc. Each division of Canon makes money by selling product in their territory. The chop shops are buying their product somewhere. Likely, they're buying it from a dealer who is violating their agreements, so ... as an example, let's say there's a dealer in Toranistan that's buying truckloads of product at a super discount from Canon Middle East. Maybe Canon Middle East only normally sells a thousand 5D Mark IIIs per month in all of Toranistan, but suddenly this dealer says "I'll buy 10,000 units, for $10 over cost." Canon Middle East is thrilled to get such a large order, so they shovel all these units to the Toranistan dealer, who can't possibly sell them all in Toranistan. And who never intended to; that dealer sells them all to a bunch of Crooklyn dealers for $10 more than he paid for them. The Crooklyn dealer then pulls out all the legitimate accessories and overprices them, and floods the market with cheapo bodies, selling the body alone for $500 less than a genuine, legitimate dealer could sell it for. The buyer, seeing the Crooklyn dealer prices, refuses to pay the price being asked by the legitimate dealer. So the buyer buys from a lying thief, thinking they're getting a legitimate deal, and ends up with no genuine accessories, no warranty support, and perhaps a forged serial number on top of it. The buyer hates Canon for this.
Who wins in this scenario? Absolutely everyone gets screwed: the customer, the legitimate dealer, and the manufacturer are all painted in a bad light. Who wins? The Crooklyn dealer who cheated the customer, and the Toranistan dealer. It could be argued that the Canon Middle East sales company is the root of the problem; they should know and refuse to support deals that undercut other territories and are inherently unsustainable, but human nature being what it is, there's always going to be someone, somewhere who needs to meet his quota, and that is what the Crooklyn dealers count on.
So what's the solution? One way to go would be the Apple model. Many of you may be too young to remember this, but decades ago there were independent computer stores that sold Apple products. I used to work in one in Las Vegas, we sold Apple IIe's, IIC's, the Apple III, the Lisa, and the very first Mac 128k and 512k (this was around 1984-1986). We had the same arrangement as current Canon does: the manufacturer sold to sales companies that represented different regions of the country; that sales company would sell to individual dealers, who would sell to customers. Exactly the same situation as the camera manufacturers today. But then Apple one day said "no more" -- they shut down all retail relationships, discontinued all deals with independent stores, and decided to open "Apple Stores." And the rest is history. They sell a billion times more product, and they guarantee the customer gets a consistent and honest experience. (and yes, there are a few authorized chains like Best Buy or whatever, but in general, Apple stuff is bought off Apple.com or at an Apple store...)
Tesla is trying to do the same thing for car sales. Red tried to do the same thing with camera sales. Manufacturers offering the product directly, instead of through resellers, is about the only way to control the end buyer experience and avoid the predatory dishonest actions caused by the likes of the Crooklyn dealers.
Will the Japanese companies ever adapt their business model similarly? Seems doubtful. But if they just brought the individual territory sales companies in-house, that should at least go a ways towards keeping a handle on inter-territory competition.
It's called arbitrage.
apples obsessive control is a double edged sword. This practice has steered many people away from Apple products because of the downsides like higher prices for comparable stats and Ina inability to customize.
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Barry_Green
Moderator
Indeed. There are two edges to that sword, of course. Apple has vastly more control over its user experience (unless, of course, someone goes to extensive efforts to set up an entirely fake store...)
The free market can determine whether they prefer Apple's controlled experience and limited product offerings against, say, Samsung's customizability and option offerings and multiple outlets. I was just pointing out that this different model can be used to keep a tighter handle on one's brand, and it's a change Apple has made and while I am no Apple fan, it would be hard to argue that it isn't a strong brand. The wild west approach of the totally free market has numerous advantages, but has also sprouted the need for "caveat emptor".
mitch@provideo
DVXuser Sponsor
I'm not going to play my tiny violin for myself or the manufacturers. I can honestly say i don't know what the manufacturers profits are. But i absolutely must set the record strait on this statement. I've been doing this for nearly 25 years. I've worked for really big companies, medium companies, and very small companies. On most Professional Division, Broadcast, and Industrial video/photo equipment the profit margin range is usually between 5-20% for the dealer. On most lenses and cameras you're looking at 5-15%. Some select accessories that i sell have a profit margin in the low 20's%. And this dealer pricing is typically unilateral, meaning that quantity purchasing by large warehouse dealers doesn't apply. Unlike consumer electronics where a large dealer may be buying several hundred or even several thousand units (thus constituting a bulk discount), most pro gear doesn't work this way. This is a large part of the reason why you so rarely see discounts on pro gear from dealers big or small. The same systems exists in different industries. You see it with Apple brand gear and select car makes and models. Low margins for all dealers encourages everyone to play fair.
All of this is to say that this is why i strongly encourage you to buy from small independent dealers like myself or some of the other fine sponsors and contributors to this forum. I make sure to let every customer i help know that their business truly makes a difference to me.
Thanks for taking the time to read this. I felt compelled to set the record strait on this wide spread misconception that dealers have huge amounts of wiggle room on these products. Please let me know if you have any questions or any feedback. Thanks
Eric Petrie
epetrie@provideoandtape.com
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High1ander
Well-known member
I actually got 2 Sony A7R II a couple of weeks ago from grey market, but then again I am just visiting in the USA and getting "proper US warranty" wouldn't help me much back in Sweden. They were about 500$ cheaper each. The cameras where different too, one was 60i and the other 50i, one with "Europe languages" and the other without as well. Not that the 50i-60i matters, they are switchable, and the 50i I'm bringing home and the 60i my brother gets to keep in the US.
A side note, not naming names on authorized dealers, but I bought a lens at the same time from an authorized dealer, it came and was faulty (screw loose inside) and had a "torn manual" inside... I had no problems returning it, but just that it is good to check the stuff even from "proper stores". Don't know if they sent me a used one, hoping I wouldn't notice/bother or if was damaged (the manual) from the manufacturer.
A side note, not naming names on authorized dealers, but I bought a lens at the same time from an authorized dealer, it came and was faulty (screw loose inside) and had a "torn manual" inside... I had no problems returning it, but just that it is good to check the stuff even from "proper stores". Don't know if they sent me a used one, hoping I wouldn't notice/bother or if was damaged (the manual) from the manufacturer.
Hi, Eric. Nikon reported their profit margins in their quarterly financial statements, which is publicly available. As are Canon's, Sony's or any listed/traded company (aside Sigma, which is privately held). Nikon reported a 59% operating margin on merchandise sold. I linked the last report I saw on a Nikon thread a while ago.
The various smartphone teardowns and the component cost breakdowns also placed the smartphone manufacturer margins at about 60%. As one can see here, the (in-house or third party) camera module itself is under $20 for the latest models.
http://www.valuewalk.com/2015/04/iphone-6-galaxy-s5-cost-breakdown/
PS. As to Apple, their marketing strategy of twenty years ago almost drove them out of business. It's their prerogative, naturally.
Samuel H
Major Contributor
The Apple way of direct-only sales only works when people already know they want YOUR product. When buying a camera, lots of people still go to the store and ask there; if Canon is not there, it won't get any recommendations, no matter how good it is. I know we now research and buy online, specially for things like a camera. But being sold everywhere is still an advantage: consider the importance of things like amazon reviews, or the fact that if you ask an aquaintance and he's an amazon affiliate, he'll have a harder time recommending something that is not on amazon because he gets no fee.
Off Canon Rumors Black Friday/Cyber Monday Deals page - one of those online unauthorized outlets is selling 5D MKIII for $1,900. Now, I refuse to believe that, even with the possible accessory shenanigans, they are not making $200-$300 per box. So, let's say their cost is $1,700 and let's presume that's the rough wholesale cost for the legitimate retailers too. The authorized price is $2,500, thereby making the "legitimate" profit of about 30-35%. If the manufacturers profit is 50%, then the production cost of a single 5D MKIII is around $850. And that actually seems high to me in 2015, considering that one can purchase an APS-C Sony A6000 for $400 (from an authorized retailer), which has been out for about a year and a half. I approximate the manufacturing cost of A6000 to be around $200 (its regular price is $550) and I would place the 5D MKIII cost at about $600.
BTW, that's why you don't see many Sony models offered via these cross-shipping channels. There's just not enough incentive to buy anywhere beside the legitimate online/brick&mortar stores.
BTW, that's why you don't see many Sony models offered via these cross-shipping channels. There's just not enough incentive to buy anywhere beside the legitimate online/brick&mortar stores.
Curtis Mack
Active member
Regarding Apple products: B&H regularly offers discounts, some in the range of $500 for Apple products. The local Micro Center frequently discounts Apple stuff as well. So, the paradigm is not quite as airtight as it seems.
I have no knowledge of the retail business in Europe but, in the US, it's been quite common for the retail chains to pay its salespeople purely on commission. Usually, the commission was set as a percentage (from ~ 10% to 40%, depending on the product and/or margins, most often being in the 15%-25% range) of the net profit. Major chains who spent a lot of money on the advertising paid a lower rate but brought in more foot traffic; the smaller and/or high end stores paid more per piece. Having worked for a variety of outlets a while back, I have a pretty good idea of what these items might cost even today. The retailers, as a rule, "charged" its salespeople a wholesale cost of a single piece, even though they got additional 10%-15% discounts if they bought in volume. And they have always bought in volume. In addition, there were various co-op advertising deals that always went to the "house". The best most owners would do under these scenarios is to offer various bonuses/spiffs based on the deals they received from a particular manufacturer or a wholesaler/distributor.
PS. The above was about major brands. The in-house brands were a different story altogether. One never found true costs there but spiffs on profitable in-house brand items were often more than a total commission on the major brands.
If someone wants to take a look at canon's financials. This for the 3rd Q 2015.
The more pertinent to this discussion is Page 7. Their direct manufacturing cost of goods, covering all the divisions, is ~ 49% of net sales.
http://www.canon.com/ir/results/2015/rslt2015q3e.pdf
The more pertinent to this discussion is Page 7. Their direct manufacturing cost of goods, covering all the divisions, is ~ 49% of net sales.
http://www.canon.com/ir/results/2015/rslt2015q3e.pdf
Canon amends it law suit by going after the presumed owner of these online sites. The Photography Bay elaborates and provides a personal/legal perspective. Plus, the entire 16 page document, as filed in the New York Eastern District court.
http://www.photographybay.com/2015/12/06/canon-v-gray-market-retailers-lawsuits-update/
http://www.photographybay.com/2015/12/06/canon-v-gray-market-retailers-lawsuits-update/
Andrius Simutis
Veteran
Just a quick comment to the people throwing numbers and percentages of costs and margins and imagining themselves being "ripped off"...there are a lot of costs in running a business. Salaries, rent, support, inventory loss, marketing, development, etc, can quickly turn that outrageous 59% margin into something like 5% or less.
Andrius Simutis
Veteran
Refuse to believe it if you like, but without paid advertising and running it out of a storage unit with skeleton crew/no staff, they can probably get by just fine on $50 or less per box. A margin that would be tough to do if you're running a legitimate business.
Since we don't know where those units came from, we don't really know the costs. For all we know they were picked up at a liquidation auction of a bankrupt store and they're making 90% profit. Maybe they're stolen. Maybe they're bought at wholesale in another country and then imported without paying the taxes. Who knows? <--and that's part of the problem. You don't really know what you're getting, or getting yourself into.
Selling off old stock for a loss that has to be moved before losing it's entire value is no way to determine the manufacturing cost. Would you rather sell milk the day before it expires for 20% of it's normal price or pour it down the drain tomorrow? Recouping pennies on the dollar is something that happens in retail all the time.
Could be any number of reasons, like Sony has tighter inventory and dealer controls, Sony is more aggressive about hunting down unauthorized dealers, or who knows, maybe the Yakuza cut off the fingers of the last guy who tried it (kidding, of course).
Bottom line is that your numbers are most likely way off and don't account for the real costs or lack thereof between these two models.
I actually linked to Canon's financials, which provide a lot of info to anyone interested in them.
A fly-by-night operation can get by with making $50/piece. These online dealers have been around a while.
They can also be delivered by the UFO's. But I am working off a realistic scenario. If an online outfit is selling stolen goods, a visit from the FBI/DOJ is something that would be of a greater importance than a Canon law suit.
BTW, Canon doesn't allege these places to be dealing in stolen goods, does it?
If we're talking about a year and a half old APS-C model, then A6000 is offering a roughly the same or similar performance as far more expensive Canon and Nikon models. Which is why Sony photo-video sales numbers are up and Canon's and Nikon's are down. And why Samsung is out of the game.
I find my explanations far more reasonable than blaming Yakuza. YMMV.
Andrius Simutis
Veteran
Yes, you did, but the manufacturing cost of a product is not it's final cost to the company. It may only cost $100 to manufacture a widget, but once you include the overhead, marketing, support, and R&D costs to take that widget to market successfully the final cost could be closer to $200. My point is that the retail price minus manufacturing cost does not equal profit.
These online grey market sellers are fly-by-night. They may have been doing it for a while, but they're running low overhead operations that could be wound down in a week or less. The very definition of fly-by-night.
I didn't say that these ones were stolen, just that we really don't know exactly where they came from so the prices may have nothing to do with the real manufacturing cost of the product and so it's not really a good way to judge those costs.
Yeah, specs and models all across the board offer different value and I guess Sony thought that their A6000 wasn't offering enough to justify the number of them in the warehouse. Happens all the time. It doesn't mean anything about the actual cost to make a product at that point.
Sure, take the one comment I made where I said clearly "(kidding, of course)" and argue that while ignoring the legitimate points made there.
I still don't think your rationale for your numbers adds up. Besides which, we're getting away from the point...these online grey market sellers are not being clear about what they're selling and so the price comparison isn't valid to begin with.
paulears
Veteran
Not cameras, but audio equipment from Yamaha. Yamaha UK could not supply the model I wanted, despite the big ticket price, yet I could buy it from Yamaha through a German dealer. Yamaha UK told me that if I imported it, they would not service it, supply me with parts or assist in any way. I bought from Germany - so technically still a Grey import - but I had a 3 yr warranty (not needed). The main reason a Countries dealers get waspy is simply protectivism. Perfectly understandable, because the dealer network is important to them, but unreasonable to consumers who see the same product at different prices in different countries because the market supports them.
Tesco (a large supermarket chain here) were taken to court by Levi Strauss for buying their jeans abroad, shipping them into the UK and selling them cheaper than official dealers. Levi won the case.
Tesco (a large supermarket chain here) were taken to court by Levi Strauss for buying their jeans abroad, shipping them into the UK and selling them cheaper than official dealers. Levi won the case.