Two Brands Likely to Disappear in 2014

In the endless ebb and flow of markets and new businesses there are constantly casualties along the way.  It’s estimated that approximately 50% of businesses fail in the first five years.  Many, if not all of those businesses ever gain any real national brand recognition and thus, very few even know when the company has closed its doors.   Each year however, there are a handful of well-known established companies who are either forced out of the market or are required to make dramatic changes in their image.  There are a plethora of reasons why this happens but, almost without exception, the root cause is embedded in simple economic principles.  This blog post (based on a 24/7 Wall St. article) will expose two companies likely to close their doors in the coming years and will discuss the likely economic principles behind why. 

First, let’s briefly explore the camera industry and in particular, Olympus.  Years ago, when the concept of putting a camera on your cell phone first emerged, this idea was a very low threat to the digital camera industry.  Not only was the quality of the image horrible, but there was virtually no easy way to extract the image from the phone.  As a result, demand for digital cameras soared, providing ample room in the industry for a number of competitors.  The passage of time however, has brought with it more sophisticated technology which allows users to both capture and share images anytime, anywhere.  As a result, worldwide unit sales of digital cameras are down 18% in 2012. Ironically, Olympus seems to not have seen this coming (actual sales were less than two-thirds of what they forecasted).  While the phone camera’s image might not quite match the quality of a comparable digital camera, it has gotten good enough to act as an adequate substitute thus dramatically decreasing demand for digital cameras.  The digital camera market is currently reacting to this shift in demand but we currently still see companies trying to decrease their supply and find viable ways to stay in business.  This adjustment will ultimately result in companies (or at least product lines) being forced out of the market. In order to survive, Olympus is going to need to make drastic changes. 

Next, there is a high likelihood that the WNBA (Women’s National Basketball Association) might take a major hit in the next twelve to eighteen months.  “The Chicago Sun Times reported back in 2011 that ‘The majority of WNBA teams are believed to have lost money each year, with the NBA subsidizing some of the losses.’”  These losses are likely attributable to the very low attendance at each game.  The NBA average attendance is around 18,000 fans while average attendance for WNBA is less than half that.  Economically speaking, this means that some percentage of every ticket purchased for an NBA team is helping pay for and sustain the WNBA.  Because the demand clearly isn’t there, from an economic perspective, the company should go away.  It’s simply not a sustainable venture.  The article suggests that the primary reason the WNBA has lasted as long as it has is because the commissioner of the NBA (David Stern) has been a “champion and protector” of it.  He however, is set to retire in early 2014.  The jury’s out on whether the WNBA will survive the change in commissioner. 

These two examples illustrate different ways in which demand (or the lack thereof) can have a dramatic impact on businesses and their longevity in the marketplace.  Companies unwilling to adapt to the marketplace, or find a niche within the market are likely to disappear along with the vast number of startups who never make it to their five year anniversary.  


Bomber said...

I find this article very interesting, and fairly accurate with articles posted all over the web. I somewhat disagree with the assumption that these companies may simply "disappear" in the near future. The WNBA may as well shut their doors tomorrow, but Olympus has a few very valuable assets which are current industry leaders. Their digital imaging department has long been a loser, but their Micro 4/3 (mini DSLR) technology is still award winning.

Though the company has its challenges in keeping up with a fast pace industry, I feel it appropriate to add that the brand still has significant value and may be purchased by the likes of Canon or Sony. I believe Olympus may stem the tide by playing to its strengths and creating quality products in the niche photography market. Competing with cell phones is not the answer, but did you notice the photographer capturing iphone shots at your wedding or panoramic landscapes for the local art gallery?

Dave Tufte said...

Nickwb: 100/100
Bomber: 50/50

I'm only somewhat surprised that Olympus' demand forecasts are off. I don't think anyone has really figured out what it is that consumers' are demanding when they take pictures. It isn't quality: cameras will always be a step ahead of phones on that count. Most people seem to prefer to take poor pictures, often of themselves, trying to save spontaneous moments in time ... that they don't often go back to view ever again. I have a hard time figuring out what the good/service is in that description.

As to the WNBA, I'm not that familiar with the economics, but it sounds like there is some transfer pricing going on there that isn't efficient. This is pretty common when you have managers (like Stern) with lots of free cash flow at their disposal.

Bomber thinks Olympus has valuable assets that can be sold off. Hmmm. That's what Kodak thought too.

I think the example of the wedding photographer is interesting though. Perhaps the old school camera is just a sunk cost being used as a deterrent. Using that signals to the wedding party that they're getting something for their money. Frankly, if I were a wedding photographer and I did use an iPhone to take the pictures, I'd hide it inside something that looked like an old school camera.

Mazer said...

It is more likely that we see Olympus discontinue its point-and-shoot line of cameras than we see the brand disappear. Over the last few years we have seen smartphone become just as good as the point-and-shoot cameras on the market, when it comes to quick snapshots. With a significantly smaller body size and weight, and including features such as on-board HDR, panoramic photos, and Wi-Fi upload capabilities, smartphones are expediting the point-and-shoot’s journey to obsolescence. In areas like technology, convenience usually trumps all. And in today’s society, more and more consumers are using their smartphones as their primary cameras.

For a company like Olympus, whose point-and-shoot business is being destroyed by smartphones, they have the option to move upmarket by offering more SLR and DSLR cameras. Smartphones have opened the world of photography to virtually everyone, which has possibly put more people on the path to photo enthusiasm. This could increase upmarket demand for SLR and DSLR cameras as more people will begin to crave something more powerful that does more than just snapshots. Consumers may love convenience, but photo enthusiasts are not fooled by it. SLR and DSLR cameras have exchangeable lenses, optical zooming capabilities, less shutter lag, superior flashes, longer lasting batteries, higher sensor resolution, and capability to do RAW image capturing (ideal for photo editing). Smartphone’s imminent domination over point-and-shoots may actually produce more photo enthusiasts, thus shifting the demand curve for SLR and DSLR cameras.

Another interesting note is the effect that smartphones have on compliment products/services, namely the photo finisher market. Consumers typically view smartphone snapshots as either Facebook worthy or disposable. Consumers print less and less photos because of this. Photo finisher companies may also be eligible for obsolescence in the coming years.

Dave Tufte said...

Mazer: 44/50 (smartphones not smartphone, expediting not expiditing, complementary not compliment).

I learned quite a bit from this. It's light on economics, but there's a lot of photo enthusiasm in there, and you did translate that into some ManEc.