Disruptive Innovation and the Bankruptcy of Ritz Cameras

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

The explosion

0

5

10

15

20

25

30

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Number of film and digital cameras sold in the United States

The shift from analogue to digital imaging created

huge problems for many camera manufacturers.

Kodak…

… Polaroid…

… Leica…

Konica…

… Agfa…

… Hasselblad..

… But the revolution also put many camera stores in trouble…

In February 2009, Ritz Cameras filed for chapter 11 bankruptcy.

Founded in 1918, Ritz grew into the largest photography chain in the

United States with more than 1300 stores across the country.

The main competitor, Wolf Camera, had been acquired along with a couple of other chains which

remained under their own names…

… Inkley’s, Kits Cameras, Cameras West and The Camera Shop.

The Ritz chain sold cameras…

… Provided service to their customers…

… And made good money on its photofinishing business.

The shift to digital imaging had two unpleasant consequences for Ritz.

1. People consumed less and less film and thus, the photofinishing business became

very unprofitable.

2. The margins are much lower on electronic goods and their value diminishes rapidly.

Therefore you need huge volumes, you can’t afford inventories and you can’t afford to have

a lot of employees providing service.

Cameras are nowadays

mainly sold at large

retailers of consumer electronics

such as Best Buy…

… or Wal Mart.

These stores can sell the large volumes that are required to make a profit, they

have a lower overhead count, don’t make money on film and are masters of supply

chain management.

The economics are simply not in favour of smaller chains like Ritz anymore.

The same thing has happened in other

digital shifts.

The big old tube radios used to be sold in special stores, which provided service

and reparation.

The Transistor Radios were smaller, cheaper and demanded less energy…

In order to sell transistor radios, Sony had to create a new channel. The

Radio stores made money on repairing furniture radios and were therefore not interested in selling

small, cheap transistor radios which did not generate service revenues.

Sony dealt with discount stores like Woolworth which did not

have any service

departments.

… And therefore the radio stores died.

In the same way, mechanical calculators were sold in stores together with typewriters and office furniture…

These stores provided

service and maintained

strong relationships

with their customers.

The cheap and simple electronic pocket calculator could not be sold in this channel.

They had to be sold in large discount stores, without any service, in huge volumes.

So both the mechanical technology and the sales network were rendered obsolete with the shift to the electronic pocket calculator.

Therefore, the demise of Ritz should not be regarded as a management failure or

as a consequence of the recession.

Its decline was rather a consequence of the economics of digital technology and

its highly disruptive nature.

The death of radio stores…

… And of stores for

mechanical calculators should be

regarded as a confirmation

of this.

It was digital technology that put an end to the Ritz business.

Canon USA, Nikon, Fuji and many other creditors are now lining up to get as

much as possible from what remains of a former 1 Bn USD company.

Find out more about the camera industry:

www.christiansandstrom.org