Photo Firm’s Focus on Rural Areas Pays : Camera, Services Sold Together
People who live in the country may have lots of fresh air and privacy, but not many camera shops. That fact has not been lost on Traditional Industries.
By focusing its marketing on rural areas, the company has become the leader among the mail-order firms that sell photo equipment, supplies and discount processing services in packaged deals for consumers.
Even Traditional’s headquarters has a folksy style, nestled on a tree-lined street on the northern fringe of Westlake Village. The company’s jocular chairman, president and chief executive, Arland D. Dunn, 47, grew up in Lone Pine, a small town west of Death Valley.
Not that everything is bucolic perfection at Traditional. For instance, its direct-mail marketing approach is too “gimmicky,” said Craig T. Weichmann, an analyst for Morgan Keegan & Co. in Memphis, Tenn., which helped underwrite Traditional’s stock offering in April.
Aggressive Mailings
Following the style of some aggressive real estate promoters, Traditional mails post cards to prospective customers, mainly newlyweds and new parents in remote areas.
“Congratulations,” the standard post card begins, “You have a gift coming. To claim your free prize--call immediately.” The card promises possible prizes including $1,000 in cash, a car stereo, a 12-gauge shotgun and sleeping bags.
Prospective customers then are asked to visit a Traditional sales representative, usually at a nearby hotel, to hear the pitch. What they are offered is a package priced at an average $600 that includes a small 35mm camera, a photo album and discount coupons for film processing.
Traditional says it has 45,000 customers across the United States. As for the prizes, nearly 99.9% of the people who come in get no more than a gift certificate that takes $9 off the package price, the company says.
“I wish they’d get away from those gift-oriented cards and just promote the product,” said Weichmann, who calls Traditional’s package a bargain.
Officials with the state Department of Consumer Affairs and the state attorney general’s office said they have received complaints against other companies that sell discount coupon packages, but none against Traditional.
The company says its package makes sense for families who intend to take a lot of pictures and buy a lot of enlargements. But the deal does not pay off for customers until most of the coupons, which are good for 10 years, are used.
For Traditional, the packages provide steady cash flow and, when customers neglect to take full advantage of the discount coupons, fat profits. The company has averaged sales increases of 35% and profit increases of 42% annually over the past five years.
The film processing laboratories it is affiliated with, meanwhile, are happy to pass along volume discounts in exchange for needed business in a competitive era of mini-labs and quick processing.
Traditional posted net income of $1.5 million for the fiscal year ended June 30, up nearly 86% from the previous year. Sales jumped 57%, to $21.0 million. On Thursday, Dunn said, the company will announce first-quarter earnings expected to be about $625,000 on sales of $7 million.
The company’s base package, priced at $499.95, consists of an automatic-focus Yashica Partner AF, which sells for about $180 at discount stores, a photo album that retails for about $50 and hundreds of dollars of discount coupons.
After the first payment of about $50--the packages typically are financed over two years--customers receive the coupons and album. To cut losses from people who drop out, cameras are sent only after the third payment is received.
Nevertheless, Traditional increased its bad-debt reserve during the first quarter ended Sept. 30 by $2.4 million to $8.3 million, and the company maintains a six-person collections department.
“There’s a fairly high incidence of bad debt in this business,” Weichmann said. “And there are some places you know you’ll get ripped off, so you just don’t pursue customers there. Like in the middle of New York City.”
The package includes 200 coupons for 8x10 or 5x7 enlargements. For each order, the customer pays only $1. An 8x10 enlargement from stores in the Fotomat chain is $4.79. Fotoxpress, a Whittier-based processing service, charges $2.69.
Traditional’s customers also receive 200 coupons for free rolls of Kodak film, each redeemable when a roll of film is processed through a lab affiliated with the company.
The labs, in North Dakota and Florida, charge $7.75 to process a 36-exposure roll of color print film. Fotomat charges $11.99 for the processing and an additional 99 cents for a new roll of film.
Customers who do not think they are getting their money’s worth after signing on the dotted line are “given an out,” Weichmann said. Several days after a sale is booked, Traditional phones the customer and reviews the package. Dunn said about 10% drop out.
“We don’t want any customers who don’t want us,” Dunn said.
Sources of Names
Prospective customers are either drawn from mailing lists that the company buys or culled from county birth and marriage records by sales representatives. The company says that 45 out of every 1,000 people who receive their cards become customers.
Traditional’s experience has been that more than one-third of the cards it sends to rural addresses draw a response, compared to only 10% in urban areas.
“People in cities get bombed with these ‘You-have-won’ things,” said Weichmann. “They throw them away.”
Background Ties In
Dunn, an imposing figure at 6 feet, 3 inches and more than 270 pounds, says he relates easily to the small-town, family-oriented people who tend to be his best customers. After getting married at 17, he started selling cookware in the Alhambra area.
Next, in 1958, he took a job with a company called Family Treasures, which operated a business similar to Traditional. Dunn says he has never been much of a shutterbug, and that he simply fell into the business.
At Family Treasures, he soon found himself working for Ray M. Mitchell, who some in the industry call the “father of custom photographic packages.”
“I took Dunn in and taught him the whole business,” said Mitchell, 66, now in semi-retirement in West Los Angeles. “He was young, dependable, and wanted to build something.”
Dunn worked for Mitchell until 1976, when he started Traditional in a spare bedroom in his home. The existing headquarters in Westlake Village, where the company employs 60 people, was set up in 1980.
Earlier this month, Traditional bought two other firms in its field, Direct Sales of America and American Industries of Oregon, which previously was affiliated with Traditional. Both companies have sales of less than $5 million annually. The deals were stock transactions whose terms were not disclosed.
Independent Salespeople
Traditional keeps costs down in part by working through independent sales representatives who take care of their own expenses. The sales reps’ pay is based on performance and ranges from $4,000 to $6,000 a year for part-timers to $150,000 for a few top people.
The company has steadily increased its sales force, from about 190 in 1984 to 390 now. Weichmann projects that the sales force expansion and the $10.4 million the company took in from its stock offering last spring will enable Traditional to grow 30% annually into the early 1990s.
The stock closed Monday at $13, up 25 cents from Friday.
Traditional hopes to keep ahead of its competitors by introducing a new concept--selling packages consisting of videocassette recorders and blank recording tapes.
Weichmann said the VCR package would probably be more popular in rural areas than in cities, where electronics retailers abound. He added that the package could broaden the company’s market because VCRs are hot-selling items.
