IT’S NOT A PRETTY PICTURE : Strong Yen Is Squeezing Camera Retailers’ Profits, Sending Japanese Tourists to U.S. for Bargains--Meanwhile, Americans Face Higher Prices

Harry Bar, an Israeli immigrant who owns a consumer electronics store on Broadway in downtown Los Angeles, has a new market for Japanese cameras: Japanese tourists. The strong yen, together with the reluctance of Japanese camera makers to raise U.S. prices, has made it cheaper for Japanese citizens to buy in America than at home.

“We sell them (cameras) at a high price, and they step out happy,” exulted Bar, owner of Harry’s Camera & Electronics.

The falling dollar is hurting profits in the $5-billion worldwide market for hand-held still cameras and giving rise to some odd reversals of traditional stereotypes about the industry. European and Japanese tourists find bargains in U.S. camera stores, while Americans face sticker shock here and abroad. And Japanese manufacturers, who have come to occupy more than two-thirds of the U.S. market with a reputation for top quality at reasonable prices, are trying to figure out how to break the news to customers that production costs are up as much as 106% in dollar terms over the past three years as a result of the yen’s rise.

Since the dollar began falling in February, 1985, U.S. retail prices of cameras have risen by an industry average of about 30%, said Carroll C. Seghers, marketing manager for promotions at Garden City, N.Y.-based Nikon Inc., a subsidiary of Nippon Kogaku KK in Tokyo. If you were to enter a camera store today for the first time in two years, he said, “You’d probably clutch your gut and fall over.”

As a general rule, prices have risen least in the highly competitive market for compact 35-millimeter cameras, makers of which compete not only with each other but also with manufacturers of other leisure-time goods for the consumer’s dollar. Prices have tended to rise more quickly for the expensive cameras that professional photographers must use in their work.

Professionals Hurt

“(Camera buyers) still remember the prices there were a year ago or two years ago. It’s really shut the market down, especially for professionals. . . . The professional photographers are really devastated; they don’t have cameras to buy,” said Lenny Gendelman, owner of L & D Camera & Video in Hollywood.

The suggested list price of a Nikon F3, a professional-quality camera whose design and production has not changed during the past three years, has risen to $1,215 from $810 on April 1, 1985, Seghers said. Lenses for the F3 are sold separately.

The F3’s price increase sounds substantial. But because of the yen’s rise, Nippon Kogaku in Japan now receives just 155,520 yen--$1,215 multiplied by 128 yen to the dollar--to reimburse its workers, investors and suppliers for the labor, factory and materials needed to make the camera. That compares to 204,120 yen when the price was still $810 and the yen was at 252.

“What’s happened is that we as an industry, and Nikon, have had to absorb the difference,” Seghers said.

Camera makers are moving production out of Japan and simplifying camera designs and production lines in an effort to brake the rise of production costs in dollar terms. During the past three years, Vivitar, a Chatsworth-based subsidiary of Hanimex Corp. in Sydney, Australia, has moved 80% of its camera assembly from Japan to South Korea, Hong Kong and Taiwan, said Gary J. Davis, vice president of marketing. The Taiwan dollar has climbed 33.8% against the dollar, and the South Korean won 9.5% since April 1, 1985; the Hong Kong dollar has not changed.

Continues to Dominate

Vivitar has raised its camera prices by only 5% since February, 1985, Davis said. But because a majority of its camera parts are still made in Japan, the company will increase prices by another 5%, effective April 1.

“That is a direct result of the yen-dollar ratio,” Davis said.

Yet Japan continues to dominate the production of more valuable 35-mm. cameras, said Joyce Watson, a camera industry specialist with the U.S. Commerce Department. In 1986, Japan accounted for 83% of the 35-mm. cameras imported into the United States and 91% by value. Taiwan accounted for only 8% of unit volume and 4% of value, she said, and its market share has not yet begun rising appreciably.

Nikon has kept its production for the U.S. market entirely in Japan while seeking to reduce the number of parts in its cameras and streamline production. Pursuing both tactics in the case of the Nikon One-Touch has helped the company limit the price increase to 26% since April 1, 1985, to $266 from $210.50, Seghers said.

“If we raise (the price) too much, or we raise it too quickly, the loss in sales volume would more than take away the greater unit (profit) that higher prices would give us. . . . We’ve just tried not to have sticker shock,” he explained.

Japanese exporters making such products as steel and cars have been somewhat insulated from exchange rate fluctuations because a significant portion of their costs consist of imported commodities--such as crude oil for power generation--that have grown cheaper as the yen rises. But imported materials account for only a tiny portion of the cost of building a camera in Japan, depriving camera exporters of this small consolation.

The only consideration working in the industry’s favor is that Japan’s overwhelming share of the U.S. camera market means that virtually all companies face the same rising costs, said Michael P. Goodson, an industry analyst with First Boston in New York. But fierce competition has prevented manufacturers from raising prices as fast as the yen has gone up.

How much this has affected the profits of the large, diversified Japanese camera makers is impossible to determine, Goodson said, while adding that “clearly they’ve gone down.”

Even the relatively modest price increases to date have created problems for retailers, who shave profit margins so as not to boost prices abruptly with large jumps in wholesale prices. “You usually have to gradually raise (retail prices) even if there are big increases,” said Mark D. Adams, national marketing manager of Ritz Camera.

Headquartered in Beltsville, Md., Ritz is the nation’s largest camera store chain with 235 outlets, 25 of them in Southern California.

Tourists have become an important market for local camera stores. At L&D; Camera & Video, Japanese and German tourists now account for a quarter of sales, up from virtually zero three years ago, owner Gendelman said.

And if it weren’t for tourists, said Juda Alszeh, owner of R & A Import in downtown Los Angeles, “I’d be stuck. . . . The American people are really shopping, shopping, shopping and shopping around.”

Further small price increases every few months are likely, even if the dollar stabilizes, as camera makers seek to raise their prices back toward where they once were in yen terms, Goodson said.

Yet competition for market share and fears of a recession are likely to prevent huge price markups and a recovery of industry profits in the immediate future, Goodson said. “Are people going to buy a $300 camera at $330? . . . Don’t expect a big price increase even though there’s every logical reason for it.”