Analysis: Are Costco photo lab closures an indicator of a wider trend?

Mass retailer participation in a category is considered a key indicator of the overall vitality of the category. Mass retailers have access to the best analytics, and make data-driven decisions. When a high-profile retailer decides to change space allocation or even exit a category, it sends ripples across the industry. For example, Best Buy recently announced the cessation of in-store CD sales, prompting speculation about the future of physical audio media in the age of streaming.

Similarly, Costco Wholesale Clubs made the industry grapevine buzz recently with announcements of the closure several in-warehouse photo departments in Honolulu and in Massachusetts. Club members were informed by email of the photo department closures. In both situations, dates in April were announced for last days of in-store service.

According to HawaiiNewsNow, “The popular wholesale chain store said in a letter to members that the advent of camera phones and social media has created a steep decline in photo printing requests — despite an overall increase in picture taking.

” ‘After careful consideration, we have determined that the print volume at the Iwilei, HI, Costco no longer requires on-site photo printing,” said General Manager Jaime Havron in the letter.”

The Costco stores in Hawaii Kai, Waipio and Kapolei will all continue printing photos on site along with all other photo products and services.

Likewise, the wholesale club operator is shuttering in-store labs in all but one warehouse in Massachusetts.

According to Bizjournals.com, “Costco has six stores in Massachusetts, with locations in West Springfield, Avon, Waltham, Dedham, Danvers and Everett…Photo Departments with on-site printing will remain at stores at 75 Freshwater Boulevard in Enfield, Connecticut, and in Dedham, Massachusetts, according to store employees.”

According to both accounts, the company told customers the increasing number of smartphones and social media was impacting print volume.

A reaction to industry trends

So, how does the industry interpret this? Just another in a series of setbacks for retail photo printers? A harbinger of things to come? Certainly, the too-frequent reports of independent photo store closures doesn’t go unnoticed, either.

Let’s consider, however, other factors. For one thing, the photo industry has a weird relationship with the mass-merchandiser channel. Big retailers are at times loathed for a price-driven marketing strategy, yet few smart marketers will argue, for example, Walgreens’ constant promotion of the photo category doesn’t benefit everyone. Without a Kodak or a Fuji to drive consumer photo-printing awareness, it’s up to big brick-and-mortar retailers to carry that burden.

Large-scale brick-and-mortar retailers have a different business environment than photo specialty or pro labs. For one thing, most of them are publicly traded, which brings an added level complexity. Also, the company has strict formulas on square-foot-per-sales metrics, and if a category is both losing volume – like photo prints are – and isn’t driving traffic – like film-processing did – it makes sense to phase it out where necessary. Add to that equation the fact Costco associates are paid much more than their counterparts at other chains.

Attracting the next generation of Costco loyalists – the Millennials – has to be a major marketing focus. Instilling the same level of loyalty Baby Boomer’s currently have for Costco will require a greater emphasis on digital, on mobile and on services like delivery. High-margin and popular photo products favored by Millennials – like canvas and metal prints, photobooks, etc. – are not produced in-store anyway. It makes more sense to deliver those products to the customer’s home.

Look for Costco to appeal to Millennials with more experience-based in-store activities. The retailer is now featuring “showcase” areas, where goods offered only online can be displayed in-store, ordered, and then delivered to the customer’s home. This lets customers see, touch and feel online-only goods without having to maintain that inventory year round in a dedicated department.

Will Costco back away from photo? Unlikely; in fact, they appear to be doubling down by expanding offerings of business-related photo printing. Further, the Costco Photo Lab app is still very popular, and continues to offer great value to customers. If anything, Costco will continue to respond to customer trends and build a new generation of loyal customers.