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OFFLINE RETAIL

Cyber photo developer Snapfish looks to grow through stores

BY MYA FRAZIER

Since the dot-com bust, some online retailers have found that the only way to grow is to move from cyberspace into shopping centers. For San Francisco-based Snapfish, which launched an online photo service concept five years ago, brick and mortar has become a necessity.

In August Snapfish opened a concept store at Bradlee Shopping Center, a 179,307-square-foot neighborhood center owned by Washington Real Estate Investment Trust, in the affluent suburb of Alexandria, Va. The company says it wants to prove that the years it spent in the trenches refining and tweaking a service translate into a better retail experience for the consumer.

“We want to showcase how online and retail can work together,” said Raj Kapoor, Snapfish’s president and co-founder. “Our intention is not to roll out retail stores across the country. We don’t want to become a retail company.”

Translation: Snapfish wants a retail partner instead. And its sights are set on a retail giant with the mass-market presence to reach the masses as the digital revolution takes off. “We are in discussions with the entire industry,” Kapoor said.

The list includes the obvious suspects: Costco, Kroger, Target, Walgreens, Wal-Mart.

Clearly, the time is right. Consider that the percentage of households owning digital cameras jumped from just 4.4 percent in 1999 to 27.7 percent last year, according to the Jackson, Mich.-based Photo Marketing Association International. That could exceed 42 percent this year, the association projects.

And as digital photography gains in popularity, the way in which customers print their pictures is changing dramatically, an ominous sign for Snapfish. Even early on, the volume of prints processed online was insignificant compared with the number done at home.

For the past two years ending in July, the percentage of digital prints made online has remained flat — just 6.9 percent in 2004 and 6.6 percent in 2003, according to the PMA.

For retail printing during the same period there’s a growth story. Digital prints made at retail (excluding self-serve kiosks) jumped from 8.1 percent to 16 percent, says the PMA.

Although home printing of digital prints still dwarfs any other method, the PMA reported the percentage of prints made at home dropped from 76.4 percent in 2003 to 55.9 percent in 2004.

Snapfish’s investment in the 1,500-square-foot store reflects its need to show what it can bring to a national retailer. The store, which sits between a drugstore and a restaurant, offers consumers an array of accessories to go with their prints, from photo frames to merchandise suitable for digital printing, including aprons, calendars, canvas bags, key chains and T-shirts.

In addition to developing digital prints, the online Snapfish experience allows consumers to upload and store images and share photos by e-mail for free. The Snapfish store allows customers to pick up prints, rather than wait for mail delivery.

The facility was formerly a traditional photo processing store with an established customer base. It was owned and operated by Snapfish sister company District Photo, which claims to be one of the world’s largest mail-order photo processors, and which operates four stores in the Washington, D.C., area. Neil Cohen, CEO of District Photo, is also chairman of Snapfish.

Snapfish’s main online competitors, Ofoto and Shutterfly, which both also got started in the Bay area in 1999, have taken different paths to growth. Today Ofoto operates as a subsidiary of the Eastman Kodak Co., which bought the company in 2001. Kodak is launching similar online sites in France, Germany and the United Kingdom. Redwood City, Calif.-based Shutterfly remains privately owned. Neither Ofoto nor Shutterfly have stores.

Whether any mass-merchant retailer will see a benefit in a partnership with an upstart competitor like Snapfish is uncertain. Walgreens, the No. 2 photofinishing retailer in the country behind Wal-Mart, already has a strategy in place for servicing customers migrating to digital cameras. So a partnership with an online service seems unlikely from that quarter.

“That’s not something we’ve pursued,” said Michael Polzin, manager of external relations at the Deerfield, Ill.-based, 4,582-unit drugstore chain. “We’ve already invested into the technology in our stores and offer digital prints online. We have a full Web site with store products and prescription services, so we simply added photofinishing services too.”

As digital photofinishing boomed, Walgreens installed digital minilabs in half its stores over the past two years. And almost all its stores offer self-service digital kiosks.

“We’ve seen amazing business from the growth of digital,” Polzin said. He notes that it’s as easy for a customer to bring in memory cards as it is rolls of film.” It is as easy to drop off a roll of film, and bringing in a memory card is just as simple.”

Although digital development prices at Walgreens are higher than at Snapfish (for a 4 by 6 print, 29 cents versus 19 cents) customers do not pay shipping and handling as they do for online orders with Snapfish.

Jill Aldort, a consultant at InfoTrends, a digital photography market research firm based in Weymouth, Mass., expects mass-merchant retailers to shun a Snapfish partnership.

“For Snapfish to be setting up a portion of a retailer’s footprint — that’s a very creative idea that’s a little far out for the current market,” she said. For starters, these merchants have long-term partnerships with Fuji and Kodak, which also manufacture the digital minilabs now being installed at most major retail locations, Aldort says.

She speculates that better synergy could result from partnerships between Snapfish and consumer electronics retailers, such as Best Buy or RadioShack.

“Retailers who don’t yet have online digital photofinishing are looking for ways to get it,” said Aldort. “Those are more-likely candidates for a partnership, because they don’t yet have a digital solution in place.”