Magazine Article


Like the Little Guys, Qualex Scrambles to Adjust Its Menu as Roll Count Wanes

Guess who's now in the custom framing business? Qualex, that's who.

Custom framing? Qualex? C'mon, you gotta be kidding.

Not kidding. After all, Qualex is faced with the same problems that every other photo lab is faced with-whether a single store, a large specialty chain, or drug or food chain-making up for the revenue and high margins that were generated in the heyday of the roll film business.

The only difference between Qualex and everybody else is how many zeros are at the end of the numbers. As a former owner of eight labs in New Jersey, I can confess to being talked into opening a new location because I was convinced it represented a market that would generate 100 rolls a day. Right. Unfortunately, it turned out that the 100-roll days usually came on July 5 and December 26.

In the case of Qualex, consider that five or six years ago they were pumping out about 300 million rolls a year. Today, the rate is about 30 million, according to Mark DeSimone, president of Qualex, Inc., Durham, NC, a wholly owned subsidiary of Eastman Kodak that bills itself on its website as "the largest wholesale and on-site photofinishing company in the world."

How about five years from now, Mark? "About 3 million to 5 million rolls."

He said that Qualex presently serves about 30,000 retail locations a day. As for the ubiquitous Kodak drop box, it, like the telephone booth, is rapidly diminishing in number. He estimates that the once 50,000 or so drop-box population may now be only half that.

That's a big hit, certainly, but there isn't a processor on these shores who can't relate to the deterioration. While there are probably no tears being shed for Qualex, all are brethren of the same fraternity faced with the same problem. Just the zeros, folks. In dealing with the decline there are more similarities than differences between Qualex and the one-hour lab: how to make up for lost dollars and what has to be done to keep the ship sailing.

The guys who haven't been able to come up with a solution are running a tanning salon or coffee shop. The resourceful ones are figuring out ways to take advantage of the digital opportunities while tightening their belts a notch or two.

The belt tightening was substantial at Qualex, a firm that went on an acquisition binge some years ago with the purchase of large, regional wholesale labs like Colorcraft, Guardian, and others, and whose locations numbered close to 100 within the past 10 to 12 years. Today, there are six in North America, and Mark said that number would "remain unchanged in the foreseeable future." (Fuji, incidentally, has 10 wholesale lab locations serving primarily the Wal-Mart account.)

Modern-Day Qualex

Today, Qualex has three main lines of business: its Central Lab Operations (CLO), Event Imaging Solution (EIS), and Kodak Service and Support (KSS). Mark said that CLO, the wholesale processing side of the business that three years ago represented 80% of the business, is now about 55%; EIS (theme parks, malls, etc.) about 20%; and KSS, the service and support operation to thousands of retail locations, about 25%. While unwilling to release specific dollar figures, Mark said that Qualex operations were "profitable."

Mark sees CLO as growing in importance once again as the firm does what every other processor has been forced to do: find new revenue opportunities.

"In the past we focused on brick-and-mortar locations. Now we are focusing on digital by supporting both in-store and the online presence of our customers." For 2008, he forecasts about 75% of his business coming from online orders-a significant part of that from Kodak Gallery.

Back to the framing. This isn't a service that's digital-related, nor one that was ever considered mainstream for a retail lab-though it represented a profitable niche for many independent labs. But a Qualex customer located in Durham, Replay Photos, an exclusive supplier of athletic-oriented photos for a large number of universities, convinced Mark to set up a frame operation that it would support. (Replay Photos was founded by Sue Hartnett, a basketball standout at Duke who serves as president of the firm.)

While the new operation, which began in April and employs a handful of people, is only a small 5,000-square-foot setup in the Qualex Dallas facility, it demonstrates where Qualex is willing to reach to develop new business opportunities. Mark said the framing business was a small investment that was "doing very well," with expected growth by 25% in 2008. The frames are also offered through Kodak Gallery, but so far, none of the Kodak chain customers have added it as an online item.
Qualex had been a player in the gifting market for a number of years, providing a long menu of items through its major chain accounts (Target, CVS, Rite Aid, Walgreens, Albertsons) and others, along with its own online operation, Kodak Gallery. However, a large number of the SKUs were being supplied by third-party providers.

It was just a year ago, at PMA, that the trade learned that Photo TLC, a major gifting supplier to a who's-who of chain retailers with 22,000 retail locations, had unceremoniously padlocked its operations. Qualex jumped in to grab some production assets from TLC's Austin, TX, plant and incorporated the line into its own Dallas facility.

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