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The End of Overnight? Qualex to Shutter Nine Labs in Major Kodak Shake-up



The Fairlawn, New Jersey lab (above) is one of nine Qualex sites being shut down. It recently held a 50th anniversary celebration.

For the most part, the photo specialist is not impacted by the Qualex switch from one day to two as most have made other arrangements for ancillary work either with a local custom lab or another one-hour lab, maybe even a competitor, who has different equipment. The Qualex dollar threshold for courier service-from $5,000, higher in some areas, drove the specialist away.

Not so for Joel Paymer, owner of Camera Land, a Manhattan photo specialist, who has been one of a handful of dealers in New York that have enjoyed kid-glove treatment from the Qualex Fairlawn plant: same day return. This involved two visits a day from a route driver that was put into place to serve important Kodak customers in this highly charged market that had no on-site equipment but had to compete with dealers who did.

Fortuitously, Joel, after many years of denial, finally installed a Digital Portal one-hour lab earlier this year along with two Kodak G-3 kiosks. Now, most of his work is being done in-house and he considers the Qualex changes as "only a minor inconvenience."

Did you buy your own lab knowing 2-day/6-day was about to happen, Joel? "I didn't have a clue." His timing was perfect.

It remains to be seen how the shift from overnight to 2-day return will be taken by the retail consumer. Probably in preparation for the change to overall 2-day, Qualex kicked off its Perfect Touch processing, a $2-$3 premium service, making it's turn as 2-day standard. Brad Kruchten, Qualex president said a few months ago that PT represented over 30% of incoming orders. To at least this customer segment, the 2-day turnaround represents no change.

Wal-Mart, on the other hand, has been on a 2-day turnaround for its outlab service since Fuji stepped in and bought about eight Wal-Mart wholesale labs some years ago and now operates them as Fujicolor labs. However, Wal-Mart makes a big price concession for customers willing to wait for the 2-day service. While its on-site processing customer pays $5.52 single set and $7.92 double set, the 2-day customer pays $2.92 and $3.92, respectively. A big difference.

Qualex feels that the switch to 2-day will not have a major impact as, according to their studies, only 30% of customers actually pick up their orders the next day.

One thought being tossed around by some in the trade is that the closings are just the first step in Kodak getting out of the processing business altogether. Joel Paymer said, "Indications are that they don't want to be in the film developing business."

Asked to comment on whether Kodak was actively looking for a buyer for Qualex, a Kodak spokesperson said, "As a matter of practice we do not comment on these types of speculative questions." And the spokesperson adds, "However, we are always willing to listen to an opportunity that makes sense." (My italics -J.L.)

That Kodak might have the psyche to sell off wholesale labs has already been demonstrated overseas. This past Spring, Kodak sold it's eight processing labs in Germany to an independent wholesale operation. The same in Australia where they had two labs. These moves were no doubt driven by a worldwide sales drop of 8% for Kodak processing in 2003 vs. 2002 according to Kodak's annual report. There are still dozens of other Kodak wholesale labs serving various areas in Europe.

There are two other firms with multiple wholesale labs, Fuji and Konica. Might they be interested in some or all of the remaining Qualex labs?

A Big Drop
The second quarter, 2004, financial statement from Eastman Kodak, released July 21, includes the following information: "Net worldwide sales for wholesale photofinishing SPG, which includes color negative paper, equipment, chemistry, and photofinishing services at Qualex in the U.S. and CIS (Consumer Imaging Services) outside the U.S., decreased 29% in the second quarter of 2004 as compared with the second quarter of 2003…"

Fuji currently has 22 labs and is already serving the market nationally. A spokesperson stated that there were no plans to close any of these labs and that Fuji is committed to serve all markets nationally. Curiously enough, while Wal-Mart is its largest customer and to whom they provide 2-day turnaround (along with Sam's Club), Fujicolor still offers next day service on local pickup routes. In my area of New Jersey, a drug store outlabbing to Fujicolor sells a 24-exp. roll for $4.88, single print, and a free roll of film.

Konica used to be a national player with 12 labs but dropped out in 1998 when they lost the Kmart business to Qualex and RiteAid bought Payless on the West Coast. Currently, they have three wholesale labs-Mt. Laurel, NJ, Scarboro, ME, and Hudson, OH. According to Todd Tereshko, Konica VP, "We offer 7-day pickup and overnight return. We will have to look very closely at what Qualex will be doing."

But, there could be changes in the Konica wind. One of their largest customers, for both equipment and processing, is Brooks Pharmacy, a New England-New York chain of 330 stores. Brooks is owned by Jean Coutu Group, the Montreal firm that was scheduled to close in July on its purchase of about 1,500 Eckerd stores, primarily in the East. Eckerd is currently served by Qualex. Might Konica have an inside track through its Brooks connection to get the Eckerd business and expand its wholesale setup with overnight compared to the Qualex 2-day/6-day?


   







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