> Does anyone really know how it works?

Will,

I helped manage a camera store here in Silicon Valley (LZ Premiums) from 1983 to 1992. I got intimate with every piece of the business. I memorized more than 3000 prices (both for LZ's and our main competitor San Jose Camera).

I am no longer in the camera business, but my friends who are say it still works the same way as it did in the 1980s.

First of all, LZ Premiums was a discounter that only sold USA Warrantied camera equipment. San Jose Camera, which is still in business today, still works the same way and I visit them often.

First, let's just look at the local camera business. Forget mail order for a moment, since that's a whole nother game.

In each market there are a few types of dealers:

1) Discount
2) Chain store
3) Niche professional shop

Here in Silicon Valley that'd be:

1) San Jose Camera
2) Ritz or Fry's Electronics or Good Guys
3) Keeble and Shuchat

OK, now, when I sold Nikon F4's, how much profit (er, contribution to overhead) do you think I made? My friends always laugh at this one.

$5.

That's right. Generally we'd pay somewhere around $1495 for a Nikon F4 and we'd sell it for about $1499 (if I remember right, all those prices are starting to disappear from my brain).

Now, you might think that I am crazy to sell a camera for so little profit, right?

Well, that's the way the game is played.

So, where would I make money?

Well, accessories.

I sold a Hoya UV Filter for $19. Do you know how much that cost me to buy?

$1.

That's right, I'd make more money on the UV filter than I'd make on the body (or even selling you a body and lens, since I typically made about $5 on each lens sale too.

OK, now, most people will buy the following:

1) Camera ($5 profit)
2) Two lenses ($10 to $30 profit, if they bought a third-party manufacturer like Tamron I might make about $40 per lens).
3) Filters ($18 profit on the UV, another $18 for each additional filter sold. I always tried to sell a Polarizer, a neutral density, and a UV filter). If I sold three filters, I would make about $50 profit, sometimes less cause I might negotiate a package deal if the customer started buying a lot of accessories.
4) Bags. I used to sell really nice cases and bags for $20 to $60 more than what they cost. Generally the markup on bags is double what wholesale price is. So if you're buying a $140 case, the store is making about $70 profit.
5) Flashes. I usually made about $10 on a name brand flash and $40 on a third-party (Sunpak flash).
6) Monopods/tripods. I sold a LOT of Bogen tripods. Generally I'd make $30 to $70 on each one.
7) Batteries. When I sold a battery, I'd make the store $3 to $7 each (camcorder batteries were more lucrative).
8) Film. We usually made about $.15 each roll in profit, but on photo processing we'd make a few bucks.

You can see how a "professional sale" will quickly get me $300 of profit for the store.

Now, why is my profit on the body so low? Because that's what people would shop around for. How many of you call every camera dealer and ask "how much is a Hoya UV filter?" Not many of you. Believe me, I dealt with thousands of customers and only a handful ever priced out all the accessories before buying.

Now, let's get into the mail order business. You ready?

How much would I make on a Nikon F4 when I sold it mail order?

Well, actually, I'd lose $15 to $40 on a Nikon F4 sale.

Huh, how's that?

Well, when I ship something I have a built in profit potential that an in-store customer doesn't give me: shipping and handling.

I usually would charge $50 for shipping and handling. It only cost me $10 to ship something via FedEx (I got big discounts because I shipped so much stuff).

So, when I sold a Nikon F4, I would sell it for about $1470 mail order, but since I made about $40 on shipping, I'd make the same profit as if I sold it in my store for $1500.

OK, now, let's discuss some other factors.

1) In mail order, I don't need to have expensive retail space. I can buy a building in the middle of Iowa, instead of in an expensive strip mall in Silicon Valley. Keep in mind that a 1000-square foot house in an average neighborhood is now selling for more than $500,000 here.
2) In mail order I don't need to spend a lot of time holding your hand. I'd answer the phone, ask you what you want, and give you a price. If you wanted more info, I'd say "good bye, that's not the game here." So, I could sell a lot more cameras per hour that way (with cheaper help, too).
3) Mail order customers were easier to sell accessories to, because they had saved money on the body and lenses, or so they thought, so my profit per customer was actually higher in average too.

Now, add in grey market.

I was offered grey market cameras from distributors often. They usually cost 10% to 25% less (sometimes a lot less, depending on the strength of the dollar overseas. Some manufacturers also tried to make more profit on the US market than other markets (the US market is richer than, say, China, so customers here will pay more for things).

Now, the grey market cameras don't come with US warranties. That offers the stores a completely new profit area. They sell warranties for $200 to $300 that probably cost them about $40 through a third-party.

So, now a store could offer a Nikon F4 for $1350 if they knew you'd buy a warranty with the camera.

See how this game works?

When I bought my Nikon 5700 the salesman begged and pleaded with me to buy a warranty and filter kit. He knew that if he didn't sell one of those he'd make almost no profit (although I bought a few accessories and paid a 6% shipping fee, so don't cry for him, he made plenty off of me).

Any questions?