RETAILERS ARE dispelling fears that new digital formats will be the death knell for traditional businesses such as photo centers and video stores. Instead of hiding from such competitive technologies, they're embracing them.

"We've seen that this is something that will be a tremendous boon to our business rather than a threat to it," says Wayne Freedman, an executive vice president and chief merchandising officer at Atlanta-based Wolf Camera. The company operates more than 550 stores around the country.

"When people first saw camcorders in the early 1980s, people said, ‘Oh, my God, what's going to happen to film photography?’" Freedman says. "Still photography not only survived, but flourished." Freedman expects the same phenomena to occur with digital cameras. "It won't replace the film business, it's just a different way to share your images," he says.

Entertainment retailers also are optimistic about digital photography. "It's our goal to provide entertainment in whatever format people want it, and that's why we're implementing these many technologies," says Liz Greene, a spokesperson for Dallas-based Blockbuster Inc. The retailer, which operates more than 7,500 stores worldwide, is introducing a variety of new products and services ranging from DVD rentals to in-store sales of DirecTV.

Movie rentals

Traditional video rental retailers are recognizing the need to offer a variety of products and services to remain competitive. New products such as DVD players and the Sony PlayStation2 have raised consumer expectations when it comes to state-of-the-art video and sound quality. In addition, conveniences offered by services such as satellite TV are influencing the way entertainment is delivered.

According to Carmel Valley, Calif.-based Adams Media Research, DVD players were in 12% of U.S. homes at the end of 2000. Sales also are on the rise for the new Sony PlayStation2 — a three-in-one machine with the capability to play games, audio CDs and DVDs. To satisfy the growing demand for DVD rentals, Blockbuster has stocked an average of 1,000 DVD units in the majority of its stores. And in October, Blockbuster began offering PlayStation2 hardware and software for rental at its stores nationwide.

New services that Blockbuster is testing include entertainment on-demand and online rentals. Blockbuster has partnered with Houston-based Enron Broadband Services to deliver entertainment on-demand service. The two firms formed an exclusive agreement to deliver Blockbuster entertainment services, which initially will offer on-demand movies delivered by the Enron Intelligent Network. The Blockbuster service will initially reach consumers' homes via a high-speed digital connection.

Blockbuster also is launching a new convenience with an online rental program that allows customers to log on to blockbuster.com to reserve a movie for in-store pick-up. Blockbuster will offer an express checkout for the online rentals.

Digital photography

Digital services are becoming standard fare among photo finishing retailers with photo stations such as the Kodak Picture Maker, Fujifilm's Aladdin and Photo Ditto by Pixel Magic. The machines allow customers to scan an image and print out a photo-quality reproduction with a variety of zoom and cropping features. The machines also can take photos that are on a CD-ROM, floppy disk or PC card.

"There is definitely a segment of customer out there who is interested in using their photos digitally, and we want to be able to serve all of our customers' needs," says Michael Polzin, a spokesman for Deerfield, Ill.-based Walgreens. Walgreens first introduced Kodak Picture Makers to its stores in summer 1998. "As customers use digital technology more and more, we'll expand our services correspondingly," Polzin says.

Other digital features that have become common among photo finishing retailers include providing pictures on CD-ROM or floppy disk, as well as e-mailing images to customers. "It's hard to say just how much of our business will come from digital photography, but I think it is important to have the capability to serve those customers if we want to be a complete source for photo finishing," Polzin notes.

Digital photography has yet to hit the mass market, but it is definitely moving in that direction. Current estimates place the market penetration of digital cameras at about 9% to 10% among U.S. households. "I don't think there is any doubt it will continue to grow rapidly," Freedman says.

Expanding services

Photo processing retailers are working to keep up with the growing demand for digital services. Wolf Camera is working to position itself as America's digital photography headquarters.

In addition to having in-store Kodak Picture Makers, Wolf Camera also offers photos via CD-ROM, floppy disks or e-mail. Wolf also plans to step up its digital processing capabilities during the next 18 to 24 months.

Freedman says the retailer doesn't feel threatened by the new crop of digital photo printers, which are available for home computers at a cost of around $200.

"Most people are going to see memory cards as being the film for the new millennium," he explains. "But that doesn't mean they'll want to crop and print pictures at home." Printing 24 pictures from a digital camera can take hours on a home computer, and the quality is not as good as traditional photo finishing. So even with digital cameras, Freedman says, most people are still going to prefer to go to a photo finishing lab to get professional quality prints on real, long-lasting photographic paper.

Wolf Camera is in the process of upgrading its Kodak Picture Makers. By mid-2001, customers will be able to go into any Wolf Camera store with a digital camera memory card and get individual prints made via the Picture Makers. In addition, Wolf Camera is planning to expand its in-store mini-lab capabilities to accommodate digital film processing. The expanded mini-labs would be able to print photos from digital memory cards much the same as stores currently process traditional film.

The challenge for photo-processing retailers has been timing the rollout of these new digital services. Stores don't want to invest substantial dollars on digital upgrades, and then be too far ahead of customer demand.

On the other hand, retailers can't afford to be too slow in launching the new technology and lose out to competitors that are pursuing the digital customer. "We do believe this is the year for digital printing, not just being technology ready and having people trained, but beginning our marketing," Freedman says.

Beth Mattson-Teig is a Minneapolis-based writer.