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Blacks general manager and vice president Lisa Richardson in one of the company's five newly re-designed stores in Toronto.

The Globe and Mail

Photo retailers are scrambling to develop a clearer picture of their stores of the future in a field that is increasingly crowded by low-cost rivals, high-quality smartphone cameras and Instagram posts.

From Blacks photo chain to Henry's and the Source, merchants are racing to cash in on consumers' growing appetite for mobile phone photography and the bells and whistles that go with it – known in the industry as phoneography. It ranges from touting high-margin photo accessories to taking orders on mobile apps and offering smartphone camera classes.

But the retailers face the mounting challenge of sagging sales of traditional cameras and photofinishing that led to the demise of Eastman Kodak Co. even while those of emerging specialty items such as "wearable" camcorders – videos on the go – and artsy canvas-wrapped prints are picking up. In a fast-changing industry in which heavyweight chains such as discounter Wal-Mart Canada Corp. are nabbing business, specialty retailers are forced to find alternative sources of revenues.

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"For us, this is a complete transformation, soup to nuts, of our products and services," said Lisa Richardson, general manager and vice-president of Blacks, at a redesigned store that displays merchandise in an art-gallery-like setting. "Things have changed so drastically over the last couple of years."

The shift to phoneography, where photos are shared and stored online far more than they're printed, is shaking up the sector, pushing retailers to re-focus on accessories and digital products and services to win over do-it-yourself smartphone camera buffs and regain higher margins.

The toll has been dramatic. In the year ended April 30, photo retailing sales in Canada (excluding printing and lighting accessories) tumbled 29 per cent to an estimated $667-million from $941-million two years earlier, according to researcher NPD Group. (With printing and lighting, the total market is estimated to be $1.5-billion, but print sales have fallen at annual double-digit rates, observers say.) The steepest decline hit basic point-and-shoot camera sales, which plunged 47 per cent to $192-million, NPD says.

"It's challenging," said Ian Landy, chief executive officer of equipment specialist Henry's, which has 32 stores compared with 92 Blacks. "The consumer has voted and the most popular camera is no longer a traditional camera – it's their phone."

Mark Haar, director of consumer electronics at NPD, said the traditional camera market took a sharp dip in 2011 and early 2012 as the quality of smartphone cameras improved markedly. "The smartphone seems to be good enough for a lot of people, even the ones who typically in the past were looking for a better photo experience."

Still, the sector's silver lining is that consumers are taking four times more photos than a decade ago, Ms. Richardson said. To survive in the digital age, retailers have teamed up with big telecommunications providers: Blacks was acquired by Telus and the Source by Bell in 2009. In April, Henry's partnered with Bell and started to carry mobile phones along with cameras and accessories in a refashioned store touting "the art of phoneography." Its latest offering: remote control "flying cameras" providing aerial views for $750 to $3,000 apiece.

Blacks is trying to draw customers with its new "playground" store, replacing its signature black and red hues with stark white and featuring "wall art" of canvas prints and collages and open glass shelves to display cameras rather than closed cabinets, allowing shoppers to touch the merchandise. It is returning to its one-hour photofinishing roots with a new mobile app for ordering prints and other products, with pickup an hour later at its stores. "We saw the shift in the industry and the change in customer behaviour as a huge opportunity to try to get ahead of what our customers are doing," Ms. Richardson said.

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Retailers are chasing the accessories and print business because its gross margins can be 60 to 80 per cent or more of sales, compared with closer to 15 per cent for equipment, observers estimate.

Even so, electronics generalist the Source doesn't do prints or conventional frames because "there are enough players in that market," said Kevin Luff, senior vice-president of merchandising. Wal-Mart is among players raising the heat. It is pushing further into the more lucrative photo segments such as prints and photo greeting cards, said John Guest, its senior manager of national imaging. For Father's Day, Wal-Mart expects brisk sales of customized photo mugs after cutting their price this month by almost 30 per cent to $10, he said.

"Some people would look at the photo business as one in terminal decline," Mr. Guest said. "We tend to look at it as: 'This is a huge opportunity to reinvent the business.'"

Blacks' transformation efforts went as far as testing a new name – Pictopia – at a Newmarket, Ont. store last fall, in a nod to its higher margin offerings, although it dropped it a few months later, after it failed to attract more customers.

In the five Blacks stores that got full facelifts since last fall, traffic has picked up as much as 17 per cent while customer purchase amounts rose 6 per cent from a year earlier, Ms. Richardson said.

Henry's is also seeing a sales lift from introducing new products and services, Mr. Landy said. "Between our educational courses, phoneography, flying cameras, dash cams, consumer rentals and still being true to our core principles, we are re-defining the essence of photography."

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