'No Longer Primarily a Camera Company': Is Nikon's New Medium-Term Strategy in the Wake of Poor Financial Results Any Good?

Nikon has just released its 2020 financial results alongside its medium-term management plan. How does the manufacturer see its future in the wake of last year's financial results?

Nikon, like all Japanese camera manufacturers, works on a financial year that runs to the end of March, so May is when annual results for the previous year are reported. Nikon has now released 2019/20 results, and it makes for grim reading. Viewed over a 5-year financial segment, income has dropped from nearly 800B Yen (about $8B) in 2015 to the just-announced 591B Yen. More crucially, when viewed by the market sector, their Imaging Division declined from 586B Yen to 225B Yen over the same period, contracting from 68% of revenue to just 38%. In short:

Nikon is no longer primarily a camera company.

From their own analysis, Nikon holds about 20% of the nearly 8M unit MILC market, while only 14% of the compact market. A combination of the contracting market and COVID-19 led to a net loss to the Imaging Division of 17B Yen, disrupting a key period in their transition to mirrorless as the arrival of new bodies and lenses were delayed. While not a major income generator, the release of the D6 has been overshadowed by the postponement of the Tokyo Olympics.

So, what is the strategic response from Nikon? Their medium-term management plan is largely uninspiring in its market assessment. It states the obvious market shrinkage, noting that it will be difficult to achieve the last year's goal of a 20B Yen operating profit. The key goal has, therefore, become to "rebuild the business." What will this actually involve, and how will it affect end users? They note four key strategies:

1. Cut Costs: cost-cutting will be undertaken over a two-year time frame, aiming to achieve 50B Yen reduction in order to make the Imaging Division profitable.
2. Product Focus: perhaps obvious, but to focus development on products that are actually going to sell and have higher margins. This will see a reduction in the low-end market (Nikon has been reducing their digital compact presence, something that was accelerated by killing the Nikon 1 System), with greater mid- and high-end product availability. The Z mount is their one and only product development area, so expect to see an aggressive road map of lens development and a range of camera bodies.
3. Sales Strategy: it helps if you have good quality products to sell, but getting them into the hands of consumers is critical. Has Nikon been any better or worse than anyone else? It's difficult to tell, although, given Sony's increasing market share, we can say that they have been successful. However, Nikon's focus isn't upon selling more but reducing sales costs, moving to digital marketing, and rebuilding their global sales network. Expect to see changes.
4. Production: obviously, production costs are critical in setting the price of a product. With Nikon reporting, 700 job losses in Thailand and Laos, optimizing the location of sites and what they can manufacture will make them more efficient.

Nikon's survival — and let's not beat around the bush here, as Nikon, and particularly the Imaging Division, are in serious financial straights — is reliant upon minimizing its costs while maximizing product income. The F mount is essentially dead as a product now; that doesn't mean we won't see new product releases such as the D6 or D780, as Nikon will continue to make them as long as customers are willing to buy them. Lens sales will also likely remain healthy (currently 20% of all interchangeable lenses); however, future technological development will evolve around the Z mount, and this is where the exciting products will be found. But what will those developments entail? Sony has its triumvirate of the "ordinary" a7, "high sensitivity" (video) a7S, and "high resolution" a7R, along with the "fast shooting" a9. Nikon has already released the Z 6 (ordinary) and Z 7 (high resolution), but what will it follow these up with? Where are the profitable product sectors? Will we see a greater focus upon a video? Faster shooting speeds? Or more exotic glass?

Expect sales to shift more to direct marketing with a further focus upon squeezing the margins of retailers. High street chains already face a difficult time. However, could we see that pressure increase? Will we see Nikon move to direct sales? It's possible, although large manufacturers are typically reticent to do this because of the staffing required. However, one area that could see further cost-cutting are repair services. Maintaining a global service network is expensive, and, in some countries, this can be particularly costly. Indeed we are now seeing manufacturers completely pull out of some locales for both sales and service: Olympus recently pulled out of South Korea, while Nikon left Brazil back in 2018. Will we see a patchwork of sales and service across the world, with an increasing prevalence of gray market imports?

Of course, it's not just Nikon that is struggling. The whole market is spiraling in on itself as income contracts. What's noticeable about Nikon's medium-term strategy is the focus on its other divisions, almost to the exclusion of Imaging. Its Precision Equipment Division out-performed Imaging for the first time, becoming the largest section. It has largely grown year on year, and it's this area that Nikon is turning to, looking to expand its material processing into new sectors and particularly digital manufacturing, vision/robotics, and healthcare.

Yet I'd argue that Nikon remains essential to the global camera market. Can you imagine a world without Nikon cameras, without the company that brought us the F mount (need I say more?!), Nikkor 58mm f/1.2 (fastest F mount lens), F3 (electronic shutter control, aperture priority, AE control), D1 (world's first usable digital SLR), D3 (Nikon's first full-frame model), D90 (first DSLR with video), and D800 (first pixel-pushing sensation). While they might not be the force they used to be, the innovation and competition they bring to the sector is not only invaluable but is required to help keep the sector moving forward. Where will Nikon be in five years' time?

Lead image courtesy of MediaModifier via Pixabay, used under Creative Commons.