the state of the florists 2009

Understanding the factors that have sent many florists’ sales plummeting and caused many to close shop.
  by Kenneth R. Royer, AAF

This year has seen a “perfect storm” of events in the retail flower business, which is evidenced by an unprecedented number of florists closing their doors and a decline in sales across the industry that has impacted all florists.

We are still reeling from the effects of a recession, which has much to do with the decline, but it is only part of the story. Sales declines for other types of retailers have averaged less than 10 percent, and anecdotal evidence indicates that many florists have experienced declines of 15 percent and more. My sources report that wire-service membership is down 20 percent in 2009 alone, and florists have seen their share of the overall floral market decline from nearly 100 percent to less than 50 percent over three decades. Currently, Internet competition continues to gain market share and further reduce the florists’ share.

The graph below, courtesy of Ira Silvergleit, director of Research and Information at the Society of American Florists (SAF), shows a 28 percent decline in the number of flower shops from the peak in 1992 to 2007. (This chart represents only traditional flower shops and does not include supermarket and mass-market florists.)

Also during that period, the U.S. population grew by almost 18 percent, from 256.6 million in 1992 to approximately 302.2 million in 2007. That means that the ratio of florists to population changed from one florist for 9,385 people in 1992 to one florist for 15,411 people in 2007.

The goal here is to understand the factors that have caused this situation and, in subsequent articles, to suggest strategies that can lessen their impact.

1 Expanded choices
Consumers now have a wide choice of nonflorist gift products on the Internet, in any price range, which can be paid for with a credit card and delivered overnight. No longer are flowers the only product available to make a social expression with overnight service. Examples include gift baskets, cookies, candy, teddy bears, pajamas and more. These are purchases that often replace flowers. For the most part, however, same-day delivery service remains the province of florists.

2 Changes in flower usage
A bunch (bouquet) has now become an acceptable, affordable alternative to a florist arrangement for routine social expressions. U.S. consumers have shaken off the fear of putting flowers in a vase. Added to that is the fact that unarranged flowers have become easily available in many convenient locations. The substitution of unarranged flowers for florist arrangements has had much to do with the decline in sales for florists whose business depends mostly on the sale of arrangements.

3 Low-price priority
Consumers who found new freedom and confidence in flower usages also became better educated on flower value as they observed the pricing in supermarkets and on the Internet. As they became educated, they began looking for lower prices and better perceived value. Arranging a vase of flowers themselves was becoming more acceptable, and, in the meantime, florists’ prices for arrangements were rising, and their prices on unarranged flowers usually were not competitive. Consumers discovered savings from making their own arrangements with unarranged flowers purchased at supermarkets and convenience stores.

4 Convenience
To busy consumers, convenience is often more important than price, which makes Internet ordering extremely appealing. One area of discomfort for florist customers was the inability to see what they were buying while placing phone orders. They were forced to rely on information from the salesperson, who most often wanted to discuss price rather than product. Being able to visually compare products and prices from various sources was appealing to consumers, and being able to do it 24/7 was an added benefit. Consumers began ordering from nonflorist Web sites rather than calling or visiting their florists.

At Royer’s stores, Internet sales grow rapidly each year while telephone and walk-in sales remain static. At this time, Internet sales exceed the sales of the largest store in the chain. Unknown is how many customers go to the Internet to do research, then visit or call a store later to place an order.

5 Sales declines
Sales had been dropping gradually for some time prior to the recession, but it was unit sales, not dollar volumes, that began shrinking in the 1990s. Florists raised prices periodically to offset the unit decline, to maintain a desired level of sales and profit, not realizing that price increases would exacerbate the problem.

The reason for the unit sales decline was that florists, for some time, had been targeting a small, high-income segment of the population. As prices were raised, a larger and larger group of consumers found arrangements unaffordable. To compound the problem, the recession stimulated more consumers to search for better value, and many of them found it at supermarkets and on the Internet. Today, both dollar volume and unit volume are dropping sharply.

a fundamental problem
Rebates on outgoing wire orders were started by American Floral Services (AFS), which was purchased by Teleflora in November 2000. It was a unique strategy to entice florists to become members of AFS. It was successful, and soon the other wire services were forced to provide rebates also. The unintended consequence of rebates was the creation of “order gatherers.”

Order gatherers are nonflorists who solicit floral orders from consumers primarily in the Yellow Pages and on the Internet. Those orders are then transmitted through a wire service to a florist for fulfillment. Added service charges and the rebates received from wire services create a healthy profit for the order gatherers, but the service charges add substantially to the cost for consumers.

Many florists feel they need the volume provided by incoming wire orders and usually don’t realize those orders are mostly unprofitable. Instead of limiting the number of unprofitable incoming orders, florists raised prices across the board to offset them. Once the rebate program was established, no one could find a way to discontinue it and stop or reverse its profound effect.

market inefficiency
The growing number of orders being filled by florists that originated with order gatherers became one of the most important issues in shrinking sales and profits. Orders once placed directly with local florists now were going through order gatherers and wire services, adding significantly to cost without adding any value to consumers.

Unfortunately, many florists—unaware of a decline in the number of orders—did not reduce costs commensurately. Often they employed the same staff to produce a reduced number of arrangements. As a result, florist efficiency declined. Reducing costs and improving productivity was not a high priority.

On the supply side, cut flowers—most of which came from offshore—traveled through an inefficient, complex distribution chain on the way to consumers, going through brokers, wholesalers and retailers before ever reaching consumers. As much as 30 percent of perishable product is wasted and never reaches consumers.

The inefficiency in the industry added to costs, which ultimately increased prices to consumers. Those consumers went looking for more affordable prices and found them in supermarkets, mass-market outlets and on the Internet.

price is king
The florists were not greedy. They increased their prices over time because they believed doing so was the only way to deal with the problems I have just addressed.

Today, there is downward pressure on price points. Internet vendors, including wire services, discovered that generating sales on the Internet was almost entirely about price, and price competition became intense.

Many local customers who once might have called florists are now ordering on the Internet and having flowers and a vase shipped overnight in a box. Given the difference in prices between Internet vendors and florists, many consumers are happy with the outcome.

a lack of power
Lacking unity as a group that could give them power to protect their interests, retail florists are at the mercy of forces within the industry. Those forces, in pursuit of their own respective goals, unwittingly create circumstances that seriously impact florists. Because the current transactional relationships are beneficial to the order gatherers and wire services, they encourage florists to continue to function as they have been for the preceding decades. Unfortunately, florists were unaware of both the precarious position they were in and the impending tsunami that has now broken over them.

rocks and hard places:

the way out
Florists have not responded well to the new price-competitive environment. Some fortunate ones have niches with high-income customers who want personalized service and for whom price is not important. Others will have to find new, lower-cost ways to operate in this new environment and reposition their businesses. These subjects will be addressed in subsequent articles.

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Kenneth R. Royer, AAF, is a lifetime florist who expanded the business started by his mother in 1937 into what is now, arguably, the largest traditional florist business in the United States—U.S. Retail Flowers, Inc.—which is operated today by his three sons.

Throughout his career, Mr. Royer has served the industry in numerous ways—holding positions with the Society of American Florists (SAF), the American Floral Marketing Council (AFMC) and the American Floral Endowment (AFE); conducting seminars; writing articles; and authoring a book, Retailing Flowers Profitably.

Mr. Royer also is the recipient of many awards, including SAF’s Golden Bouquet Award (now named the Paul Ecke Jr. Award) and lifetime achievement awards from FTD and Teleflora.

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