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2009 State of the Industry

Stan Pohmer provides a sobering yet optimistic look at the challenges and opportunities for retail florists in his fifth annual report.

by Stan Pohmer

    To say the least, 2008 was a tumultuous year for the traditional retail florist channel, and by all indications, 2009 will bring many of the same challenges—and possibly more. But what concerns me most is the underlying trend that’s been going on for many years that needs to be addressed and reversed if the traditional channel is to survive and flourish. There are challenging questions to be asked and changes to be made.

    Here are some numbers to put my comments into perspective. Twenty-five years ago, there were an estimated 48,000 retail florists in the U.S. In his 2008 “State of the Floral Industry Report,” delivered at the Society of American Florists (SAF) convention in September, Peter Moran, executive vice president and CEO of SAF, said that number had fallen to about 26,000 retail florists in 1998. He estimates that today there are 18,000 retail florists, and he expects that the current economic shakeout will reduce the ranks to between 15,000 and 16,000.

    Mr. Moran also suggested that there are between 700 and 900 wholesalers currently serving the traditional florist market, a net decrease of about 300 in the past six years. He foresees that within a few years, there will be significant consolidation, resulting in 15 mega-wholesalers, each generating $100-million-plus in sales.

how and why has this happened?
    Some of the florist shop attrition may have been the result of people who got into the business and operated as “hobby shops”—people who loved to play with flowers but didn’t rely on their shops as primary sources of income. When the business got tough and margins got tight, they couldn’t sustain their hobby. This was probably a good thing for our industry.

    Some of the attrition may have been the result of new competition from nontraditional outlets, such as direct Internet sales; some wire services bypassing retail florists for fulfillment of orders; supermarkets; and discount chains.

    Some of the attrition may have been the result of societal changes that reduced sales and profits to the level of nonsustainability, such as the loss of sympathy business due to shorter services and cremations and the growth of “In lieu of … ” alternatives to flowers.

    And some of the attrition is simply the result of businesses that could not generate the sales and profits necessary to continue operating. There are fixed expenses attached to operating a florist shop, and when sales decrease due to internal or external causes, maintaining solvency can be difficult.

    But in my opinion, in addition to the external economic forces negatively impacting sales and expenses, much of the attrition was—and is—the result of not generating and maintaining relevance, a lack of business acumen and a lack of effective advertising and promotion. Some florists have made the changes needed to succeed and grow in today’s challenging marketplace, but many have not. Human nature doesn’t like change, and it comes only when the pain is great enough; my fear is that some florists will not start making the necessary changes until they are past the point of no return.

    The good news is that consumers still need a means of communicating emotions and a vehicle to deliver them to the recipients, and this is the forte of flowers and florists. No other product can match the power of flowers or the abilities of florists to design and create and execute; this is your raison d’ętre.
 
    The challenge in today’s marketplace is how to maintain the viability of your business and create a loyal customer base that can sustain your business model. I suggest three key areas to focus on—relevance, innovation and business smarts.

key area no. 1—relevance
    When many florists entered the industry, their primary revenue streams were generated by fulfilling wire-service orders in their local markets, weddings and events, and sympathy work; walk-in sales were a minor part of revenues for most. Fast forward to today, and the Internet—through either the wire services’/order gatherers’ or your own shop’s Web sites—have taken over from telephone orders as the primary driver of sales. Because the Internet is a rather impersonal method of ordering, there’s little opportunity to develop relationships with those placing the orders and, as a result, very little loyalty is created between florists and customers. I’m not suggesting that Internet sales aren’t or won’t continue to be critically important for you as a revenue stream, but it always will be difficult to build consumer loyalty on an electronic business platform, especially at a shop level.

  Recent consumer behavior studies have shown that customers are seeking to establish one-on-one relationships with the people and companies with whom they do business. They desire to go beyond the transactional relationship, where it’s strictly a buy/sell proposition, to one that is more experiential in nature. There always will be a market for customers who want fast, cheap and convenient, and there always will be retailers who deliver fast, cheap and convenient. But for small businesses such as yours, the new mantra to establish differentiation from your price/convenience competition should be “memory, romance and trust.”

    “Memory” is the recollection of a satisfactory purchase and wanting to experience the same thing again. “Romance” is the story behind a product or company—where the product came from, its history, the story of your company and the stories of the people who work in your company. “Trust” is the confidence in your shop that you are a transparent company that is an integral part of the community in which you operate, that you’re ethical and that the products you sell are sustainable.

    A good example of these different positioning philosophies are regional malls, where the focus is on delivering impersonal “fast, cheap and convenient”; these retail venues are suffering from significant traffic and sales decreases, especially in today’s marketplace. On the other hand, we are seeing a resurgence of “Main Street retailers” that are able to hold their own by focusing on “memory, romance and trust.” Even as we’re seeing consumers gravitate to a more price/value purchasing behavior as discretionary income gets tighter, we’re also seeing small businesses that offer “high service/high experience” holding their own against the price/value retailers.

    To develop relevancy within your community and with your customers, here are a few suggestions:

    • Become active in your community. Sponsor youth sports teams, and
      join community civic groups, garden clubs and church groups. Work with
      nonprofit organizations on fundraisers.
    • Look for opportunities to work with children in your community.
    
 Become involved with programs such as Flowers for Kids (FFK), helping
      to get kids in area elementary schools exposed to flowers. Team with your
      favorite wholesaler to bring this program into your community, or contact
      FFK directly through the organization’s Web site, www.flowersforkids.org.

    Also, find ways to get involved with the Girl Scouts/Boy Scouts organizations and the 4-H groups, and offer to help put on activities for them, either at their meetings or in your shop.

key area no. 2—innovation
    The consumer has changed, the marketplace has changed and your competition has changed. But have you changed? With today’s challenging playing field, there is no room for a “business as usual” attitude. Now is the ideal time to study consumers, your nonfloral competition and the marketplace in general to look for new opportunities to enhance what you’re already doing and change the way you come to market.

    Innovation can come from many directions: advertising and promotion, new product offerings, new service offerings, new design themes, etc. The Flower Promotion Organization (FPO) (www.flowerpossibilities.com, www.flowrmd.com, www.flowerwellness.com) and SAF (www.safnow.org) have marketing programs and ideas you can utilize and tailor with your shop’s logo and contact information. There’s no right or wrong or a “playbook” to follow; try new things, and see what works for you.

key area no. 3—business smarts
    Many of you got into this industry because of your love of flowers and the artistry of design. But at the end of the day, the viability of your shop is all about the business of doing business. Now, more than ever before, is the time to understand your finances and to get them under control.

    Develop your “brain trust” of financial advisors—your accountant, your banker, your wholesaler, and some trusted (and hopefully successful) businesspeople—whom you can use as resources and an ad-hoc board of directors. You might not always like what you hear from them, but they can add a whole new perspective to the way you operate.

    Think of opportunities where you can add experiential value for your customers. When you complete an order that was called in or came in over the Internet, take a photo of it, and e-mail it back to the sender; then keep the photo on file to send as a visual reminder to the customer the following year. When you deliver an order from someone outside your market area, follow up with the recipient a few days later to check on his or her enjoyment of your floral design, and then add the recipient to your mailing list for fliers and e-newsletters.
 
    Capture the e-mail addresses for all order-givers, recipients and walk-in customers to develop a marketing database. Use every customer “touch” as an opportunity to create that valuable one-of-a-kind experience that will differentiate your floral business from all of the other choices your customers have.

2008 in review
    • 2008 started off strong with a good Valentine’s Day, with positive
      comparative sales and solid prices at both retail and wholesale levels
      (partially due to the weather problems many of you experienced during
      Valentine’s Day 2007). But for whatever reason, Easter and Mother’s Day
      sales were soft.

    • Then we ran into the “perfect storm” of housing, financial institution and
      credit problems going into the third quarter, and floral sales came to a
      screeching halt. The housing bubble burst, leaving many homeowners
      under water, as the valuations of their homes sank to levels lower than
      their mortgage balances. This was further compounded by the adjustable
      rate mortgage (ARM) interest rates being reset and the inability to
      refinance the loans. And with the values of homes reduced, the home-
      equity credit lines that had fueled consumer spending dried up.

    • With the stock market collapse, many people saw their retirement nest
      eggs virtually disappear, and retirees on fixed incomes lost their
      discretionary spending power. And people who used credit cards to
      support their lifestyles and compensate for higher energy spending saw
      lower credit lines and higher interest rates imposed by their lenders.

    • Businesses started laying off staff in response to reduced sales and
      consumer spending. Consumer spending accounts for 71 percent of
      gross domestic product (GDP), so when consumers hunker down, the
      whole economy feels the impact. In October, discretionary income
      dropped 9.7 percent, the largest decrease since 1947.

    • While Internet sales have been increasing by 15 percent to 30 percent
      annually over the past 10 years, there was only a year-to-year increase of
      1.1 percent in October. Virtually all industries and companies have felt the
      impact of the economic downturn and consumer spending declines.

    • Unlike past recessionary periods, where the higher-income consumers (a
      large part of our customer base) were somewhat more isolated from the
      effects of the downturn and continued spending, this recession is wider,
      deeper and global, affecting all income strata.

    • On a more positive note, the Andean Trade Promotion and Drug
      Eradication Act (ATPDEA), which provides duty-free entry of flowers and
      other products into the U.S. from Colombia, Ecuador, Peru and Bolivia,
      and which was due to expire on Dec. 31, was extended until Dec. 31,
      2009. There were some stipulations, however: 1) Ecuador received only a
      six-month extension, with an automatic six-month extension unless
      Congress decides otherwise, and 2) Bolivia received a six-month
      extension that Congress has to actively extend. (Note: The Bush
      administration canceled Bolivia’s participation under ATPDEA
      subsequent to the ATPDEA being extended.)


    • The U.S./Colombia Free Trade Agreement (FTA), signed by the
      presidents of both countries, still has not been considered for passage by
      the U.S. Congress; it remains to be seen if the new administration and
      Congress will consider it in 2009.

    • To gain distribution and logistics efficiencies, there were some significant
      consolidations and acquisitions in 2008—and I’ll venture we’ll see more in
      2009.

• FTD was acquired by United Online, a consumer Internet and
  media service provider.
• Smithers-Oasis purchased Floralife, Inc.
• Syndicate Sales acquired Brody Company and the floral
  division of Indiana Glass from Anchor Hocking.

    • One of the key areas to help take cost out of the process of doing
      business and using data to help make better decisions is to utilize
      technology. In 2008, a Floral GTIN (Global Trade Item Number)
      Implementation Guide was issued by a coalition of industry associations,
      including Society of American Florists (SAF), Wholesale Florist & Florist
      Supplier Association (WF&FSA), Produce Marketing Association (PMA),
      Association of Floral Importers of Florida (AFIF), California Cut Flower
      Commission (CCFC) and California Association of Flower Growers &
      Shippers (CAFG&S). This is a guideline for implementing a common
      protocol numeric labeling and tracking system for boxes of flowers, similar
      to and including the Universal Product Code (UPC) selling-unit protocols.
      The GTIN process provides the ability to communicate orders to your
      trading partners electronically and enables back-room labor-saving
      processes such as systemically matching receivers to invoices for
      electronic payment. Each of the sponsoring associations began promoting
      this GTIN process to their respective memberships in late 2008 and will
      continue into 2009.

2009 and beyond
    • Until there is improvement in consumers’ confidence in their jobs and
      financial prospects and in where the economy is heading, consumer
      spending will continue to be challenged. Any new stimulus packages being
      discussed on Capitol Hill will take months, if not years, to show meaningful
      results, so it looks like we’ll have to learn to deal with the current
      challenges for a while longer.

    • One of the major issues that has concerned domestic producers for
      years—immigration—still has to be resolved. As critical an issue as this is
      to growers for obtaining and maintaining a stable work force, the
      comprehensive reforms that are needed have taken a backseat to
      deadlocked serious discussion and resolution. And, unfortunately,
      Congress will be dealing with the broader economic and housing issues
      that have a higher priority in their minds, so this important issue most
      likely will not be dealt with in 2009.

    • Despite the challenges of the economy that the traditional retail florist
      channel faces, keep this in mind: We have a product that people
      genuinely like, and you provide the artistry to enhance the beauty of
      flowers as well as the services to help communicate emotions. Remember,
      too, that flowers have been proved to reduce stress, anxiety and
      depression and to increase compassion—all things that consumers need
      right now. Don’t let your flowers be viewed as a “luxury” but rather as an
      indulgence that can make everyone—the givers, the receivers and the
      self-use consumers—feel better!

    Can we reverse the declining trends of the retail florist channel? I believe we can—by developing relevance, being more innovative, managing our businesses smarter, embracing change and challenging the status quo.

Stan Pohmer writes his exclusive state of the industry report every year for Florists’ Review. He is CEO of Pohmer Consulting Group, Minnetonka, Minn., and executive director of the Flower Promotion Organization, www.flowerpossibilities.com. Contact him at spohmer@pohmer-consulting.com or (612) 605-8799.


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