by Stan Pohmer

     Normally, no one would give much credit to the Yankee philosopher’s quotes (or misquotes), but these seem appropriate right now, the first describing 2010, and the second looking forward to 2011. Although much has changed since 2009, much still  remains the same, and the prognosis continues to be challenging for our floral industry.

     The economic outlook remains tepid; it’s only late in 2010 that we’ve seen even a glimmer of positive news with some private sector job growth, some increasing consumer confidence and some retail sales growth. But one or two months of positive results aren’t necessarily permanent trends, and they definitely don’t impact all industries (including ours) and all consumer demographics.

     There are still major concerns about the housing foreclosures that are still with us (in even greater numbers than in 2009) and the fact that unemployment remains at an unmanageable 9.6 percent and higher range. And the fact that public companies that showed earnings on a lower sales base are sitting on trillions of dollars in cash (and getting kudos from Wall Street for doing so), waiting for sales to increase before they invest in new hiring and expansion, means that the unemployment rate will be slow to recover.

spending trends affect floral

     Most of the spending increases, as shown by November’s Black Friday and Cyber Monday results, were very much price focused, and pundits are saying that the retailers that are consistently reaping the rewards are those that cater especially to high-income purchasers. These folks have more job security, their 401(k) and stock market investments are looking more whole, and they have greater confidence in their financial futures.

     For average consumers, the trends we saw developing in 2009—reducing credit card debt and purchasing within their financial means, developing and sticking to budgets, and having a targeted focus on price value—were very much with us in 2010. Unless consumers perceived items as great deals or affordable luxuries, or retailers communicated that particular purchases provided personal benefits, most customers passed on the sale. Floral is still on the “want” end of the “need”/“want” spectrum, and that has helped keep our sales on the slower side.

gardening yields positive news

     Last year did show some positive signs, however. When spring weather broke earlier than normal (whatever “normal” is anymore) across much of the nation, gardening customers came out in droves, a great indication that consumers are willing to buy for themselves and their homes.

     The unfortunate thing was that the weather during the later May/June peak was cooler and rainier, and we gave back significantly more that we gained earlier in the season. Had the peak season weather held, I seriously doubt whether we would have had the supply to support the demand because most growers cut back on production and fewer grew on speculation.

2010 in review

• In general, mass marketers once again picked up market share in virtually every floral category (bedding/annuals, potted flowering, foliage and cuts), despite the fact that overall retail sales were down again versus 2009, more in independent retailers than mass retailers.

• Supply is much closer to demand than in many years, with many growers cutting back on production or closing operations. We’ve seen venerable companies consolidate or file for bankruptcy. Some could not generate the cash flow necessary to support their business models, and others couldn’t get the capital backing from lenders to provide for operating cash flow. And these were just the bigger players who should have had more leverage in obtaining capital; many medium and small growers had even more difficulty getting funding and have either downsized significantly or closed shop.

• Discounters and home-improvement chains continued the trend of consolidating sourcing to fewer suppliers. For example, a few years ago, Wal-Mart Stores Inc. had more than 400 live-goods suppliers; today it has fewer than 75, and rumor has it that this number could be further reduced in a few short years. Many of the growers delisted by Wal-Mart are still indirect suppliers as contract growers to the remaining mega suppliers. The Home Depot, Inc. is leaning on its pay-by-scan (PBS) suppliers to take on more territory and to service more complementary categories of products that they don’t grow (these PBS suppliers act as a hub for the nonservicing growers and then redistribute with their own products).

• One concerning trend exacerbated in 2010 was the lack of or very late merchandise commitments/ prebooks by large retailers, putting pressure and increased risk on their suppliers to hold the inventory—in essence, asking their suppliers to grow on speculation.

• In the cut flower category, stem counts imported and shipped domestically were up, but dollar sales were down; demand lagged at retail; and more emphasis was on cost buying. This, however, is in the process of changing. Colombia and Ecuador, who supply more than 80 percent of all cut flowers sold in the United States, have been experiencing rainier than normal conditions that have negatively affected production. And because this economic downturn is global in nature, Colombia and Ecuador, who in the past have had the ability to shift sales to other world markets during a U.S. slowdown, have not been able to do so, keeping price per stem low. At the same time, inflation and costs of supplies, equipment and labor have risen, putting even more pressure on costs and production.

     Some farms have significantly reduced production or have closed down, further reducing availability. As in the United States, farms are having difficulty obtaining bank capital due to their cash-flow projections. Add to this the devaluation of the U.S. dollar and the appreciation of the Colombian peso, meaning that Colombian growers receive less money for the flowers they sell to the United States and other world markets where the U.S. dollar is the pre-eminent trading vehicle. Any one of these problems is critical but manageable; in combination, they become truly challenging.

• The floral industry lost some leaders, mentors and great friends to all in Ernesto Vélez, the longtime chairman of Asocolflores and a tremendous ambassador for the Colombian growers, and Jack Williams, the global technical manager for Paul Ecke Ranch and a true friend to many.

the outlook for 2011

• Most growers have cut back on production in 2010, and this will continue into 2011; most of the plug producers saw fewer prebooks and of lower quantities for the 2011 selling season. Supplies of bedding plants, trees/shrubs and cut flowers will be lower, and even if we just meet last year’s sales demand, there will be product shortages; if consumer demand exceeds expectations, there will be severe shortages. As a result, prices are rising and will continue to do so throughout the season.

• Retailers will need to align themselves with financially strong producers and make hard commitments early. If they don’t, they run the risk of not getting the products they need for everyday and peak/holiday sales periods.

• With a Democratic administration, a Democratic Senate and a Republican House, it will be difficult to achieve compromise and enact/fund programs that will stimulate the economy and put more people to work, further delaying our recovery. Discussions of the lack of estate, or “death,” tax legislation, discussions about reductions in Social Security and Medicaid programs, and uncertainty about the future of the Bush administration tax cuts will continue to inhibit consumer confidence, which is what is needed to help drive retail sales and product consumption.

getting the focus right

     In my humble (or not so humble) opinion, we—buyers and sellers alike—put more emphasis on price in the value equation than our consumers do. As I travel the nation and visit retailers, “stuff at a great price” is the dominant message we’re promoting. Sometimes, to create this low price, we sacrifice quality. Sometimes, we can’t afford to dump the product in a timely manner, and the displays become “old and tired.”

     We rarely tell consumers why plants and flowers are important to them; how they enhance their lives and lifestyles; what psychological, emotional and physiological benefits they provide. We have hard empirical data from independent research studies conducted at Harvard University, Massachusetts General Hospital, Texas A&M University and Rutgers University that provide tremendously powerful consumer messages, yet virtually no one communicates this to customers.

     It’s the retailers that need to communicate this in store and in their advertising and social media strategies. Bottom line, how do we make floral products relevant to today’s consumers in all demographics—baby boomers, Gen Xers and millennials?

     Relevancy has been a discussion topic at some past Seeley Conferences, held at Cornell University in Ithaca, N.Y., every June. This year’s conference, being held June 27 to 29, will focus on “Floriculture’s Biggest Opportunity: Creating Consumer Mind Share” and will address many of the relevancy components.

going forward

     No, the sun, the moon and the planets haven’t aligned in our industry’s favor in a few years; some of this is our own doing for not adapting fast enough to changing tides, directions and a new consumer mind-set, and much of it is due to influences beyond our direct control, like the economy.

     As you prepare to face the sometimes seemingly insurmountable challenges, remember a few important things:

• You grow or sell a product that consumers genuinely like.

• We have a product that can help add value to consumers’ lives and lifestyles and help to enhance their quality of life.

• We need to give consumers a reason to buy, demonstrating our relevancy; we can’t afford to assume they know the importance of plants and flowers or the benefits they provide.

     This year will continue to provide challenges in many different ways, but with the grit and determination our industry has shown in trying times in the past, we will persevere!

 

Stan Pohmer writes his “State of the Industry” report every year exclusively for Super Floral Retailing. He is CEO of Pohmer Consulting Group, Minnetonka, Minn., executive director of the Flower Promotion Organization, www.flowerpossibilities.com, and an editorial adviser for Super Floral Retailing. Reach him at (612) 605-8799 or spohmer@pohmer-consulting.com.