Heirloom_PriceOppty

Aim High This Spring!

Mar 27, 2017 16 Comments

Recently I stayed at a (moderate!) hotel for three nights each of which was priced separately at $129, $161 and, wait for it, $234! When I asked the front desk why, they immediately reduced the third night back to $161. They just dropped it over 30% without protest. Clearly they were pricing to make some money off those who were unaware or just didn’t care.

That’s not my suggested strategy for garden retail this spring! But the incident once again underscores just how much “padding” other consumer product pricing has built into it: does yours?

Since my last blog post, I have met over 30 independent retail owners and walked many stores to continue the discussion about price raises this year. Most answers were too timid and non-strategic. Yet at the same time, I hear every job-applicant asking for a higher starting wage than last year.

A client told me that unless he raises sales by $200,000 (on a total of $3 million) he will be “going backwards” this year, due to his state’s rise in minimum wage.

One owner circulated my last blog to his team but his managers and buyers came up with NO suggested products to raise prices on, even though they had asked for wage increases. Employees can find it hard to connect those dots, often judging retail pricing in the context of their own household income. Unfortunately many retail employees don’t think they can afford to shop where they work! Pricing is strategic and has to be driven down from the top, sorry.

This is the year to (finally) make some money!

The 2017 reality is that household credit card debt is approaching 2008 levels, car sales are at record highs while planes, restaurants and cruise ships are full again. It may not be equal in all demographics or regions but many American households, especially those who shop at independent retail garden and hardware stores, are spending again.

In many independents, 70% of sales revenue is spent on Inventory and Labor.  Conservative price raises on these major costs are 3-5% on cost-of-goods and 4-8% on labor rates in the first half of this year. So if your sales don’t increase by 5-6% you are indeed, going backwards. The choice is clear: raise your prices 5-8% or sell a lot more units.

But most supplier prices are set in summer, so today’s prices were set last year. Rumors in the green goods side of the industry suggest 10-15% increases for 2017-18, so retailers had better make some money this year!

Be aspirational, not apologetic!

Twenty years ago garden retailers became used to sales increases of 10% per year – aaaaah, those were the days. Today, we have let ourselves become over-cautious, influenced by the last few years of recession and we need to snap out of it, now!

Pricing increases should be big enough to be aspirational for the team, something managers can get behind as a rallying cry for the year’s business.  “Shoot for 15% and settle for 12%” as an associate of mine with years of senior leadership in manufacturing and retailing behind him would say. You won’t hear corporate America politely asking for 3-5%. I’d like to bet that numbers of 10-12% are being baked into binding, job-preserving goals all across the country. What are yours?

Next topic, coming soon:  quick-fix sales increase ideas before it’s too late this spring!

 

Photo credit: taken by Ian

  1. John Heaton
    Mar 27, 2017 at 11:49 am

    raising prices is the only way to go. Don’t tell me some people complain about your prices some always do. I had a customer complain about a higher price on an item. I said it had gone down. He had no idea. People always ask for lower prices. Give them value and you are good to go to the bank.

    Reply
    1. Ian Baldwin
      Mar 27, 2017 at 1:28 pm

      Thank you John, that word “value” is something we should always keep front of mind, in fact we need to constantly look at the retailer’s “value proposition”.

      In other words ” If give you my money, my time and my trust, what’s in it for me? What is the return with this product/plant/idea/suggestion?” This makes a great training exercise for sale teams!

      Have a great spring in Chicago-land!

      Reply
  2. Bob Sickles
    Mar 27, 2017 at 11:50 am

    Yes it is time to raise prices! Inflation is hear in wages and has been here in taxes, regulations, and indirect costs for a few years. We have had the conversations with our teams and budget is something that cannot be missed this year. So every way to make budget is on the table, including price increases. Especially after I looked at a competitors pricing schedule for custom potting.

    Bob

    Reply
    1. Ian Baldwin
      Mar 27, 2017 at 1:35 pm

      Bob, knowing the quality and passion of your team makes me think they will “make budget”!

      You are correct about inflation pushing up those indirect costs over the years. In fact both the Gross Margin and the “Gap” dollars in many garden retailers have not risen as fast as the costs of being in business in the last few years and now the bigger, more obvious costs, inventory and labor are on the move too. Time to face reality….

      Thanks for taking the time to respond, happy spring!

      Reply
  3. Tina Bemis
    Mar 27, 2017 at 5:56 pm

    All I needed to convince me to raise prices was a trip to the grocery store. Most of my staple items went up 15 in the last year. Or they made a smaller package for the same price.

    When we started our Easter Egg hunt around 15 years ago, Jelly Beans were $1 for a one pound bag. They are still a dollar a bag, but have gone from 16 oz, to 14, to 12, to 10, and this year 9 oz. Yet a 4″ mini daff wholesaled for $1.75 thirty years ago. Wholesale on the same item is now $2.00.

    I know there is more automation than there was 30 years ago, but I just don’t understand it.

    Reply
    1. Ian Baldwin
      Mar 27, 2017 at 6:16 pm

      Tina,

      Great analogy, thanks and I love the jelly bean volume analysis!

      Now we have to convince our team members to think that way too, sometimes they are more reluctant to explain the price increase than the owners. In more than one client I have seen the suspicion that a price rise just means more for the owners. Using your example is a great start, thanks and Go GCU!

      Reply
    2. Kellee O'Reilly
      Mar 29, 2017 at 6:30 am

      All three of you (John, Tina & Bob) made me do some thinking here: EVERY ONE of you out there has some price elasticity: the key is for you as owners to drive both identifying it and maximizing it. (It reminds me of an old adage that Bob Dolibois used to quote, “given the choice between paying a little and a lot, people would choose to pay a little every time.”) Your customers aren’t likely to tell you, “you’re underpriced” on that … and Ian’s right that your employees aren’t either (unless you REALLY push them. I remember Mike Berns used to do that pretty well.) So, ask yourself: what can’t others compete with you on from a ‘wow perspective? What are the products and services that your customers really are willing to pay more for? Ask an objective third party: I would bet that you’re underestimating how much the customers value some of your unique products – custom containers, interactive classes, “wow” curated products with a story (e.g., Tina’s fancy night sky petunias or rare Wild Boar Farms heirloom tomatoes or hand-pulled cheese from a local artisan), the ability to ‘be first’ on some things, ability to shop without crowds, etc… Wishing you all great weather and VERY HEALTHY bottom lines this Spring!

      Reply
      1. Ian Baldwin
        Mar 29, 2017 at 9:36 am

        Kellee, great action insight (or was it an action incite..?) for everyone to think of unique aspects of their stores or products among the plethora of same stores, same products in every market.

        How many collective years of successful local gardening do you have in your team?
        How many flowers do your Vinca baskets have compared to the competitor’s?
        Which other competitor walks the supplier’s field to hand-select their trees?
        Where else can you rate Poinsettias for the grower 3 years before they hit the market?…. and so on.

        Thanks again for your insightful incite!

        Reply
  4. Ron Vanderhoff
    Mar 28, 2017 at 12:26 pm

    We heeded Ian’s advice (we got a lucky preview while in conversation a couple of weeks prior to the blog) and are doing a thorough pricing evaluation and overhaul. I can’t give a number on what the net results will be yet, but we are being aggressive. It is shaking up a bit of the mindset here.
    One concern we are dealing with is the tendency to only look at retails when we are placing a vendor order. I suspect that this is sort of a built-in part of the buying culture, but I also suspect that this approach is leaving money on the table. What we are looking at now is re-pricing existing inventory, even if there is no order arriving. Just put new stickers/signs on the item and change the retail in our inventory/POS sysyem.
    I don’t think we can afford to wait for the ‘reprice-as-you-order’ approach to deal with this. That approach may take months for it to kick in and have a significant net impact on margins and therefore profits. The time is now.

    Ron

    Reply
    1. Ian Baldwin
      Mar 28, 2017 at 3:43 pm

      Thanks Ron for validation. The joy of my job is to work with and be “stretched” by talented, progressive people such as the Roger’s Gardens team, to develop these strategies!

      You make a good point about bringing the changes forward to “now”. The only (pretty obvious) caveat I would add is that it might only be economic on the volume lines to change labels and adapt retails in the POS (unless the piece is one very high ticket item!).

      I assume the weather is now ringing those registers! Thanks again for your kind words.

      Reply
  5. Keith Farrand
    Mar 29, 2017 at 8:24 pm

    Today we were just discussing our pricing strategies. My sister who does about all our
    custom potting said pricing was just fine. I reminded her that she did get the raise she asked for. I think that is absolutely the most common response I hear everywhere. Hello! Where are the raises to come from?
    Yes we must address prices. I believe it was only about 4 or 5 years ago that our strategy for the season was to increase our average sale $5. In seven days we changed everyone of our prices (signs too) 2 times in the third week of April. It was worth the trouble – we served nearly 20,000 customers and ended the season up $ 4.96 per average sale.
    I will be retiring soon and we have found a very solid buyer. He is from outside our industry and is a very savy business man. Yesterday he said he thought our prices were much lower than he would expect to pay for a premium product in a premium enviroment. We had increased prices approx. 5% already. This morning we
    began changing prices on some non-common items as much as 20%. We won’t get far, but at least we’ve started.
    Thanks for nudge Ian.
    Keith Farrand

    Reply
    1. Ian Baldwin
      Mar 30, 2017 at 10:49 am

      Keith, so glad to hear from you on this as I remember your $5 average sale increase target a few years ago. I think you also increased the minimum on the volume-buy for herbs and made a lot more Gross Margin $$.

      It’s good to hear that your sales-deal is completed, I was wondering. Good for you, you both deserve it after all that sweat, toil and risk. I am delighted to hear the new owner thinks like he does and hope he appreciates the platform you have built for him.

      Have a great (final) spring!

      Ian and Lisa

      Reply
  6. Elaine Dale
    Apr 2, 2017 at 5:53 am

    The prices for our annuals has inched ever so close to our perennial prices , that if I get a customer complaining about our annual prices, I try to sell them perennials. It takes a little extra time with the customer but SO worth the effort. They see the prices on the perennials, the option, then if they do go , walk, back to the annuals the price isn’t so frustrating anymore.
    They then have a choice they never thought of before. Often they leave with new , exciting plants to try.

    Reply
  7. Ian Baldwin
    Apr 3, 2017 at 11:47 am

    Elaine,

    Thanks for joining in the conversation here at such a busy time of the year! I think you are on to something with your similar pricing of Annuals and Perennials. To more and more of the public it is a pot full of showy color that they want now for a certain purpose, so why not charge the same? While “These come back next year” might be a sales bonus for perennials, less consumers consider that an important benefit and of course the cost to produce the plants or your landed cost has little to do with the perceived value anyway. Thanks again for your great contribution which may have helped others in a perplexing topic, have a fab spring!

    Reply
  8. Don Shor
    Apr 4, 2017 at 11:20 am

    Wholesale pricing has gone up 5 – 18% across the board. A lot of retailers may be too busy to notice these increases. Don’t absorb those costs!

    Reply
    1. Ian Baldwin
      Apr 4, 2017 at 6:14 pm

      Many thanks Don for your note from the trenches, I have heard similar things but the heads-up is much more powerful coming from someone like you who buys and signs the checks every day.

      Now that our rains have stopped I hope your season is cranking!

      Reply

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