Ian's Bits & Bobs: The Blog

Sickles Outdoor Living

Raising Those Prices: The Follow Up!

If you are reading this, it must be raining or you just need some light relief, time is valuable for companies receiving 50% of the year’s sales in 10 weeks!  When I said the next blog would about quick-fix increases, little did I know that some of our blog readers would weigh in with such great examples. Thank you for sharing from the trenches:

1.       A Little Can Go A Long Way

For starters, think of easy small increases on big volumes. Adding 25 – 50 cents to something that sells thousands of units in a few weeks, like 3.5 inch vegetables or annuals yields significant extra margin dollars, without raising a flag to customers. Even though it requires extra labor hours to adjust the POS, the work is a good investment. Another advantage of this tactic is that most of these increases can be covered by simply changing the price on a shelf or bed-talker rather than individual item pricing. Just remember to keep those few Known Value items competitive!

2.       Affordable Luxury

Now, think of substantial increases on high ticket lines, which move slower but impact sales when they do. Identify specialty lines such as finished custom-planters, large individual specimen plants, “hot” or unique lines in your area. The things that consumers buy infrequently, such as patio furniture (hot after a recession lull), high-end-grills, upscale yard-art, statues (also hot this year), fountains (ditto), plus high-end or larger pottery: things that often have a value perception based on pride, ego, status or self-indulgence.

Larger increases of $25 to $100 on these less-frequent purchases in the $250 to $2500 range would certainly cover the cost of changing the price. Think of your “outdoor living” décor items that people have gone without for the last few years such as arbors, trellises, shade structures, lighting and benching. Specimen plants have higher value perception. Things like Japanese maples, multi-stemmed birch, flowering dogwoods, trellised fruit or larger trees for shade and privacy also fall into this category. Look at larger plant sizes in the more basic lines that tell a story such as “Hide the neighbors for $300” and sell the emotional benefit.

3.       Convenience Has a Value

A 3-gallon heirloom tomato showing fruit turning color is worth $40+ to many consumers. A pot of fresh, still-growing herbs is worth double those wilting bundles from who-knows-where in a grocery store. Pre-planted pots to “Grow Your Own Salsa” have a higher value-perception as do roses in gorgeous fragrant flower or ready-to-eat snap-peas on a mini-trellis – never mind what the landed price was!

Finally: D.I.N. – Do It Now

Although it might seem too late to change this year, read Ron Vanderhoff’s comment on my last blog (March 28th 2017). Do not wait until the next receiving cycle to enact these new strategies – that could be a whole year away and business costs are rising daily. As product is received, inventoried and put into retail, ask yourself, “what could I get for this item?” Then ask yourself if the total extra cost of changing the price is more than made up by the extra dollars gained. If the answer is “Yes,” Do It Now!

In closing, if you click through the link up there, you’ll see that the interaction “in the comments section” is as valuable and thought-provoking as the original post! So we’d love to hear from you:  what is one item or category you have changed the price on this season, or one surprise you found as you started to investigate pricing?

Ka-ching!

photo credit: by Ian, taken at Sickles Market

Apr 17, 2017 6 Comments
Heirloom_PriceOppty

Aim High This Spring!

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

Mar 27, 2017 16 Comments
BonniePrices

Caught With Your Plant Prices Down?  

Knowing that most people have more important things to do than to read blogs at this time of year, I will keep this brief (who cheered at the back?!).

PLEASE, PLEASE take the time to visit* your big box competitors to look at the pricing of their key items. Some owners and managers do this as a routine strategy but if, like many Local Garden Centers (LGCs) that I see on my travels, you are underpricing the competition – read on!

Two years ago I raised a flag for those clients who were unaware that the Bonnie Plants brand of 4 inch veggies at both Home Depot and Lowe’s had broken the $3 barrier – a barrier many LGC owners and buyers were afraid to cross. In 2013 Bonnie prices were around $3.48, last year they went to $3.68 which also looks like the national price this year too.

Yet I still see many LGCs asking under $3, often well under $3. When I ask why they would underprice Home Depot with such a hot item the usual reply is a lack of awareness of big box prices. Others say that the landed cost to them is just over a $1 so they were getting plenty of margin or the staff didn’t like to charge such a high price on such a low-cost item. (Hmmm, do they know the cost of the actual coffee in that $4.50 morning cuppa?)

Reality Check:

The Bonnie Plants brand is probably in over 6000 home improvement stores nationwide and has done an outstanding job to raise the price expectation on a product many viewed as an incidental. (One retailer told me a few years ago that his entire veggy department was less in sales than his Geraniums.) Then along comes the Grow Your Own boom and the TV Food Channels and suddenly that “incidental” is in demand. And big companies know a thing or two about demand curves. They have actually increased a product’s “Known Value”! How rare is that in this trade? Thank you!

So, thanks to these retail giants the American consumer is now conditioned to pay not less than $3.50 for a small veggie or herb plant. Why would any garden retailer miss out on meeting that customer expectation?

No part of this discussion takes into consideration the assumed better plant quality in LGCs (sadly not always the case) or the LGC superior service, often quoted to justify a higher price in other plant material. This is “Opportunity Cost” thinking.

When the market leaders, with more than 30% of the business, put up their prices, improve their fixtures/merchandising and use national ad campaigns to support that brand, why wouldn’t everyone else in that line of business ride along? How many Gross Margin dollars are LGCs leaving on the table?

That’s the Opportunity Cost and any shortfalls should be mentioned by owners at “review time”….

Few LGCs would try to undercut a big box store price in garden supplies, grills or Christmas trees so to do it in the hottest green goods makes no sense to me. Ride the wave and bank the Gross Margin dollars, there are plenty of other products to lose money on!

Have a great spring!

*Editorial Note: I used the word “visit” (vs. looking online) because at time of writing the online price for those 4” veggies on the Home Depot website (for three zip codes across U.S.) is $4.98  – go figure!

Apr 1, 2015 13 Comments
RunitByNumbers2 RunitByNumbers calculator

Running it by the Numbers – What a Concept!

Looking at financial information from LGCs (Local Garden Centers) and talking through the mysteries of the past year’s performance is a January pastime for us. Each year has its own “fingerprint” based on weather, economy and customer attitudes, but one thing is becoming quite clear after 5 years of recession:

Making a “decent” profit is harder for some than it is for others selling the same products in the same market. Some operators have had a very good twelve months, others have struggled and some have failed.  Darwinism is at work in the LGC channel of the retail garden business!

What is a “decent” profit?

Great question!  Many large corporate retailers are living on a net profit (aka ‘net margin’ on Wall St) as a percentage of sales in the 2-3% range (liquor and grocery stores) to 7% (apparel). Really, so low?  Yes, what you lose in the percentages as you grow in size, “you’ll make it up in volume,” as they say.

So, a small volume company (compared to Kroger or Abercrombie) that wants to end up with a higher net margin, needs a high gross margin  – correct? Not necessarily: it depends on what your operational costs, labor and occupancy costs are.

The downside of using high mark-ups to get a high gross margin across the board is that the consumer will think you are gouging them and the stuff will just sit there, slowly deteriorating. Nothing improves its quality sitting on the shelf in retail!

Can LGCs thrive on a gross margin below 50%? Absolutely, and most local hardware stores have done so for years. Success is measured by the bottom line more than the top line.

One simple word

So, naturally when I saw a client taking their gross margin (as a percentage of sales) up by over 4 points (43% to 47%) in a single year (in a year and region where spring waited until it was almost too late), I had to ask the reasons. The owner’s answer was one word: “Discipline.”

He said, “We worked by a set of numbers. We lived to a pre-determined spreadsheet of targets showing everything from average ticket to gross margin per labor hour.”

“We knew that to hit this number, we had to do that,” and “if X happened, we were ready for it with Y.”

Specifically, they aimed for a higher gross margin by buying less in at one time (mostly in plant material) and turning it more quickly by better operations, merchandising and marketing. They then had the cash to replace it more frequently with fresher and more impulsive product. They offered volume buys to turn even more product and had very little left for that depressing end-of-season give-away in the fall.

“The data was tracked closely by the POS, and our managers, buyers and team members all knew what was expected of them. We had frequent updates and problem-solving meetings, invested in training/coaching and leadership. Everyone – customers, staff and suppliers – loved it!”

The end result? With a flat customer count, fewer labor hours but the same labor dollars (ie more money for less people), sales were up by 4% over 2013 but the gross margin dollars increased by 14.5%!  Ka-Ching!

Now wouldn’t that make a great New Year’s Resolution! Volunteers anyone?

How did your net profit margin fare in 2014? Let’s hear your numbers, sharing is caring!

Note:  these are actual 2014 business results from a US garden center, anonymized and shared here with the owner’s permission.
  Image credit: Grafixar via morguefile.com
Jan 17, 2015 2 Comments