2011 in Review

The year that pricing caught up with garden centers

Originally ran in Garden Center on December 8, 2011

This year will be the third in a row to show declining sales volumes for most garden centers. Again we saw a drop in both average-sale per customer and customer count. Someone somewhere is telling us something.

This is more than weather.

Notable events in 2011 also included the closure of a well-run and profitable company like Sid’s in Illinois—a signal that many banks don’t want our business anymore. Across the country I hear of garden centers with decades of experience that have thrown in the towel as aging owners retired and next generations declined to take over.

This year also saw Monrovia plants in Home Depot—who would have predicted that five years ago?
This is more than the economy.

Go figure.

How can we make sense of a year when more Americans are on food stamps than ever but an upscale leather-goods company like Coach turns in the “top retail performance” results?

Consumers are being very very selective in their spending, saving money on X to splurge or self-indulge on Y. Or to be more specific, they are not gardening so they CAN buy a new purse.

What is it about our stores or our products that no longer excite homeowners who happily shell out for imported granite counter tops and outdoor kitchens? Consumers who are glued to TV cooking programs buy a small handful of basil leaves in a supermarket for $4.99, rather than ask at a garden center about growing their own
Other luxury-item sectors such as boats, travel and top-end automobiles are slowly coming back; so why not Do-It-Yourself landscaping? Why are consumers remodeling every room in the house and still looking at shrubs planted in 1996 every time they drive in their driveway?

Just reflect back to where 2011 leaves us. Over 50 percent of cell phones are smartphones. Facebook has half the world chatting to each other while America’s kids no longer play outside. One “Category Killer,” Border’s, is gone, and others like Best Buy are rapidly downsizing to find a new role. Meanwhile, using an app on that smartphone in a grocery store, you can get Amazon to direct-ship brand name staples like toothpaste and diapers direct to your home.

This is more than the economy.

The image came home to roost.

The garden industry demographer Kip Creel has been warning us for years that we must above all else stay relevant to the consumer’s needs and attitudes. I think the past few years show that we could lose the battle if we continue to operate as we have done for the past 30 years.
There are lots of people more qualified than me to advise on connecting with the younger generations, but let’s look at how we relate to the consumer when we DO get them in the store—in particular, on an aspect that all independents could adjust today: pricing.

Given the current economy there has been a lot of discussion about how pricing and margins will fit the new garden center model, and the word “flexibility” springs to mind. How much longer can owners justify their pricing by saying, “If I don’t mark up to get a 60-percent gross margin how can I pay my people who make this place so special?”

Remember that the average home spent only $363 (down from $530 only a few years ago) on their garden in 2010—equal to less than two-weeks child care for a working mom. The consumers are telling us that they don’t see the perceived value in a trip to our stores, and it is surely time to look at our prices. To be relevant we have to be competitive or at least non-gouging on products that consumers either have a perceived value for or a fear of failure with.

Everyone now wants a bargain, even retailers. I had to smile when an owner told me he couldn’t possibly reduce some selected prices as I suggested but later mentioned that he booked his winter travel purely on the lowest price airline that day.

Many garden centers still consider a high gross-margin percentage to be the goal, when what they really need is gross-margin dollars through increased turns.

Then visit the produce department. I recently talked to a grower who previously worked for years in retail. He is amazed that, in this economy, most of the retailers he pre-prices his plants for show no interest in passing on a deal he gives them. No interest in generating traffic or showing empathy for a cash-strapped consumer with a lower mark-up on a few suggested lines. He told me that most buyers are just not interested in variable mark-ups in one genus such as hosta or heuchera. “Two-point-three across the board is how we’ve always done it,” they say. “It just makes it easier for everyone.” Ahem. This is Year Three of the worst recession since 1930, and retailers are still saying THAT!?

Do they ever look at prices in the produce department of their local supermarket? When did you last see all apples the same price? When was lettuce one price for two months? I think the sooner we start managing our green goods like they manage produce, the better our bottom lines will be.

Should we give away all products? Of course not. One of the key skills in retailing is to know what you can charge for a product on that day. Identify the lines that have a strong price perception, like a national brand of weed killer or a basic 10-inch hanging basket, the so-called Known Value or KV lines. Slash the margins of a few examples, not every KV line and not all at the same time. But you must have some KV on sale in each department each week. Then tell the world! Other prices of new, different or just gorgeous can be allowed to rise. Gross margins within one sub-class or genus may vary from 30 to 70 percent using my mantra, “Get it where you can and give it back where you have to.”

Gross margins are coming down as promotions bite into them, but we are trying to drive new consumers who have little perceived value in our products. They fear failure and wasting money, so they shop where they assume things will be cheaper, not giving independents a chance to demonstrate the service and information that will help the new consumer succeed.

Upward and onward!

It will take several years to adapt the look, feel and operating methods of the typical independent garden center to a style that younger consumers understand and are comfortable with. But the main lesson from 2011 is that if GCs don’t quickly create a lower price perception, they won’t be around to re-invent themselves for the next, very numerous and spendy generations.

Ace is the place to study

We can’t continue to work on higher margins than the box stores (and Amazon) just because we are independent and offer better service. One owner told me that he couldn’t possibly sell something at a dollar less than he paid for it. I told him of a local hardware store (also independent and family-owned) that promoted a national brand name of weed killer at $1 below the local Home Depot for 72 hours on a weekend to drive traffic.

On Tuesday morning it went back up to regular price, and the loss-per-bottle of $4 was charged to the advertising budget. Why don’t more garden centers look at how the hardware industry has successfully competed with the big box stores?

These local hardware owners compete with the big guys in every single department, from paint and fencing to plumbing and fasteners. Yet they are having a “good” recession, having figured out how to live on a gross margin averaging 5-15 points lower than a typical garden center. They are savvy buyers, aggressive promoters using as many co-op dollars as they can get, and they are very disciplined operators in every area from staff training to loyalty clubs.

The traditional keystone or a single mark-up on everything in a department is still the main strategy for most garden centers, despite a retail world of complex pricing strategies and hourly price changes online.

Between 1980 and 2005 a gross margin of 50 percent to 65 percent gave garden centers enough money to pay their overheads, retain a good crew and make a pretty decent living. The justification was that the margin was a reward for the hard work, risk and weather. Customers seemed to pay—happily—for the higher prices compared with other outlets such as home stores, mass merchants and hardware stores. Most customers were interested in the products we carried, enjoyed the experience, trusting the quality and information supplied by independents.

Then a triple whammy occurred: Our main customer demographic lost interest, the big box stores finally figured out how to sell quality plant material (we knew they would someday) and then, just as we were beginning to reach out to a whole new generation, the economy went south.

The days of high, simple, across-the-board mark-ups are over, and those who have not adjusted to the reality of 2011 were very hard hit this year.