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the state of the florists
2009
Understanding the factors that have sent many florists� sales plummeting
and caused many to close shop.
by Kenneth R. Royer, AAF
This year has seen a �perfect storm� of events in the retail flower
business, which is evidenced by an unprecedented number of florists
closing their doors and a decline in sales across the industry that has
impacted all florists.
We are still reeling from the effects of a recession, which has much to
do with the decline, but it is only part of the story. Sales declines
for other types of retailers have averaged less than 10 percent, and
anecdotal evidence indicates that many florists have experienced
declines of 15 percent and more. My sources report that wire-service
membership is down 20 percent in 2009 alone, and florists have seen
their share of the overall floral market decline from nearly 100 percent
to less than 50 percent over three decades. Currently, Internet
competition continues to gain market share and further reduce the
florists� share.
The graph below, courtesy of Ira Silvergleit, director of Research and
Information at the Society of American Florists (SAF), shows a 28
percent decline in the number of flower shops from the peak in 1992 to
2007. (This chart represents only traditional flower shops and does not
include supermarket and mass-market florists.)
Also during that period, the U.S. population grew by almost 18 percent,
from 256.6 million in 1992 to approximately 302.2 million in 2007. That
means that the ratio of florists to population changed from one florist
for 9,385 people in 1992 to one florist for 15,411 people in 2007.
The goal here is to understand the factors that have caused this
situation and, in subsequent articles, to suggest strategies that can
lessen their impact.
1 Expanded choices
Consumers now have a wide choice of nonflorist gift
products on the Internet, in any price range, which can be paid for with
a credit card and delivered overnight. No longer are flowers the only
product available to make a social expression with overnight service.
Examples include gift baskets, cookies, candy, teddy bears, pajamas and
more. These are purchases that often replace flowers. For the most part,
however, same-day delivery service remains the province of florists.
2 Changes in flower usage
A bunch (bouquet) has now become an
acceptable, affordable alternative to a florist arrangement for routine
social expressions. U.S. consumers have shaken off the fear of putting
flowers in a vase. Added to that is the fact that unarranged flowers
have become easily available in many convenient locations. The
substitution of unarranged flowers for florist arrangements has had much
to do with the decline in sales for florists whose business depends
mostly on the sale of arrangements.
3 Low-price priority
Consumers who found new freedom and confidence in
flower usages also became better educated on flower value as they
observed the pricing in supermarkets and on the Internet. As they became
educated, they began looking for lower prices and better perceived
value. Arranging a vase of flowers themselves was becoming more
acceptable, and, in the meantime, florists� prices for arrangements were
rising, and their prices on unarranged flowers usually were not
competitive. Consumers discovered savings from making their own
arrangements with unarranged flowers purchased at supermarkets and
convenience stores.
4 Convenience
To busy consumers, convenience is often more important
than price, which makes Internet ordering extremely appealing. One area
of discomfort for florist customers was the inability to see what they
were buying while placing phone orders. They were forced to rely on
information from the salesperson, who most often wanted to discuss price
rather than product. Being able to visually compare products and prices
from various sources was appealing to consumers, and being able to do it
24/7 was an added benefit. Consumers began ordering from nonflorist Web
sites rather than calling or visiting their florists.
At Royer�s stores, Internet sales grow rapidly each year while telephone
and walk-in sales remain static. At this time, Internet sales exceed the
sales of the largest store in the chain. Unknown is how many customers
go to the Internet to do research, then visit or call a store later to
place an order.
5 Sales declines
Sales had been dropping gradually for some time prior
to the recession, but it was unit sales, not dollar volumes, that began
shrinking in the 1990s. Florists raised prices periodically to offset
the unit decline, to maintain a desired level of sales and profit, not
realizing that price increases would exacerbate the problem.
The reason for the unit sales decline was that florists, for some time,
had been targeting a small, high-income segment of the population. As
prices were raised, a larger and larger group of consumers found
arrangements unaffordable. To compound the problem, the recession
stimulated more consumers to search for better value, and many of them
found it at supermarkets and on the Internet. Today, both dollar volume
and unit volume are dropping sharply.
a fundamental problem
Rebates on outgoing wire orders were started by American Floral Services
(AFS), which was purchased by Teleflora in November 2000. It was a
unique strategy to entice florists to become members of AFS. It was
successful, and soon the other wire services were forced to provide
rebates also. The unintended consequence of rebates was the creation of
�order gatherers.�
Order gatherers are nonflorists who solicit floral orders from consumers
primarily in the Yellow Pages and on the Internet. Those orders are then
transmitted through a wire service to a florist for fulfillment. Added
service charges and the rebates received from wire services create a
healthy profit for the order gatherers, but the service charges add
substantially to the cost for consumers.
Many florists feel they need the volume provided by incoming wire orders
and usually don�t realize those orders are mostly unprofitable. Instead
of limiting the number of unprofitable incoming orders, florists raised
prices across the board to offset them. Once the rebate program was
established, no one could find a way to discontinue it and stop or
reverse its profound effect.
market inefficiency
The growing number of orders being filled by florists that originated
with order gatherers became one of the most important issues in
shrinking sales and profits. Orders once placed directly with local
florists now were going through order gatherers and wire services,
adding significantly to cost without adding any value to consumers.
Unfortunately, many florists�unaware of a decline in the number of
orders�did not reduce costs commensurately. Often they employed the same
staff to produce a reduced number of arrangements. As a result, florist
efficiency declined. Reducing costs and improving productivity was not a
high priority.
On the supply side, cut flowers�most of which came from
offshore�traveled through an inefficient, complex distribution chain on
the way to consumers, going through brokers, wholesalers and retailers
before ever reaching consumers. As much as 30 percent of perishable
product is wasted and never reaches consumers.
The inefficiency in the industry added to costs, which ultimately
increased prices to consumers. Those consumers went looking for more
affordable prices and found them in supermarkets, mass-market outlets
and on the Internet.
price is king
The florists were not greedy. They increased their prices over time
because they believed doing so was the only way to deal with the
problems I have just addressed.
Today, there is downward pressure on price points. Internet vendors,
including wire services, discovered that generating sales on the
Internet was almost entirely about price, and price competition became
intense.
Many local customers who once might have called florists are now
ordering on the Internet and having flowers and a vase shipped overnight
in a box. Given the difference in prices between Internet vendors and
florists, many consumers are happy with the outcome.
a lack of power
Lacking unity as a group that could give them power to protect their
interests, retail florists are at the mercy of forces within the
industry. Those forces, in pursuit of their own respective goals,
unwittingly create circumstances that seriously impact florists. Because
the current transactional relationships are beneficial to the order
gatherers and wire services, they encourage florists to continue to
function as they have been for the preceding decades. Unfortunately,
florists were unaware of both the precarious position they were in and
the impending tsunami that has now broken over them.
rocks and hard places:
the way out
Florists have not responded well to the new price-competitive
environment. Some fortunate ones have niches with high-income customers
who want personalized service and for whom price is not important.
Others will have to find new, lower-cost ways to operate in this new
environment and reposition their businesses. These subjects will be
addressed in subsequent articles.
To comment on this article, send an e-mail to
ken.royer@royers.com or
editors@floristsreview.com.
Kenneth R. Royer, AAF, is
a lifetime florist who expanded the business started by his mother in
1937 into what is now, arguably, the largest traditional florist
business in the United States�U.S. Retail Flowers, Inc.�which is
operated today by his three sons.
Throughout his career, Mr. Royer has served the industry in numerous
ways�holding positions with the Society of American Florists (SAF), the
American Floral Marketing Council (AFMC) and the American Floral
Endowment (AFE); conducting seminars; writing articles; and authoring a
book, Retailing Flowers Profitably.
Mr. Royer also is the recipient of many awards, including SAF�s Golden
Bouquet Award (now named the Paul Ecke Jr. Award) and lifetime
achievement awards from FTD and Teleflora. |
