Price check

FRESNO, Calif. -- Someone recently asked me what I thought the rest of the year was looking like for retailers. I could have given a thoughtful, reasoned answer, but perception being reality in the era of 24- hour news, I said, “If we could persuade consumers to turn off their TVs, we would be fine.”

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I know the media are only doing their job, but when consumers hear a constant stream of negative or worrying news, guess what? They start to feel negative and worried. This is the self-fulfilling prophecy of TV news. And you have to deal with it. When gas prices are their main focus, other prices get dragged into people’s radar, too.

After several months on the road working with some of the best in the business, I wanted to share some findings from the reality of the 2008 market.

Yes it’s a cool place, but have you seen their prices?

It has been known for many years that the public judges a garden center’s whole price position by the price of a few items, maybe 50 or less. These Known Value (KV) lines include bedding flats, basic 1-gallon shrubs, 8-inch hanging baskets, bagged mulch, ready-to-use Roundup and so on.

You can be giving away those lovely camellias or trendy organic hand lotions, but if you are 20 percent over the perceived competition on a KV line, you are judged “expensive.”

When consumers feel that times are tougher, retailers have to adjust KV prices to at least the point where shoppers don’t form a bad impression within minutes of entering the center. You won’t make any money from KVs, but it is an essential part of your image; consider the lost margin dollars a part of your ad budget.

So this year’s most glaring opportunity to improve in many garden centers has to be the adjustment of pricing to more realistic levels. So many operators are still using markups that were fine when America was spending its brains out on its favorite pastime. Those days are gone and too many lines now just sit, overpriced and unwanted. That means more labor hours to water, dust, move and reset products that eventually will be sold on markdown anyway.

Supplier beware!

Pricing at retail is heavily influenced by the supplier’s price, so more than ever this year, buyers have to shop more selectively across the category.

Buying gorgeous flowering plants in prime condition from a high-priced, top-quality grower is essential for some things. Garden centers should always find and offer specialty, new or well-promoted lines and pay the price they can afford (after good negotiations of course!).

These differentiated, independent-only lines are one of the reasons for being in business. But do you really need to buy a plant that has been around since Adam and Eve (like 2-gallon Meyer’s asparagus) from that same supplier?

I think some buyers have become used to pressing the easy button with a one-supplier-fits-all approach, bringing in overpriced commodity lines to fill the order.

These lines probably always used to sit around the garden center for a while, and when business is good, little mistakes like this get hidden in the general growth of sales. But these are different times and when the economy gets tight, buyers must tighten up. A buyer must ask for commodity prices on commodity lines from any supplier, or buy from cheaper sources.

If a grower or supplier of anything cannot offer a price reduction (in effect, give you a markup reduction) on things where you need a lower base price, they are not really understanding the needs of their customers. Differential margins are not just a retail principle.

Buyer beware

Pricing starts with buying. Some products I’ve seen this year should never have been bought in the first place, and I question if the buyer asked themselves the “Can we really get $69.99 for this item in today’s economy?” question.

In the last few months of my work with independents, I have seen grossly overpriced 4-inch color, Miracle-Gro LiquaFeed (almost three times the price of a mass merchant in one case) and the now-ubiquitous hydrangea “Endless Seller.”

One large independent had not a single woody shrub under $29, when Lowe’s across the street had decent stuff starting at $9.84.

In the 1990s I remember the general drift away from carrying 1-gallon shrubs that were the mass merchants’ bread and butter. I can’t say I agreed with the philosophy, but the trend was to bigger, more finished 2- and 3-gallon material to avoid price comparisons and to offer the instant gratification to a customer who didn’t shirk at the price.

But in these CNN times we must have an entry-level offer to at least keep customers interested long enough to find the bigger, better impact stuff. I have seen centers this year that simply didn’t carry 1-gallon shrubs, while three of their smallest, common plants, such as ‘Goldflame’ spirea, would set you back over $100 -- and that is now two tanks of gas for a small car.

The times have changed

Moving up out of the small sizes may have been a fine 1998 strategy in a booming economy, but in 2008 it will simply deter customers from even seeing good value where it exists.

Take roses, where most independents are pricing better-quality plants below or equal to the box stores. It seems strange that an independent’s price for a flowering, fragrant David Austin rose is set at $18.99 while unnamed, off-patent varieties are at $22.84.

The reason for this pricing discrepancy is that the merchants understand the spring appeal of a rose in bud and bloom (not a few dormant canes sitting in a pot since March) and charge accordingly at $18 to $24 on Mother’s Day. But watch them chop prices down as those blooms begin to fade.

Unfortunately, many independent buyers (and owners) never set foot in a mass merchant’s garden department, more’s the pity. These retail giants are usually good at judging the public’s price tolerances.

Markup is about creating a gross margin percent that fits the model of profitability, but that paper exercise isn’t worth a hill of hydrangeas if no sales take place.

Gross margin dollars, not percentages, pay wages and rent. Turning a product five times at a 2-times markup or 10 times at a 1.5-times markup can make more money than a once-a-year turn at 2.8 or 3.5 times. But even more important is the public perception of overpriced KV lines or a lack of volume buys such as baker’s dozens, five-for-four and so on.

The retail dance

Selling is sometimes referred to as the retail dance, as both parties take their positions and work out what the person opposite is thinking as well as how they are behaving.

So take your partners for the 2008 version! Let’s get some customer surveys done to test their tolerances, draft a new strategy for KV lines, spell out your exact expectations to your suppliers, introduce volume buys and show empathy with entry-level collections.

Independents haven’t suddenly lost consumer confidence, but like all retailers they are being scrutinized for signs of relating to the current economic reality. Revamp the offer, show some empathy and dance together, not opposite.

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- Ian Baldwin

August 2008