Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Spanish Immersion Study Program a Success!

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On February 24 – March 1, 2008, Texas AgriLife Extension hosted a unique educational program for commercial nursery floral producers. The FLORI-Culture & Marketing Spanish Immersion Study Program combined language instruction with daily tours focusing on labor and marketing. The event, led by Dr. Don C. Wilkerson, was conducted in Cuernavaca, Mexico. This international program with an emphasis on marketing and labor is an excellent example of how TAMU-Horticulture is addressing key GREEN industry issues.

I encourage you to read the summary of this innovative Extension educational activity (click here).

Leading at a Higher Level

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While “vacationing” this week [spring break], I happened across an article by Ken Blanchard in a periodical I had never heard of before called Success At Home, a magazine targeted at home-based businesses. In this article, Ken recounts leadership principles that I think are applicable to Green Industry firms that take a differentiation strategy serious. For example:

When you are leading at a higher level, you have a both/and philosophy. The development of people is of equal importance to performance. As a result, the focus of leading at a higher level is on long-term results and human satisfaction. Leading at a higher level, therefore, is a process.

Ken has found that in organizations where leading at a higher level is the rule rather than the exception, leaders do four things well.

They set their sights on the right target and vision. Great organizations focus on three bottom lines instead of just one. In addition to financial success, leaders at great organizations know that measuring their success with people—both customers and employees—is just as important as measuring the success of their financial bottom line.

They treat their customers right. To keep your customers today, you can’t be content just to satisfy them. Instead, you have to create raving fans—customers who are so excited about the way you treat them that they want to tell everyone about you.

They treat their people right. Without committed and empowered employees, you can never provide good service. You can’t treat your people poorly and expect them to treat your customers well.

They have the right kind of leadership. The most effective leaders realize that leadership is not about them and that they are only as good as the people they lead. These kinds of leaders seek to be serving leaders instead of self-serving leaders.

To read the complete article [which I highly recommend], click here!

It still comes down to local economic (and weather) influences

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I’ve reported in a lot of seemingly negative economic news lately, but it remains unclear whether the current state of affairs meets the economists’ definition of a recession (a widespread decline in economic activity lasting more than two consecutive months). But, to take a line from the political world, all economics is local.

For example, there are a few economic pundits who proclaim that we are already in recession. Others counter with other data & statistics to the contrary. One thing is for sure, some states have most certainly experienced a period of contraction. But this has been far from uniform with a dozen or so states experiencing severe contraction while others have experienced some expansion (according some economic indicators) in recent weeks.

While Green Industry business owners and workers in certain parts of the country have weathered recession-like conditions for months (e.g. job losses, home foreclosures, declining consumer confidence, lower business spending), others that I have talked to have been doing ok. So it seems to me that [as in the past] some areas are likely to feel less of an effect from the crawling economy than others.

The main reason? Obviously some areas are experiencing more of a housing “bust” because they first experienced more of a housing “boom.” Those communities who learned hard lessons from recessions past and have diversified their local economies will obviously fair better than those who tend to rely on a small set of local enterprises.

What does this have to do with you? First of all, it is way to early to throw in the towel! Second, even the shrewdest of pundits are not able to predict the weather patterns in your area, which has almost as much impact as local economic conditions — maybe even more in some years. As my friend Bill Gouldin of Strange’s Florists, Greenhouses, and Garden Centers in Virginia puts it: “Economic downturns are like getting the flu; rainy weekends in the spring are like pneumonia; and drought on top of that is cardiac arrest!“

So continue to put your best differentiated foot forward, exceed customer expectations, and keep spreading the message about the healthful aspects of fresh flowers, the positive ROI that landscaping adds to curb appeal and home values, and how we were “green” before green was cool (to quote Tony Avent of Plant Delights Nursery)!

The Home Depot "Index"

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Home Depot Inc. said Tuesday that fourth-quarter profit fell a sharper-than-expected 27% after the declining housing market hurt demand for its building and home goods supplies and the outlook for 2008 remains “challenging.”

Declining housing and credit markets have hurt consumers’ appetite for home supplies provided by Home Depot and rival Lowe’s, which said Monday that profit dropped 33%, with sales at stores open at least a year declining 7.6%.

To reduce costs, Home Depot said in January it would cut 10% of its headquarters staff, following moves to slow the pace of its stock buybacks and advertising-spending growth. The company, however, said it remains committed to $2.3 billion in capital spending this year. Home Depot has spent money on projects to make stores cleaner and brighter and improve customers’ experience after it lost market share to Lowe’s and other competitors.

What to make of this?

  • DIY retail sales will most likely continue to crawl. Of course, this is no surprise since lawn & landscape services have increased in recent years to offset declining DIY sales due to more DIFM (do-it-for-me) purchases.
  • Growers who sell to Home Depot and Lowe’s will still need to offer differentiated programs as usual — and pay particular attention to shrinkage and gross margin on a store-by-store basis.
  • Landscape service firms need to ratchet up the marketing efforts — especially emphasizing the return on investment from lawn & landscape improvements (see earlier posts).

Unhappy times are unhappy in their own way

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“Happy economic times are all alike; unhappy times are unhappy in their own way.”

A recent article by Ram Charan in Fortune Magazine (2/18/08) reiterated many of the points made in my earlier posts about NOT cutting back too drastically during economic downturns; especially in terms of marketing programs. Here are the highlights:

What makes the current economic downturn distinctively unhappy is the unprecedented confluence of three things. First, there was a Fed-induced housing bubble – too much cheap money for too long. Then there was the rampant use of exotic financial instruments, such as collateralized debt obligations, to disperse risk among people who didn’t understand it. Finally, the rating agencies failed to catch the poor quality of a great deal of highly rated debt. With lots of momentum – and faulty brakes – the financial system hit the skids.

Whether this turns into an official recession (two straight negative quarters) is immaterial: What matters is how their business is affected, segment by segment. But certain principles apply broadly:

Keep building. When the top line looks shaky and the bottom line worse, the temptation is to go after discretionary spending. Fine – but do not consider product development, innovation, and brand building optional. Sacrificing your future for a slightly more comfortable present is not worth it. If you keep building, you can come back strong.

Another area to build on is personnel. It may seem counter-intuitive to pay bonuses when profits are falling, but sometimes it’s the right thing to do, particularly if a specific unit is creaming the competition. Rewarding excellence – through new challenges, public recognition, and, yes, money – in bad times as well as good builds loyalty.

Communicate intensively. Get information from where the customer action is, and get it to the operating people – fast. Companies should do so routinely, of course. But they don’t. It’s counterintuitive but true that when the economy slows down, the pace of decision-making has to speed up, because you can’t put off the tough choices anymore. The companies that are readiest to act on solid information are primed to shoot ahead of the business cycle.

Communication needs to happen among teams in the company. In the hot summer of 1787, the Founding Fathers locked themselves into a room and wrote the entire Constitution in a matter of weeks. That’s not a bad model for a company under pressure. Fill a room with people from operations, service, marketing, and sales, and require them to hash out their expectations for the next eight quarters or so – what if demand goes down? if prices of key inputs go up? – and then to devise coordinated plans to meet them.

And keep it up, repeating the exercise every month. When the facts change, to paraphrase Keynes, so must your strategy. Research has shown that when people have thought through their reactions to high-stress scenarios – such as a disaster or being a victim
of a crime – they are much more likely to survive it. Ditto for business.

Evaluate your customers. In good times, companies manage the P&L; in bad times, cash and receivables matter more. Therefore, you need to identify your higher-risk, cash-poor customers. You could decide to simply not supply them anymore – that’s harsh but sometimes necessary.

Alternatively, and this helps build good relations, work out a way to keep going – for example, by helping finance purchases or supplying smaller quantities. The point is, a downturn is a very good time to do a quality check on your customers.

Just say no to across-the-board cuts. By all means cut costs if it makes sense to do so, but make sure there is purpose in how you do it. It may be useful to clean out the metaphorical attic – for example, by pruning your product line. The key: If you have to cut costs, don’t try to be fair about it. As I have said before, the world does not inflict pain evenly, and you have to deal with that reality.

Being on the downside of the business cycle is not much fun. That said, a slump can also be an opportunity if you use the sense of urgency to improve strategy, management, and discipline. In that sense, happy and unhappy times are alike: The companies that take charge and outcompete will win.

Pay me now or pay me later

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An insightful commentary from Robert Samuelson yesterday provided an excellent perspective to the recent discussions regarding recession and stagflation. For example:

Naturally, no politician acknowledges the self-evident implication: that recessions, though unwanted and hurtful to many, are not just inevitable; sometimes they’re also necessary to prevent the larger and longer-lasting harm that would result from resurgent inflation. Interestingly, many academic and business economists who have more freedom to speak their minds suffer the same deficiency. They treat every potential recession as a policy failure when it is often simply part of the business cycle. They thus contribute to a political climate that, focused on avoiding or minimizing any recession, may perversely aggravate inflation and lead to much harsher recessions later.

For the rest of this insightful dialogue, click here.

Another interesting treatise on how current monetary policy is not addressing the real issue is provided by Allan Meltzer, the eminent economist and monetary historian, who thinks the Fed is repeating the mistakes of the 1970s. Click here.

More on pricing…

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In the most recent OFA Bulletin (Jan/Feb 2008), Behe and Dudek presented an article that reinforced the negative impacts of retailers discounting prices needlessly. Using prices collected from Michigan garden centers, the authors demonstrate the WIDE variation in pricing for similarly-sized products in the same trade area. The analysis showed that significant dollars can be left “on the table” from under pricing — using price as the single mechanism used to attract customers (see Table 1 – click on the table to view in larger format).
However, the same data can be used to demonstrate a significant reverse corollary. Recall that in an earlier post, I talked of the inelasticity of demand and that if firms successfully differentiate themselves from competitors in their local trade area, they are able to raise prices and though they may sell fewer units, total revenue for the firm actually increases.

Using Table 1 data, assume that the current price is $3.99 per unit (which requires sales of 162 units to break even and generates sales revenue of $1,995). If price per unit is increased to $4.49 (a 10% increase), only 144 units are needed to break even and profit rises to $2,245. In similar fashion, an additional 10% increase in price translates into even fewer units to break even and another increase in sales revenue.

Ceteris parabis, holding all other things constant, profit rises as well. So what are you waiting for?

Who's right?

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Almost two out of every three Americans won’t spend tax rebates included in the proposed government stimulus package, a survey by American Century Investments found. A little more than a quarter of respondents said they would spend the rebate money now, while 36 percent said they would use it to pay off outstanding loans or credit card balances, according to Kansas City-based American Century Investments. Another 25 percent said they would save or invest it.

On the other hand…

According to a new National Retail Federation survey, consumers plan to spend 40.6% of tax rebate checks, which will provide an immediate $42.9 billion boost to the economy. The survey also found that the $105.7 billion distributed in tax rebates will be used to pay down debt ($30 billion), saved ($19.8 billion), invested ($4.4 billion) and used to pay down medical bills ($4.6 billion). Women will spend a larger percentage of their rebate check than men (43.6% vs. 37.3%). And young adults age 18-24 will spend more of their checks (46.2%) than any other age group.

Who is right? Time will tell, but I do know this. There will be some big trees planted in my yard when the check does arrive!

Where O Where Has Our Data Gone?

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An excerpt from the last USDA Floriculture and Nursery Crops Outlook report published by USDA-ERS:

After this issue of Floriculture and Nursery Crops Outlook, ERS will no longer maintain an active market analysis program in this area and will suspend publication of Floriculture and Nursery Crops Outlook and Yearbook. This action is being taken due to a reduction in data coverage that limits the scope of ERS analysis, resource limitations, and changes in staff assignments. This comes in the wake of USDA-NASS cutting the Floriculture Crops reporting states from 36 states down to only 15 and only conducting the Nursery Crops survey every third year. All of this comes about of course because of budget cuts. I know the folks at both agencies and they work hard to supply our industry with this data. But it doesn’t negate the fact that this is going to be a major problem for the green industry! Without these data, we have less opportunity to demonstrate our economic importance to the U.S. economy, less capability to evaluate the effects of legislation regarding immigration and other policy issues, less means of combating poorly designed municipal policies regarding water and other resource usage, less potential to influence the dramatic changes that are needed in the crop insurance program, and less ability to make informed managerial decisions about running our green industry businesses. Now is the time for voices to be heard…catch my drift?

How to combat falling consumer confidence

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The University of Michigan’s consumer sentiment index tumbled to 69.6 in its preliminary February reading from 78.4 last month, marking its lowest point since February 1992 when the economy was emerging from a recession. The component of the index that gauges consumers’ expectations — a possible sign of their willingness to spend — dropped to to 59.4 from 68.1. Time will tell whether the infusion of stimulus rebate checks will counter this trend. Regardless, now is the time for the industry to promote the value that landscaping provides in increasing perceived real estate values. A recent study by the S-1021 Multi-state research committee provided key findings regarding the effects that landscape design sophistication, plant size, and diversity of plant material has on consumer perceptions of home value.

Design sophistication accounted for 42% of the value added to the home, so clearly doing more than foundation plantings yields a greater return.

Plant size accounted for 36% of the value added to the home, so larger plantings translate into greater value.

Diverse plant material accounted for 22% of value of the value added to the home, so it appears that having many large numbers of different plants was not as important.

Adding one or two island beds (increasing design sophistication) can alone add 2% to the perceived value of the home.

Although a small investment (less than $250), colorful annuals and perennials added nearly $1000 to home value; returning 400% on the investment.

Moving from the least valued landscape to the most valued landscape, perceived home value increased, on average, 8.6% across all states included in the study.

A landscape is a good investment, yielding a greater than $1 return in home value for every $1 invested in the landscape.

Landscapes are one of the only home improvements that increases in value (and size) over time. Other renovations (e.g. bathroom, kitchen) typically yield less of a return than the amount invested.

Clearly, installing more than foundation plantings yields a greater return for consumers. Curvilinear beds are effective design elements in adding value to the home.

Obviously, this is vital information for landscape firms and retail garden centers to include in their marketing and sales literature. To view more details of this study, click here.