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

Warning signs that a business is in trouble

by

From the latest GrowerTalks: Long before the bank says NO and the final profit and loss statement bleeds red ink, there are warning signs that a business may be in trouble. Whether you’re optimistic about your future or feeling a wee-bit stressed these days, it’s crucial to monitor for early indicators of coming problems. Think of it as preventative maintenance—something you’d give your vehicle in order to fix the little problems before the engine blows….continued.

Several folks, including myself, were interviewed for the article. Click here for the full scoop.

Three tips for cost cutting

by

Almost all companies have or will need to cut costs to survive in the current environment. Unfortunately, not all cost cutting is done smartly. Consider these three pieces of advice before making cuts:

  1. Put strategy first. Cuts across the board rarely, if ever, lead to effective results. Laying out strategy first helps you decide where to cut, and also helps employees accept the cuts as a step toward a goal.
  2. Focus on good customers. Rather than cutting valued services to valuable customers, “fire” high-maintenance customers who cause you unnecessary complexity. Focus on serving your more cost-effective customers who are happy with your products and services as they are.
  3. Keep your business simple. In a healthy economy, it’s easy to overlook processes and activities that are redundant or overly involved. Simplifying them can save you money with the added bonus of increasing both customer and employee satisfaction.

Which companies bounce back faster post-recession?

by

I thought the following research was interesting given all of the talks I have been give lately about developing a compelling value proposition:

Companies that concentrate on their core business dramatically improve their odds of success in a downturn. About 95% of the companies that qualify as “sustained value creators” — those that maintained at least a 5.5% real growth rate in revenue and profit over ten years while earning back their cost of capital — are leaders in their core businesses. They not only perform better during expansions but recover faster when growth rebounds from an economic slump.

During the last recession, for example, the average net profit margins of this group bounced back to 6.5% in 2002, only slightly below pre-recession levels in 2000. Their competitors fared much worse, with average net profit margins falling to around 1% during the same period, a drop of about 3 percentage points.

Source: Bain & Company — click here.

Companies change strategies for different reasons

by


Companies change strategies for a host of reasons, external (broad economic changes, competitors’ moves) and internal (the results of a strategic planning process). But two reasons stand out, a recent McKinsey survey of global executives found. Each executive was asked what drove the largest strategic initiative in his or her company during the previous fiscal year, excluding strategic shifts made in response to a competitor’s move or to the current economic turmoil. Two drivers together accounted for more than half the moves: a major product innovation (31%) and entering a new market segment (22%). Click on the graph above to enlarge.

The View From 12,000 Feet

by


Over the weekend, I took a rare opportunity to explore the mountains of Colorado with 6 of my good buddies from church. Needless to say, the mountaintop views were spectacular and provided some needed respite from the hectic trade show and educational conference season.

Not only was it a great reminder of the majesty of creation but it afforded me a few thoughts about the importance of taking a step back and seeing the big picture.

During several of my speaking engagements over the last few months, folks have related some pretty amazing stories regarding their individual business circumstances. Some good and some, well, not so good. In asking probing follow-up questions (you can tell I like to watch Charlie Rose), it seems to me that those who are optimistic about the upcoming spring season have a good strategic game plan firmly set in place. They have planned their work and are ready to work their plan.

In that vein, I think it is important each morning to take 2 minutes, step back, and allow yourself to take in the view from 12,000 feet. In other words, create a list of the top three things that are important to accomplish that day and focus on that list. Write them down and keep the list somewhere close all during the day.

Take the free moments in your day to check on your list, not to hurriedly check your email inbox. Most “urgent” items can wait while you take the time you need to focus on these vital projects. Delegate the tasks of putting out fires to those whom you have empowered to do so.

I know this seems terribly simplistic, but I myself find that the “tyranny of the urgent” can cause me to take my eyes off the ball. It’s during those times, the 12,000 view can be most refreshing and re-directing!

Marketing during a recession

by

How should your marketing change because of the recession? Harvard professor John Quelch has eight tips for Marketing Your Way Through a Recession:

1. Research the customer. Instead of cutting the marketing budget, you need to know more than ever how consumers are redefining value and responding to the recession. Price elasticity curves are changing. Consumers take more time searching for durable goods and negotiate harder at the point of sale. They are more willing to postpone purchases, trade down, or buy less. Must-have features of yesterday are today’s can-live-withouts. Trusted brands are especially valued and they can still launch new products successfully, but interest in new brands and new categories fades. Conspicuous consumption becomes less prevalent.

2. Focus on family values. When economic hard times loom, we tend to retreat to our village. Look for cozy hearth-and-home family scenes in advertising to replace images of extreme sports, adventure, and rugged individualism. Zany humor and appeals on the basis of fear are out. Greeting card sales, telephone use, and discretionary spending on home furnishings and home entertainment will hold up well, as uncertainty prompts us to stay at home but also stay connected with family and friends.

3. Maintain marketing spending. This is not the time to cut marketing. It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands, and more consumers at home watching television can deliver higher than expected audiences at lower cost-per-thousand impressions. Brands with deep pockets may be able to negotiate favorable advertising rates and lock them in for several years. If you have to cut marketing spending, try to maintain the frequency by shifting from more expensive forms to less expensive forms, such as the use of direct marketing, which gives more immediate sales impact.

4. Adjust product portfolios. Marketers must reforecast demand for each item in their product lines as consumers trade down to models that stress good value, such as cars with fewer options. Tough times favor multi-purpose goods over specialized products, and weaker items in product lines should be pruned. In grocery-products categories, good-quality own-brands gain at the expense of national brands. Industrial customers prefer to see products and services unbundled and priced separately. Gimmicks are out; reliability, durability, safety, and performance are in. New products, especially those that address the new consumer reality and thereby put pressure on competitors, should still be introduced, but advertising should stress superior price performance, not corporate image.

5. Support distributors. In uncertain times, no one wants to tie up working capital in excess inventories. Early-buy allowances, extended financing, and generous return policies motivate distributors to stock your full product line. This is particularly true with unproven new products. Be careful about expanding distribution to lower-priced channels; doing so can jeopardize existing relationships and your brand image. However, now may be the time to drop your weaker distributors and upgrade your sales force by recruiting those sacked by other companies.

6. Adjust pricing tactics. Customers will be shopping around for the best deals. You do not necessarily have to cut list prices, but you may need to offer more temporary price promotions, reduce thresholds for quantity discounts, extend credit to long-standing customers, and price smaller pack sizes more aggressively.

7. Stress market share. In all but a few technology categories where growth prospects are strong, companies are in a battle for market share and, in some cases, survival. Knowing your cost structure can ensure that any cuts or consolidation initiatives will save the most money with minimum customer impact. Companies such as Wal-Mart and Southwest Airlines, with strong positions and the most productive cost structures in their industries, can expect to gain market share. Other companies with healthy balance sheets can do so by acquiring weak competitors.

8. Emphasize core values. Although most companies are making employees redundant, chief executives can cement the loyalty of those who remain by assuring employees that the company has survived difficult times before, maintaining quality rather than cutting corners, and servicing existing customers rather than trying to be all things to all people. CEOs must spend more time with customers and employees. Economic recession can elevate the importance of the finance director’s balance sheet over the marketing manager’s income statement. Managing working capital can easily dominate managing customer relationships. CEOs must counter this. Successful companies do not abandon their marketing strategies in a recession; they adapt them.

Let me add to his wise remarks my own thoughts:

The biggest changes in market share occur at economic turning points.

I don’t have data to back up this claim, but I believe it. Consider two scenarios:

A firm decided to downsize the sales staff during the recession. The remaining sales people became order-takers, answering calls from repeat customers. They had little time for outbound calls, and when they did call on new prospects or former customers, they had little success. So they stopped trying.

At the same time, a competitor had some (probably young) sales people, too new or too stupid to realize that nobody buys in a recession. They made the sales calls. They followed up a month later. They stayed in touch with their prospects and former customers.

When the economy turned around, who do you think got the business?

How will the current retail environment affect green industry sales in the spring?

by

Quick overview of some of yesterday’s December retail data (no real surprises):

Wal-Mart cut fiscal Q4 earnings target about 10%.
Costco posted a 4% drop in December same-store sales.
Family Dollar gained 8%; Same store sales gained 6%.
BJ’s Wholesale had 1.6% sales growth; the lowest in a year.
Sears (the largest U.S. department-store) sales fell 7.3%.
Target same-store sales fell 4.1%.
Macy’s December sales fell 4%.
Gap stores sales fell 14%.
Abercrombie & Fitch fell -24%.
Neiman Marcus reported a 28% drop off.
Limited Brands reported a 10% drop.

Also, a recent DJN press release states:

Food retailers are girding for a “battle” with vendors in the first half of the year as grocers push for lower prices to help shoppers through the recession and food manufacturers resist, Supervalu Inc. (SVU) Chief Executive Jeff Noddle said Wednesday.

With commodity and ingredient costs falling sharply in recent months, supermarket chains have been pushing for lower prices on everything from coffee to soups to help increase sputtering sales. In recent months, both Supervalu and competitor Safeway Inc. (SWY) have switched to a pricing strategy that sells more products at “everyday low prices” rather than relying on coupons or other promotions.

But food manufacturers have been reluctant to roll back their price increases, taken to offset higher input costs, despite some consumer product categories experiencing declines in sales volume of between 3% to 5%, Moody’s Investors Service said in a recent report on the sector.

Lastly, from Wednesday’s Business Week:

Shoppers are getting used to those 75 percent off sale signs, and that’s bad news for merchants who worry they will also have to quickly slash prices on spring goods to attract customers.

Anxieties about how rampant discounts have affected shoppers’ psyches and stores’ profits are running high…The deep price cuts are making shoppers question the true value of items.

My Commentary:

Obviously, all of the trends above begs the question of whether or not we are “training” consumers to be more price (discount) oriented that they have been in the past. Or, as a friend of mine put it…what is the longer-term psychological impact of the drastic price reductions of the holiday and post-holiday sales periods going to be on the going-forward consumer expectations and purchase behaviors?

Obviously, people are currently spending less than normal; certainly less than justified according to their actual incomes (they are saving more which is good in the long run but bad for the economy in the short run). They are also shopping smarter, focusing on the “value” they derive from each precious dollar spent. So as we have discussed before on this blog, those retailers that have their value proposition clearly delineated will be in a much better competitive position than those who don’t.

Without a doubt, several leading lawn & garden retailers are already positioning themselves for price-oriented competition this spring. We have always had a segment of consumers that are price-conscious shoppers and this will obviously bode well for them. Today’s economic environment may increase the number of these price-oriented consumers and the real question is by how much.

But the majority of our core lawn & garden consumer base have other things besides price in their value equation. The question is whether or not retail firms have successfully identified what THEIR key customer base truly values and are differentiating themselves accordingly.

Another key point to remember is that even though unemployment is at 7.2% (from today’s labor report), we’ll still have 93% of the workforce earning a wage. The monies not being spent now will eventually burn a hole in people’s pockets (if historical behavior holds true). It will probably take a few more months of spending declines for this hole-burning to take effect, so the economy will likely hit its low point this spring.

The key question then is whether “spring fever” will induce our core customer base to let go of those discretionary dollars burning a hole in their pockets. And, if so, will they be willing to pay the prices we must charge to cover the cost increases we’ve incurred in the last 2 years? Again, they are much more likely to do so if we appeal to their value equation.

It will also be very interesting to see how President-elect Obama’s yet-released-but-being-revamped stimulus plan is eventually structured and even more interesting to see how much of it is actually spent (historically only 20-40% of a stimulus is spent — the rest is saved or used to pay down debt). But fortunately, many folks will be receiving their tax returns about the time spring season kicks off, which means another influx of funds to burn a hole in their pockets!

Ok, now that we’ve discussed the retail environment, what does all of this mean for green industry growers? The tougher selling environment at the retail level this spring translates into a need to develop more intensive and collaborative relationships with your customers in meeting the needs of the end consumer – particularly in terms of their value proposition. During the downturn in 2008, those growers that proactively worked with their retailers (and usually these were pay by scan sales) to more closely provide landscape solutions for consumers were the ones who were most successful.

If any of you attended the recent industry webinar entitled, “It’s a Great Time to be in Business” you probably heard lots of great ideas. One of the best quotes that I wrote down during the webinar was “These are the times during which great companies are made.” Bearing that in mind, recall also that there are plenty of companies that have survived the last 50 years, which means they have gone through 11 such recessionary periods. How did they do it? By relentlessly focusing on and emphasizing their value proposition to their key customer base. There’s a great lesson there. What is yours?