Have you noticed that many nurseries are either out of business or in bankruptcy? This isn’t a local problem. In fact, independent nurseries have been going out of business all over the country during this economic downturn.
This trend can be explained primarily by four factors:
1. The economic downturn and resulting consumer mindset that places the most value on basic living expenses.
2. The housing downturn that created less need for landscaping services.
3. Oversupply due to the nursery expansion of such bulk retailers like Home Depot and Loews.
4. Increase in imports of flowers and plants from South American countries.
After 15 years of continued growth, this great recession has caused the nursery business to drop significantly. In California alone, which ranks as the nation’s leading nursery and floral crop producer, nursery and floral sales dropped 17.7 percent last year to $3.29 billion from $4 billion.
The recession has hurt consumers, so discretionary spending has been significantly reduced, with homeowners spending less on plants and flowers. Another factor is that the lack of new housing construction, combined with many foreclosures, has decreased the demand for big-ticket landscaping services, such as foundation plants, big trees, or new lawns. According to Tim Obert, Home Depot’s lawn and garden buyer for the West Coast, “Instead of shrubs or ornamentals, customers are gravitating toward color and choosing items such as bedding plants. “It’s an easy way to spruce up your home—or make a foreclosed home look good.”
Further, big retailers like Home Depot and Lowes, have gained enormous retail market share for nursery products. Lower prices through volume buying give these stores a significant advantage over small, independent retailers. In fact, a typical Home Depot or Lowes may see their inventory of flowers and vegetable plants turn over in one day during the spring season.
Increasing the amount of imports from South American countries is another exacerbating factor contributing to the declining nursery industry. Over the next four years, through 2015, industry research group IBIS World forecasts that the revenue for small independent nurseries will continue to decline at an average rate of 3% to $13.05 billion. Duty-free imports will flood the market, while domestic nursery owners will continue their struggle to remain open due to intense price competition.
The nurseries that have survived despite the recession have utilized three strategies: 1) pared down costs out of their value chain (mostly through the implementation of leaner cash flow practices); 2) rethought their unique value proposition in order to further differentiate themselves from their competitors; and 3) had access to sufficient levels of capital reserves to ride out the economic storm.
In a State of the Industry White paper published in January 2011, Green Growers, an industry trade publication, asked nursery owners to list the most effective activities they carried out to boost sales in 2010. A sampling of the survey results are below:
Economic planting and purchasing
- Dumped product instead of cutting price.
- Had bundle packages of plants.
- Did more contract growing.
- Increased vegetable production.
- Grew plants more suited to local area. Annuals are out; perennials are in. Customers stated they couldn’t afford to splurge on short-term “pretty” plants or non-deer resistant plants.
Marketing & Events
- Used promotional materials from suppliers and did promotions outside greenhouse.
- Consolidated customer base to better customers.
- Participated in more plant sales.
- Added a fall open house, another mailing to customers and more advertising.
- Gave customers more information than just common availability about what was ready to sell, i.e. hot sheet, plant/perennial of the week.
- More in-person visits with customers
- Overhauled inventory control procedures.
In order for nursery owners and growers to survive in this climate, they need to adopt some or all of these strategies. This is wake-up call for the industry, and unfortunately, business as usual is a roadmap to bankruptcy.
The big question is whether consumers will once again see the relevance of independent nurseries to their own lives. People are no doubt spending more time at home and in their gardens, which should signal an up tick in the market. Thus, long-term industry viability may be much more dependent on the mind-set of consumers (not a novel concept) than on capturing market share. What this means is that all the marketing and branding in the world will not be effective unless consumers are ready, willing, and able to make the purchase.
According to a recent industry study by Nursery Retailer Magazine, some trends may suggest that consumers are starting to return to independent nurseries while nursery sales at the larger retailers have declined. Large bulk retailers now account for 49 percent of total sales, with the smaller independent sector capturing 44 percent. Chain stores like A&P, which were once responsible for 40 percent of sales in the 1990s, have now dropped to 7 percent.
Is the nursery industry going to face more financial distress—or thrive?
The answer, of course, depends in part on the economic climate. It also depends upon how independent nursery owners respond to this crisis. All too often, owners use bankruptcy as an ill-conceived solution to forestall the inevitable. It is critical for business owners to understand the time and costs associated with bankruptcy before signing a bankruptcy petition. The most prudent course of action is to engage an experienced restructuring advisor or crisis manager to develop an immediate “viability assessment” of the business. Thereafter, if the resulting assessment concludes that the business should continue (and not wind down), a comprehensive “turnaround plan” should be developed. Only then should the prospect of bankruptcy be considered — as a mechanism to implement the turnaround plan.
For more information contact:
Lindenwood Associates, LLC
(845) 398-9825 or via email