January 2008
The coming year By Stan Pohmer

It’s often been proven that the sales trends of the Christmas holiday selling period are a precursor to what’s in store for retail in the first half of the following year. If that’s the case, we’re in for a wild and rocky ride.

You all know the challenges to consumer spending: higher energy costs, the housing bubble bursting, higher interest rates and difficulty in getting credit and loans, the consumer being overspent and strapped with debt. This is having a dramatic effect on holiday sales, affecting even those retailers who normally capitalize on recessionary conditions, such as the dollar stores and discounters like Wal-Mart. And even retailers that were considered relatively bulletproof because they catered to a higher demographic customer base, like Target, are feeling the impact. For the first time in many economic cycles, these current conditions are reaching broad and deep, touching all demographic segments and income levels.

Our Industry is Not Recession-Proof

Based on the holiday selling season, the tone is set for what we can expect for 2008. And the Federal Reserve just announced that they expect that the increase in consumer spending in 2008 will be at its lowest levels in 17 years! Since consumer spending accounts for almost two-thirds of the gross domestic product (GDP), overall economic growth will be slow, possibly stagnant. Some are talking about this resulting in an economic recession, but the economy is fundamentally sound and can easily withstand a mild recession. The problem I see is that just hearing the word “recession” spooks most consumers — especially those who are financially strapped — putting them in a hunker-down spending mode.

When the economy has gone through recessionary periods in the past, the lawn and garden industry hasn’t been as negatively impacted as other industries; we’ve developed the mindset that our industry is somewhat recession-proof. But the perfect storm scenario we’re currently experiencing, with the multitude of different economic influences and conditions all in play at the same time, won’t shield us this time around.

Retailers have, to some extent, created their own monster this holiday season, changing consumer mindset and purchase drivers. Most of the major chains commit to inventory for Christmas in the first half of the year, before they know what consumer challenges they’ll be dealing with in the fourth quarter, and they own the goods in the third quarter.

Traditionally, retailers have attempted to sell their inventory at regular prices until just before Christmas, and then the deep discounting begins. (Granted, they always promote deep on key items for Black Friday sales and in their circulars, but the bulk of their offerings are at regular retail price points.) But as the retailers were experiencing flat third-quarter sales, they went into panic mode, offering discounts right out of the chute on a broad range of product, often on entire categories, to try to get as much of the curtailed consumer spending as possible. The net result is that consumers are being conditioned to buy only on price and play the waiting game until the retailer is desperate for sales — not a good place to be as a retailer from a sales or profit standpoint.

If the consumer carries this behavior over into 2008, we’ve got some serious challenges ahead of us.

Becoming Essential

In a tough economy, retailers whose core business is focused on “want” products instead of essentials can be left in the dust; the consumer has only so much money to spend, and if they’re concerned about paying their monthly bills and affording essential items, discretionary purchases will suffer. Therein lie both the challenge and the opportunity to independent garden centers and landscape-installation companies.

From a consumers’ perspective, we deal with nonessential items and often rely on price to entice them to buy. And based on the way they’re meting out their dollars this holiday season, consumers are willing to play a game of chicken with the retailer, knowing they have the stronger hand. They’re willing to defer the purchase or pass on it completely if the price isn’t low enough. For the independent retailer, especially those who deal in perishable merchandise, this game is one we can’t afford to play, or at least play profitably.

That said, we have an opportunity to get beyond the perception that our products are not essential and don’t offer value other than that based on price. We need to demonstrate that the consumers’ investment in our products provides positive benefit; this helps move us more toward the “essential” category. Here are a few ideas to consider:

1. With the increasing consumer focus on global warming, the environment, carbon footprint and sustainability, we provide the perfect product solutions to these issues and concerns. Properly landscaped trees and shrubs provide cooling benefits and act as a wind block, a natural way to help stay warmer in the winter months and cooler in the summer months, reducing the need to use nonrenewable resources to heat and cool residences.

2. Trees, flowers and shrubs are natural air cleaners, absorbing carbon dioxide and giving off oxygen, reducing smog and increasing air quality.

3. Economic modeling studies have shown that homes that are well landscaped with trees, shrubs and flowers have as much as 13 percent more value in resales than those with yards that are poorly or not at all landscaped. With the devaluation of homes we’ve all experienced, this could be a huge benefit from both an appraisal standpoint (when one is looking to obtain a home equity loan) and while trying to sell a home.

4. Behavioral studies at the University of Illinois at Urbana-Champaign’s Landscape and Human Health Laboratory clearly demonstrate the human benefits of landscaped and green spaces in areas such as self-discipline, self-esteem, concentration and the ability to cope. Though the study was conducted in an urban environment, the lessons learned are directly applicable to residential environments (see www.lhhl.uiuc.edu/index.htm for more details on this study).

5. A recent behavioral study conducted by a research team at Harvard Medical School and Massachusetts General Hospital showed that consumers who were exposed to cut flowers in their homes for even a short period had less anxiety, decreased feelings of depression and frustration, greater feelings of compassion, and more enthusiasm and energy. While the study was specific to cut flowers, I believe that the conclusions can be applied to other floral categories, especially foliage and indoor potted flowering plants (see www.flower wellness.com for more details and information on this study).

6. A study published in October 2007 entitled “Portland’s Urban Forest Canopy” shows that, for every $1 invested in public and private residence trees, $3.80 worth of benefits was returned in air-cleaning and carbon-fixing services, storm water processing and energy cost savings.

A Compelling Advantage

I’m not suggesting that price won’t be an important factor in consumers’ purchase decisions in a challenging 2008 economy. But we do have an opportunity to reposition our industry’s products to communicate the benefits that investing in our products can provide, offering compelling reasons why consumers need — not just Awant — our products. These products carry emotional, behavioral, psychological, environmental and financial benefits that can help transcend the current focus on price.

At the end of the day there are few products out in the marketplace that can show this kind of emotional, environmental and financial ROI that we provide. Shouldn’t we be promoting these benefits and solutions as our real competitive advantage?

Stan Pohmer

Stan Pohmer is president of Pohmer Consulting Group in Minnetonka, Minn. He can be reached at [email protected] or 612.605.8799.