July 2004
Lawn & Garden Retailer Headlines

Mixed Reactions to Recent Weather

The recent weather conditions in the Midwest have affected many growers and retailers in the industry. Tornadoes, severe storms and flooding have affected sales across the Midwest in several different ways. The problems are not only getting product out of the store but getting the product from the grower to sell at retail as well.

Over Memorial Day weekend, a large storm system prompted 1,000 severe-weather reports across 27 states, according to the National Weather Service. Across the Midwest, severe weather spawned nearly 200 tornadoes. Heavy rains have caused flooding in the Midwest, with rivers in 13 states above flood stage.

Bergmann’s Greenhouses in Clayton, Wis., has not encountered any shipping delays, but product installation has been a problem because of the cool and wet weather conditions. “We have had very slow sales with our bedding plants,” one source said of the family-run business. “Merchandise is selling very well, but sale amounts have been drastically down at this time of year.”

The heavy rain in Indiana has affected planting at many greenhouses. “The rain has slowed down getting our mums ready,” said Richard Own of Clark’s Greenhouses in Connersville, Ind. “Rainy weather has stopped us from filling our pots with soil and getting them out.” Indiana weather has also affected consumer sales. “You could definitely see what weather does to you,” said Karol Martindale of County Line Flowers and Greenhouse in Farmersburg, Ind. “There are days when the customers are very few and far between, simply because it’s been raining so much.”

Illinois made national headlines when the Chicagoland area was hit with its third-wettest May in 100 years of recorded history, and the Des Plaines River had its worst flood since 1986.

“We have had 8-10 inches of rain from the first of May (until May 25) over the upper portion of the Des Plaines River,” said Bill Morris, a hydrologist with the National Weather Service in the Lake Forester. “That is three times the normal rainfall.”

However, even with the horrible weather conditions growers in Illinois seem to be doing well. “The weather has not affected them as adversely as you may think,” said Dave Bender of the Illinois Nurserymen’s Association. “It has not affected sales whatsoever. In fact, I think sales have been very high. There have been a couple of bad weekends, where it’s just rained all weekend, but they [Illinois growers] are reporting really strong sales during those weeks.”

Precipitation in Ohio as of May 24 was averaging almost 21?2 inches, 11?2 inches above normal, according to the National Weather Service. Gary Neil of Moore’s Greenhouses in Shreve, Ohio, noticed sales decreasing drastically because of the unusually heavy rainfall. “When it was too wet, people just couldn’t get in. We also haven’t been shipping out as much,” Neil said. “Overall, sales have definitely been down.” According to the National Weather Service, it was the wettest May for Lansing and Southeastern Michigan since the government began keeping records in 1850. According to the Associated Press, around St. Louis, Mo., the rainfall has totaled about 61?4 inches, almost 3 inches above normal, making it the wettest May Missouri has seen in nine years.

Curtis Stillwell of Grass Pad Warehouse in Olathe, Kan., summed it up best when he said, “Any time you get rain in May, it affects business. You like to see it busy every day, but when it’s raining, you’re not selling anything.”

Industry Debates Adding Fuel Surcharge

The recent fluctuations in oil prices have prompted many growers to adjust their fuel surcharges to compensate for added costs. Currently, there are two bills that, if passed, would require a mandatory fuel surcharge when the price of fuel rises above $1.15 per gal. Until then, many people in the industry have been debating how to make up for the extra expenses they have been incurring.

“I have begun as of June 7 to charge fuel surcharges to my retail customers,” said Sandi Hillermann-McDonald of Hillermann Nursery and Florist, Washington, Mo. “In my floral delivery area, I am adding $0.50 per stop. On my bulk nursery deliveries, I am adding an additional $2 per stop for surcharges. My equipment repair is adding an additional $2 per stop of equipment deliveries and pick-ups.”

“We have both tree and shrub delivery plus florist delivery of flowers. We have raised delivery charges as the gas prices go up,” said Bob Schmitz of Wileywood Nursery, Mill Creek, Wash.

Mike Schaefer of Schaefer Greenhouses, Aurora, Ill., had another idea. “We had to bump up prices to cover general costs. We had talked about adding fuel surcharges, but we decided to put a 3-percent price increase on our products. We might still consider it, but we thought the best thing would be just to raise the product price. When the summertime business dies down, you would never make up what you need to get with a fuel surcharge.”

Charles Schroeder of Schroeder’s Flowers, Green Bay, Wis., has increased delivery prices to compensate for the increased fuel costs. “Depending on the situation, we have increased the amount we are charging people for delivery,” he said. “We have been charging for delivery for some time now, but we did increase this year when we saw what was happening.”

William Bettinger of Bettinger’s Greenhouses, Toledo, Ohio, felt it was too late in the game to change prices. “We constantly monitor our costs and expenses, but a lot of pricing has to be done months in advance.”

Many people are optimistic about the response they have been getting after they raised fuel surcharges or prices. “There is no other way,” said Schmitz. “I think people will accept it because their gas prices are also escalating.”

“So far, my customers seem to understand,” said Hillermann-McDonald. “The feedback I have received was tremendously in favor of such a venture. My staff came on board when I showed them that I pay at least $5,000 a month for gasoline.”

Funding for SOD

Agriculture Secretary Ann M. Veneman announced the transfer of $15.5 million from the USDA Commodity Credit Corporation (CCC) to APHIS to help halt the spread of Phytophthora ramorum, or Sudden Oak Death (SOD), to non-infested areas of the United States. More than 100 nurseries in 13 states received infected plants from one nursery in southern California. APHIS will launch a national survey to determine if SOD is causing disease symptoms on hosts and associated hosts in other parts of the United States.

APHIS officials will use the funding for nursery inspection, sampling and testing, and education and outreach for SOD. Funding will also help enforce APHIS’ current federal order to prevent the further spread of the disease to other nurseries in the United States.

To help address the ongoing issue in California, APHIS will provide $6.9 million of this funding to the state for quarantine efforts and identification of infected nurseries. The remaining $8.6 million will be used for surveys, other quarantine and regulatory enforcement, public outreach and laboratory diagnostics and testing.

“USDA must implement a response plan that includes a comprehensive national survey of Phytophthora ramorum in the United States,” said Craig Regelbrugge, senior director of government relations for ANLA. “We expect further funding will be needed for prevention, compensation and research.”

Big Boxes Continue to Expand

The dramatic rise of chain stores and decline of local businesses has been an ongoing trend in recent years. Big box developers provide an increase in jobs and a boost of tax revenue. However, opponents say the big box stores force the closing of small businesses, add traffic, lower wages and add noise to residential areas. Nevertheless, it is apparent that the industry has been directly impacted by big box businesses. Here, Lawn & Garden Retailer examines the recent developments of the big-box phenomenon and the changes that have been going on with the big-box stores.

Kmart sells to Home Depot

Kmart is selling up to 24 stores to Home Depot for as much as $365 million, or more than $15.2 million per store. The official number of stores, locations and total purchase price will be determined later, according to officials at Kmart. Home Depot will take that time to work with landlords and municipalities to determine which stores are the most viable to be converted to Home Depot stores in 2005, according to the Atlanta Journal-Constitution. According to the Home Depot’s chairman and chief executive, Bob Nardelli, the chain will open 185 stores this year.

According to the Associated Press, Kmart stores will be converted as quickly as possible after they are transferred to Home Depot. “We will take advantage of opportunities to create value that includes the sale of existing stores or the acquisition of new stores and businesses,” said Julian C. Day, president and chief executive of Kmart Holding Corp. “The reality is that we’re taking action on many different fronts simultaneously, all with the goal of making Kmart a great retail company once again.”

Kmart sells to Sears?

There have been many speculations that Kmart would sell some of its stores to Sears, Roebuck and Co., but Kmart executives repeatedly decline to discuss the speculation. Sears, Roebuck and Co. stock rose 5.5 percent, while Kmart stock rose 7 percent Tuesday, June 8. According to the Detroit Free Press, Edward Lampert of ESL Investments, Inc. was buying a controlling share in Kmart a year ago, at the same time he was buying a large stake in Sears. Lampert is the majority owner of Kmart Holding Corp., and with 14 percent, he is the largest single shareholder of Sears, Roebuck and Co.

“There are rumors that Sears is in talks to perhaps purchase stores or have some other type of involvement with Kmart,” said Art Hogan, chief market analyst at Jefferies & Co. in the Detroit Free Press. “A lot of buzz after Home Depot’s success story with transactions from Kmart.” In the Chicago Tribune, Hogan added, “There are several different levels to the chatter, like Sears may purchase some interest in Kmart or purchase [stores] from Kmart,” and he suggested the latter deal is more likely.

According to the Chicago Tribune, Sears wants to expand its network of off-mall stores. It currently only has five Sears Grand stores open throughout the United States but sees the potential for up to 500. Howard Davidowitz of the retail consulting firm Davidowitz & Associates, said, “Kmart is hopeless. Sears has a tremendous amount of work to do, but it’s not hopeless. If Sears were to buy Kmart, what it would get with that money is a terrible business that can never compete.”

Home Depot expands to China

In the hopes of becoming Asia’s largest home-improvement chain, Home Depot, Inc. is planning to expand into China. According to the Philadelphia Inquirer, Home Depot has not released how many stores it plans for China or when the first store will open, but Bill E. Patterson has been named as the store’s president of Asia.

According to the Atlanta Journal-Constitution, stores in China would be the first Home Depot in Asia, whose international presence is in Mexico and Canada. The chain made a failed attempt to expand into South America in the late 1990s. “China is in an explosive period,” said Nardelli. “It represents a significant opportunity to get in early and get in on that growth.”

Home Depot was focusing on China’s estimated $50 billion home-improvement sector because it is fragmented with limited competition, according to Reuters. The store opened two purchasing offices in China in 2002 to expand sales of imported products, and it currently has 50 employees in China. The store estimated the China home-improvement market at $50 billion a year. According to the Atlanta Journal-Constitution, China has few large-format home-improvement stores. B&Q, whose stores are modeled after Home Depot, is the primary home-improvement retailer in China.

Lowe’s expands nationwide

Lowe’s is in the midst of the most aggressive expansion plans in its 58-year history, according to the Lexington Herald-Leader. The second-largest home-improvement retailer has been opening an average of two new superstores a week since the end of May. In May, Lowe’s opened and announced that it would locate new stores in Alaska, California, Colorado, Florida, Georgia, Minnesota, Missouri, Montana, New Jersey and Texas. At the International Council of Shopping Centers convention in Las Vegas in the last week in May, Robert Tillman, CEO and chairman of Lowe’s, announced, “Many people ask how many stores will we open. We haven’t even come close to storing half of America today.” Tillman also suggested that Lowe’s might become an anchor store for shopping malls, according to the Las Vegas Sun.

Target sells Marshall Field’s and Mervyn’s

In an effort to focus on its core discount business, Target Corp. announced the sale of 62 Marshall Field’s department-store chains and nine Mervyn’s stores to May Department Stores, parent company to stores such as Lord & Taylor, Filene’s and Famous-Barr, for $3.2 billion. Target shares rose 1.3 percent, while shares of May slipped $0.07. Target will use the money to repurchase $3 billion worth of stock over the next 2-3 years, according to the Associated Press.

Bidding for Field’s started in March. May outbid rival Federated Department Stores, Inc., owner of Macy’s Department Store. The decision to sell Marshall Field’s “though not easy, reflects our long-term commitment to create substantial value for our shareholders over time, combined with our responsibility to our team members, our guests and the communities we serve,” said Target CEO Bob Ulrich in the Star Tribune. Target’s 1,250-store discount chain accounts for about 90 percent of the company’s $43 billion in annual sales, far exceeding the contributions of the Marshall Field’s and Mervyn’s divisions, according to the Pioneer Press. The slip in sales and profits that Marshal Field’s and Mervyn’s have had in the past several years prompted Target to initiate the selling possibilities in March 2004.

May Department Stores is buying a majority of the assets of Marshall Field’s, including 62 stores, three distribution centers and approximately $600 million of Marshall Field’s credit-card receivables. Most financial analysts were expecting a price of $1.8 billion to $2.2 billion, instead of the $3.2 billion that Target made, according to Merrill Lynch analyst Stacy Turnof in Business Week.

The nine Mervyn’s stores, however, will be closed by the end of July, and those employees will lose their jobs. The transaction should be complete in the second or third quarter of 2004. After completing the deal, May Department Stores expects to save $85 million in 2005, $140 million in 2006 and $180 million annually thereafter.

Jersey Grown Program Started

The New Jersey State Board of Agriculture recently adopted rules for the Jersey Grown program that will begin this fall. Nearly 900 tree, shrub, flower and landscape plant growers in New Jersey could be eligible to use the Jersey Grown logo when marketing their plant material. The Jersey Grown promotion program will be based on the Jersey Fresh program, using a quality grading standard, labeling and advertisement to make quality New Jersey grown plants more visible to consumers.

To participate in the program, growers in New Jersey need to possess a current nursery certificate from the Division of Plant Industry. All plants must be free of insects and plant diseases, and any nursery stock grown under the program must be propagated or grown in New Jersey for at least six months prior to sale. Plants must meet or exceed the plant standards developed by the American Nursery and Landscape Association (ANLA) to be marketed under the Jersey Grown designation.

Christmas Trees Banned in Washington

Effective July 1, 2004, Christmas trees will be prohibited in churches, apartment buildings, meeting halls, stores, jails, schools, hospitals, day care centers and any other public gathering place in the state of Washington that is not equipped with an approved sprinkler system.

The act is part of the national building codes approved by the Washington Building Codes Council, coordinated with the International Code Council. The penalty for violating the codes could be up to a $1,000 fine as well as a mandatory court appearance.

According to the King County Journal, Steve Nuttall, fire marshal and member of the Washington Building Code Council, said building and fire officials have been trying for years to improve building codes and coordinate local amendments, but “the ability to enforce it, at the very least, will be very difficult.” On June 11, 2004, the Washington Building Code Council will have a meeting in Olympia, Wash., to consider an emergency amendment to allow cut Christmas trees to be displayed.

According to MSNBC, the Christmas tree ban will most likely be removed at the council meeting. Nuttall said the code was considered suspect because Washington grows very different Christmas trees than other states.

In October 2003, Virginia adopted a ban on live Christmas trees in apartment and condominium buildings that didn’t have sprinkler systems. After two months, the fire code was amended to allow tenants to set up trees in apartments and condominiums in time for the holiday season. However, the code still prohibited trees in churches, schools, department stores and meeting halls without sprinkler systems. Hospitals, adult-care centers and nursing homes were prohibited from putting up live trees, regardless of whether they had sprinkler systems.

A study conducted by the National Fire Protection Association showed that there were 370 Christmas tree fires nationwide in 1999, resulting in five deaths, 60 injuries and $15.7 million in property damage. In 2000, there were 400 fires caused by fresh-cut Christmas trees nationwide.

Franks Nursery Launches New Discount Program

Franks Nursery recently announced that is has launched a “Business Benefits” program available to all licensed businesses, non-profit organizations and government agencies. The program offers member companies a 10 percent discount on any purchase over $250 made at Franks Nursery, with 169 stores in 14 states.

“This program will help everyone from the local landscaper and building contractor to the neighborhood office manager looking to spruce up their facility both inside and out.” said Grant Sanborn, Head of Store Operations for Franks. “The Business Benefits program is an exciting initiative, providing us with a wonderful opportunity to create and foster new partnerships in the community.”

To enroll in the program, potential members must simply fill out an application and present a business tax ID, a business license, resale certificate or other business documentation such as a business card, letterhead or invoice at any Franks store. Once the application has been submitted, a Franks membership card will be given to the applicant on the spot so they can enjoy their benefits instantaneously. In the future, the card or membership number must be presented at checkout to receive the discount.