Weather Brings Retailers a GOLDEN Egg this Easter Weekend!

From Bill Kirk, Weather Trends International:

After three very disappointing Easter periods the past few years with record cold and snow, retailers are about to lay a golden egg this holiday weekend (the most important period in Q1).

The weather will be nothing short of exceptional with the NORTHEAST having the most ideal conditions – warmest and driest in 20+ years for the Easter weekend. The last time Easter weather was this ideal was in middle April 2006 when 1,543 record high temperatures were set across the country – this year is even better in the Northeast! In 2006, Easter weekend temperatures in the Northeast averaged 73°F, 2007 38°F, 2008 46°F, last year 57°F and this year near 80°F! This will result in strong double and even triple digit sales gains over last year for Spring seasonal items like Easter seasonal categories/candy, fans, garden items, grills, deck stains, car wash/wax, bug sprays, allergy medications, suncare, apparel, sandals, cold beer and beverages, outdoor BBQ grilling food categories, ice cream snacks and more.

Across the rest of the country the holiday weekend (Friday – Sunday) conditions are still favorable for the Eastern half of the U.S., but a bit colder/wetter in the West. Here’s the regional summary:

SOUTHEAST: Warmest in 4 years (average high temperatures 81°F) and 57% drier than last year.

SOUTH CENTRAL: Warmest in 4 years (average high temperatures 75°F) but on the damp side with the threat for widespread thunderstorms.

NORTH CENTRAL: Warmest in 4 years (average high temperatures 62F) with some rain South.

NORTH ROCKY MOUNTAINS: 11 degrees colder than last year but a little drier than last year – Sunday is the nicest day.

SOUTH ROCKY MOUNTAINS: Cold start but warmer finish by Sunday.

SOUTHWEST: Coldest in several years but a warm up by Sunday.

NORTHWEST: 6 degrees colder than last year and the wettest in 5 years so this is the least favorable region this weekend.

Nationally, the 5-week retail calendar March is on pace to be the warmest and driest in 3 years with the least snowfall in 20+ years (snowfall down 61% vs last year). Retailers are coming off the worst March ever last year when retail same-store-sales (SSS) were down 5.1% according to ICSC’s tally of retailers, so the combination of easy sales comparisons and exceptional Easter weather will bring a lot of golden eggs when retail sales are announced April 8^th! Expectations on Wall Street are +3.0% to +3.5% while WTI expects retail industry SSS gains to be much stronger at +4.5% to +6%. The 4^th straight better than expected month for retailers!

From Conspicuous to Conscious Consumption

An interview with Dan Stanek, Executive Vice President, TNS Retail Forward

It wouldn’t surprise you if I said that this holiday shopping season is expected to be weak. But would you be taken aback if I said that there is a fundamental shift in consumer values underway that may have a lasting impact on retailers? If your eyebrows are raised, listen up.

What changes are you observing in consumer values?

What I am seeing is the pendulum swinging away from the conspicuous consumption of the 1980’s and 1990’s and toward conscious consumption. And this is having a profound impact on the retail industry. Overall, the current economic situation is accelerating trends toward frugality and placing importance on relationships and people instead of things. The importance on things to make someone happy is being questioned. I am seeing almost an anti-consumerism sentiment.

The immediate change for retailers is that people are shifting from premium brands to down-market channels. Wal-mart (WMT) is a big beneficiary of this trend with its lower prices and higher value. There is also a move into dollar stores and thrift shops as well as Freecycle or Craigslist and other places where people can barter and exchange goods versus just throwing away unwanted items.

In the long run, some of these new spending patterns will stick with consumers who may not return to spending more when the economy rebounds or who will stay with lower-end brands in some categories.

Is there another time in history where there has been a big shift in consumer values? How did it impact retailers then?

During the Great Depression there was a profound amount of frugality. People made the best use of what they had. This value system stuck with that generation for their lifetime. They purchased high-quality goods that would last a long time. They didn’t want to be wasteful.

There were also profound shifts in the opposite direction, during the 1980’s and 1990’s. During the tech bubble when people started to feel rich they wanted to display that affluence with a Rolex or perhaps a BMW or large home. During this period of high consumption the retail industry experienced tremendous growth and also consolidation as the rise of behemoths like Wal-Mart occurred.

Is there a brand or campaign that you think is getting in right in addressing the current shift in values?

Dentyne is taking a very basic product, a discretionary product, and instead of positioning it around taste or fun they are relating it to specific relationships and social issues. Their campaign (supported by TV spots, billboards and the internet) is all about people and your relationships with them – “Make face time.” Obviously the connection they want consumers to make is that if you are going to be with people you need fresh breath. So, Dentyne encourages people to get off the internet and re-connect with friends by providing visitors with 3 minutes to explore dentyne.com. It’s an original concept.

What advice do you have for retailers who are (re)developing their marketing strategies?

The most important thing for retailers is to tie value and values together. When you can make a statement to offer lower price or great value and also that you are doing things “right” (such as making a donation with each purchase or using environmentally friendly materials), it will help justify the purchase for shoppers. You need to provide a reason for consumers to prioritize your purchase in their life above other things they need to spend money on.

Retail Holiday Outlook

Two independent surveys project the troublesome holiday outlook for retailers:

1. According to the National Retail Federation's (NRF) 2008 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $832.36 on holiday-related shopping, up a paltry 1.9 percent over last year’s $816.69. This represents the lowest increase in planned consumer spending since the survey began in 2002.
   
   
2. A Deloitte survey released Wednesday was a bit more bleak in its findings. Almost six in 10 consumers said they would reduce spending this holiday season. Shoppers plan to spend about $532 on gifts, down 6.5 percent from last year, and buy fewer items. Nearly seven in 10 consumers said they would wait for store sales, cut back on shopping trips to save gasoline and use more store coupons.

From an earlier post, I quoted BusinessWeek.com saying:

"Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big-box stores that can offer bargains. But because small retailers can't win price wars, experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter." For the entire story, click here.

Another good quote I came across today:

“In the current economic environment, consumers are looking for value,” said Stacy Janiak, Deloitte’s U.S. Retail leader. “Heading into the holiday season, retailers will be well-positioned by emphasizing their unique value propositions, whether that means price, customer service, loyalty programs, or some other metric important to their customer base. In addition, given the current credit situation, retailers should take a close look at their financing options and conduct scenario planning, particularly with respect to liquidity issues.”

Since retail firms in the Green Industry should NEVER compete solely on price, they MUST differentiate their product and service offerings. Refer back to previous posts on differentiation strategies (click on the differentiation link on the right-hand side of this page) as a reminder of why this is so important!

Customer Service Christmas

Here's a good quote from yesterday's BusinessWeek.com: "Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big-box stores that can offer bargains. But because small retailers can't win price wars, experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter." For the entire story, click here. Also refer back to previous posts on differentiation strategies (click on the differentiation link on the right-hand side of this page). Thanks for the link, Stan!

“If you’re not confused, you’re not paying attention.”

From the NYT...

News on the economy was mixed on Friday morning, with the release of a mildly relieving Producer Price Index report(measuring the average change over time in selling prices received by domestic producers of goods and services) and a discouraging retail sales report for August. Stock markets initially fell on the reports, but stabilized by noon on Friday.

The price index for finished goods, a measure of the change in prices businesses pay, fell 0.9 percent in August after a 1.2 percent increase in July, according to the Bureau of Labor Statistics. The August decline was the biggest since October 2006.

Consumers’ spending on retail and food decreased 0.3 percent in August after a 0.5 monthly drop in July, according to the Commerce Department. Economists had been expecting an increase of 0.2 percent.

Retail sales probably fell for several reasons, economists said. For one, the fiscal stimulus checks that had bolstered consumer spending over the last few months ended in July. Consumers, squeezed by high energy prices and an ailing job market, are expected to reduce their spending for the rest of the year.

One concern is the jobless rate, which jumped to 6.1 percent in August, its highest level in five years, from 5.7 percent in July. The steady rise in unemployment is one that many economists associate with recession.

Dropping gas prices seem to have benefited consumers psychologically, at least, even if these declines are not being reflected in retail sales. The preliminary September consumer sentiment index, released by Reuters and the University of Michigan Friday morning, showed the biggest monthly improvement in American consumers’ views of the economy since January 2004.

My opinion: This is not the ideal situation going into the fall season. The fall retail outlook has been speculative for the past several months and the August numbers play out according to projections. August is usually a very good month for general retailers because of back-to-school-related sales.

Bottom line: This is NOT the time for head-in-the-sand tactics. Review some of my earlier posts regarding retail strategies in the face of a down economy (click here) and be very proactive with fall promotions. Give Ms. Consumer something to be excited about this fall. Sales of plants and other items for themed Fall displays in the home and landscape have been growing the past several years. Let's keep the streak going.

Coping with a down economy

As promised, here are a few strategies to consider for coping with a down economy. Some of these steps are radical, while others are a more milder form of defense. Implement them according to the conditions you experience in your market area.

1. Conserve your cash. Don't spend a dime on anything that isn't absolutely necessary to your operation. Examine every personal expense you have to find alternatives to any spending patterns.
2. Refinance anything and everything you can. Stretch out the payments because getting cash later on will be difficult as more people will apply for loans and banks will become very picky.
3. Work out a worst-case scenario cash flow projection that projects your company having a decrease in sales. As part of this, determine what expenses will be unavoidable. Look through your cash disbursements. Pre-plan a less expensive alternative to any expense category that you can.
4. Know your costs well because poor pricing can put you out of business faster. Assume that cost-side pressures caused by a recession will last about two years after a recession is over.
5. Beef up your advertising/marketing. Everyone else is cutting back. Now is the time to gain "mind share."
   
6. Slowdowns mean layoffs. Therefore, new hires become available and are sometimes available at a lower rate of pay than your current rate. Take advantage of that fact.
7. If part of your fleet is going to be idle for some time, try to store unused vehicles and get a reduced rate of insurance due to non-use.
8. Selling off assets during a recession is difficult. Nevertheless, selling off unused equipment reduces insurance and registration costs and property taxes. Convert anything you don't need into cash well ahead of any signals that your area will be hard hit.
9. Apply for credit long before you need it. You may have to "borrow" your future, and banks will raise interest rates on high-risk loans as conditions worsen.
10. Look deeper in your own markets. Can you offer your current customer base a more diversified line of products and/or services?
11. Review your business insurance to make sure your premiums have been adjusted for the depreciated value of your vehicles and equipment.
12. Take a look at your estimated tax payments made to the IRS. Decreased earnings call for decreased estimated tax payments.

Cash is "king" during economic slowdowns no matter how mild or severe. Expect your customers to also feel the effect, which means they will pay you at a much slower rate than during the good times. That's precisely the reason that you'll need additional working capital to finance your receivables if nothing else.

Run a cash flow working capital projection using 60 days, 90 days, 120 days and even up to six months to be paid from some of your customers. How much cash do you need to survive? Find the answer to that question. Prepare and save for that eventuality and you'll be ready for a downturn.

Ecomomic Rx for Business

"In good times, running a company is exhilarating. Money is flowing, customers are happy, employees have a spring in their step. In not-so-good times—like now—the very same job can feel like scaling Mt. Everest in a snowstorm while wearing a knapsack filled with bricks and suffering from a bad case of the flu."

In the latest Florists' Review magazine, Quint Studor offers "Eleven Ways to Infuse Your Company with the Leadership Skills to Thrive in Tough Times" -- a good read. For more, click here.

Another good read is George Whalins article on "Strategies for a Changing Retail World" -- click here.

Other good reads include:

Don't Just Survive—Dominate
When the Going Gets Tough...
Maintaining Strong Sales During the Summer
The Upside to a Downturn
The Business of Retail is Going to be Brutal in 2008

What can we learn from Saks???

The wider economy was the scapegoat for Home Depot, which posted a 66% drop in net income. However, Saks Fifth Avenue appeared unbowed by the difficulties and continues to illustrate the way luxury brands can avert some of the pain felt by other retailers.

The economic downturn has been particularly difficult for home-improvement chains such as Home Depot and rival Lowe’s. The retailers are double-teamed by a drop in the housing market and a slowdown in consumer spending.

Saks was the inverse of Home Depot, posting a 66% increase in net income. How does this happen? How does a firm selling in the luxury market experience an increase in sales during a period of economic contraction?

The answer, for the umpteenth time, is differentiation. In this case, a level of service and perceived value (notice I did not say low price) that is unparalleled by other stores. For related rantings, see my earlier post regarding the elasticity effects of successful differentiation.

In a recent American City Business Journal interview, entrepreneur brewer Karan Bilimoria describes the type of innovative thinking that helped him build his business. Bilimoria said the keys to success can be described in three key points: Be different; be better and create new markets.

Consumers showing resilience

Today, the Commerce Department's retail-sales report showed an overall 0.2% decline BUT exhibited a 0.5% increase when auto sales were excluded.The resilience of the consumer seen in today’s report is particularly encouraging given that this number largely represents spending that occurred prior to the receipt of the economic stimulus rebates. While it’s conceivable that some spending may have been pulled forward in anticipation of the rebate checks, survey responses and historical experience suggest these outlays occur only after the checks have been received.

Mother's Day radio segment

Click here to listen to a short Mother's Day radio story developed through the Texas Department of Agriculture.

Mother's Day Projections

Here is a scoop on a news release coming out today by our Texas AgriLife Communications Team:

Experts Say Things Looking Rosy for Texas Floriculture This Mother’s Day
Author: Paul Schattenberg

While research shows U.S. consumers expect to spend a bit less on Mother’s Day this year, that likely will not affect the purchase of cut flowers and flowering plants for moms in Texas, according to industry experts.

According to the 2008 Mother’s Day Consumer Intentions and Actions Survey conducted by BIGresearch for the National Retail Federation, Americans expect to spend an average of $138.63 on Mom this year. This is slightly down from the 2007 average of $139.14.

But although a nationwide reduction in consumer spending for Mother’s Day is expected, those associated with the Texas green industry expect flower purchases to be as good or better than in 2007.

Dr. Charles Hall, Professor and Ellison Chair in International Floriculture at Texas A&M University, said he expects the Texas floral industry to fare well this Mother’s Day due to a combination of timing and consumer confidence.

“In spite of the downturn in consumer spending for Mother’s Day predicted in the National Retail Federation survey, the same survey shows Americans intend to still spend more than $2 billion on flowers this Mother’s Day,” he said.

Hall added that the 2007 NRF study showed more than 72 percent of those surveyed purchased some sort of Mother’s Day flora at an average retail price of $27.59.

“Other gifts like jewelry, CDs, housewares and the like tend to be spread out among the holidays, but flowers are a traditional choice for holidays centered around women,” he said. Hall also noted that overall consumer confidence is still high in Texas and that the likelihood of consumers purchasing flowers and other floral items “directly correlates” to that confidence.

“Not only that,” he said, “but (economic stimulus) rebate checks are now being mailed out and that will give more impetus to spending. Some of that money will go toward Mother’s Day gifts, which would include flowers.”

“Even with the slowdown in the economy, the amount that will be spent on flowers for Mother’s Day throughout Texas probably will be as much or more than last year,” said Jack Cross, past president of the Texas State Florists’ Association and owner of Arthur Pfeil Florist in San Antonio. “Mother’s Day is a traditional holiday, and the Texas consumer is traditional about Mother’s Day gift purchases, especially when it comes to buying flowers.”

In addition, Easter came much earlier this year than in years past, giving more time for the consumers to “recover” before their Mother’s Day flower purchase, Cross added.

When it comes to cut flowers, Texans usually prefer buying roses, carnations, tulips and lilies for Mom from their neighborhood florist, he said. Azaleas, begonias and Calla lilies are among the most popular flowering plants purchased.

“If someone is going to buy from a garden center instead of a floral shop, then that purchase will usually be something like a rose bush or a hibiscus plant,” he said.

While the product mix between Valentine’s Day and Mother’s Day couldn’t be more different, the sales dollars generated from each are about the same, said Stan Pohmer, executive director of the national Flower Promotion Organization, based in Minnetonka, Minn.

“Mother’s Day accounts for about 25 percent of all floral holiday sales,” Pohmer said. Cut flowers represent about 46 percent of Mother’s Day floral transactions, outdoor bedding plants and hanging baskets represent about 37 percent, and flowering house plants and foliage represent about 15 percent.

Pohmer added that 64 percent of Mother’s Day flower purchases are made by women. However, he cautioned, floral sales in general may not be as sure-fire in the future as they have been in the past.

“While the floral industry has previously thought of itself as recession-proof, a more realistic term these days would probably be recession-resistant,” he said.

But in the Lone Star State, flower producers, greenhouse growers and retailers are all poised to make sure Texas moms gets their mums – or whatever floral they desire.

“Things look good this year for flower retailers and the greenhouse floral industry in Texas,” said Richard de los Santos, state marketing coordinator for horticulture with the Texas Department of Agriculture. “Flower growers are pretty well sold out of product and have made commitments to their retailers.”

“There seems to be a growing desire for people to give plants that continue to live and give,” said Marilyn Good, communications director for the Texas Nursery and Landscape Association in Austin. “Blooming potted plants are gaining favor, and the real up-and-coming gift plant is the orchid, which has a hard-to-grow reputation, but many are low maintenance.”

David Rodriguez, Texas AgriLife Extension Service horticulturist for Bexar County, agrees mothers often prefer potted plants or bedding plants to cut flowers.

“Some good choices for live plants for Mother’s Day might be Belinda’s Dream and Grandma’s Yellow roses, which are Texas SuperStar plants. This means, among other things, they are attractive, unique flowering plants suited to Texas. And they consistently perform well, regardless of a person’s gardening expertise.”

Other Texas SuperStar plants that may serve as good selections are the ‘Gold Star’ Esperanza and Perennial Hibiscus, he said. And the moth orchid makes a good choice for a beautiful, low-maintenance indoor flowering plant.

“But regardless of flower selection, there is always something unique about Mother’s Day,” added Hall. “Mother’s Day tends to supercede economic concerns in a ways other holidays do not. People know they can always rely on Mom during the tough times, so they aren’t going to forget that when Mother’s Day comes around.”

Good Advice Sid!

On the OpenRegister blog, Sid Raisch, president of consulting firm Horticultural Advantage, offers some tips for retailers to keep in mind during these tight economic conditions. Click here for his comments.

Mixed news regarding retail sales

According to the National Retail Federation, retail industry sales for March (which exclude automobiles, gas stations, and restaurants) dipped 0.9 percent unadjusted over last year and were down 0.3 percent from the prior month.

March retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) increased 0.2 percent seasonally adjusted from the previous month and increased 0.1 percent unadjusted year-over-year.

“Unseasonably cooler weather created a challenging sales environment for many apparel retailers last month,” said NRF Chief Economist Rosalind Wells. “With the earliest Easter in 95 years, the calendar shift will likely impact April sales as well. In order to get a true picture of retail performance, we will need to look at both March and April sales combined.”

The weak housing market once again had a negative effect on the home furnishing and home improvement categories. Sales at furniture and home furnishing stores decreased 0.3 percent seasonally adjusted from last month and 10.2 percent unadjusted year-over-year. Building material, garden equipment and supplies stores sales decreased 1.6 percent seasonally adjusted from February and 9.6 percent unadjusted from last March.

In spite of the weak selling environment, there were still a few bright spots. Health and personal care stores sales rose 2.8 percent unadjusted from last March but decreased 0.1 percent seasonally adjusted from last month. Sporting goods stores sales also rose 1.5 percent unadjusted year-over-year and 1.4 percent seasonally adjusted month-to-month.

What does this tell us? Consumers will still buy the things that matter most to them! Stay the course. Reports from many parts of the country (undergoing good weather on weekends) points to a favorable spring thus far. Friends in the Northeast do report tougher times however (hurry up spring!).

The results show a cautious household sector, but not one in retreat. Available indexes of consumer attitudes have moved to very low levels — close to or below the lows in the prior two recessions — raising the prospect of a sharp adjustment to consumer spending. However, spending patterns, so far at least, have not softened to the same degree as attitudes.

Consumer preferences for container gardens

A recent article published by Dr. Terri Starman (TAMU) et al. in the April 2008 issue of HortScience is entitled Consumer Preferences for Price, Color Harmony, and Care Information of Container Gardens. The abstract of the article's findings is below.

Retail sales of container gardens have increased dramatically in recent years, rising 8% from 2004 to 2005, to $1.3 billion. The objective of this study was to determine consumer preferences for three attributes of container gardens; color harmony, price, and amount of care information provided with the purchase. A hierarchical set of levels for each attribute was used in a 3 x 3 x 3 factorial conjoint analysis.

A Web-based survey was conducted on 18 Oct. 2006 with 985 respondents. Survey participants were asked to complete a series of questions on a 7-point Likert scale. Survey participants also answered questions about past experiences with and future purchase intentions of container gardens as well as demographics. The three attributes accounted for 99.8% of the variance in container garden preference. Relative importance decreased from price (71%) to amount of care information (23%) to color harmony (6%).

Survey participants preferred a container garden with a price point of $24.99, extensive care information, and complementary color harmony. A large portion (76%) of participants in this study indicated that they would be more likely to purchase a container garden if extensive care information was included with the purchase and 85% of participants said they would be willing to visit an Internet Web site that would provide more information on how to care for and maintain a container garden.

Results of this study show that there is a potential to increase the value of a container garden through providing educational material with the purchase.

The Home Depot "Index"

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).

One step closer to recession???

Recession worries surged, slamming financial markets, amid signs that service businesses may be stumbling. A key barometer of the strength of the service sector dropped to its lowest level since October 2001 and suggested those businesses are now contracting. ISM's Non-Manufacturing Business Activity Index registered 41.9% in January, indicating a significant contraction in business activity in January from the seasonally adjusted 54.4% registered in December. This is the first contraction in the non-manufacturing sector since March 2003, when the index registered 46.3%, and the lowest Business Activity Index since registering 40% in October 2001 (one month after 9/11). The next piece of major economic data comes in a week with the retail sales report for January. Reports from retailers already offer cause for concern. Capital Economics today offers another sign of caution, and it goes back to the surprise drop in the ISM's nonmanufacturing index that shook markets yesterday. The firm tracks the ISM’s service-sector index against real consumer spending and finds they are correlated, meaning that next weeks retail sales report should prove interesting! Even so, most pundits still only put the chance of the U.S. entering recession at 42%. All for now...time to polish the crystal ball.