A Changing Landscape by Vinny Naab
Don't expect the same "big three" to all be around in 2033.
November 24, 2008
Think back 25 years ago and imagine what the retail landscape in the garden business looked like. Back then, Kmart truly was one of the few big box retailers that dominated the market. Wal-Mart and Home Depot were into huge growth cycles soon to be followed by Lowe's. The garden business was driven by successful regional chains such as Bachman's, Pike's, Steins, Frank's Nursery, Flower Time, Calloway's, Gaudio's and others. It was companies like these, along with thousands of independent garden centers, that ruled the roost in the garden retailing kingdom.
Fast forward to today and notice the dramatic shift in the landscape. Consider that in the 25 years between then and now, Wal-Mart, Home Depot and Lowe's combined to open about 5,000 retail locations between them. This has brought convenience to a new level, one never seen before for the gardening public. Customers have a lot more choices than ever. The mid-level players previously mentioned have shrunk. Good independents continue to take their fair share of the marketplace thanks to top quality product offerings, stellar service and an ambience that is hard to replicate in the mass market arena.
The past decade has shown big boxes trending toward added services from the plant community, particularly Home Depot and Lowe's. In some cases, this means third-party service companies merchandise certain live goods categories or an entire nursery. In other cases, suppliers are providing all products and complete service to merchandise the goods (pay-by-scan).
Many growers today are thinking more and more like retailers because of some of these trends. Retailers continue to expect and demand exclusive product offerings or packaging, the latest in breeding breakthroughs and more sustainable or environmentally friendly offerings.
What does the future hold for big box garden retailing? I see the market going in several directions. One of the biggest influences in these large companies is how they account for their inventory. I'm far from an accounting maven, but there are two basic ways this is done:
Accounting Lesson 101: Cost Accounting - Cost accounting simply values the inventory shipped into the stores on its cost basis. If a plant costs retailers $5 and they retail for $10, that is a 100 percent markup. If the retailer wants to put the item on sale for $7.50, they make a 50 percent markup, but the markdown is not as relevant as in retail accounting.
Accounting Lesson 102: Retail Accounting - This system values the inventory shipped to stores on its retail basis. If a plant costs the retailer $5 and they retail for $10, they have the 100 percent markup. However, if they are forced to go out at $7.50, they must devalue their inventory 50 percent. They still arrive at the same 50 percent markup as in the example above, but it is looked on in an entirely different fashion by the bean counters that manage the budgets.
The bottom line with retail accounting is that markdowns are the enemy to management rather than a tool to force products out of the stores. I think there will be a separation of the retailers in how they proceed with their businesses based on this force alone. You may see more and more pay-by-scan programs because they take all the markdown issues off the retailer's books.
On the other hand, retailers on cost accounting will, in theory, be able to buy product at the lowest costs and either work on higher gross margin levels than retailers who inject a high service level, or they will have the opportunity to have lower retails to drive consumers to their stores rather than their competitor's.
Twenty-five years is an eternity in retail, and chances are that the "big three" today will not be the same "big three" in 2033. That's just the way retail has always worked.
Vinny Naab is owner of Naab Horticultural Marketing, LLC, a consultant to the horticulture market. Contact him at firstname.lastname@example.org.