Finding Success With Pay-by-Scan

Big box stores have embraced the pay-by-scan concept for years now. In the minds of many growers and independent garden centers, this was strictly a “big box thing.” It was not something for anyone but volume retailers to contemplate.

The English Gardens chain of six upscale garden centers, all in suburban Detroit, was curious about the possibilities. After an exhaustive study by management, it was decided to test their approach during the spring and summer of 2006.

In collaboration with two growers including Four Star Greenhouses, a system was developed and implemented under the direction of Frank Janosz, head of nursery products. A 25-year industry veteran, Janosz is one of the 10 family members who own and operate the 53-year-old firm. Based in Dearborn Heights, Mich., retail sales volume in 2006 was $30 million.

The agreement between the participants can stand as a model for those contemplating a pay-by-scan relationship. The same can be said for the operational guidelines that were developed by this team.

Not surprisingly, both the grower participants and the retailer were very specific about the desired performance measurements. In that first season, all the targeted figures were met or exceeded, “some of them spectacularly,” in the words of John Darin, president of English Gardens. Participating growers concurred. Then, other growers came knocking, wanting to be considered as a partner in 2007.

“A key element in the selection of last year’s players was mutual trust,” Janosz says. “Obviously that meant that each vendor had enough of a past relationship with English Gardens to have produced respect and confidence in each other.

“During the formative stages of developing the system that was fair and equitable to all parties, there were countless opportunities to demonstrate traits like fair-mindedness, resourcefulness and adaptability.” 

As the 2006 test was drawing to a close, it was becoming obvious that, in 2007, an ongoing program should be rolled out, with additional challenging elements:

• Continue with the existing two vendors.

• Add to the mix of plant categories.

• Add one or more vendors.

• Increase the roles and responsibilities of all parties.

• Aim for even greater performance levels.

Two new growers were brought to the table, broadening the coverage of live goods.

“Thinking back to our original research efforts in 2005, we found it was imperative that the growers we talked to were of a similar mindset and had goals not unlike ours. We talked to quite a few of them before narrowing the list down to those that were most likely to fit well,” Janosz says. “Let me give you a quick overview of why we made the decision to get into pay-by-scan. First of all, the management here believes that the market is moving in the direction of vendor-owned inventory.”

Janosz expands on the nature of that relationship: “Vendors are given the needed square footage to showcase their brand. They set up their merchandising tools. They have the space to fill in on an on-going basis, and consequently, customers know when they walk into our annual bedding plant areas there is something going on here, because it is well signed and well branded. They definitely know that this is the Proven Winners section. We purposely created this destination in the store.”

Janosz says this approach throws the old style of merchandising out the door. “We’re offering the customers a solution, right there, and what’s appealing to the vendor about that, of course, is they’ve got a lot of upside potential to sell more product,” he says. “Simply because all the solutions are right there for the shopper. And that has been one of the major changes in our merchandising that pay-by-scan has brought.

One Grower’s First Year

One Northeast grower, a substantial supplier to English Gardens in recent years, has joined the pay-by-scan program. They choose at this time to remain unidentified.

On the other hand, topmost management was completely open about why they wanted to participate. Typical of their reasons are these:

• “Our numbers would be up dramatically” (and they are as of late April).
• “English Gardens was very forthright with their figures for waste and shrinkage. We took those into consideration when we quoted them.”
• With payment coming 10 days after invoicing, the cash flow is a big benefit.
• As a developer of new products, they like that they are able to do product testing in the stores.
• They pretty much control what goes into the stores — whether it’s roses, nursery stock or any of the other 140 items listed.
• They are able to place material at retail when it is prime.
• Those are the kinds of things that make them project a two-fold, maybe even three-fold, increase in sales to this account.

“We are kind of breaking the mold. I’ve always wanted to try and do merchandising like this, but when you get, from so many vendors, so many different products – it was always hard to maintain it. With a destination now, and one vendor filling it, there is the confidence issue. You have to have confidence in your vendor that they are going to seize the opportunity and make sure the display space is being filled properly and with the right product.

“So there is a lot of trust here on both sides. There’s a lot of discussions about what kinds of products go into the store. Even at this juncture there still is a lot, we still control the flow, we still control what comes in, but to a large degree it’s a mutual decision as we move forward. The bottom line is that the customers are seeing some rather unique merchandising methodology used here, something that they are now quite used to, but appreciate because you can offer a complete color path for them instead of finding the pink flowers in 10 different aisles,” Janosz concludes.

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