Nursery outlets try not to wilt under big box heat

Home Channel News, July 17, 2000 by John Caulfield

Competitive pressure continues to build on specialists battling for price-conscious consumers

In 1995, Calloway's Nursery lost $4.1 million. Its garden centers were wilting under the competitive heat emitted by large home centers and discount outlets that were placing greater emphasis on selling lawn and garden products. And homeowners were shifting their purchases away from specialty dealers to lower-priced mass merchants.

Many of those dynamics exist in 2000. However, not only is Galloway's still standing; it has become a hardier company. Last year, it spent nearly $13 million to acquire Houston-based Cornelius Nurseries. And Galloway's, which is based in Forth Worth, Texas, managed to post a $400,000 profit on sales of more than $30 million, with comp-store sales up 17 percent and gross margins up to 49.2 percent of sales, from 40 percent in 1994.

Last month, the Fort Worth Star-Telegram quoted Galloway's CEO Jim Estill, who attributed his company's turnaround to targeting upscale shoppers, a la Martha Stewart, whom he said is responsible for "build[ing] the whole thing on our customers' type of preferences." Through the first six months of its fiscal year, ended March 31, Galloway's revenue from 22 garden centers grew 128 percent to $25.3 million. Through the first half of 2000, sales per customer averaged $45, 10 percent higher than in 1999. And the installation of a computerized inventory management system in 1998 is helping to bolster the company's bottom line.

The 10,000-plus independent garden centers dotting nearly every neighborhood of the United States last year generated $10.1 billion in retail sales, according to estimates by the Commerce Department. However, that represented less than one-third of what consumers spent on lawn and garden products last year, according to the National Gardening Association. As Galloway's has attempted to do, specialty dealers nationwide have had to come up with competitive answers to the onslaught their garden centers have faced in recent years from big-box home centers and discount stores, which represent the fastest-growing segment within the retail lawn and garden sector.

Hines Horticulture, the Irvine, Calif.-based live goods wholesaler that is one of the nation's largest, reported last month that its sales through the first five months of 2000 had soared 43 percent, to $238.9 million, mostly on the strength of Hines' business with such companies as Home Depot, Lowe's, Wal-Mart, Kmart and Target.

"We can't bring in enough flats [of live plants] to meet the demand," said Eric McTeague, the assistant manager of Villager's Hardware in Garwood, N.J., in an interview with NHCN last month. When Home Depot opens its third Villager's Hardware in Saddle Brook, N.J., on Aug. 10, it will include an expanded lawn and garden department, said McTeague.

In a market where supermarkets and drug stores carry lawn and garden products, determining where consumers shop can be perplexing. It is indisputable that this business is being fought for vigorously on several fronts. The commitment that non-specialists are making to this category manifested itself in a big way this spring when Kmart, the nation's third-largest retailer, initiated a chainwide rollout of its line of Martha Stewart Everyday-branded lawn and garden products, which Kmart expanded to 1,000 skus, from 50 when the dealer launched this program in January 1999. The products bearing this label run the gamut from barbecue grills to patio furniture and even plants.

Last fall, TruServ, the dealer-owned buying group, informed its members that it would launch a national advertising campaign in 2000 in support of the co-op's Home & Garden Showplace banner, which more than 300 TruServ dealer-members fly. In 1999, dealers purchasing through TruServ, Ace Hardware and Do it Best sold more than $5 billion of gardening products. The three co-ops recently entered into an agreement with Egarden, the business-to-business subsidiary of supplier U.S. Home & Garden. This month, Egarden was scheduled to go live with its egardencom marketplace which includes a "room" for each co-op where its respective dealers can enter for a broad selection of products from manufacturers that are registered on the Web site. At the same time, Egarden struck a partnership with Proflowers.com to allow Egarden members to purchase cut flowers through a link to the Proflowers Web site.

Specialty dealers can no longer ignore the competitive threat that the Internet poses. On April 5, Amazon cam, the e-tailer with 17 million-plus subscribers, launched a lawn and patio "store" that offers more than 50 brands of Outdoor living and garden products. The store is divided into 13 categories including birds and wildlife, outdoor cooking, ponds and structures, seeds and fertilizer, and weed and pest control.

Finding new business

Despite these factors, specialty dealers haven't gone away, and aren't likely to. Seventeen lawn and garden dealers ranked among the home improvement industry's 500 largest retailers in 1999, and their 546 stores generated slightly more than $1 billion in aggregate retail sales, which were up 8.7 percent over 1998 totals.