State of the Industry: Florists in the U.S. by BloomNet

State of the Industry: Florists in the U.S. Published September 2013

Drivers of Industry Growth  The U.S. florists industry posted a modest sales gain in 2012, following two years of incremental increases. Prior to 2010, the industry experienced a threeyear period of declining sales. In the early to mid 2000s, retail florist sales grew at a steady pace, but industry growth fell into negative territory from 2007 to 2009.

Competition

from

supermarkets,

Internet

retailers,

and

mass

merchandisers contributed to declining sales in the retail florist industry during this time, however, it was the poor economy that further impacted the industry in 2008 and 2009, as high unemployment and shrinking disposable incomes led to negative florist sales growth. During the 2002 to 2006 period, the industry was positively affected by a growing economy, which ultimately led to rising personal disposable incomes.

Although flowers are not always expensive,

florists tend to sell their products at higher than average prices. rising disposable incomes will benefit these establishments.

Therefore,

Whether it is for

personal use, a gift, or a special occasion, consumers are more apt to spend money on flowers and similar products when their disposable incomes are high.  The massive spending power of the Baby Boomer generation, defined by the U.S. Census Bureau as persons born between 1946 and 1964, will continue to impact the retail florist industry for the next several years, but other generations are becoming more and more important to the industry’s success.

While

Generation X consumers (persons generally born between 1965 and 1978) are next in line, it’s the Millennial generation (persons generally born between 1979 and 1994) that actually rivals the size of Baby Boomers and are the future of the florist industry.

Millennials, also known as Generation Y, will be an important

group of art consumers in the coming years, as the population of this group

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totals approximately 70 million. In contrast, the Generation X population is a group of approximately 44 million consumers.  Including moderate growth in 2013, florist industry sales will advance at a steady pace over the next few years as the economy continues to recover, disposable incomes rise, and consumer confidence increases.

Nonetheless,

relatively slow growth is expected for this mature industry through 2017, as fierce competition partially offsets rising personal disposable incomes. Because demand for flowers depends heavily on consumers’ discretionary spending, a healthy economy is vital to the industry’s success.  In addition to rising disposable incomes, a few other factors will positively affect demand for cut flowers, plants, and similar products over the next few years. Consumers have become increasingly interested in outdoor living spaces and gardening, which has sparked sales of flowers and plants for these areas. This has carried over into the home where consumers are decorating with more fresh flowers and plants. A renewed interest in the environment and the popularity of “green” living are also facilitating this trend.

Although nearly 70% of flower

purchases in the U.S. are gifts, self-purchases and purchases for no special occasion

dominate

non-holiday

flower

sales.

This

has

created

opportunities for florists who generally rely on holidays and special occasions.  Florists are also getting a boost from the exploding popularity of social networking web sites, such as Facebook and Twitter. These sites are rekindling old friendships and creating new ones, surprisingly resulting in the purchase of more products and gifts to stay in touch with a growing network of friends. In 2011, mobile start-up GoAct launched “Plango,” a mobile calendar that helps consumers keep up with special dates, appointments, and social events.

The

social application is integrated with Facebook and optimized for mobile use on the “iPhone.”

Instagram and Pinterest are two other social media sites that

allow florists to post detailed pictures of the products they offer. Some florists, such as 1-800-FLOWERS.COM, Inc., are even creating new ways to celebrate life

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and spark floral sales by introducing collections for different occasions, including happy hours. Consumers can choose from a "menu" of exclusive floral cocktailinspired arrangements, which are created with a variety of fresh flowers and decorated with whimsical accessories.  Recent studies on the health benefits of flowers will help drive industry sales over the next few years.

The SAF/FPO (Society of American Florists/Flower

Promotion Organization) Alliance continues to leverage the positive research findings from the Harvard Medical School/Massachusetts General Hospital, which definitively concluded that flowers have positive effects on human behavior traits such as anxiety, stress, compassion, and general psychological well-being. The National Indoor Plant Week (NIPW), celebrated annually during the third week of September, was established to promote plants and increase awareness of the importance of green and blooming plants in interior spaces. According to the NIPW web site, indoor plants are proven to improve the home environment and increase morale in the workplace. The positive health effects of flowers and plants should be heavily promoted by retail florists in order to attract more health-conscious consumers.  In addition to health, consumers have become increasingly interested in the environment. The overall movement toward environmentally-friendly products has led to an explosion in the organic industry and everything “green.” This has carried over to flowers and is providing a unique opportunity for florists who offer organic and sustainable products.

Overall, in order to be successful,

florists must communicate the real and perceived value of flowers and plants while building a long-term relationship with customers. emotional

connection

can

accomplished

A personal and

presenting

the

florist’s

background story and providing exceptional customer service, making price less of a barrier.

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Organic and Sustainable Flowers Provide New Opportunities  Although sales of organic food and beverages have been soaring over the past several years, and even non-food organics are exploding, organic flowers are just now beginning to grow in popularity. In 2012, sales of organic flowers in the U.S. increased by approximately 40% to $140 million.

One of the major

reasons for the slow transition is the high cost of growing organic flowers, which generally translates into higher retail prices.

Nonetheless, consumers have

proven they are willing to pay more for high quality, natural products. Pesticide awareness has risen dramatically across the U.S. and people are very concerned with where and how their products are grown. Since flowers are thought of as pure and natural, the same principals are beginning to take shape in the cut flower industry. Based on Europe’s well-monitored organic flower system, the potential exists for the same type of success in the U.S. Since it has been well documented that flowers are the most pesticide-intensive crop and workers are paying the price with a variety of health issues, now is the perfect time to embrace organic flowers in the U.S.

Sustainability and buying local are two

trends that have emerged from the overall green movement.

These efforts,

along with any related certification programs, should be marketed and used to differentiate retail florists from other establishments.

Successful Strategies to Fight Competition  Traditional retail florists have more competition than ever before.

While the

$34.3 billion floriculture industry (fresh cut flowers, cut cultivated greens, potted flowering plants, foliage plants, and bedding/garden plants) continues to grow, retail florists’ market share continues to decline. Supermarkets, online retailers, and other mass merchandise outlets are among the many channels selling flowers.

In 2012, for example, floral department sales at supermarkets

increased by about 4.0% to $875 million.

In response to this growing

competition, florists have been implementing a few successful strategies over

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the past few years, which will be key for long-term growth and survival in this industry.  Florists generally offer a wider selection of products and tend to have higher quality flowers compared to other outlets. These are significant attributes that should be promoted.

Retail florists are also in a unique position to provide

better customer service than most outlets, since flowers are their primary business (as opposed to grocery stores, etc.).

Customer service and quality

products are two key factors consumers consider when choosing a place to shop. The rise in organic flower sales will also benefit retail florists, if they choose to stock a wide selection.

Organic flower shops or ones carrying a significant

selection should emphasize this in their marketing strategies.  Since marketing and public relations programs often require a substantial financial investment, many florists are taking advantage of the speed and reach of the Internet.

A web site can be a successful marketing tool, even for

independent retail florists. Consumers can get familiar with a florist’s products and prices before coming into the store.

Also, an effective, easy-to-navigate

web site can help traditional florists compete with online retailers while bolstering local customer relationships. A web site helps florists stay in touch with their customers via message boards and e-mail mailing lists.

If the web

site has e-commerce capabilities, customers can place orders online similar to 1800-FLOWERS.

With today’s fast-paced lifestyle, this can be an attractive

option. Despite 1-800-FLOWERS’ strong market share, consumers may be more apt to place an order online with a neighborhood florist. Many local florists are also linked into wire service providers, such as FTD and Teleflora, which will connect customers with florists.

In general, promotional activities should

continue throughout the year and include community events, bridal shows, and other unique initiatives, such as positioning flowers as a positive wellness solution.

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 Facebook, Twitter, Pinterest, and other social media sites can also be utilized to reach more customers. Social media is a great way to display pictures of new products and shop specials, as well as announce special events and the latest flower shop news.

These sites also enable florists to send information to

customers instantly by providing such information as product announcements and tips for flower arrangements and proper care. As stated earlier, the most successful florists will communicate the real and perceived value of flowers and plants while building a long-term relationship with customers through personal and emotional connections. This will make price less of a barrier to purchase from retail florists.

Social Media Has Become a Vital Marketing Tool  Florists that become more tech-savvy will not only be better off during an economic downturn, they will be in a good position to capture more sales when the economy rebounds. Millennials are not shy about purchasing items online and this group is catapulting social media marketing.

An effective web site,

Internet and social media marketing, and mobile device applications will be crucial in attracting this customer base in the future.

Most consumers are

interested in convenience and price so the Internet is a perfect fit. A web site, Facebook page, and other social media sites enable consumers to view products online, educate themselves about certain types of flowers and plants, search for a variety of retail florists, read reviews, participate in giveaways and promotions, and become more price conscious, all from the luxury of their own home or mobile device. QR codes (quick response codes) can also be placed on items and scanned by customers’ mobile devices to provide additional company and product information.  Coupon use, which is at an all-time high, is also going virtual as many companies are now using coupon sites, such as Groupon. Coupon sites are a great way to encourage the trial of new stores, concepts, and products. These

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sites not only offer coupons, they sell certificates for businesses that provide consumers with discounted prices after making an initial purchase.

By 2017,

more than 600 million consumers worldwide will use mobile coupons, resulting in $45 billion in savings. Currently, mobile couponing is most prevalent in the Far East and China, with North America and Western Europe quickly gaining ground.  Social media and the Internet have become a core component of florists’ operating strategy, as they help build brand awareness, boost interactions with customers, and allow companies to monitor what people are saying about their products.

Social media also has an advantage in directly targeting specific

demographic groups compared to traditional media marketing that is less focused.

Therefore, many companies are shifting their marketing budgets to

digital advertising.

Nonetheless, when combined with traditional advertising

techniques, social media and web marketing can propel florists to new heights.

Florist Sales Trends  In 2012, retail florist sales in the U.S. increased by 1.3% to $7.02 billion, after inching up by 1.0% and 0.8% in 2011 and 2010, respectively. Prior to 2010, the industry posted sales declines of 5.2%, 2.1%, and 1.0% in the previous three years, respectively. From 2006 to 2011, florist sales fell by an average of 1.3% per year.

Fierce competition from supermarkets, online retailers, and

mass merchandisers impeded on florist sales during this time.

Many large

supermarket chains now have a modest size floral section, similar to that of a traditional florist.

More recently, high unemployment rates and shrinking

disposable incomes have led to sluggish florist sales growth.  As economic conditions continue to slowly improve and consumer spending increases, the industry should build on the positive growth that occurred during the 2010 to 2012 period.

After an estimated 1.8% increase in 2013, modest

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growth is expected thereafter, as the florist industry continues to battle a myriad of other channels and an unpredictable economy. Overall, from 2012 to 2017, florist sales are projected to increase by an average of 1.1% per year, totaling $7.41 billion in 2017. Positive florist sales are expected due to the drivers of industry growth discussed earlier, including more flower buying occasions, the rise in organic flower sales, and more aggressive marketing and merchandising strategies that promote value and create emotional connections.

A growing

economy during this time will also lead to higher disposable incomes and more customers for traditional florists.

Product Sales  Arranged cut flowers account for the largest share of florist sales.

In 2012,

arranged cut flower sales in U.S. florists increased by 2.4% to $4.07 billion, representing 58.0% of total florist sales. From 2012 to 2017, florists’ sales of arranged cut flowers are expected to grow by an average of 2.2% per year. In 2017, sales of these flowers should reach $4.53 billion, accounting for 61.1% of total florist sales. Following arranged cut flowers, unarranged cut flowers and indoor potted plants each accounted for 12.1% of total florist sales in 2012. During this time, sales of unarranged cut flowers grew by 2.3% to $850 million. Sales of these products through florists are expected to grow by an average of 1.9% per year from 2012 to 2017, totaling $934 million and representing 12.6% of florist sales in the latter year. In 2012, sales of indoor potted plants through florists increased by 1.8% to $849 million. From 2012 to 2017, sales will grow by an average of 1.4% per year to reach $912 million. Indoor potted plants’ share of total sales is expected to rise to 12.3% in 2017.  No other product category represented more than 2.8% of florist sales in 2012. Despite accounting for a small percentage of sales, souvenirs and novelty items, including fruit and gourmet food baskets and balloons, will provide the most sales growth for retail florists through 2017. Sales of these items are expected

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to rise by an average of 3.0% per year during this time. Outdoor nursery stock (including trees, shrubs, bedding plants, bulbs, sod, and seeds) will also exhibit positive growth through 2017, inching up by an average of 0.8% per year. Although the giftware and glassware category will post declining sales over the next few years, vases sold with flower bouquets will remain popular.

Seasonal Sales  Valentine’s Day is the top selling holiday for florists.

In 2011 and 2012,

Valentine’s Day sales were up significantly from the previous two years due in part to the holiday falling on a weekday, as opposed to a Sunday (as was the case in 2010).

With many businesses closed on Sunday, some consumers

eliminate office deliveries and opt for other types of celebrations. Despite the economy still being in a fragile state, consumers generally spent more on Valentine’s Day in the past two years regardless of the type of gift. Better days of the week and an improving economy will lead to strong Valentine’s Day sales for florists over the next few years. For the most part, roses are the flowers of choice for this occasion, accounting for about 70% of sales. Other popular gifts include mixed flowers and plants.

In 2012, approximately 195 million roses

were produced for Valentine’s Day. Also in 2012, in an effort to promote the top flower-giving holiday, Teleflora launched its fourth Super Bowl commercial encouraging viewers to send hand delivered floral bouquets to their loved ones as a gift for Valentine's Day.  Mother’s Day follows Valentine’s Day as the second leading holiday for florist sales.

Over the past few years, consumers have been spending more for

Mother’s Day gifts compared to spending during the recession, resulting in higher sales for retail florists. Rising consumer confidence has contributed to a boost in Mother’s Day sales as well. The most popular Mother’s Day gifts include fresh flowers, outdoor bedding and garden plants, flowering houseplants, and green houseplants. Easter is not far behind Mother’s Day for florist sales, but

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many consumers choose potted plants during this holiday, which can be purchased at numerous other outlets. Christmas is another holiday when florists see a boost in sales, but similar to Easter, potted plants are the preferred gifts during this time. Approximately 70 to 80 million poinsettias are sold during the Christmas holiday.  There are several non-holiday occasions that are popular for florist sales as well, including purchases for home decorating.

Many consumers also purchase

flowers for birthday gifts, primarily for women’s birthdays, which occur at all times during the year. Since a large percentage of florist sales are made for no special occasion, florists should periodically offer discounts or some other type of rewards program for loyal customers, especially between holidays when business is slower. Weddings and funerals can provide a significant increase in sales for florists.

With the divorce rate at an all-time high, the number of

weddings in the U.S. is rising at a considerably rate.

Same-sex marriages,

which have been legalized in many states, are creating a new demographic for retail florists. Lastly, the number of funerals is expected to increase significantly over the next several years, as the large group of Baby Boomers continues to age.

Number and Location of Florists  The number of retail florists in the U.S. decreased by 3.2% to 14,812 establishments in 2012, after plummeting by more than 5.0% in each of the previous four years.

From 2007 to 2012, the number of florists fell by an

average of 5.6% per year. Although florists have not seen a dramatic drop in sales, competition from supermarkets and other outlets have resulted in a decline in the number of establishments during this time. It has also become more difficult to secure financing to open or purchase flower shops due to the minimal growth the industry has recently witnessed. After significant decreases in the number of establishments over the past few years, the rate of decline will

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generally ease a bit through 2017.

Including an estimated 2.2% decrease in

2013, the number of retail florists is expected to fall by an average of 2.3% per year from 2012 to 2017. In 2017, there will be 13,217 florists in the U.S.  The largest concentration of retail florists is in California. In 2012, there were 1,185 florists in California, accounting for 8.0% of the U.S. total. New York was the only other state with at least 1,000 florists in 2012. During this time, New York had 1,090 florist, representing 7.4% of the total. Texas followed with 981 establishments and a 6.6% share of the total. Pennsylvania and Florida rounded out the top five states for retail florists with 733 and 693 establishments, respectively. Illinois (687) and Ohio (630) were the only other states to account for at least 4.0% of total retail florists in the U.S. in 2012.

Average Sales Per Florist  Florist sales are growing at a modest pace while the number of these establishments are declining, resulting in a solid increase in average sales per store. In 2012, the average sales per florist in the U.S. increased by 4.7% to $473,805. From 2007 to 2012, the average sales per establishment rose by an average of 5.0% per year, with the strongest increases occurring over the past three years. Slower growth is expected over the next few years, but average sales will continue to trend upward. From 2012 to 2017, the average sales per retail florist will grow by an average of 3.4% per year, including an estimated 4.1% increase in 2013. In 2017, the average florist is expected to have sales of $560,869.

Price Trends for Florists and Flowers  In 2012, U.S. producer prices for retail florists increased by 3.6%, following a 3.6% decrease in the previous year.

Producer prices are a measure of the

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prices retail florists pay for their stock, whether it be imported or locally grown. Soaring energy costs were primarily to blame for producer price increases prior to the economic recession; however, an oversupply of flowers and weaker demand resulted in falling prices in 2009.

The trend toward lower producer

prices continued in 2010 and 2011, as energy prices began to decrease along with the costs associated with growing flowers and plants.

The three-year

period of declining producer prices came to an end in 2012, but prices are estimated to increase by just 0.5% in 2013. Producer prices for retail florists are expected to continue rising through 2017, as volatile weather patterns affect crops in the U.S. and abroad. Nonetheless, the growth rate will be modest and less than what occurred in 2012.

From 2012 to 2017, producer prices will

advance by an average of 1.7% per year. ď&#x192;&#x2DC; An oversupply of flowers and weaker demand also resulted in lower consumer prices for flowers and indoor plants in 2009 and 2010, but consumer prices began to inch up in 2011. In 2012, consumer prices for these products slipped back by 0.5%. A relatively weak U.S. dollar has caused some countries, such as Kenya and China, to ship flowers to other world markets where growers can get higher prices.

If this were not the case, the oversupply problem in the U.S.

would have been worse. Other countries, like Colombia, are suffering from the weak U.S. dollar because approximately 75% of its cut flower production ships to the U.S. and growers are getting less return on their sales. Luckily, in 2012, Colombian flowers began entering the U.S. under the U.S.-Colombia Free Trade Agreement, which permanently removed duties on flowers (and other products) imported from Colombia. Thanks to lower cut flower production in the U.S. and abroad, demand is finally catching up with supply in 2013, resulting in rising prices at the consumer level.

Including an estimated 1.2% increase in 2013,

consumer prices for flowers and indoor plants are expected to rise by an average of 1.5% per year from 2012 to 2017.

ÂŠ Sundale Research, 2013

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Demographic Profile of Florist Customers  Men are more likely to make a purchase from a florist compared to women. This is mainly because men are more apt to shop at florists for gifts for women. When analyzing age, consumers in the 55 to 64 year old age bracket are the most likely to make a purchase from a florist.

These consumers have high

levels of disposable incomes and are generally “empty nesters,” meaning their children have left the home and they have begun to spend more on themselves. Relatively far behind, 45 to 54 year olds are the second leading spenders at florists. These consumers also have high levels of disposable incomes and are in long term relationships, which can spur florist sales. All other age brackets have below average spending at retail florists, although consumers in the 65 and over and 35 to 44 year old age brackets are just under the average. Coinciding with spending trends by age, consumers in households with a husband and wife are the most likely to make a purchase at a florist compared to other household compositions.

Households with a husband, wife, and children are also more

likely to buy from florists compared to consumers in the average household.

 As previously mentioned, consumers who are 55 to 64 years old have high levels of disposable income, as many have become “empty nesters” now that their children have left home.

These consumers can not be ignored, as they

currently account for the largest percentage of florist sales. Population statistics overwhelmingly show the growing trend of empty nesters. In 2012, the number of Americans aged 55 to 64 totaled 38.1 million. That figure is expected to grow to 41.9 million in 2017, making this the second fastest-growing age group. The population of 55 to 64 year olds is expected to grow by an average of 1.9% per year from 2012 to 2017. The fastest-growing segment of the population during this time will be Americans aged 65 and older. The number of people in this age group will increase from 42.6 million in 2012 to 49.6 million in 2017, reflecting an average annual growth rate of 3.1%.

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 Income is an important demographic characteristic for florists. There is a steady increase in consumers’ spending in these stores as their income rises. Consumers with a family income of $70,000 and higher are more likely than the average consumer to make a purchase at a florist. However, consumers with a family income of $100,000 or more account for the most overall spending and are overwhelmingly the most likely to be a customer.

Other notable

demographic characteristics for florist customers include region and race. Consumers in the Northeast and West spend the most at florists compared to consumers in other regions.

Furthermore, White consumers have the highest

propensity to be a customer and spend the most at florists.

Imports and Exports of Cut Flowers and Plants  In 2012, U.S. imports of cut flowers and plants decreased by 24.9% to $854.2 million.

Lower average prices and an overall drop in foreign production

contributed to the drop in imports in 2012, but as economic conditions continue to improve, imports will grow at a steady pace through 2017.

Including an

estimated 7.2% increase in 2013, U.S. imports of cut flowers and plants are expected to grow by an average of 5.0% per year from 2012 to 2017. Imports of cut flowers and plants will total $1.09 billion in the latter year.  Colombia was the top U.S. import source for cut flowers and plants in 2012. During this time, imports from Colombia fell by 14.6% to $480.3 million, accounting for 56.2% of the total.

Canada followed Colombia with $146.7

million in imports, representing 17.2% of the total. decreased by 23.8% during this time.

Imports from Canada

Ecuador was the third leading import

source for cut flowers and plants in 2012. Imports from Ecuador plummeted by 35.4% to $94.9 million during this time, representing 11.1% of the total. Taiwan was the only other country to account for more than 5.0% of imports. Imports from Taiwan declined by 2.5% to $48.7 million in 2012, capturing a 5.7% share of the total.

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 In 2012, Colombian flowers began entering the U.S. under the U.S.-Colombia Free Trade Agreement. The agreement permanently removed duties on flowers and other products imported from Colombia, extending the duty-free status received since 1991 under the Andean Trade Preference Act (ATPA) and the Andean Trade Promotion and Drug Eradication Act (ATPDEA). Unfortunately, the ATPDEA for Ecuador expired on July 31, 2013 and the country has declined to pursue another free trade agreement with the U.S. Therefore, cut flowers and other products imported from Ecuador are now assessed duties.  U.S. exports of cut flowers and plants decreased by 11.0% to $102.9 million in 2012, following a 2.7% drop in the previous year. After falling for the fourth straight year in 2012, exports will grow at a solid pace through 2017, due to strong foreign demand and a relatively weak U.S. dollar.

U.S. exports of cut

flowers and plants are expected to grow by an average of 5.4% per year from 2012 to 2017, totaling $133.9 million in the latter year.

This includes an

estimated 10.3% boost in 2013.  Canada was by far the top U.S. export destination for cut flowers and plants in 2012.

During this time, exports to Canada decreased by 14.1% to $79.8

million, accounting for 77.6% of total U.S. exports of cut flowers and plants. The countries rounding out the top five export destinations for these products were closely ranked but well behind Canada.

These countries included the

Bahamas (4.6% of total exports), Mexico (2.4%), Spain (2.0%), and Colombia (1.3%).

Among these countries, Mexico and Colombia posted the largest

increases in U.S. exports of cut flowers and plants.

Economic Trends  The U.S. economy struggled greatly in 2001 and 2002, as the gross domestic product (GDP) grew by only 1.1% and 1.8% (in chained 2005 dollars) during

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this time, respectively. grew by 2.5%.

The economy began to recover in 2003, as the GDP

In 2004, a full economic recovery was in place and the GDP

grew by 3.6%. The economy was strong again in 2005 and 2006, with slightly less GDP growth of 3.1% and 2.7%, respectively. In 2007, the economy slowed down and there was 2.1% growth for the year.

Less growth was reported in

2008 (0.4%), as the economy was plagued by a poor housing market, financial turmoil and tighter credit restrictions, high energy costs, and weakening consumer spending. Most of these negative factors accelerated in 2009, as the GDP declined by 3.5%. In 2010, the economy rebounded with 3.0% growth in the GDP, as the housing market experienced a modest recovery, financial institutions

stabilized,

and

consumer

spending

increased

considerably.

Unfortunately, slower GDP growth occurred in 2011 (1.8%), as the lingering effects of the economic recession were prevalent. Nonetheless, the GDP picked up in 2012 with a 2.1% increase, which will be followed by estimated growth rates of 2.3% and 3.0% in 2013 and 2014, respectively. Accelerating economic expansion is then projected through 2017.

ÂŠ Sundale Research, 2013