Nobody Asked Me, But…

September 6, 2006 - 13:45

This industry has been dealing with a number of different issues lately when it comes to our businesses — issues that aren’t always directly related to floriculture. It may not seem like it at first glance, but Martha Stewart’s actions, several government debates and your industry involvement are affecting all of us, and nobody asked me…but I had a few thoughts on the matters. There are some lessons to be learned from these topics that just might apply to you.

 

Martha Stewart

The early years. Some years ago, the Domestic Diva hitched her wagon to Kmart as her retailer of choice to carry her personality-branded lines in the domestics and lawn and garden categories. Over time, she expanded into their much broader home décor marketplace and, at one point, accounted for almost 5 percent of Kmart’s total sales volume (there were even rumors when Kmart first entered Chapter 11 bankruptcy protection that she was considering buying the company outright and turning it into Martha-Mart!).

Now for Martha, timing is and was everything. She was a hot commodity while Kmart was struggling to reposition itself to better compete with Target and Wal-Mart and to raise its image…and Martha was, in part, the company’s ticket to accomplishing this. As a result, Martha was in the position of power and negotiated one heck of a deal, with guaranteed minimum payouts and a long-term contract.

Moving to the present. Fast-forward a few years…Martha is convicted of some legal improprieties and serves some “hard” time; because of this, her golden image became somewhat tarnished. Kmart is in major financial and image chaos. And Martha’s now-struggling company is profiting greatly from the wisdom of her original contract. Even though Kmart was forced to close almost one-third of its stores, Martha still receives her minimum guarantees. Sales volumes are greatly reduced, yet Martha is still maintaining at least her minimum cash flow, a far greater amount than any incented percentage of sales would have accrued to her.

Then Ed Lampert, a hedge fund titan, came on the scene. He bought Kmart’s debt for literally pennies on the dollar, helped lead the company out of technical bankruptcy and ultimately merged Kmart with Sears. Martha saw this as a golden-goose opportunity and tried to expand her reach into the Sears stores, anticipating new and higher guaranteed minimums on the horizon. From my perspective, Lampert feels the original Kmart deal is too one-sided (in Martha’s favor), and I hear he is negotiating hard to change the original contract terms.

At the same time, Sears started developing a new in-house brand — Ty Pennington (of Extreme Makeover: Home Edition TV fame, which is coincidentally sponsored by Sears) that competes directly with Martha’s home décor assortments and positioning. The negotiating power shifted to Sears, since they have the option of expanding the Ty Pennington line into Kmart, though Kmart is still locked into a guaranteed payment to Martha.

In negotiating retaliation, Martha cut a new deal with Federated Department Stores (a.k.a. Macy’s) that promises a new, higher quality/image program and will roll out in 2007. Kmart/Sears’ feathers are ruffled, and I hear there are now veiled threats about dumping Martha or forcing a new, reduced payout deal.

Lessons learned. So what are the lessons we can take from this? First, battling egos, rather than good business sense, rarely lead to productive results for either side. This type of adversarial relationship, where contracts aren’t mutually compatible and both sides don’t have a common goal, are doomed to failure.

Second, Martha’s agreement with Federated raises a question: Can one effectively manage two different images on similar products and categories…can you have one image that was designed to put some class into a somewhat classless retail environment (i.e., Kmart) and one that is intended to be upscale (i.e., Federated/Macy’s) at the same time? Will one have a negative effect on the other? Can the images be far enough apart so the consumer can truly see a defined difference between the two? Can you successfully play in different market segments and show discernable differences in quality levels, programs and presentations without alienating your different customer and retailer segments?

 

The Governmental Process

I can’t remember when government policy, legislation and the potential impact of these were as critical to our industry as they are right now. Immigration reform, health care initiatives, the estate (death tax) discussions and industry research funding are major issues that can have unprecedented effects on our ability to run our businesses productively and profitably and plan for family owned business succession.

These are issues that ultimately affect all players in the industry, whether you are a big box retailer, an independent garden center or florist, a mega grower or an under-an-acre operation. Yet, as important as these issues should be to every one of us, there is relatively little participation from individuals and individual companies. We need to make our unified industry voice heard by the legislative decision makers for an orchestrated show of force and support.

Two recent examples. The Society of American Florists (SAF) recently hosted Congressional Action Days. Out of a total membership of more than 11,000 retailers, growers, wholesalers and allied suppliers, there were only 130 people who devoted the time, money and energy to speak with a common voice on Capitol Hill on behalf of our industry. At the American Nursery and Landscape Association’s (ANLA) Legislative Conference last year, there were about 325 companies out of a membership of about 2,000 companies; there was much stronger support but still a major opportunity for increased involvement was missed.

There is one program sponsored by ANLA that is getting more grassroots support than the national legislative meetings in Washington: It is called Lighthouse. This is a voluntary program that has become a significant coalition of state associations as well as individual companies. It identifies the pertinent issues, establishes methodology for action and support, and provides that action on a very regular basis, especially when critical legislation, like immigration, is being discussed on Capitol Hill. Suggested letters/letter content, contact information for your individual Congressperson at the state and federal levels, and updates on current and pending legislation are the mainstays of this growing effort.

 

Getting Involved

Many of you already participate in legislative actions at the national, state or local level in your own way, and you should be applauded for your efforts. My challenge to each of you is to get involved and make your individual voice that of the industry. At least with respect to your own legislators, you should be the one to help make a difference!

Industry promotion. In the recent history of our industry, we have attempted and failed to create major national category or industry promotions…Promoflor, Flora-board and Plants America come to mind most vividly. To fill the promotion vacuum, very well-intended but lesser-funded promotional efforts have been established individually through the Flower Promotion Organization (FPO), America In Bloom, Plants at Work, Flowers for Kids and the SAF Fund for National PR.

Each of these activities is making a difference and benefiting the industry in their own categories or segments, but there is a major need for our industry to begin working together. We need to work together to effectively communicate an all-encompassing industry message for consumers…because unless we market to them, we cannot effectively compete with all of the alternative industries they can spend their money on.

Industry associations. A coalition of individual industry associations, including the FPO, OFA, SAF, the American Floral Endowment (AFE), the Produce Marketing Association (PMA, representing mass market floral retailers), Asocolflores (the major trade association representing the Colombian cut flower industry), FTD, Teleflora, 1-800 Flowers and the Association of Floral Importers of Florida (AFIF) have banded together as the Floral Marketing Funding Initiative to determine methods of funding a national consumer marketing campaign. Once a logical, rational funding mechanism is identified, a referendum of all companies who would be assessable would take place, and if passed or endorsed, discussions on an advertising plan and message would be crafted.

This funding review effort recently launched, and it will be about six months before any initial decisions are reviewed. This is just a heads up on what is taking place to better communicate an industry message to our consumers to help grow our industry more aggressively and better position floriculture in the consumers’ minds. Stay tuned for more details as they develop.

There are a lot of things that affect your business that you can control, and there are a lot you can’t. Some things we can accomplish individually, but there are some that need our collective efforts to achieve. Keep current on the issues that need your involvement and lend your support and cooperation. Together, we can make a difference…

 

About The Author

Stan Pohmer is president of Pohmer Consulting Group, Minnetonka, Minn. He can be reached at spohmer@pohmerconsulting.com or (952) 545-7943.

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