The cost of business

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Last year saw a huge increase in revenue but the rising price of labor, materials and shipping have garden centers checking their books.

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September 3, 2021

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When COVID-era gardeners flocked to IGCs in the spring of 2020, many stores saw revenues rise to levels not seen in years. And even as restrictions lift and customers return to more normal routines, sales are still looking strong. But with the cost of materials, labor and shipping shooting up, there are certain pain points to consider as IGCs work to stock their stores and serve an increase in customers. So as garden centers plan for the coming years, they’re prioritizing employees, facilities and finding ways to stay stocked, despite the challenges of 2021.

Leveling off

While last year was an anomaly that boosted revenues to unexpected heights, sales this year have been through the roof up until August at Sloat Garden Center’s 13 locations in the San Francisco Bay area. This year, the intense California drought brought nothing but sunshine January through March, so the IGC went into an incredibly busy spring well ahead of 2020.

Last year, Sloat’s stores only had to close for one day since California designated garden centers as essential businesses early on in the pandemic. “There was very little difference between a Saturday and a Wednesday,” Stoner says. “Every day was Saturday from about April 1 through September. There was very little fluctuation.”

Now, in 2021, the numbers are starting to return to a more normal cycle with peak sales on the weekends as customers returned to work. The seasonal cycles are returning as well this year as summer sales slowed compared to the spring peak.

Cross Creek Nursery in eastern Virginia is also seeing a leveling off from the peak of 2020, but business is still going strong, says Jason McAuliffe, president. While numbers this year aren’t reaching the extreme heights of 2020, he’s still seeing an increase from previous years.

And while 2021 overall sales aren’t as high as 2020’s for Sloat either, Stoner says that revenue is still up about 15% over 2019. “But if I’m going to fall behind any year, falling behind 2020 is okay,” Stoner says with a laugh.

Investing profits

Sloat Garden Center likes to stay cash-rich, but the increased profits have allowed the company to pull the trigger on some planned projects like a major remodel of an acquired store and a remodel of an older, established store. There are more facility improvements planned for the next couple of years as well.

Cross Creek is also investing in infrastructure with a new, expanded parking lot, along with expansions to its point-of-sale system. And because the cost of bringing in plant material is going up, they’re increasing their growing footprint to alleviate supply chain issues.

“We’re increasing our production line to include a lot of things we typically relied on bringing in, just so that we’re not relying on material out there, and also control our costs and keep our costs down on the retail,” McAuliffe says. “So while other places might have to increase their costs on that stuff, we can maintain that cost margin. I think that would make us stand out amongst the others.”

Sloat is also investing in its growing operations with a potting machine that will help cut down on labor. In the past, the company could hand-plant about 2,000 plants, fertilize them and get them out in the field in a day. Now, they can do 16,000. “Technology is definitely something we’re investing in because you’ve got to automate. Labor is too expensive and it’s too scarce,” Stoner says.

Both IGCs have also put some of their profits toward their employees with bonuses to staff who stuck through the hard times.

LABOR COSTS CONTINUE TO RISE
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Investing in staff

Staffing continues to be the biggest challenge for garden centers all over North America. When COVID hit, many of Cross Creek’s employees were uncomfortable coming to work, so the IGC started thinking outside the box to look for staff.

Through some networking, the garden center found some homeschooled students who were able to move their schedules around to work during the day. They also found success with part-time workers and flexible schedules.

“They didn’t have to work 40 hours a week. It was really just, ‘What can you give me? I’ll take anything,’” McAuliffe says. Even his wife and sister-in-law were pitching in by answering phones and his brothers helped out on the landscape side.

Sloat ran into a similar problem with staffing, with 30-40% of staff choosing to stay home (none lost their jobs). About half came back within six to eight weeks but some never returned.

The IGC tapped into college students who were available much earlier than the usual June or July thanks to virtual classes.

Cross Creek also went above and beyond to make the workplace fun and energetic to compete with other garden centers in the area. “When somebody comes over from another garden center, they realize how well it’s run, how well people respected, how the culture is here,” McAuliffe says. “It’s fun, it’s hip, it’s happy. The word gets out and then we have other good prospects come in.”

To help staff feel safer, Cross Creek also closed their greenhouses to customers, which was a significant decrease in shopping space. Even with all of those efforts, the company wasn’t able to get the staffing it needed in the garden center, or in the landscape division, but they made it through.

Labor costs, as a percentage of sales, were much lower in 2020 than in previous years at Sloat, but Stoner says the company has done more hiring in the last 18 months than he can ever remember.

Cross Creek is also hiring more, increasing its starting pay across the board, gave out bonuses at the end of the season as a thank-you for helping them keep the ship afloat. And the staff that remained with the company also received a pay increase.

Looking ahead

The customer demographic for many is skewing younger than before and at Cross Creek, those shoppers are looking for tropicals. The IGC was bringing in a truckload of tropicals each month, once every two weeks at max, now they’re getting a truck every week. And they’re still selling out.

Sloat is seeing the same shift to a younger base. “The fact that we have so many new gardeners that are depending on garden centers for a newfound passion bodes really well for the industry over the next 10 years,” Stoner says. “They have a vested interest in the garden that they didn’t have two years ago.”

And thanks to children staying home from school, many of them were involved in their parents’ newfound hobby, which Stoner hopes will spark a lifelong passion for growing. “It’s the youth who have been exposed to this who might not have loved it before because before, it was a chore. But it was something to do other than FaceTime or Zoom.”

Four or five years ago, Sloat started a kids’ club to help capture young gardeners’ interest. In 2021, they’ve sent more membership cards to the store than ever before. It’s a clear sign that the kids are still interested.

FEWER TRUCKERS MEAN LONGER DELAYS
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Shipping and shortages

Logistics and price increases have made shipping a huge pain point when it comes to both plants and hard goods, particularly imports. According to a global pricing index by London-based Drewry Shipping Consultants Ltd., the average worldwide price to ship a 40-foot container has more than quadrupled in the last year.

And garden centers are seeing the effects firsthand. Cross Creek paid as little as $3,000 for a shipment from Vietnam in past years. Now, it’s anywhere from $11,000 to $18,000, so McAuliffe is holding containers in Vietnam in hopes that prices will go back down.

“I’m constantly in contact with our shipping people over there to see when the price will get better and unfortunately, it just keeps going up,” he says.

Aggressive ordering helped Sloat when it came to imports in 2020 and the garden center is embracing the strategy. The IGC directly imports its signature line of pottery and was lucky enough to have its stores and warehouses packed to the brim in February, right before the pandemic hit, with more booked for delivery.

“By summertime, we were the only company in our area that had pottery to sell,” Stoner says. They’re maintaining that aggressive approach to ensure stock in the future as well, increasing from 30 containers a year to 60.

It’s not just international shipping that’s causing issues. National shipping is also affecting plant costs for Cross Creek, where costs are sometimes twice what they were in previous years. Shipments of tropicals have jumped from $20,000-$25,000 to $30,000-$40,000 and West Coast freights from Oregon are up to $5,000 more.

Thanks to heavy demand and shipping issues, plant shortages continue to plague the industry as they did in 2020 and vegetables, in particular, have been a difficulty for Sloat Garden Center. “We have phenomenal buyers and we set the tone for them early in the pandemic to be super aggressive with whatever they could book for 2021 however early they could do it,” he says, noting that the company went into this year booking more material than ever before.

Because Sloat’s locations are near so many growers, the IGC doesn’t typically need to book material. They don’t have to ship far or even book full trucks. “We’ve been really fortunate there,” Stoner says. “I know that hasn’t been the case for other nurseries around the country.”

Prices and profits

Despite the increases in the cost of doing business, Cross Creek has seen a 24-28% increase in profits in 2020 vs. 2019 and Sloat has seen a “dramatic increase,” according to Stoner.

“I don’t think it was just volume that led to it because we were running a skeleton crew,” he says. “Labor costs were nothing I would ever plan for. Labor costs were lower than you would ever want them to be.”

Also keeping an eye on profitability, Cross Creek sends out a weekly report to each department manager to ensure that items aren’t being undervalued.

“We need to make sure we’re increasing our prices. We can’t sell things we aren’t making money on,” McAuliffe says. “If we weren’t doing that, there are certain key, high-volume items that we probably would not have made much money on this past year and wouldn’t have had the profit margins we ended up having. So generating that report, monitoring our profitability on items closely like we do is super important. I think that’s definitely something that contributed to us being successful and profitable last year.”

It’s definitely something to keep an eye on as plant prices, pot prices, soil prices and more are going up, according to McAuliffe. Since Cross Creek is a grower-retailer, it has been able to control prices somewhat, but the input costs continue to increase and McAuliffe doesn’t see them going back down.

“That’s just going to be an increased cost of doing business,” he says, noting that IGCs will likely need to increase prices as well. “In our industry, pricing is already low, so I think it’s time to start raising some of these prices and hopefully our customers will go with it. If we continue to put out a good product and great customer service, I think we’re okay. We don’t take price increases lightly but when we have to do it, we have to do it.”