Another Angle On ‘Another Timely Topic’

Another Angle On ‘Another Timely Topic’

by $teve Bailey

In last week’s GROUPTalk, you read Robert Hendrickson’s description of how we often have different views of the same subject. Mr. Gray meets Mr. Black and White. And never the two shall meet, right? Most definitely wrong.

Robert started seeing the issue become a problem over a decade ago. If you try to sell to just the same people, those people are either going to shop elsewhere, move away or die. No other possibilities.

That being the case, it’s critical that an effective marketing plan is put into place to keep the existing Customers while attracting new ones.

Attracting ‘new ones’ came to my attention in the numbers about the same time Robert noticed it. As we all know, 2008 was the beginning of the recession. In most cases, Transaction Count began declining at an alarming rate. As you can see in the following chart, the dip in Transaction Count began in 2006, with an odd increase in 2008 (?), followed by four years of annual decrease through 2012. 2013 and 2014 saw increased percentages in Transaction Count, but alarmingly 2015 and 2016 are once again down.

Even more alarming is the cumulative effect of the up and mostly down in Transaction Count.

As a retail segment, using 2005 as a base measurement, we’re still down 14% in Transaction Count in 2016!

The reliance on Average Sale to save the day, at least temporarily, isn’t the best plan of action, either. Take a look at the following Average Sale chart from the P&L Study 2006-2016.

If Average Sale were increasing at a steady pace, there might be something to increasing Revenues in this manner. But this ‘stair step’ performance only allows a few years of hope that Average Sale will trump Transaction Count. Unfortunately, it did not sustain increased Revenues when we’re still lower in Average Sale 2016 vs. 2007.

It took until 2015 for Group centers to rise above 2007 levels. As you can see, the combination of Transaction Count and Average Sale had a definite effect on Revenues and Profitability, as shown in the following chart.

How important are Revenues in Profitability? Compare the Revenue chart above with the Profitability chart below.

Revenues and Profitability are almost mirror images of each other. When Revenues go down, Fixed Expenses eat up Profitability. So do Variable Expenses that are not managed. And this did happen.

How Do We Increase Revenues?

This is the question I answer more times than “How do we increase Profitability?”. This is the moment I think to tell Robert, “Boy, I’m glad your job is to fill the parking lot and mine is to measure and help manage Profitability.”

Let’s look at it from the more traditional approach. The general rule of thumb is if you increase your Advertising cost, more folks will pour in the door and you’ll have increased Revenues. But that doesn’t always work, as evidenced in the P&L Study year after year. You see, there are very Profitable Garden Centers that spend 3.5% of Revenues on Advertising (different from Marketing) and there are Profitable Garden Centers that spend 1.2% of Revenues on Advertising. The amount you spend is not always a good indicator of effective Marketing, it’s just that you spent the number of dollars you spent to try to increase Revenues.

One Ratio we measure in the P&L Study is the Marketing Cost per Transaction. This measures the amount of Advertising Dollars your Garden Center spent to ring up every Transaction. Results vary from a low of 75¢ to a high of over $3.00. Most Centers average between $1.00 and $2.00. Quite a spread, but still not a true measure of Marketing efficiency. I’ll leave it to the Marketing guys to figure how to measure Marketing efficiency. Boy, I’m glad I don’t do that job!

Note:  Next year I will revise the terminology and we will measure Advertising Cost per Transaction!

There are other factors that weigh heavily on whether Revenues increase or decrease. Some you may even argue are a part of the total Marketing effort. These would include your Staff and their ability to offer great Customer Service (time to sign up for Mystery Shop), Product quality, and the overall experience of shopping your facility. All play an important part in whether customers want to shop your Center now and in the future.

One other area I will mention is the overall lack of ‘retail excitement’ I see when working onsite with garden centers. By this, I don’t mean the Staff’s lack of excitement, I mean the Customer’s. When I reply to management’s question on increasing Revenues, I always ask, “why should a Customer shop at your Center?” There are great Staff at other Centers, as well as great Product quality and nice facilities. The difference I see is the lack of an effort to consistently bring the Customer back other than an occasional ‘fire’ sale on overbought inventory or Loyalty events that primarily reduce Margin Percentage and thus Margin Dollars.

You may have missed it in the WDR last week, but there was ‘retail excitement’ at Ellis Home & Garden - Longview in the form of a Pumpkin Glow, as reported by Kevin Raines. This is an event that was started at this store in 2013 that every year keeps getting bigger. It is held on the 3rd Thursday of October from 4pm until 9pm. It's a great family event geared toward young families with small children and is a way to get younger families introduced to their store. They have many photo ops throughout the evening. They have high school kids dress up in themed costumes. Every year they try to come up with new designs or events to keep the public interested to keep coming back and re-experiencing Pumpkin Glow. This year their new thing was a petting zoo, which was a very big hit. They also have bounce houses, a hay maze, a family-friendly scary section, decorating a pie pumpkin, and face painting. They also sell pizza by the slice, popcorn, cotton candy, water, and pickles.

But before the event they have schools bring kids to do a tour. This generally starts around October 1st. This year they had 25 schools that brought out a total of 687 kids and parents to tour the grounds, take pictures, and go thru the hay maze. They read them a Halloween story and they can decorate a pie pumpkin for a small charge. They start setting this up and families start coming out to take family pictures. This year they noticed a lot of families bringing out their pets for ’family’ pictures. This year they also promoted it heavily on Facebook and had an associate do live remotes on Facebook the day of Pumpkin Glow. This really helped to let people see what Pumpkin Glow is and what they had to offer. Derek Ellis said, "Attendance across the event was 7,747 people, generating $7,800 in concession sales, and had a huge impact on that store's monthly sales, not just the day of the event. Their sales also exceeded our larger volume store in Bossier City, LA for the month of October. That’s a trend we have seen since the event began in 2013. FYI the petting zoo cost $450 and generated $1,800 in ticket sales. We charged $3 per kid... pretty neat event!"

While their Average Sale was a bit lower than their Sales Group at $4.04, their Total Sales measured a little over $100,000 for the week (up 33.5%) and their Transaction Count was up 10.1% at 2,291. Look it up, those numbers trumped even larger Centers in the WDR. Who says events can’t lead to increased Revenues and the opportunity to bring folks back for more?

Bringing them back for more means increased Transaction Count. Even though I said I don’t really deal with increasing the number of times a Customer comes through your door, there is a financial management method that will do the trick. It's called increasing Inventory Turns. [To see many more great event photos of Ellis' Pumpkin Glow 2017, find their Facebook Page - Ellis Home & Garden/Photos/Pumpkin Glow!]

Let’s face it, if your Customer sees the same tired merchandise in the same tired display every time they come in your front entrance, how likely are they to return? By increasing Inventory Turns, you always have new, fresh inventory for them to choose from, and they are more likely to want to return to discover what they just can’t live without. Liken this to a produce store, which has one of the highest Gross Margin Return on Inventory Investment in retail. Old produce, declining Transaction Count. Fresh produce in attractive displays, I’m back more often to buy. That’s increased Revenues.

Another side effect of fine-tuning your Product offering and increasing Inventory Turns is limiting choices. You’ve probably heard me talk many times about the effect choice has on a Customer making a decision and actually buying your Product. Offer too little choice, and they expect mass merchandiser pricing and might reject your price. A retail study showed that by offering two sizes of a like item vs. two like items the same size increased buying by 33%. Now that’s increased Revenues.

One the other hand, offer too much choice, and they turn and walk away confused without purchasing anything. That’s missing an opportunity to turn a Customer visit into a Transaction.

I would be remiss if I didn’t mention one more method to increase Revenues, and that’s increasing your Pricing Margin/raising the Retail prices on your Products. If you were in Sid Raisch’s webinar earlier this year, he addressed the fear Owners and Managers have in doing so. Yet, most of the resistance to higher prices is in our own minds, which costs us an opportunity to increase Revenues. There’s an old rule of retail pricing called Weber’s Law, that says a price on a product can be raised 10% before it stimulates a possible rejection to that price. The resistance is in our own heads and not in the Customer’s.

Have you heard the alarm? It’s been sounding in the WDR for a couple of years now. While the Average Sale is increasing, in many cases Transaction Count is down and Revenues decreasing as a result.

While Robert and I may have differing views on a subject, we both have the same goal – success in YOUR Garden Center. There’s nothing more satisfying than seeing a Center become a more successful business through the services The Group provides. Knowing we had a small hand in that success is what it’s all about.


Got questions or need more information about the WDR, P&L Study or your profitability? Give Steve a call or email!

Steve Bailey
Tel: 618.319.9205
Cell: 618.521.5225


Steve Bailey is a service provider for The Garden Center Group and manages all Group financial sharing programs. The Weekly Department Review (WDR) and The Annual P&L Study are exclusives to The Garden Center Group and are included in your retainer!

REMEMBER: Your interaction (by phone and email) with Group Service Providers such as Steve Bailey, Robert Hendrickson, Sid Raisch and Jean Seawright, are included in your retainer! So what are you waiting for? Take advantage of all that The Group has to offer and give them a call or send an email now!

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