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I _ , . ylil.| I -. .Pr . ‘ . - .Et “pg-I ' Illlllllll‘lll‘llllllllllllllfllllll 31293 015814431 LIBRARY Mlchlgan State Unlverslty This is to certify that the thesis entitled An Analysis of Michigan Retail Florist Business Practices and Profits presented by Carolyn Ann Collins has been accepted towards fulfillment of the requirements for Masters . Horticulture degree in (gm-1.0.15.4.» Major prolessor Date 5/9/97 0-7639 MS (I is an Affirmative Action/Equal Opportunity Institution PLACE ll RETURN BOX to remove this chockoutfrom your record. TO AVOID FINES mum on or before date duo. DATE DUE DATE DUE DATE DUE AN ANALYSIS OF MICHIGAN RETAIL FLORIST BUSINESS PRACTICES AND PROFITS By Carolyn Ann Collins A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Horticulture 1 997 ABSTRACT AN ANALYSIS OF MICHIGAN RETAIL FLORIST BUSINESS PRACTICES AND PROFITS By Carolyn Ann Collins Comprehensive industry statistics are valuable tools for today’s small business owners and managers. The traditional full-service retail florist is now competing with supermarkets, limited service flower shops, comer vendors, and telemarketing, catalog, and Internet firms. Though some retail florist business information does exist on a national basis, none specifically addresses Michigan. In March of 1996, a comprehensive business mail survey of Michigan full-service retail florists was conducted with the cooperation of the Michigan Floral Association. The survey focused on 1995 general business operations, delivery services, advertising and marketing practices, staffing and wages, and financial status. Statistical analyses of the initial results showed total wage expenses and occupancy costs to be controlling factors of net profits. The cost of delivery service and wire service membership also affect profitability. Full-service retail florists must examine and modify the cost structure of their businesses to generate the highest possible net profits. To my Grandma Rita, the greatest eclectic gardener in the universe. iii ACKNOWLEDGMENTS I would like to sincerely thank my major professor, Dr. Barb Fails, for her seemingly endless help and advice during all phases of my graduate program. Her unique qualities as a teacher, advisor, mentor, and friend will always be remembered and appreciated. Her insight has helped me see the “big pictures” in life. My graduate committee, Dr. Tom Pierson, Dr. Kirk Heinze, and Dr. John Biembaum, deserve many thanks for their individual perspectives on my research, education, and future career. A study such as this would not be possible without the assistance of the members and staff of the Michigan Floral Association. Their limitless cooperation and knowledge of the industry contributed to the success of this survey. Embarking on this adventure in Michigan was a difficult decision. I would like to thank my family for their moral support and for petting my doggies. Jim Lucas deserves a trophy for all the help he gave me on the survey, but more importantly, he deserves all the best this world has to offer for being my best friend and making life fun. TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES INTRODUCTION CHAPTER 1 1995 MICHIGAN FLORAL RETAILER BUSINESS REPORT Acknowledgments Project Renew Donor Recognition Executive Summary Introduction Industry Overview Survey Methods Survey Results General Business Operations Delivery Service Advertising and Marketing Practices Staffing and Wages Financial Information Discussion Michigan Floral Association Regional Map Literature Cited Authors’ Notes CHAPTER 2 ANALYSIS OF FULL-SERVICE RETAIL FLORIST BUSINESSES BY ANNUAL GROSS SALES Introduction Materials and Methods Results and Discussion Literature Cited CHAPTER 3 THE COST OF DELIVERY vii 63 65 68 84 85 62 SUMMARY AND CONCLUSIONS 93 APPENDIX A SURVEY COVER LETTER 98 APPENDIX B MICHIGAN FLORAL RETAILER BUSINESS SURVEY 99 BIBLIOGRAPHY 110 vi LIST OF TABLES CHAPTER 1 Table l - Survey Responses by Business Description (all regions) Table 2 - Responses by Region Table 3 - Distribution of Businesses by Length of Time in Operation Table 4 - General Location of the Business Table 5 - Floor Space Occupied by Business Table 6 - Business Days of Operation for Full-Service Retail Florists Only Table 7 - Typical Delivery Radius Table 8 - Typical Delivery Fee Table 9 - Delivered Sales Table 10 - Delivery Methods Table 11 - Delivery Times Offered Table 12 - Typical Retail Price of Delivered Packages Table 13 - Wire Service Membership Table 14 - Direct Mail Mailing List Table 15 - Number of Customers on Full-Service Retail Florist Mailing List for Corresponding Annual Gross Sales Category Table 16- Marketing Methods Table 17 - Advertising Media vii 12 12 23 23 24 25 27 28 28 29 29 30 32 32 33 34 35 Table 18 - Computer Applications used by Full-Service Retail Florists Table 19 - Owner Staffing and Annual Salary Table 20 - Owner Annual Salary by Annual Gross Sales Category for Full-Service Retail Florists Only Table 21 - Manager Staffing and Hourly Wages Table 22 - Floral Designer Staffmg and Hourly Wages Table 23 - Salesperson Staffing and Hourly Wages Table 24 - Office Person Staffing and Hourly Wages Table 25 - Delivery Person Staffing and Hourly Wages Table 26 - Benefits for Owners Table 27 - Benefits for Full-Time Employees Table 28 - Paid Vacation for F ull-Time Employees Table 29 - Annual Gross Sales Table 30 - Distribution of F ull-Service Retail Florists by Annual Gross Sales Table 31 - Annual Gross Sales by Total Floor Space Category for Full-Service Retail Florists Only Table 32 - Annual Gross Sales by Retail Floor Space Category for F ull-Service Retail Florists Only Table 33 - Distribution of Annual Gross Sales by Product Category Table 34 - Distribution of Annual Gross Sales by Business Expenses and Net Profits Table 35 - Cost of Goods Sold by Annual Gross Sales Category for Full-Service Retail Florists Only Table 36 - Distribution of F ull-Service Retail Florists by Net Profit or Loss Category viii 36 38 39 4o 40 41 42 43 43 46 46 47 47 48 50 51 52 Table 37 - Cost of Goods Sold by Net Profit or Loss Category for Full-Service Retail Florists Only Table 38 - Net Profits by Total Floor Space Category for Full-Service Retail Florists Only Table 39 - Net Profits by Annual Gross Sales Category for Full-Service Retail Florists Only CHAPTER 2 Table l - Business Description and Number of Responses Table 2 - Comparison of Full-Service Retail Florist Delivery Services by Annual Gross Sales Table 3 - Comparison of Full-Service Retail Florist Owner and Manager Staffing and Wages by Annual Gross Sales Category Table 4 - Comparison of Full-Service Retail Florist Staffing and Wages by Annual Gross Sales Category Table 5 - Comparison of Full-Service Retail Florist Products and Services Sold by Annual Gross Sales Category Table 6 - Comparison of Full-Service Retail Florist Profits and Losses by Annual Gross Sales Category Table 7 - Comparison of Full-Service Retail Florist General Business Operations by Annual Gross Sales Category CHAPTER 3 Table l - Cost Per Delivery and Delivery Fee by Annual Gross Sales Category 53 54 54 66 69 70 71 72 76 82 88 LIST OF FIGURES CHAPTER 1 Figure 1 - Michigan Floral Association Regional Map CHAPTER 2 Figure 1 - Regression Analysis of Outgoing Wire Order Minus Incoming Wire Orders Figure 2 - Regression Analysis of Total Wage Expenses Figure 3 - Regression Analysis of Net Profits 59 73 77 79 INTRODUCTION Comprehensive industry statistics are valuable tools for today’s small business owners and managers. The traditional full-service retail florist is now competing with supermarkets, limited service flower shops, corner vendors, telemarketing, catalog, and Internet firms. Though some retail florist business information does exist on a national basis, none specifically addresses Michigan retail florists. Most information is collected by private organizations and, therefore, is not in the public domain. Also, the majority of research aimed at the retail florist industry traditionally targets consumers or markets, not business practices. Wire service surveys have been the primary source of business data for retail florists, notably the FT D Flower Business Fact Book (F lorists’ Transworld Delivery Association, 1991), the AF S “Annual Wage Survey” presented in Floral Finance (American Floral Services, 1996), and theannual “Floral Industry Trends” article presented in Teleflora’s F Iowersd’: (Teleflora, 1996). The last nonpartisan study of retail florist business practices, Business Analysis of Pennsylvania Retail Florists (V oigt, 1977), was conducted in 1977. This twenty year-old study surveyed 47 retail florists in Pennsylvania to determine costs of goods sold, gross 2 profit, operating expenses, employee wages, and a number of qualitative factors such as family influences on business operations. Focus group studies conducted by the Michigan Floral Association (MFA) during the summer of 1995 revealed a demand by members for detailed Michigan retail florist industry statistics on delivery services, advertising and marketing practices, staff'mg and wages, and financial status. These focus group studies were conducted as a part of Project Renew, an initiative by the Michigan Floral Association to revitalize the organization with greater member involvement. MFA, through Project Renew, partially funded this study and provided valuable industry expertise. The preliminary findings from this study were published in the Michigan Floral Retailer Business Report (Collins and Fails, 1996) and were presented throughout Michigan at the first-ever MFA regional meetings. Objectives: Researchers developed a comprehensive mail survey, according to the Total Design Method (Dillman 1978), to address the following objectives: 1. Create a comprehensive report detailing the 1995 business practices and the financial status of the Michigan retail florist industry. 2. Determine the factors having the greatest impact on the profitability of Michigan retail florists. 3. Recommend appropriate business practices and financial tests for improving net profits. 3 Hypotheses: The following hypotheses were developed to facilitate the overall statistical analysis of data: 1. There are no differences in business practices when responses are grouped by annual gross sales. 2. There are no differences in financial status when responses are grouped by annual gross sales. Survey Population: The initial target population for the survey was all cut flower retailers in Michigan. The mailing sample was constructed from a compilation of the Michigan Floral Association’s mailing list and the Michigan Business Directory (American Business Directories, 1995). To better target the cut flower retailer population in Michigan, the compilation was reduced by the removal of any business name which did not include one of these words or some variation of them: flower, floral, florist, bloom, bouquet, centerpiece, blossom, petals. The following exceptions applied: if the business was known to be wholesale, dried or artificial flowers only, or greenhouse or garden center only, it was removed from the list; conversely, all supermarkets were retained, as well as any business not complying with the name criteria, but known to sell cut flowers at retail. The final mailing list still contained the nine different business descriptions listed in the survey (Appendix B). Due to the limited response rates for most of the business descriptions, the researchers limited the response analysis to Michigan independent, full-service retail florists (those businesses which offer delivery and wire services). Respondents were asked to complete the survey using data from their most recently completed fiscal year, which basically 4 meant 1995 data. The frame the sample was drawn from and the extent of the research instrument were other limiting factors. In Chm, the Michigan Floral Retailer Business Report (Collins and Fails, 1996), a review of the pertinent literature and a discussion of the survey methods are presented. Chaptenz is a manuscript in which business practices and profits with respect to annual gross sales are analde and the factors which contribute most to a retail florist’s profit level are determined. This manuscript will be submitted for publication to HortScience. Chapter}, is an article detailing the cost of delivery services in Michigan and how business owners and managers can improve the profitability of their delivery service. This article was published in the March 1997 issue of Floral Management. CHAPTER 1 MICHIGAN FLORAL RETAILER BUSINESS REPORT 1996 ACKNOWLEDGMENTS Meaningful survey results only occur when businesses take the time to complete the survey questions. We are especially grateful to those 250 retail businesses who participated in the study. They have earned a complimentary copy of this report. Many individuals provided direction and guidance which led to this final report. Their contributions of time and expertise are greatly appreciated. Dr. Kirk Heinze Dr. John Biembaum Dr. Tom Pierson J irn Lucas Marsha Gray Barb Doyal Norm Silk John Gerych Roy Sabo Bob Patterson Bob Moore Kathy Petz Gordy Perkins Virginia Metty Art Bone Dave Loweke Rod Crittenden Brad Jacobsen Bruce Anderson Susan Pagenstecher Ron Frommert Kit Bickes Skeeter Parkhouse Ann Harvey Paul Kraatz Chairperson Interim, Department of Agricultural & Extension Education, MSU Associate Professor, Department of Horticulture, MSU Professor, Department of Agricultural Economics, MSU Graduate Assistant, Department of Agricultural & Extension Education, MSU MFA Executive Vice President MFA Director of Education MFA Project Renew, Blossoms MFA Project Renew, MFA Board of Directors, Gerych Greenhouse, Inc. MFA Project Renew, Sunnyslope F loral MFA President, MFA Project Renew, Patterson’s Flowers MFA Past President, MFA Project Renew, Bob Moore Flowers MFA Project Renew, American Floral Services MFA Project Renew, Perkin’s Flowers MFA Project Renew, Century Florist Supply MFA Project Renew, Kesel Foods MFA Board of Directors, MFA Project Renew, Connor Park Flowers MFA Board of Directors, R. P. Crittenden & Co. MFA Board of Directors, Jacobsen’s Flowers MFA Board of Directors, Moering-Woods Florist MFA Board of Directors, Mary Jane Flowers MFA Board of Directors, American Floral Services MFA Board of Directors, Century Florist Supply MFA Board of Directors, Mummaw Creative MFA Board of Directors, Central Florist MFA Board of Directors, Kraatz Flowers 6 Bill Bliler Jay Porcaro Tim Latimer Sandy Allen George & Rhea Van Ana John Hosek Joe Ferarro Robert Anthony 7 MFA Board of Directors, Gard/Rogard, Inc. MFA Board of Directors, Weber’s F loral and Gifts Sparty’s Flowers, MSU Department of Horticulture, MSU VanAtta’s Greenhouse & Flower Shop Floral Impressions Bancroft Flowers Jon Anthony Flowers PROJECT RENEW DONOR RECOGNITION Funding for this research project was provided from the generous donations of the individuals and companies who shared in the vision of Michigan Floral Association’s “Project Renew”. We recognize these donors, who made a financial commitment by the printing date (September 1, 1996). Ongoing new programs through “Project Renew” require additional funding for start-up expenses, and Michigan Floral Association invites the financial support of all members of the floral industry to achieve its remaining objectives. The John Henry Company Patterson’s Flowers Sunnyslope Floral Perkin’s Flowers Southview, Inc. Dr. Barb Fails Main’s Importing Kraatz Flowers Marsha Gray Don Charuba Co. Avalon Skeeter Parkhouse Hearts and Roses Jim Wilson Creation Flowers Plus American Floral Services Redbook Floral Services Century Florist Supply Rokay Floral Avery Imports Blossoms Ketzler’s Florist Moehring-Woods Florist R. P. Crittenden Great Northern Drug F urnival’s Flowers Jim Doll Mark C. Weiss Parker Floral School Flowers from Sky’s the Limit Moore Greens K Drive Greenhouse Gerych’s Greenhouse DWF of Flint Jacobsen’s Flowers Conner Park Flowers Vogt’s Flowers Mary Jane Flowers Bob Moore Flowers Burgett Floral Kentwood Floral Walt Demey Saline Flowerland Colorco Veronica and Lee Vickers EXECUTIVE SUMMARY In March of 1996, a comprehensive business survey was conducted of Michigan cut flower retailers. Of the 1508 retail businesses targeted, responses from 183 full-service retail florists and 37 combination florist and greenhouses or florist and garden centers are presented. Some highlights (1995 financial records) of regional and overall statewide mean results from full-service retail florists include: $347,366 annual gross sales, 1389 ft2 retail space, 39.6% of advertising budget spent on yellow pages advertising, and $3.53 delivery charge. Additional data and analysis contained within this report provide Michigan floral retailers with a tool to judge their business operations. INTRODUCTION The Michigan Floral Retailer Business Survey was a direct result of focus group studies conducted in 1995 by the Michigan Floral Association’s Project Renew. Project Renew, an initiative to revitalize, refocus, and reinvest in the Michigan Floral Association, launched these focus group studies to identify business topics of concern to members. The four primary categories identified, and incorporated into this study, include sales and financial information, delivery practices, employee wages and benefits, and advertising and marketing practices. Michigan has never had a statewide statistical report on the business practices and profitability of floral retailers, until now. This comprehensive report contains information gathered by the Michigan State University, Department of Horticulture, in a mail survey conducted in March of 1996. A comprehensive survey was developed by Dr. Barb Fails and Carolyn Collins of Michigan State University to obtain statistical information on these topics for floral retailers to use in evaluating their businesses. An advisory group of leading floral retailers provided direction to help make the study most meaningful. Additional expertise was obtained from the faculty at Michigan State University in the departments of 10 ll Horticulture, Agricultural Economics, and Agriculture and Extension Education. This team of experts developed the following objectives: 0 to obtain comparative business data for Michigan floral retailers which would provide a benchmark for individual business assessments - to analyze data with meaningful ratios and comparisons that provide some measure or recommendation on profitability factors 0 to assess the overall financial status of, and economic contribution by, Michigan floral retailers One thousand five hundred and eight surveys were mailed to Michigan floral retailers in March of 1996. Table 2 indicates responses by region (refer to MFA’s regional map on page 59). All responses were kept confidential. Of those 250 returned surveys, 183 were from full-service retail florists, and 37 were from combination florist and greenhouse or florist and garden center businesses (Table 1). This report presents data collected from each of these two business descriptions. Because of the limited response from the other possible business descriptions (limited service flower shops, supermarket floral departments, floral franchises, retail greenhouse or garden center only, dried or artificial flowers only, special events or rental company, gift or novelty store), data obtained fiom these business descriptions cannot be considered meaningful. Results from these latter business descriptions, therefore, are not included in this report. 12 Table 1. Survey Responses by Business Description (all regions) i mm_mgpfim _ ‘ ' ‘ Number or ‘ Percentage—of 5 _ 'jrxm g 2'] Res uses ...Total-Ree seg' Independently owned, full-service flower shop (delivery and wire services) Combination florist and greenhouse or florist and garden center Independently owned, limited service flower shop 7 2.8% (no wire service or delivery) Supermarket floral department 4 1.6% Retail greenhouse or garden center only 3 1.2% Dried and/or artificial flowers only 7 2.8% Special events or rental company 3 1.2% Floral fi'anchise 2 0.8% Gift and/or novelty store 2 0.8% No response given 2 0.8% 1 " Total IL 250 100.0% Table 2. Responses by Region Number ofsurveys 633 151 149 I98 173 204 1508 mailed Total number of 75 32 20 39 35 49 250 responses Overall response mg 11.8% 21.2% 13.4% 19.7% 20.2% 24.9% 16.6% =I=_E l:— ‘ =—: Number of filll- 59 24 12 24 23 41 183 service retail florist responses Number of 14 5 5 4 6 3 37 combination business responses 13 Respondents were asked to answer questions using data fi'om their last complete fiscal year. Therefore, most data, especially financial data, were from 1995. Information compiled from the survey has been sorted into five primary assessment categories: general business operations, delivery service, advertising and marketing practices, wages and benefits, and financial information. Additional information, not directly requested on the questionnaire, was calculated using the given responses. This report is a tool to help you discover industry trends and understand the forecasting of sales, wages, and comparable financial ratios among Michigan florists. Use this information to provide a comparative benchmark on common retail floral business practices, and to assess the contribution certain business practices may have on sales and financial success. While the results of this study specifically benefit Michigan floral retailers, applications may be drawn for florists in other market areas. MFA intends to repeat this study in the future. Terms used to describe the survey data include: Mean: mathematical average of a set of responses (sum of all response values divided by the number of responses) Median: middle number in an ordered set of survey responses Mode: most fiequent response value occurring within a set of survey responses Range: interval between the smallest and the largest values in a set of survey responses INDUSTRY OVERVIEW Limited retail floral business statistics prevent business owners from fully responding to new opportunities. Though some information does exist on a national basis, none specifically addresses Michigan floral retailers. Most information is collected by private organizations, and therefore, becomes their own proprietary data and is not released to the general public. Given the high level of competition in the industry and the turnover rate for newly Opened businesses, accurate business knowledge is critical to success. Wire service surveys have been the primary source of business data for floral retailers, notably the FTD Flower Business Fact Book, the AF S “Annual Wage Survey” presented in Floral Finance, and the annual “Floral Industry Trends” article presented in Teleflora’s F lowers&. F TD reported, in 1986, that flower shops in the East North Central region of the United States had an average annual gross sales of $200,000. Deliveries accounted for 80% of sales, and 26% of businesses had computers (other than Mercury systems) in their shop. Stores were open an average of 53.8 hours per non-holiday week. The Floral Finance study reported in May of 1996, that 1995 average gross sales for US. 14 15 flower shops were $345,705. The average sales floor was 1247 square feet, while the average design area encompassed 795 square feet. Sales averaged $169 per square foot of total shop space. Out of all US. flower shops, only 35.7% offered health insurance coverage to their employees. AF S region 4, which includes Michigan, had the following employee wage averages (over all experience levels): $7.27 for designers, $6.39 for salespeople, $6.97 for office staff, $6.07 for delivery staff, $11.93 for a non- owner/manager, and $14.29 for an owner/manager. In the “Floral Industry Trends” article in January 1996, F Iowers& reported a national value of $14.1 billion in retail sales of floral items in 1995, with average sales per shop of $188,800. Supermarkets accounted for $2.9 billion in gross sales of floral items, with other mass market outlets contributing an additional $3.8 billion in sales. The most recent nonpartisan study of floral retailers available is the Pennsylvania State University report by Dr. Alvi Voigt in 197 7. This study surveyed 47 retail florists in Pennsylvania to determine cost of goods sold, gross profit, operating expenses, and employee wages. A number of qualitative factors, such as family influences in the florist business, were also examined. The Penn State study found that flower shops were more profitable than flower shop/ greenhouse combination businesses. Cost of goods sold generally decreased as sales volume increased, but only to a point. It was higher for those businesses with the highest total sales volume, therefore suggesting either a loss of efficiency or an increase in lower-margin “everyday” flower sales. No similar university studies have been conducted since. 16 Dr. Alvi Voigt has continued to monitor the status of the floral industry. He recently claimed, in the February 1996 issue of the Illinois State Florists’ Association Bulletin, “All US. flower shops averaged $152,550 in sales per shop in 1982; $180,240 in sales per shop in 1987; and $209,180 in sales per shop in 1992.” According to Dr. Voigt, payroll as a percentage of sales for US. flower shops averaged 20.8% in 1982, 21.2% in 1987, and 21.1% in 1992. Prince and Prince Inc, in Columbus, Ohio, conducted a national survey of retail florists in 1993 to measure non-perishable sales. In February 1996, they published an article in Flower News comparing their data with that from a 1983 survey conducted by the late Jerry Robertson at Ohio State University. Comparisons showed a dramatic national decline in non-perishable sales. In 1983, non-perishables accounted for 20.4% of retail florist sales. In 1993, that percentage had dropped to 12.1%. The East North Central region of the US, which includes Michigan, showed a higher than average decline (fiom 22.0% to 12.4% of sales). Prince and Prince noted this decline in non-perishable sales coincided with the expansion of floral mass market operations and discount craft stores. The Produce Marketing Association and the Food Marketing Institute conduct an annual study of supermarkets. In 1989, their survey focused on floral marketing. They found 43% of supermarket floral departments offered limited services, yet accounted for 52% of all supermarket floral sales. Annual floral sales per year averaged $104,950. Supermarket floral departments averaged 24% net profits before taxes, contributing 3% of total store profit. Fifly three percent of supermarket floral departments subscribed to 17 wire services, 62% of which were sending only. SURVEY METHODS Survey Development: Survey questions were tailored to facilitate the grouping and analysis of data. Questionnaire construction and implementation processes followed the Total Design Method as outlined in Don Dillman’s book, Mail and Telephone Surveys: The Total Design Method. The survey was checked for validity and reliability twice; first by members of the Board of Directors of the Michigan Floral Association, and second by a representative group of floral retailers from the Lansing area The survey was modified to reduce ambiguity following each assessment. Population: The target population for the survey was all cut flower retailers in Michigan. The mailing sample came from a compilation of the Michigan Floral Association’s mailing list and the Michigan Business Directory. In order to better target the cut flower retailer population in Michigan, the compilation was reduced by removal of any business name which did not include one of these words or some variation of them: flower, floral, florist, bloom, bouquet, centerpiece, blossom, petals. There were a few exceptions: if the researchers knew the business to be wholesale, dried/artificial flowers only, or greenhouse/ garden center only, it was removed from the list; conversely, all supermarkets were left on the list, as well as any business not complying with the name criteria, but that the researchers knew to sell cut flowers at retail. The final mailing list still contained 18 19 businesses from all nine of the business descriptions listed in the survey (Table 1). Confidence: Encompassing all nine business descriptions, the response level (Table 2) of 250 replies out of 1508 surveys mailed provided a 90% confidence level, with plus or minus 5% precision. The researchers believed this was applicable to the full-service retail florist results as well, but there was no way to verify this. Without knowing specifically how many surveys were sent to each business description (as only business names and addresses were available), no precise statements can be made about the confidence level and sampling error of this study. Mailing Parameters: An announcement card was mailed on February 19th, 1996, to inform the businesses of the upcoming survey and the types of information requested. Two weeks later, on March 5, 1996, the surveys were mailed in a business envelope, along with a cover letter and a postage-paid reply envelope. Reminder postcards were sent on May 2, 1996, to those businesses failing to respond. Businesses which returned their surveys were offered a complimentary copy of this report. Confidentiality: Responses were kept completely confidential. Each survey was imprinted with a code number corresponding to its region and position on the mailing list. Code numbers were used to keep track of the returned surveys for complimentary report mailing and to prevent reminder letters from being sent to those businesses which already returned their survey. No individual researcher had access to both the coded mailing list and the completed surveys. Completed surveys were retained by Michigan State 20 University. Data Analysis: Data were analyzed using the Statistical Package for Social Sciences (SPS S). Descriptive statistics were used to characterize the findings. Inferential statistical analyses, used to determine relationships and differences between selected groups, are not included in this report. SURVEY RESULTS The following results were tabulated from the 183 responses by full-service florists and the 37 responses from combination florist and greenhouses or florist and garden centers. Tables present data for full-service florists by region, as well as by overall totals state total, and for combination businesses by overall state totals only. General Business Operations: Nineteen (10.6%) ofthe full-service retail florists which completed surveys had multiple locations: 4 gave answers for the main store only and 15 answered for all locations collectively. Of the 15 full-service retail florists answering for all of their locations collectively, 8 had two stores, 3 had three stores, 1 had twelve stores, and 6 did not indicate how many stores their answers were for. Responses from multiple- location businesses were merged with the responses from single-location businesses and analyzed as a single business response. Most of the floral retailers who responded (49.4%) reported being in business for over 20 years (Table 3). One-third (33.0%) of all businesses were in a suburban location (Table 4). 21 22 Mean total store space for full-service retail florists was 3124 fiz, allocated as 1389 ft2 for retail sales area, 740 ft2 for work area, 825 ft2 for storage area, and 170 ft2 for office area (Table 5). Over three-fourths (77.5%) of full-service florist businesses were open Monday through Saturday (mean of 6.2 days per week), for an average of 9 hours per day, or an average of 55.8 hours per week (Table 6). Mean total store space for combination florist and greenhouse or florist and garden center businesses was 6906 fiz, allocated as 5116 ft2 for retail sales area, 625 it2 for work area, 867 fiz, for storage area, and 298 ft2 for office area (Table 5). mafia... 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O8 08 o8 o8 82.. 8v .8 8.. 88 88 88 88 8° 8.8... 88 8. $8 88 E 88 .8 .8 52.. 525.83 a 82. 88 88 88 fiancee. 88 waIIIIIIL 8.: .8. 8m. 8.. 8. 8.: 8o. 8.. 82.. 82 .8. 8.. 8.: 88 8. . 8.: 8.. 5.8... e. 8 82 ea. 8.. 8: 8m. 8... 8... 82.. 8.: =53. 3.... 0 n v m u . 8080525 . 8:2...an .83 2.8 E... 8.8.. 3 into... =33. 8.52.5. 3.8 .8... 23m G00.— 0....._... .5 30......5 .3 $03500 3an 30—h .m flash 25 .85 . .2... . a . . j .w , , . ¥ , x .. A. A 5:5.3331§§f_ _ _ . .. _ a§eam,‘.fiawe@m§ ; . 5an guaeefiflszmm... . . 5.8 - :0: $5 t {if 3.39:8 :98 5 82.2.8.— 2. 2.3.35 28 33.5:— =50¢ 03>..th .Su acBEomO we 9:5 82:25 6 03:. 26 Delivery Service: Full-service retail florists delivered a mean of 65.9% of their retail sales, with most deliveries being 5.4 to 7.5 miles from the store for a fee of $3.42 to $3 .53. These deliveries were usually made by an employee who drove a business-owned vehicle. Over 95% of full-service retail florists offered both morning and afternoon delivery, with almost one-third (30.4%) additionally providing express delivery service. Full—service retail florists typically delivered a mean of 24.7 packages per day (median = 15.7, mode = 24.0). The mean typical retail price of a delivered package was $28.77. Combination florist and greenhouse or florist and garden center businesses delivered 57.6% of their retail sales, but at a distance of 4.5 to 6.5 miles for a fee of $3.31. Over 97% offered both morning and afternoon delivery, with more than one-fourth (26.5%) also providing express delivery options. The mean typical retail price of a delivered package was $29.55. 27 o.»— mdm nén 9.: o.”— od 3 m a.“ 2: we one... no 6:0 k3 5.3.5.30 aaum8..>...om.=m. 3:5. .32.»: 335.2 52. 8...: a. 3...... 52...: .825. s 2.5 3 .88 u .88 .88 .88 8.8 8.8 8.8 .88 83.. 8.6.3. .89.»... 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The most frequently used marketing methods utilized by both business descriptions included in-house holiday specials and open houses. The greatest share of advertising dollars was spent on yellow pages advertising followed by newspaper advertising. Twenty percent of all floral retailers played solitaire on their store computers ©. w coma ongv mag Onwam mghm 8mm 3%: ¢m8¢ ems. an: ccov . 8m 8m can oocm 8m 8m 8m H 08... "5:2: .3 M 1 A w 8N. _ man. 8.. on” mth can _ an: 8n _ 5:6... E05325 A NNmm H when ant meme 23 mm: mnhm Nmmm H :3... be Lona—.2 -1$..1...1mi111 $m.mn $o.m.m-1 1 $03 $3. - '11.m\.1..m..1m1m1--11-.Nm.e1e1 1 law... .811 1110.1 1...... .=m.a11.8..wm.1.311§81m.mam1 1 1 - 11......1 11.11 .111 1 11111 -11 14......»1111.-11_.11| 1111 -11-- 11 1- -- - I- -1- 11 830525 “hwy an, .., 1.. 1....111.|.1. 1. 1.1.1.1411..-11l1...1l1.111111111l1l..1.1.1|.--11|i11|1111l noun—.3300 _. 1 30,—. 83m 6.... 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Managers of full-service retail florist businesses typically earned $9.51 per hour, compared to $11.48 per hour earned by combination florist and greenhouse or florist and garden center business managers. Floral designers working for full-service retail florist businesses typically earned $7.62 per hour compared to $8.62 per hour earned by designers at combination florist and greenhouse or florist and garden center businesses. F ull-time employees of full-service retail florist businesses could not expect to be offered any benefits. However, most full-time combination florist and greenhouse or florist and garden center business employees (61.8%) received health insurance. Full-time employees of both business descriptions received between 1 and 1.8 weeks of paid vacation per year. Note: In some cases, the typical salary reported was not within the high and low reported salary range. 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Mean business expenses for combination florist and greenhouse or florist and garden center businesses included 43.1% for cost of goods sold and 27.5% for labor; mean net profits were 2.5%. 2.2 w 828% .26 2.2.: m 25.88 2 .383 2.23 _ Saga 2 8.28% 2.2....” . 25.83 2 .228; 22.3 _ I 25.8; 2 a gun—h :80: gtumésm he 2.3.3.: A , _ _ . I 522 2.223 3.8323 8.2 :23 5 82:38.. me 2.3.35 81% 2820 has-=2 .3 «auto:— :8o~— oomtuwI==h we 33.55%: .cm 032,—. Idocwncx I-_I8mN¢m~I« -wmwmwmuntWWo _I«-IomoInIcI_I._wInuo-wou¢wwm«nfl Iomoflawmlommomwal IiIIIl lIilli WISIEII 828...; _ 8283 25.33 82.5 828% 82.3; 25...: 82°22 22.. 28.22% 822% 8.225 25.2% 828% 25.8; 2 25.82 82.3.3 _ 2282 28.83 8232 $2.33 8223 22:3 822% v 8283 32:3 “ 222 82.2225 .25 22.2- 2... E .2 .. 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M .- . . .... 2..— gofl «grown: _ 8:9:— aoz filo gflaufl 803 Ana—an .353 «a 2.3.33 flask 32 65. 332—12 82:25 3 83m 39.0 :35 no Hausa—Ema .3. 031,—. 51 $0.3 $_ 6m $v.wm , 25.83 .53 $6.9 $5.3 $mfim 25.83 3 25.83 $c.o¢ $ch $Ndm H 25.83 8 25.83 $93 $cdm $6.5m 8¢6cma 3 25.85 $93. $5.; $an $8.85 8 cm Ame—am 2353 a: .5935 2:0 manta—h =33— uomtomésh he Ecwoaao 33m $95 3:52 .3 2.5 325 a: :80 .mn ~35. $5... $2. — ”SEE $5. B $9— $v.v $2 8 ESQ “oz .850 3:: =33. £52.} . . ‘ ‘ {3:933:59 .. m a /. 5:25:50 3:9:— 32 E... 830mm”.— «852.: 5.83 .3. as“... 52 gm.» 55 can 0.008% 93 Ea:— $o.v E020m 0.2 3 o.N_ ESQ :66 E028 «0.: 8 QB EOE cams E023 ad 2 o.w ESQ $¢.n E020; m6 8 0.0 505 $2: E020n ad 8 Q». 595 $5: E083 QM o. QN €05 oi: E083 a; 8 _.o E05 $02.. E022. cd Rad E083 _.o 8 QN 32 food E028 QN 9 ad 08— ,fljafigflllgum be 5 8Q.— ..o 50...— «oz 3.8903 £000 5 82:53.. no 0:09.05 Ecwsuo 03‘— ..e 5?:— .02 3 $3.8—h =80“ 00mE0wu==h no acusntuma 6m 03:. 53 5 mm 9.9.9 9.» mm fi 96 99 9899. 0.: 985 9.0.8 9.0.9. 9.0.9. _ .899. 0.2 9 0.2 Esq o\ow.mm £093. $0.9. 0:09.09 Q: 9 c6— EOE 9: .2 9.9% 9.0.3. + 982 ad 9 o.» 9.35 .xo 8 9.99. 9... mm = 909% 3 9 0.0 9090 9.0 3 9.0.2 9 .x; mm _ .899. an 9 3. 9.990 .9. mm 9.2; .9. 3 fi 282 mm 9 3. 9.990 9: a $08 .9. 3 — «Sea 3 9 2. £25 .9. cm A 99.3 :0 R _ .5909 o... 9.0 2 9.0.9. 9% 3 9.895 3 9 3 99 “sea 3 9 3. b.3300 83 .3 EB.— .02 A023 235:. a: 0:09.03 83.85 :39."— 3E0m.==h 08 bonus-G 03a— .8 «no...— EZ .3 30m 33w 3 .30 Km 030,—. 54 .32 Ba 5th 53 moms—ea owed”— ”802 9.2. 9.2 9.3 d 95.83 .26 9.3 9.3. 9.3 8983 9 gas.“ 9.65 9.3. 9.3 8983 9 .382 9.3 9.3. 9.3 a 898% 9 8985 9.3. 9&5 9._ .v 8985 9 a ., @392. .3692 :32 I ; . : .. 99590729....2asyluoEomésm w. I. I ,. I raga-6.59.5125 9.3 9.3 9.5 .26 us. .9 82 9.3 9....N 9.2. .9 33 9 83 9.3. 9.3 9.3. .9 3% 9 82 9.o o 9... o «a a: 9 c I I I I III-....§II . .._..I9IIIIII “I I I- . II. , III I I mmmwwuwm .EcEwMuwIfitfiiuI I- I II II I- ransau 8.3m .8...— .98. Ame—an 155:. .3 2.3.35 83.8:— 333— oumtomA—ah .Su beware 3an .82..— _89.—. .3 89:9 .02 .mm 033—. DISCUSSION Data reported in this study are comparable to earlier studies conducted by Floral Finance, F TD, and Alvi Voigt. Subsequent studies sponsored by the Michigan Floral Association and Michigan State University will provide trend analysis for Michigan floral retailers. In summary, full-service retail florists in Michigan generated mean annual gross sales of $347,366 in 1995, from which 4.4% mean net profits were realized. Twenty percent of these businesses reported net profits of 10% or higher. Alvi Voigt reported that national annual gross sales of flower shops was $209,180 in 1992. By comparison, and allowing for inflation, annual sales from Michigan full-service retail florists appear to be nearly $100,000 higher than the national average. However, the most recent Floral Finance report noted 1995 mean national annual gross sales for retail florists were $345,705. Their conclusions more closely align with those in this study. Given the mean retail floor space of 1389 93, and mean annual gross sales of $347,366, calculated sales of $250 were generated from each square foot of retail space. Examining the total store area, this calculation becomes $134/fl2. Floral Finance reported 1995 annual sales of $169/ft2 of total store space. This figure may be used as a comparison for business expansion. At a mean 7% occupancy cost, retailers spent 55 56 $26,416 annually (or $2201 monthly) for a mean total store area of 3 124 flz. Mean calculated occupancy cost was $8.46/fl2 overall. The mean 34% of sales in fresh arrangements and 7% of sales in artificial flowers were produced by 1.7 full-time, and 1.4 part-time floral designers who earned $7.62/hr. Considering these two sales categories as “designed” products, each floral designer produced a calculated $28.53 designed product value per hour. Labor as a percent of sales at 25% overall (both owners and employees) was higher than that reported by Alvi Voigt (21% of sales for 1982, 1987, and 1992). Owners earned an average annual salary of $23,806 flow the business, while managers earned $9.51/hr. Owner personal income directly correlated to annual gross sales; owners of businesses generating over $800,000 in annual gross sales typically earned $39,388 annually. Productivity and efficiency of stafi‘, along with low wages, demand further examination and attention. Full-service retail florists spent 40% of their advertising budget on yellow pages advertising. This was followed by 22% ad budget expenditure on newspaper, 8% on direct mail, and 8% on radio advertising. In-house holiday specials, open houses, and 1- 800 telephone numbers were marketing techniques used by the majority of lull-service retail florists. Typical full-service retail florists had a customer database of 3475, although only 38% used direct mail advertising. Of the limited dollars available for advertising (4.1% of sales), retailers must question the impact of these media on maintaining and generating sales. 57 Michigan full-service retail florists delivered products a typical radius of 5.4 to 7.5 miles from the store, generally in a business-owned vehicle. Mean delivery charges varied by region, from a low of $2.24 in region 6, to a high of $4.78 in region 1. Overall, 66% of full-service retail florist sales were delivered, at a mean package value of $28.77. Daily, a mean total of 25 packages was delivered in the morning and afternoon; nearly 30% of full-service retail florists additionally delivered during evening and express times. It is noteworthy that some retailers reported delivery charges in excess of $10. The range of delivery charges within a given market area provokes discussion regarding market strategy and profitability of delivery service. The question regarding the appropriate charge for delivery must be assessed by individual businesses. However, these data suggest that a typical, full-service retail florist paid $5.95/hr. for an average of 54 delivery-person—hours/week, or $321 weekly for this labor. Add related payroll expenses to derive an estimated minimum $428 total delivery labor expense per week. Add a weekly average vehicle cost of $334 to this amount for an estimated weekly delivery total cost of $762. By delivering an average of 25 packages a day, over 6.2 days/week, it can be calculated that 153 deliveries were made weekly. Therefore, a rough estimate of actual delivery cost per package for a typical business may have been $4.98 or more. This figure does not include a profit margin for the service offered. And finally, although the exact number of independent full-service retail florists in Michigan cannot be determined, it is estimated by this study to have included 1104 58 businesses in 1995 (1508 identified as cut flower retailers with 73.2% of survey respondents identified as independent full-service retail florists). It may be estimated that the independent full-service retail florist businesses in Michigan contributed $383.5 million in sales to the economy in 1995. OW m P/ Q , .9. ...... 1 "°" , we W m \ REGION SIx W m ’ Nun f j ‘9) mm mm WOO hours-3100 ARM 6 m am keen ‘ - REGION SIX J m moan W m can-- y “‘30” all : mercu- m W ' I m “m um. W M IIOOUW 1 “,0, mar-a I REGION FIVE f‘; REGION FOUR | am «mm M" . MI 0,...“ | cute?“ A.“ : 0AA” ura- Inc-u limit» Wm i REGION ON mom I w cum REGION THREE ‘4. fl mu. m l ml um Figure 1. Michigan Floral Association Regional Map 59 LITERATURE CITED American Business Directories. 1995. Michigan business directory. American Business Directories, Omaha, NE. American Floral Services. 1996. 1996 Annual salary survey: where do you stand?. Floral Finance 15(5):3-8. American Floral Services. 1997. Floral Finance 16(1):2. Dillman, D. A. 1978. Mail and telephone surveys: The total design method. Wiley- Interscience Publ., New York, NY. Florists’ Transworld Delivery Association. 1991. F TD Flower business fact book. Florists’ Transworld Delivery Association, Southfield, MI. Prince, Tom, and Tim Prince. Florists’ non-perishables component shows decline. Flower News. February 1996. Produce Marketing Association and Food Marketing Institute. 1990. 1989 Survey of supermarket floral retailing. PMA and FMI, Washington, DC. Redbook Florist Services Educational Advisory Committee. 1994. Retail flower shop operation. 2"‘1 ed. Redbook Florist Services, Paragould, AR. Teleflora. 1996. Floral Industry Trends. F lowers& 17(1):88, 90. Voigt, AD. 1977. Business analysis of Pennsylvania retail florists. Pennsylvania State Univ., University Park, PA. Voigt, Alvi 0. Flower marketing information: some data about the biggest US. retail florists.” Illinois State Florists’ Association Bulletin. March 1996 60 AUTHORS’ NOTES Dr. Barb Fails is Assistant Dean and Assistant Director for Outreach, College of Agriculture and Natural Resources at Michigan State University. She taught floral design and retail florist and garden center marketing in the Department of Horticulture for 12 years, where she also coordinated the Commercial F loriculture program in the Institute of Agricultural Technology. Under her direction the on-campus flower shop, “Sparty’s Flowers”, was created in 1987 to provide practical instruction to students studying retail floriculture. She served as Educational Coordinator for the Professional Plant Growers’ retail special interest group, and as Chair of MFA’s “Project Renew”. Barb has also been a regular contributor to the Michigan Florist magazine. Carolyn Collins is a Graduate Assistant in the Department of Horticulture at Michigan State University. She received her BS. degree in Plant Sciences from the University of Arizona in 1995. Carolyn has participated in other MFA “Project Renew” endeavors, and serves as teaching assistant for the College of Agriculture and Natural Resources senior-level capstone course. Her professional interests are in horticulture business management and marketing. The completion of this survey and final report is due largely to her efforts, and form the basis of her M.S. thesis. It is the authors’ view that continued efforts to provide current business statistical information are important to the future of the floral industry. For without comparative business data, entrepreneurs lack the full means by which to make critical business decisions. 61 CHAPTER 2 ANALYSIS OF MICHIGAN F ULL-SERVICE RETAIL FLORIST BUSINESSES BY ANNUAL GROSS SALES by Carolyn Collins, Barb Fails, and Oliver Schabenberger 62 INTRODUCTION Current and meaningful business statistics are valuable tools for business owners and industry researchers alike. Most information is collected by private organizations, and therefore, is not in the public domain. Also, the majority of research aimed at the retail florist industry targets consumers or markets, not business practices. Wire service surveys have been the primary source of business data for floral retailers, notably the FT D Flower Business Fact Book (F lorists’ Transworld Delivery Service, 1991), the AF S “Annual Wage Survey” presented in Floral Finance (American Floral Services, 1996), and the annual “Floral Industry Trends” article presented in Teleflora’s F Iowers& (Teleflora, 1996). The last nonpartisan study of retail florist business practices, Business Analysis of Pennsylvania Retail Florists (V oigt, 1977), was conducted in 1977. This twenty year-old study surveyed 47 retail florists in Pennsylvania to determine costs of goods sold, gross profit, operating expenses, employee wages, and a number of qualitative factors such as family influences on business operations. Focus group studies conducted by the Michigan Floral Association, as a part of Project Renew, indicated a demand by members for comprehensive business statistics. Though limited retail florist business information does exist on a national basis, none specifically addresses Michigan retail florists. The objectives of this research were to identify those 63 64 business factors which best describe the Michigan, full-service retail florist businesses within annual gross sales categories and determine selected predictors for financial success. MATERIALS AND METHODS A comprehensive survey was developed and tested to obtain 1995 statistical information on general business operations, delivery services, advertising and marketing practices, staffing and wages, and financial circumstances. Questions were tailored to facilitate the grouping and analysis of data. Both construction and implementation processes followed the Total Design Method (Dillman 1978). Validity and reliability of the survey were checked with two focus group studies; first by members of the Board of Directors of the Michigan Floral Association, and second by a representative group of floral retailers from Lansing, Michigan. Questions were modified to reduce ambiguity following each assessment. The initial target population for the survey was all cut flower retailers in Michigan, although only selected results from independently owned, full-service retail florists are presented here. The mailing sample was constructed from a compilation of the Michigan Floral Association’s mailing list and the Michigan Business Directory (1995). In order to better target the cut flower retailer population in Michigan, the compilation was reduced to 1508 listings by the removal of any business name which did not include one of these words or some variation of them: flower, floral, florist, bloom, bouquet, centerpiece, blossom, petals. The following exceptions applied: if the business was known to be 65 66 wholesale, dried/artificial flowers only, or greenhouse/garden center only, it was removed from the list; conversely, all supermarkets were retained, as well as any business not complying with the name criteria, but known to sell cut flowers at retail. The final mailing list still contained nine different business descriptions (Table 1). Table 1. Business descriptions and the number of responses. I M Business Description Number of Responses Independently owned, full-service retail flower shop 183 (wire services and delivery) Independently owned, limited service flower shop 7 (no wire service and/or no delivery) Combination florist and greenhouse or florist and garden center 37 Supermarket floral department 4 Retail greenhouse or garden center only 3 Dried and/or artificial flowers only 7 Special events or rental company 3 Floral franchise 2 Gift and/or novelty store 2 No response given 2 Total 250 Announcement cards were mailed on February 19th, 1996, to inform businesses of the upcoming survey and the types of information requested. The actual surveys were mailed two weeks later along with a cover letter and a postage-paid reply envelope. Reminder postcards were sent on May 2, 1996, to those businesses failing to respond by that date. The deadline for the return of the surveys was May 15, 1996. Businesses which returned surveys were rewarded with a complimentary copy of the Michigan Floral Retailer Business Report (Collins and Fails, 1996). 67 Responses were kept completely confidential. Each survey was imprinted with a code number corresponding to its region and position on the mailing list. Code numbers were used to keep track of the returned surveys for complimentary report mailing and to prevent reminder letters from being sent to those businesses which already returned surveys. No individual had access to both the coded mailing list and the completed surveys. Completed surveys were retained by Michigan State University. Two hundred fifty responses were received across all nine business descriptions out of the 1508 surveys mailed. This is sufficient to provide confidence estimates with 5% precision and 90% coverage probability for most variables. It is reasonable to expect similar confidence for the stratum of full-service retail florists, although verification is precluded by not knowing the actual number of full-service retail florists who received a survey. The 183 full-service retail florist respondents were post-stratified in annual gross sales categories to homogenize sample size per category. Mean values were determined for each question in the survey by annual gross sales category. Only select variable data are presented in this paper. Differences between the category means were determined by analysis of variance methods, excluding responses with missing information for particular variables on an analysis by analysis basis. This causes slight variation in the effective sample size for each analysis. Tukey’s HSD at the 0.10 significance level was used to adjust for multiplicity in mean separations. Standard regression procedures were performed on selected variables with respect to annual gross sales. RESULTS AND DISCUSSION Survey results were divided into annual gross sales categories to facilitate the determination of variables having the greatest impact on a business’s profitability. These annual gross sales categories were: low ($100,000 - $199,999), middle ($200,000 - $399,999), and high ($400,000 and over). Delivery: Neither the average delivery radius, delivery fee, nor percent of sales delivered were statistically different among the annual gross sales categories (Table 2). There appeared, however, to be an increase in delivery fees with increasing annual gross sales categories ($3.23 low, $3.44 middle, $3.76 high). The average retail price of a delivered package increased similarly with annual gross sales ($26.86 low, $29.99 middle, $32.31 high), the price being significantly greater if annual gross sales exceeded $200,000. The trend in cost per delivery was not monotonic in annual gross sales. Businesses in the lowest annual gross sales category exhibited significantly higher costs per delivery ($5.88 low) than those in the two higher annual gross sales categories ($3.49 middle, $4.08 high). Businesses failed to recover delivery costs through the associated fee. Evaluation of a business’s delivery service is necessary to establish appropriate fees and to control costs (Collins and Fails, 1997). 68 69 Table 2. Comparison of full-service retail florist delivery services by annual gross sales category Variable $100,000 to $200,000 to $400,000 $199,999 $399,999 and higher Number of responses 44 42 39 per category Delivery radius - 5.6’ 4.9“ 6.2” average (miles from store) Delivery fee - average $3.23" $3.44‘I $3.76a Percentage of sales 68.5‘I 70.1’ 64.6'1 delivered Retail price of a $26.86“l $29.99” $32.31” delivered package (average) Cost per delivery 5.88‘ 3.49b 4.08b Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=0.1. Staffing and Wages: Businesses in the lower two annual gross sales categories were owned by an average of 1.1 and 1.3 full-time equivalent (F TE) individuals respectively, while businesses in the higher annual gross sales category were owned by 1.9 FTE individuals (Table 3). The average salary per owner increased from $19,955 to $29,569, an overall increase of 48.2%. Although the various employee hourly wages increased with annual gross sales, the differences among categories were not found to be statistically different (Tables 3 and 4). Average 1995 Michigan hourly wages for owners and managers of $11.45 and $9.51, respectively (Collins and Fails, 1996) were lower than the national averages of $14.29 and $11.93 reported in Floral Finance (American Floral Services, 1996). Michigan floral designers, office staff, delivery staff, and salespeople were paid approximately the same hourly wage ($7.62, $7.31, $5.95, $5.86 respectively) 70 as the national average for these employee categories ($7.27, $6.97, $6.07, $6.39). Table 3. Comparison of full-service retail florist owner and manager staffing and wages by annual gross sales category m Variable $100,000 to $200,000 to $400,000 $ 199,999 $399,999 and higher FTE Owners 1.1'I 1.3" 1.9b Owner salary - typical $19,955a $25,397ab $29,569” (per person) FTE Managers 03' 0.5“ 15" Manager hourly wage $8.32' $9.43' $10.79' - typical Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=O. 1. FTE: full-time equivalent Businesses in all of the annual gross sales categories were paying their floral designers similar wages (Table 4). The sales of arranged flowers and products per FTE designer were also not significantly different, although the number of F TE designers increased linearly with annual gross sales. Businesses in the two lower annual gross sales categOries paid their sales staff similar wages. Sales per FTE salesperson were not found to be significantly different for these lower annual gross sales categories. Businesses in the highest annual gross sales category paid their sales staff a significantly higher wage ($6.34), while sales per FTE salesperson were also higher ($392,963). This trend of paying employees higher wages, while gaining higher sales per employee, also applies to the delivery driver category. Table 4. Comparison of full-service retail florist staffing and wages by annual sales category Variable $100,000 to $200,000 to $400,000 $199,999 $399,999 and higher FTE floral designers 1.1II 2.0’ 4.4" Floral designer hourly $7.52“I $7.62” $8.32“ wage - typical Arranged annual $74,289“ $82,088a $1 15,879“ gross sales per FTE designer FTE sales staff 0.8“ 1.0’ 3.2” Sales staff hourly $5.69’ $5.50” $6.34b wage - typical Total annual gross $128,191” $250,717‘ $392,963b sales per F TE salesperson FTE office staff 02" 0.3' 12" Office staff hourly $5.46‘ $6.59' $8.58b wage - typical FTE delivery drivers 0.9‘I 0.9‘ 2.2" Delivery driver hourly $5.20‘I $5.82‘ $6.66” wage - typical Delivered annual $117,480a $259,687” $294,287b gross sales per FTE delivery driver Annual gross sales $5.45’ $4.01” $3.47” generated per dollar wage expense Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=0.1 FTE: full-time equivalent Products and Services Sold: Products and services sold, expressed as a percentage of annual gross sales, did not differ statistically among the three annual gross sales categories (Table 5). One exception was the mathematical difference between outgoing and incoming wire orders. For businesses in the two lower annual gross sales categories, 72 the outgoing wire orders minus the incoming wire orders figures were -2.9% and -O.3% respectively. They had more incoming wire orders than outgoing wire orders. Businesses in the highest annual gross sales category had significantly more outgoing orders than incoming (3.8%). Linear regression techniques were performed to link outgoing minus incoming wire orders to annual gross sales (Figure 1). The significant linear relationship (p=0.08) showed outgoing and incoming wire orders were approximately equal at $407,000 annual gross sales. The linear correlation coefficient, although significant, was rather low due to large variability of the difference between outgoing and incoming wire orders for a given annual gross sales figure. Table 5. Comparison of full-service retail florist products and services sold by annual sales category (expressed as a percent of annual gross sales) _ t m Variable $100,000 to $200,000 to $400,000 $199,999 $399,999 and higher Fresh cut flowers - by 12.4“ 12.9“ 13.0“ stem or bunch Fresh cut flowers - 35.9“ 35.6“ 35.0“ arranged Plants 14.6“ 13.7“ 12.9“ Dried and silk 8.0“ 6.6“ 5.7“ arrangements Gift items 6.8“ 6.3“ 8.7“ Service 3.6“ 4.4“ 5.6“ Outgoing wire orders 8.8“ 10.6“ 11.1“ Incoming wire orders 11.7“ 10.9“ 7.3“ Outgoing minus -2.9“ -0.3“b 3.8“ incoming wire orders Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=0.1 73 14 I r=o.171, p=0.083 12 10 + Outgoing - incoming wire orders 00 (I) 500 1 000 ‘l 500 2000 2500 3000 Annual gross sales (in $1000) Figure 1. Regression analysis of outgoing wire orders minus incoming wire orders (expressed as a percent of annual gross sales). 74 Generally, sending stores earn 20% commission on all wire orders (Redbook, 1994). The wire service retains 7% of the purchase value. Receiving stores fill the orders at 100% of the purchase value, but are given only 73% of that value by the wire service. Businesses with more outgoing orders than incoming orders have lower direct costs associated with wire services and therefore, tend to be more profitable. Those businesses that receive more incoming orders than they send are possibly losing a considerable amount of money and adversely affecting their net profits. There are numerous sending-only services in operation today. Telemarketing and Internet firms like 1-800 Flowers and FTD Online are making it difficult for receiving florists to break even on wire service orders. These sending-only wire services are keeping not only the standard 7% fee, but also the 20% sending commission. Business Expenses and Net Profits: The cost of goods sold (COGS) and the advertising expenses were not significantly different for businesses in any of the armual gross sales categories (Table 6). Cost of goods sold has long been considered a factor controlling retail florist business profitability. Our findings suggest COGS is not as important as is commonly thought. Significant differences among annual gross sales categories were found for the mortgage and utilities (occupancy costs), the total wage expense (owner and employees combined), professional memberships, store improvements, delivery vehicle expense, and net profits. Occupancy costs decreased as annual gross sales increased, even though the higher annual gross sales categories had larger stores. Total wage expense increased as annual gross 75 sales increased (23.0% low, 26.4% middle, 29.8% high), but businesses in the higher annual gross sales categories employed more people and generally paid them more. They also realized higher sales per employee. Linear regression techniques were performed to link total wages expense to annual gross sales (Figure 2). The regression indicated a significant quadratic relationship (p=0.006). The total wages expense reached a maximum of 33.3% of annual gross sales at $1.4 million annual gross sales. The variability of total wages expense was large, causing a small, but still significant, coefficient of determination. Delivery vehicle expense decreased with increasing annual t‘ .. gross sales (6.0% low, 4.5% middle, 3.7% high). Businesses in the higher annual gross sales categories may have delivered more sales out of the same amount of inputs (vehicles, fuel, and maintenance) than businesses in the lower annual gross sales categories. 76 Table 6. Comparison of full-service retail florist profits and losses by annual gross sales category (expressed as a percent of annual gross sales). m Variable $100,000 to $200,000 to $400,000 $199,999 $399,999 and higher Cost of goods sold 38.0“ 39.2“ 38.1“ Mortgage or lease 9.2“ 7.7“ 3.8“ Utilities 6.3“ 4.0“ 2.7“ Occupancy costs - 15.5“ 11.7“ 6.5“ mortgage or lease plus utilities Employee wages 15.6“ 18.7““ 23.1“ Owner salary or draw 7.4“ 7.5“ 6.5“ Total wages - owner 23.0“ 26.4““ 29.8“ plus employee Advertising and in 3.9“ 3.9“ 4.3“ store promotion Professional 3 .7“ l .4“ 1 .7“ memberships, dues, subscriptions Store equipment, 4.7“ 2.4“ 2.8“ improvements Delivery vehicle 6.0“ 4.5““ 3.7“ expense Other 4.9“ 5.0“ 7.5“ Net profit or loss 1.7“ 4.5““ 6.8“ Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=0.1 77 3“ I mass, p=0.005 32 ~— 30 ~» 28 .- Total wage expenses 26 I 24 ._ 22 ~~ 20 I . i I + I 0 500 1000 1 500 2000 2500 3000 Annual gross sales (in $1000) Figure 2. Regression analysis of total wage expenses (expressed as a percent of annual gross sales). 78 Net profits tended to increase with increasing annual gross sales (1.7% low, 4.5% middle, 6.8% high). Results of the significant (p=0.05) linear regression of net profits on annual gross sales (Figure 3) predicted that for every $100,000 increase in annual gross sales, there was a corresponding 1.44% increase in net profits. 79 12 T r=0.210,p=0.050 10 + 3 n H ‘3 a 6 4 H 0 Z 4 n 2 n 0 + . + 1 l 4. 0 500 1000 1500 2000 2500 3000 Annual gross sales (in $1000) Figure 3. Regression analysis of net profits (expressed as a percent of annual gross sales). 80 Further Considerations: Labor and occupancy costs appeared to have the greatest effect on business health among the annual gross sales categories. Floral Finance (American Floral Services, 1997) recommends total wage expense as a percentage of annual sales to be kept below 30%. For businesses in the highest annual gross sales category, total wages accounted for 29.8% of annual gross sales, whereas businesses in the lower two annual gross sales categories had total wages expenses of 23.0% and 26.4% respectively (Table 6). This trend of increasing labor costs at first does not appear to effect overall profitability as businesses in the highest annual gross sales category still had the highest net profits. By using the reported annual gross sales figures and the total wage expense as a percentage of annual gross sales, the researchers calculated the total annual gross sales generated per one dollar spent on owner and employee wages. Businesses in the lowest annual gross sales category had sales of $5.45 generated per dollar wage expense, in the middle annual gross sales category sales of $4.01 were generated per dollar wage expense, and in the highest annual gross sales category sales of $3.47 were generated for every dollar spent on wages (Table 4). Statistically, the lowest annual gross sales category was significantly different fi'om the higher two annual gross sales categories with respect to sales generated per dollar wage expense. Even though the businesses in each annual gross sales category met the Floral Finance guidelines on total wage expense, the sales generated per dollar wage expense decreased as annual gross sales increased. This trend of decreasing sales generated per dollar spent 81 on wages is troubling. Businesses in the highest annual gross sales categories employed more people and paid them higher wages, but received significantly lower output per employee in return. Employees who are more highly trained and more productive deserve to be rewarded with higher wages. Businesses that set sales goals for their employees and monitor their outputs may be able to justify paying higher wages. Respondents were asked to quantify the total area and the retail sales area of their business. Sales per square foot of total area and of retail sales area were calculated as a measure of business productivity. The total store area, retail sales area, and sales per square foot all increased with annual gross sales (Table 7). High volume stores required more space to function, but used this space more productively. Michigan florist businesses were similar to the national averages for shop size and sales per square foot. Floral Finance (American Floral Services, 1996), reported a 1995 national mean of 1247 ft2 for retail sales area, with sales of $169 per square foot of total shop space. The 1995 Michigan mean retail sales area was 1389 ftz, with sales of $134 per square foot of total shop space (Collins and Fails, 1996). 82 Table 7. Comparison of full-service retail florist general business operations by annual gross sales category. Variable $100,000 to $200,000 to $400,000 $ 199,999 $3 99,999 and higher Total floor space (fiz) 2,061“ 2,685“ 6,519b Retail floor space (1’3) 868“ 1,271“ 2,419“ Sales per ft2 of total $111.04a $137.88ab $205.54b floor space Sales per ft2 of retail $281.62“ $352.82“b $690.3 8b floor space Occupancy cost per $18.30“ $13.28“ $11.82“ ft2 of total floor space Columns with the same superscript within a row are not significantly different as determined by Tukey’s HSD at p=0.1. Occupancy costs (mortgage plus utilities expenses) decreased dramatically as annual gross sales increased (15.5% low, 11.7% middle, 6.5% high) (Table 6). This decreasing trend in occupancy expenses could account for the increasing trend in net profits. Floral Finance (American Floral Services, 1997) suggested facilities expense should not exceed 10% of annual sales with 6% being the optimum target. Only businesses in the highest annual gross sales category achieved this optimum target for occupancy costs and they had the highest level of net profits. The occupancy costs per square foot of total shop space ($18.30 low, $13.28 middle, $11.82 high) were not significantly different among the annual gross sales categories (Table 7). However, this information coupled with the increasing trend in sales per square foot showed businesses in the higher sales categories were recouping this occupancy cost easier. Businesses may increase their net profits by lowering occupancy costs with the use of more energy efficient appliances, the refinancing of mortgages, or the renegotiation of leases. 83 F ull-service retail florists must examine and modify the cost structure of their business in order to generate the highest possible profit. Many businesses are losing money on delivery because their fees are not covering their costs. Those stores which receive more incoming wire orders than they send are being hurt by the commissions and membership fees charged by wire services. Cost of goods sold cannot be used as the main indicator of business health. Labor and occupancy costs play critical roles in determining retail florist profitability. With accessible, comprehensive business information and the ability to apply this knowledge to daily business operations, owners and managers of full-service retail florist businesses may make sound business decisions with confidence. LITERATURE CITED American Business Directories. 1995. Michigan business directory. American Business Directories, Omaha, NE. American Floral Services. 1996. 1996 Annual salary survey: where do you stand?. Floral Finance 15(5):3-8. ‘__ American Floral Services. 1997. Know your numbers, they’re important. Floral Finance 16(1):2. Collins, C., and B. Fails. 1997. Are you losing money on deliveries?. Floral Management 13(12):39-43. Collins, C., and B. Fails. 1996. Michigan floral retailer business report. Michigan Floral Association, Lansing, MI. 36p. Available from: Michigan Floral Association, 5815 Executive Dr., Lansing, MI., 48911. Dillman, D. A. 1978. Mail and telephone surveys: The total design method. Wiley- Interscience Publ., New York. Florists’ Transworld Delivery Association. 1991. F TD Flower business fact book. Florists’ Transworld Delivery Association, Southfield, MI. Redbook Florist Services Educational Advisory Committee. 1994. Retail flower shop operation. 2“d ed. Redbook Florist Services, Paragould, AR. Teleflora. 1996. Floral Industry Trends. Flowers& 17(1):88, 90. Voigt, AD. 1977. Business analysis of Pennsylvania retail florists. Pennsylvania State Univ., University Park, PA. 84 CHAPTER 3 THE COST OF DELIVERY Michigan florists are losing money on delivery. By Carolyn Collins and Dr. Barb Fails 85 86 Introduction: Over the past twenty years, much has been written on the subject of delivery practices, specifically whether or not to charge and how much to charge for delivery. Today, these issues still challenge retail florists. With the competition from low-price flower retailers, full-service retail florists must strive to differentiate their products and services. The Michigan Survey: In March 1996, Michigan State University and the Michigan Floral Association sent a survey to over 1500 Michigan floral retailers polling them on general business operations, delivery services, advertising and marketing methods, wages, and finances. Based upon the responses from 183 firll-service (wire service and delivery) retail florists, we were able to make some observations on the profitability of delivery practices. 0 Delivered sales = 66%. 0 Delivery radius = 5.4 to 7.5 miles > Florists who delivered in a business-owned vehicle = 72% Florists who delivered in a business-leased vehicle = 10% Florists who delivered in a personal vehicle = 8% 0 Packages delivered per day = 25 > Price of delivered packages = $28.77. - Florists offering morning delivery = 96% Florists offering afternoon delivery = 98% Florists offering evening delivery = 29% Florists offering express delivery = 30% 0 Delivery fee = $3.48. Express delivery fee = $6.10 (some charged as much as $15.00) 87 Calculated Costs: Calculations using the survey results provided an estimate of the actual cost per delivery. Based upon the mean delivered sales rate (65.9%), the mean annual gross sales ($347,366), the average retail price of delivered packages before delivery fee is added ($28.77), and the factor of 52 weeks per year, we derived the average number of items delivered per week (153.1). We were also able to use the average delivery vehicle expense (5.0%), the mean annual sales ($347,366), and the factor of 52 weeks per year to derive the average weekly F delivery vehicle expense ( $334. 01 ). An average of 0.7 parttirne drivers and 1.3 fulltime drivers per business was reported from the survey. The mean weekly labor expense was estimated by multiplying the total number of delivery driver hours (321.3) by the mean typical delivery person hourly wage ($5.95). Finally, this labor expense was increased by 30% to account for benefits and taxes. Using these calculations, the mean weekly delivery driver labor expense (including benefits and taxes) was estimated to be $428.40. By adding the weekly delivery vehicle expense ($334.01) to the weekly delivery driver labor expense ($428.40) and dividing that sum by the average number of items delivered per week (153.1), we calculated the actual cost per delivery to be $4. 98. The average reported delivery fee of $3.48 does not even cover these delivery expenses. You may actually be losing $1.50 on each delivery! 88 Cost Variables: Since total sales volume also influences delivery costs, we grouped the results into five different sales volume categories and repeated the calculations of cost per delivery (see note). This may allow you to make a more reasonable comparison for your business. The following trend was found: Table 1. Cost Per Delivery and Delivery Fee by Annual Gross Sales Category. Reported Annual Gross Calculated Cost Per Reported Average Sales Volume Delivery Delivery Fee $0 to $100,000 $18.08 $3.41 $100,001 to $200,000 $7.85 $3.24 $200,001 to $400,000 $5.18 $3.47 $400,001 to $800,000 $3.89 $3.44 over $800,000 $5.02 $4.63 In general, increasing sales voltunes corresponded to lower costs per delivery. However, businesses with sales over $800,000 had higher costs per delivery. A study conducted by Alvi Voigt in 1976, showed the same type of trend in cost of goods sold. He suggested this trend in high volume businesses may be attributed both to decreased efficiency due to the high volume of sales and also to a higher level of low margin (cash and carry) sales. In all instances, the average delivery fee does not cover the estimated cost per delivery. What’s a florist to do? Are you drinking there is no way to get around losing money on delivery? Will customers go elsewhere if you charge more for delivery? Are there any opportunities to cut the cost of delivery? 89 The very first step to determine your own business’s situation is to calculate your average cost per delivery. You can follow the steps outlined above or for a rough estimate you can just assume to have the same cost per delivery of the sales category you fit into above. If you charge a fee based upon the distance from the store and you keep detailed vehicle expense records, you can even develop a more detailed cost structure analysis by breaking the calculations down into categories of distance from the store and comparing costs to the variable fees charged according to the distance traveled. You will also need to determine the profit margin you want to receive from each delivery (you earned it). New Directions: When you are losing money on delivery, you can either charge more for delivery or you can decrease your delivery costs. Choose either strategy or use a combination of both strategies to improve your delivery service. If you choose to increase your prices, first determine if your customers are price sensitive and to what level they are willing to accept an increase. Consumers pay for delivery services every day. They are accustomed to paying delivery charges on a wide variety of items. A quick review of several clothing catalogs on my coffee table (Speigel, Eddie Bauer, Lands End) revealed a minimum charge of $4.25, plus a handling fee of $2.95, for an order weighing under one pound!! In fact, this charge only guarantees the order will be delivered in six days. For the order to be delivered in two days, express service is available for almost $20.00. Just how price sensitive are your customers on delivery when faced with these examples? 90 In order to better balance the customers’ perception of value with the increased delivery fee, you may want to make a few changes in the service itself. And, at the same time, let customers know what a value this great service is. Tell them their order will be delivered promptly to their door in a refi’igerated truck in order to insure maximum freshness and vase life. Promote the fact that you have fast response time between taking the order and getting it delivered (same day service costs a bundle from Federal Express). Create and market a customer satisfaction program where you randomly call delivery recipients to inquire about their happiness with the item and service. You might even try to create a gimmick. One popular florist has drivers wear tuxedos on Valentine’s Day. Some customers have never been to your store. Your delivery drivers are a reflection of your whole business. Require your drivers to look presentable or wear a uniform. They should smile and be friendly when they promptly bring flowers to someone. Educate your delivery drivers to verbally go over care and handling techniques with the recipient. To decrease your actual cost per delivery, plan on spending a good deal of time evaluating your current delivery methods. Cost can be driven out at almost all levels of the delivery process. 0 Does your delivery driver lose time looking for the right address? Try asking for descriptive information along with the address. 0 Can you schedule the delivery runs to avoid rush hour or to more efficiently traverse the city? 91 0 Will arranging the packages in the vehicle in the order they are to be delivered help save the driver time? o Is your delivery vehicle a gas guzzling behemoth? Consider having the driver use a personal vehicle and pay him a per mile or per delivery fee. Certain florists have claimed success financially with floral delivery pools in large cities. Ask around and see if your area can support such a group effort. Partnering with a reliable courier service may provide another option for those stores with lower sales volumes if the cost of maintaining a vehicle or having a delivery driver on staff is too expensive. You must evaluate every factor that affects the final delivery. Strategy: If you are charging more for your flowers to compensate for the financial loss of delivery (price bundling), you are overpricing flowers and undervaluing delivery. Are you really making enough money on the sale of flowers to justify your loss on deliveries? It is really difficult to make up for this loss elsewhere. Consumers who believe they are not getting their money’s worth out of flowers may shop at your lower priced competitors for flowers, even though their delivery fee may be higher or not offered at all. You must create value in the customers’ minds for delivery service while maintaining the high value perception of your floral products. Delivery is critical to the retail florist business. Service is the primary differentiator between retail florists and non-traditional floral outlets. Consumers shop at full—service retail florists because they value a high level of service. Service is an integral part of your image as well. A customer’s experience with delivery service helps form his perception of your business. Reevaluating your delivery service may improve your business’s 92 profitability and increase your customers’ satisfaction. Note: The calculations of cost per delivery by annual sales category utilized the statistical procedure of imputing missing values with mean values of existing data points. Fisher’s protected LSD, Tukey’s HSD, and Duncan’s tests all show significant differences at the 0.05 level only between the $0 to $100,000 category and each of the other categories. SUMMARY AND CONCLUSIONS The original intention of the researchers and the Michigan Floral Association was to repeat this study for yearly trend analysis. Unfortunately, the full survey will not be repeated for at least five years due to the budget constraints of MFA. The survey created for this study could be directly applied to research on a national level, if a sponsoring agency was found. New, shorter surveys may be developed to focus on specific topics of current interest and circulated to a limited number of florists, possibly just the MFA membership. Initial survey results (statewide and regional means, medians, and modes) were compiled into the Michigan Floral Retailer Business Report (Collins and Fails, 1996). This first- of-its-kind, nonpartisan report is available to anyone, not just members of a specific wire service. Data were presented at six regional meetings held by the Michigan Floral Association in the fall of 1996. The response from the business owners and mangers who attended the meetings was very supportive. Most participants did not know how their competition was doing and, more importantly, how their business was performing in relation to the competition. One of the greatest outcomes of the regional meetings was the increase in support for further research and analysis of this type. Data reported in this Michigan-specific study are consistent with the national studies 93 94 published by wire services, Prince and Prince, Inc., and Dr. Alvi Voigt, thereby giving strong confidence in the results and conclusions. Floral Finance (American Floral Services, 1996) reported a 1995 average national annual gross sales for retail florists of $345,705. This figure is very similar to the Michigan average annual gross sales figure of $347,366. Floral Finance (American Floral Services, 1996), also reported an average of $169 in sales per square foot of total store area. Michigan florists generated $134 in sales per square foot of total store area. Total wage expense in 1995, as a percentage of annual gross sales, for Michigan was found to be 24.9%, which is somewhat higher than the 1992 national average of 21 . 1% reported by Dr. Alvi Voigt. Average Michigan wages for owners, managers, ($11.45, $9.51) were lower than the national average ($14.29, $11.93) reported in Floral Finance (American Floral Services, 1996). Michigan floral designers, office staff, delivery staff, and salespeople were paid approximately the same hourly wage ($7.62, $7.31, $5.95, $5.86) as the national average ($7.27, $6.97, $6.07, $6.39). The 1993 study on non-perishable sales conducted by Prince and Prince reported an average of 12.4% of sales in non-perishable products for the East North Central region of the US, which includes Michigan. The 1995 average for nonperishable sales (gift items and dried or artificial flowers) in Michigan was 14.1% as a percentage of annual gross sales. 95 Comparisons of the results of the 1995 Michigan study with the 1986 FTD Flower Business Fact Book (F lorists’ Transworld Delivery, 1986) show there has been little or no improvement in controlling expenses or increasing overall profitability in the last ten years even though the mean annual gross sales figures have increased significantly, even considering inflation, from the 1985 national mean of $184,600 to the 1995 Michigan mean of $347,366. Mean cost of goods sold for Michigan in 1995 was 38.8%, which was slightly lower.than the 1985 figure of 43.2% reported in the 1986 FTD Flower Business Fact Book (F lorists’ Transworld Delivery, 1986). The 1995 mean net profit for Michigan was 4.4%, compared to the 5.0% reported for 1985 (F lorists’ Transworld Delivery, 1986). There has been some sales growth in the retail florist industry but no real improvement in productivity, efficiency, or profitability. To determine which factors had the greatest impact on profitability, comparative statistical analyses were performed on the initial survey results. Beginning by grouping the responses into annual gross sales categories ($100,000 - $199,999 low, $200,000 - $399,999 middle, $400,000 and over high), one-way ANOVA tests and linear regression procedures were conducted to determine significant differences among the annual gross sales categories and the relationship between the specific variables and annual gross sales. Statistical analyses revealed total wage expenses and occupancy costs greatly affected overall net profits. The cost of delivery was also a point of concern since businesses on average were not charging a high enough delivery fee to cover their delivery expenses. Cost of goods sold was not a controlling factor for business profitability as is commonly 96 thought. Labor efficiency needs to be explored in depth as it is critical to business success. Total wage expenses represented the largest operating expense category. The annual gross sales generated per dollar spent on wages decreased as annual gross sales and net profits increased. This is a puzzling trend, as it is logically assumed businesses in the higher sales categories would be employing better trained, more experienced and productive labor and subsequently paying them better than those businesses in the lower categories. Since the retail florist industry is very dependent on talented and experienced labor, labor should be a source of profit for businesses, not a drain on business financial health. Businesses need to make money in order to pay the wages good laborers deserve. Many employees have no clearly defined job description; they “do-it-all”. Employees are not being paid wages that compete with industries demanding similar levels of training and experience. Most retail florist employees (mean wages range from $5.86 to $7.62, excluding owners and managers) were earning significantly less than the average Michigan wage of $10.68 as reported by the Michigan Employment Securities Commission (Fails, 1996). If employees can meet or exceed reasonable sales goals, they should be rewarded with competitive wages. Occupancy costs decreased dramatically as annual gross sales increased. This decrease in occupancy costs seemed to help explain the increasing trend in net profits as annual gross sales increased even though the total wage expenses increased also. Occupancy costs per 97 square foot of total shop space were not significantly different due to the large variability of the responses. Sales per square foot did however, significantly increase with increasing annual gross sales. Businesses in the higher annual gross sales categories were recouping their occupancy costs faster than those businesses in the lower annual gross sales categories. Businesses may directly increase their net profits by lowering occupancy costs with the use of energy efficient appliances, the refinancing of mortgages, or the renegotiation of leases. Full-service retail florists must examine and modify the cost structure of their businesses in order to generate the highest possible net profits. To accomplish this task, florists may need to circumvent the traditional florist mindset of only considering what other florists are doing, instead of concentrating on how to improve their own, unique business. Many businesses are losing money on delivery because their fees are not covering their costs. Those stores receiving more incoming wire orders than they send are being hurt by the commissions and membership fees charged by wire services. Cost of goods sold, the florist’s “traditional” measure of business health, cannot be used as the main indicator of success. Labor efficiency and occupancy costs play critical roles in determining retail florist profitability, and therefore, deserve proper attention. With accessible, comprehensive, nonpartisan industry statistics, retail florist business owners and managers can easily make sound business decisions that are appropriate for their own, unique business. APPENDIX A 98 APPENDIX A March 4, 1996 Dear Floral Retailer, Here is your copy of the First Annual Michigan Floral Retailer Business Survey. This survey is being conducted by Michigan State University in cooperation with the Michigan Floral Association. Its purpose is to provide you with retail floral business information sorted by business description, region, sales volume, and number of years in business. All responses will be kept confidential. No names will be placed on the surveys, which will be retained by Michigan State University. There is no way for any business to be singled out by its responses. Returning your survey entitles you to a COMPLIMENTARY COPY OF THE FINAL REPORT in July and also enters your business in a drawing to win one FREE REGISTRATION FOR THE BASIC FLORAL DESIGN SHORT COURSE at Michigan State University (a $399.00 value) to be held May 20 - 24, 1996. Wine W. In order for the results to be most meaningful, every survey must be completed and returned. You indicate your voluntary agreement to participate by completing and returning this questionnaire. Return your survey today! If you have any questions, please contact Dr. Barb Fails at (517) 355-5180. Thank you for your cooperation. Sincerely, Dr. Barb Fails Carolyn A. Collins Associate Professor Graduate Research Assistant Department of Horticulture Department of Horticulture Michigan State University Michigan State University APPENDIX B 99 APPENDIX B Michigan Floral Retailer Business Survey Please answer the following questions as accurately as possible. All responses are strictly confidential. Some questions ask for information from your payroll records and your last profit and loss statement. Having these documents nearby will aid in your completion of the survey. If a question asks for information that is unavailable or that does not apply to your business, please leave it blank. Your cooperation is greatly appreciated. WW A-l Which one of the following statements best describes your business? (Please check ONE best answer.) 1. u 2. u 3. E1 4. D 5. c1 6. El 7. D 8. CI 9. D 10. 1:1 11. 1:1 12. D Independently owned, full service flower shop (wire service and delivery) Independently owned, limited service flower shop (cash and cany) Supermarket floral department Flower shop and greenhouse or garden center combination Retail greenhouse only Retail garden center only Dried and/or artificial flowers only Special events or rental company Floral franchise Gift and/or novelty store Catalog or telemarketing company Other (Please explain) 100 A-2 Does this business have multiple locations? 1. D Yes 2. D No If YES, will the answers be for the main store or for all the stores collectively? 1. El Main store only 2. D All stores (Please give number of stores) A-3 How many years has the store has been continuously in business, including previous ownership if applicable? 1. D Less than 2 years 2. D 2 to 5 3. D 6 to 10 4. D 11 to 15 5. D 16 to 20 6. 0 Over 20 (Give number) A-4 What is the general location of your business? (Check ONE answer.) Rural Suburban Large shopping mall Strip mall Urban Home-based Supermarket ooqoxtAAwmu-u DDUDDDDD Other (Please explain) 101 A-5 Please give the best estimate of floor space in each category, where applicable. (Please answer in square feet.) 1. Retail sales area (with customer access) 2. Work area (for design and product preparation) 3. Storage area 4. Office space 5. Other (Please explain) A-6 What are your normal business hours, not holiday hours. (Please give the hours next to the appropriate days.) Monday Tuesday Wednesday Thursday Friday Saturday Sunday $999919?“ DELIVERLERACTICES B-l Do you offer delivery services? 1. D No If NO, please skip ahead to question 01. 2. D Yes B-2 Please fill in the blanks in the following sentence. A typical order is delivered miles away from the store for a fee of $ 102 B-3 What is the percentage of your total sales that are delivered? % of total sales B-4 Which of the following delivery systems do you use most often, excluding holidays? (Please check ONE best answer.) 1 2 3 4. 5 6 7 D Employee drives a business owned vehicle Employee drives a business leased vehicle Employee drives a personal vehicle Commercial delivery service 13 E1 E] D Organized florist delivery pool 0 Contract drivers paid by units delivered [3 Other (Please explain) B-5 What is the average number of deliveries made per day, excluding holidays? Deliveries per day B-6 What delivery time options do you offer? (Please check all that apply) . [:1 Morning D Afternoon D Evening E1 Express (Added fee, if any) $ B-7 What is the average retail price of delivered packages including wire orders? (Please do not include the delivery charge.) $ 103 MARKETINLLINEQRMAIIQN C-l What wire services or telemarketing companies are you affiliated with and what percentage of sales does each service contribute? (Please check all that apply.) 1. 1:1 FTD % 2. Cl AF 8 % 3. D Redbook % 4. D Carik % 5. El Teleflora % 6. 0 1-800 Flowers % 7. El Flowerlink % 8. El Flowers Direct % 9. El Calyx and Corolla % 10. Cl FloraFax % 11. D An electronic mall % (Name of mall) 12. D Other % C-2 Do you maintain a direct mail mailing list? 1. D Yes 2. D No If YES, how many customers are on the list? Number of Customers on Mailing List C-3 C-4 104 Which of the following types of advertising do you use on a regular basis? (Optional: if possible, please indicate the percent of your advertising budget that is spent on each type of advertising and total to 100%.) 1. D Direct Mail % 2. 0 Yellow Pages % 3. D Billboards % 4. El Radio % 5. D Television % 6. E1 Newspaper % 7. Cl Newsletters % 8. Cl Internet % 9. El Bill Stuffers % 10. El Outdoor Marquees % 11. CI Window Displays % 12. D Other % 100% TOTAL Do you use any of the following marketing techniques? (Please check all that apply.) Open houses (How many per year?) Regular weekly specials 1-800 Number Customer reminders Internet site (Where?) In-house holiday specials 24 hour phone service Customer seminars >9?°.\’.°‘I~":“.W!°t‘ Commercial sales calls or presentations Other (Please indicate) DDUDDDDUUD p—a .9 105 C-5 Do you have a computer in your store that is not dedicated to wire service applications? 1. D Yes 2. D No If YES, which of the following applications do you use it for? (Please check all that apply.) 1. 0 Accounts payable 2. El Accounts receivable 3. D Payroll 4. U Direct mail mailing list 5. D Direct mail development 6. :1 Advertisement development 7. D Customer reminders 8. 0 Order printing 9. D Capri card printing 10. 0 Sales analysis 11. El Wire service reconciliation 12. El E-Mail 13. El Internet access 14. Cl Solitaire (just kidding!) 15. D Other (Please explain) UP 04 ski. :. It R 0:11; u IMPORTANT NOTE FOR QUESTION D-l: If your employees can be divided into the categories in the table below, please answer question D-lA for each specific category that applies to your business. However, if your employees do not have clearly defined job titles then please answer question D-lB with the general categories. 106 D-lA Please indicate the number of individuals employed, the wage range, and the typical wage for each of the employee categories. (Please exclude holiday only employees.) 7"" EMPLOYEE l CATEGORY OWNERS (sole proprietorship or . artnership) NUMBER OF PART-TIME EMPLOYEES (35 HOURS OR LESS NUMBER OF FULL-TIME EMPLOYEES (36 OR MORE HOURS PER WEEK TYPICAL WAGES FOR EMPLOYEE CATEGORY MANAGER ll FLORAL DESIGNERS II SALESPEOPLE H OFFICE STAFF DELIVERY STAFF OTHER: (PLEASE LIST) L1 =.”a...........=.........ll D-lB Please indicate the number of individuals employed, the wage range, and the typical wage for each of the categories. (Please exclude holiday only employees.) EMPLOYEE NUMBER OF NUMBER OF WAGE TYPICAL CATEGORY PART-TIME FULL-TIME RANGE WAGE EMPLOYEES EMPLOYEES FOR (35 HOURS OR (36 OR MORE EMPLOYEE LESS PER HOURS PER CATEGORY ___ _ _ JE______ __"3_______ ____ _______ _. __ OWNER MANAGER . II ALL OTHER ll STAFF i 107 D-2 Which of the following benefits do you offer to FULLTIME employees? EMPLOYEE HEALTH DENTAL EYE CARE RETIREMENT NUMBER CATEGORY INSURANCE INSURANCE PLAN BENEFITS OF PAID (yes/no) (yes/no) (yes/no) (yes/no) VACATION DAYS ive ran _e OWNER FULLTIME Please answer as many of the following questions as you can. If the information requested is unavailable, please leave the question blank. Please remember that all responses will be kept CONFIDENTIAL. NOTE: If you operate a combination business, such as a flower shop and greenhouse or garden center, please answer the following questions with for the flower shop only, if possible. Will your answers be for flower shop only, or combination business? E-l From your most recent annual profit and loss statement, what are your annual gross retail sales? $ Annual sales E-2 What percent of sales does each product category contribute to your annual sales? (Please total to 100%.) l. % Fresh flowers and foliages bunched or single stem 2. % Fresh flowers and foliages arranged 3. % Plants (flowering, foliage, bedding, etc.) 4. % Dried or artificial flowers and foliages 5. % Gift items (balloons, cards, plush, candy, etc.) 6. % Service (rentals, maintenance, delivery) 7. % Incoming wire orders at retail product price (excluding service and delivery charges) 8. % Outgoing wire orders at retail product price (excluding service and delivery charges) 9. % Other (please explain) 100% TOTAL l’ 108 E-4 From your most recent profit and loss statement, what percentage of gross sales do the following business expenses account for? (Answer only if known and please total to 100%.) 10. 11. #999999?“ % Cost of goods sold % Mortgage/lease % Utilities % Wages for Employees (not owner) % Owner Wages (salary or draw) % Advertising and in-store promotion % Professional memberships, dues, seminars, trade meetings, subscriptions % Equipment, store improvements or maintenance % Delivery (vehicle, maintenance, insurance) % Other (please explain) % Net profit (+) or net loss (-) 100% TOTAL Optional: Please indicate your position in the company. 109 Thank you for completing the questionnaire. You have now earned your complimentary copy of the final report! Please place the questionnaire in the postage paid envelope provided and drop it in the mail. Your cooperation is greatly appreciated. If you have any questions, please call Dr. Barb Fails at (517) 355-5180. Carolyn A. Collins Department of Horticulture Michigan State University A-232 Plant and Soil Sciences Bldg East Lansing, MI 48824-1325 LITERATURE CITED 110 LITERATURE CITED American Business Directories. 1995. Michigan business directory. American Business Directories, Omaha, NE. American Floral Services. 1996. 1996 Annual salary survey: where do you stand?. Floral Finance 15(5):3-8. American Floral Services. 1997. Know your numbers; they’re important. Floral Finance 16(1):2. Collins, C., and B. Fails. 1997. Are you losing money on deliveries?. Floral Management 13(12):39-43. Collins, C., and B. Fails. 1996. Michigan floral retailer business report. Michigan Floral Association, Lansing, MI. 36p. Available from: Michigan Floral Association, 5 815 Executive Dr., Lansing, MI., 48911. Dilhnan, D. A. 1978. Mail and telephone surveys: The total design method. Wiley- Interscience Publ., New York, NY. Fails, B. 1996. The labor issue: it’s time to address wages. Michigan Florist Nov./Dec., 24-27. Florists’ Transworld Delivery Association. 1991. FTD Flower business fact book. Florists’ Transworld Delivery Association, Southfield, MI. Florists’ Transworld Delivery Association. 1986. FTD Flower business fact book. Florists’ Transworld Delivery Association, Southfield, MI. Prince, Tom, and Tim Prince. Florists’ non-perishables component shows decline. Flower News. February 1996. Produce Marketing Association and Food Marketing Institute. 1990. 1989 Survey of supermarket floral retailing. PMA and FM], Washington, DC. Redbook Florist Services Educational Advisory Committee. 1994. Retail flower shop operation. 2“d ed. Redbook Florist Services, Paragould, AR. 111 Teleflora. 1996. Floral Industry Trends. Flowers& 17(1):88, 90. Voigt, AD. 1977. Business analysis of Pennsylvania retail florists. Pennsylvania State Univ., University Park, PA. Voigt, Alvi O. Flower marketing information: some data about the biggest US. retail florists.” Illinois State Florists’ Association Bulletin. 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