Los Angeles, CA – The Florists industry has been withering in the five years to 2012. According to IBISWorld industry analyst Justin Waterman, “poor economic conditions, including weak consumer confidence and low disposable income, have deterred households from making discretionary purchases on flowers and plants.” In addition, heightened competition has exacerbated already declining demand: Supermarkets and e-commerce websites have increasingly taken customers away from the industry by offering discounted prices for comparable goods. As a result, revenue is expected to fall at an average annual rate of 2.9% to $6.6 billion over the five years to 2012. While the five-year net effect is a decline, in 2012, revenue is expected to grow by a marginal 0.7%.
Within the Florists industry, online floral wire services have gained popularity. Online wire service companies, such as FTD and Teleflora, do not operate direct retail outlets (with the exception of 1-800-Flowers); instead, they take orders via their websites. With these services, e-commerce firms (not included in this industry) take orders online and use local florists (included in this industry) to fulfill demand. Waterman adds, “by engaging in this activity, industry operators can expand their customer base from their local city or region to the entire nation.” Therefore, an increasing number of florists rely on these network services to augment their order volumes and offset some of the business lost to external competitors. While these networks have provided some relief for industry operators, these services have also hampered profit margins, as florists were left to bear warehousing and distribution costs for all orders. IBISWorld estimates that declining sales from poor consumer sentiment and external competition from supermarkets have brought industry profit down. Falling profitability has caused many underperforming businesses to exit. In fact, the number of enterprises is estimated to decrease on average by 3.9% annually in the five years to 2012 to 36,518, down from 44,561 in 2007.
Led by improvements in economic conditions, demand for flowers and potted plants is expected to pick up in the five years to 2017. However, supermarkets and online retailers will likely capture much of this demand, as these stores leverage their economies of scale to provide cheaper goods to cautious consumers. Furthermore, permanent price declines will likely plague the industry by keeping profitability low. The market share of florists in the total flower retail industry has declined from one-third to one-quarter over the past decade. In particular, large chain stores can maximize cost savings by having established relationships with growers and wholesalers. They can also purchase large volumes at once, allowing them to offer discounted products to consumers. As a result, florists have faced increased pricing pressures because of this external competition. Furthermore, online retailers have increasingly accounted for a larger share of the flower market, contributing to heightened external competition. Because of these trends, IBISWorld forecasts that revenue will continue to fall over the next five years.
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