Saturday, February 12, 2005
Between wire services and discount retailers, some florists are ready to wilt.
This Valentine's Day, florists want you to "say it with flowers" -- especially if you whisper your order directly into their ear rather than use a wire service, such as FTD and Teleflora, or stop off at Costco.
Fed up with escalating membership fees and commissions, an increasing number of florists are rejecting or reducing their reliance on third-party wire services and other businesses that gather orders from customers via ads in phone books or on the Internet.
The number of retail florists establishments also is shrinking -- from 23,700-plus in 2001 to 21,700-plus last year -- and many in the $19 billion floriculture industry believe there is a direct link to the proliferation of third-party order-gatherers.
"It ends up the florist who is filling the order is having so much money deducted from the order that he is no longer operating at a profit," said Tom Carlson, owner of Fairview Florists in Janesville, Wis. He stopped using the wire services two years ago.
Installing the middleman
The wire service market formed 95 years ago as a middleman to help florists in different cities identify and fill out-of-town orders. In recent years, wire services have begun working with and encouraging third-party businesses, who advertise directly to consumers.
Neither the wire services nor many of the third-party businesses are florists. Instead, they gather orders that are funneled to local florists in exchange for a cut of the order.
Typically, a florist who turns in an out-of-town order to a wire service gets a 20 percent commission. The wire service then takes another 7 percent and the florist who actually puts the arrangement together and delivers it gets 73 percent. The florists also pay dues and fees to the wire services that can be another several hundred dollars a month.
Third-party order takers also get a commission of up to 20 percent. In addition, many charge shipping or handling charges of $2 to $9 per order and receive rebates of between $4 and $6 from the wire services. That can leave well below 73 percent for the florists who actually make the arrangements.
Industry estimates place the number of florist orders from wire services at 20 percent or more -- with a quarter to a third of those from third-party order-takers.
Who really pays
Many florists believe this arrangement shortchanges the florists and customers, who wonder why their small bouquet of flowers cost so much.
"The largest problem in the industry is the order-gathering business," said Russ Schmitt, a Louisville florist who is president of the Independent Florists' Association, which has formed an alternative network to the wire services. "It's devastating to the retailers."
The network, which claims thousands of members in all 50 states but declined to be more specific, bypasses the wire services and third-party order-takers. Participating members, who pay modest membership dues and service fees, can either choose an 80 percent-20 percent split between the filling and order-sending florists -- or allow the florist filling the order to keep all the money.
Chicago area-based FTD Inc., which connects 20,000 member florists, declined to comment citing its quiet period from its initial public offering of 15.4 million shares this week. But in an SEC filing, FTD said the two of the biggest changes in the industry are the rise of Internet marketers and discount stores. The company's shares fell 30 cents, or 2.2 percent, to close at $13.01 on Friday, ending the week virtually unchanged from its Wednesday debut.
A spokeswoman for privately held Roll International Corp. in Los Angeles, which owns Teleflora, said company policy prohibits answering media questions. Teleflora connects 24,000 florists.
While doing business with wire services carries a cost, the wire services spend millions of dollars on advertising, which translates into more business for florists, said Jennifer Sparks, spokeswoman for the Society of American Florists, an industry group based outside Washington.
"There are two schools of thought here. One school is that 'Oh, they're taking all of my business way,'" Sparks said. "There are others that say 'They do create more flower buyers, which is good for the industry. They're also providing me with orders I might not have had before.'"
In the meantime, retail florists are facing another serious threat: Discount retailers such as Wal-Mart Stores Inc., and Costco Wholesale Corp., which buy flowers in bulk and sell directly to customers.
Orlando florist Lee James was aghast this week when he walked into a Costco store to find a table of floral designers making up Valentine's arrangements and selling orchids for $9.99. He pays $12.50 each wholesale for those same plants.
"I can't compete," said James, whose store specializes in high-end flowers. "There's a lot of money in the flower business. Everybody wants a piece of it."