Proceeding With Caution

There isn’t a single word that accurately sums up how this year has been for most interiorscapers. Ask a handful of people about their businesses, and chances are, each person will respond differently.

“OK,” said Jennifer Bozarth, general manager, Reeds ‘N’ Weeds, Nicholasville, Ky.

“Booming,” said Chris Wittroch, operations manager, Designs in Foliage, Dallas, Texas.

“Good, but not outrageously wonderful,” said Regina Heller, owner, Designscapes, Woodland Hills, Calif.

“Very much off from last year,” said Madelyn Simon, president, Madelyn Simon & Assoc., New York, N.Y.

The reason behind these variations? Undoubtedly, the economy. Depending on location, the economy is either friend or foe. For example, many Manhattan-based companies took hits because they are “hinged on the financial world, and the stock market does have a ripple-down effect,” Simon pointed out. “The economy is definitely affecting us. People are scaling back in services.”

In Silicon Valley, a similar scenario is playing itself out, as many of the technology-based businesses that sprouted up overnight are going under. “We have had some cancellations from smaller clients, particularly dot-com related,” said Linda Novy, president, Gardeners’ Guild, San Rafael, Calif., adding that these companies made up a fairly small portion of business.

But it’s not just big markets, like New York and San Francisco, which are challenged by the economy. Smaller markets have slowed, as well. “There’s not a whole lot going on in our town these days,” Bozarth said. “A lot of people and some of the larger companies have moved out of town. We’re left with a lot of little places, and the plants are the first thing to go when money gets tight.”

Despite these reports, the news isn’t all bleak. While some interiorscapers have lost accounts, or perhaps clients have put projects on hold, new business keeps coming in.

Even though Wittroch said his company lost some dot-com business, he noted, “Large accounts have been increasing and we are getting a lot of referrals by word of mouth.” Wittroch said he remains optimistic for now – none of his clients have cut back this year – but he thinks they might in the future.

No matter if business is booming or if business is slow but steady, the prevailing sentiment among interiorscapers in these uncertain times is: proceed with caution.

ECONOMY CLASS. Undeniably, the economy has been on a slow decline since early 2001, with unemployment and the cost of labor rising. According to the Bureau of Labor Statistics, the unemployment rate rose from 4.2 percent in February to 4.5 percent in July while average hourly earnings also increased from $14.11 to $14.35 during that same period of time.

Layoffs and high labor costs now are a reality for parts of corporate America, which typically prefers to get rid of its plants rather than its people. “With the mixture of dot-coms, energy problems and fuel costs (in California),” noted Heather Simon, a manager in Gardeners’ Guild’s interior division, “a lot of companies are being asked to cut costs – and pretty drastically. One of the first things to go is always interior plants. They may designate someone in the company to maintain the plants for them or reduce the plant inventory.”

Jeff Mariola, president, Rentokil Tropical Plant Services, Riverwoods, Ill., said the economy has been a challenge, but more so in some areas than others. “We’ve really watched the impact of the economy move across the country as the year has gone on,” he said. “It hit us on the West Coast early in the year, then we felt it in areas like Dallas a few months later, and now we’re starting to see signs of the slowdown hitting the East Coast, as well.”

Interiorscapers are aware that their industry is not recession-proof, and they are definitely concerned about the economy. In fact, an Interior Business readership survey showed that 57 percent of interiorscapers think the economy is the industry’s biggest future challenge.

According to Bert Wingard, president, A-Oak Farms, Lexington, S.C., interiorscapers have been resting on their laurels for the past couple of years because the economy was so good. “Business just came to us,” he said, “but you have to be aggressive and push yourself. When times are down, you increase marketing. We are aggressive – that is the nature of our company. Our marketing isn’t where we place ads in the Yellow Pages or newspapers. We do a lot of telemarketing and knocking on doors.”

McRae Anderson’s approach when the going gets tough is to offer innovative design solutions. With sales up nearly 12 percent over Y2K, Anderson, president, McCaren Designs, St. Paul, Minn., said the economy hasn’t affected his business – only a few of his accounts have scaled back. “Business has been good, but that doesn’t mean it doesn’t have its challenges,” Anderson said. “I think we’ve increased our business by offering creative designs for new and refurbished accounts and also by offering creative, cost-saving approaches to those accounts that need that approach.”

So far, there have been no losses for Ellen Hendrickson, owner, Interior Plants, Frederick, Md., and she attributes this to her client base – 25 percent government and 75 percent commercial. “We have a lot of government work, which is really steady,” said Hendrickson, whose company has grown 28 percent in the past year. “It doesn’t tend to slow in a recession, and we haven’t seen a lot of changes in our existing accounts.”

Hendrickson has noticed, though, as businesses in nearby markets tighten their belts, some bigger competitors have come into her market looking for new accounts. But she doesn’t feel threatened. “We are pleased that we have grown slowly and steadily since we started,” she said, “and there are just five of us.”

Business remains brisk for Scott Barron, president of Seattle, Wash.-based Botanical Designs, but, like Hendrickson, he attributes this to his service mix – 80 percent maintenance and 20 percent new installations. With new projects, he has observed a slowing down of sorts. “There is no question that projects have been put on hold or cancelled and there is a prevailing conservatism and much more value engineering,” Barron said. “From our standpoint, there is plenty of opportunity, but what we are having to do is insulate our infrastructure to support our quality work. We keep overhead low, we have one administrator and no salespeople.”

Wingard said new and add-on sales have far outpaced any losses. “Large accounts are up, small accounts are up and construction of malls and atriums is strong,” Wingard said. “There were cutbacks in some corporate headquarters, but they weren’t cutting out their plant service completely. Six months ago, they cut back because their stocks dropped, but we brought them back up full steam. Some have cut back and stayed back, but on smaller levels.”

Mary Blaha, horticultural consultant, Greensward Landscaping, Aurora, Ohio, said the company lost no business this year, but there was not as much new activity as usual. “Business was stable,” Blaha said, “but I think for the next few years, it will just be status quo.”

On the other hand, Nancy Silverman, president, Plantscaping, Cleveland, Ohio, said new business has been strong. “We had several large projects this year,” she pointed out. “However, we also had attrition due to economic cutbacks. I think every client is taking a closer look at expenses and recognizing that some of the stardust effect of the past several years has disappeared.”

Marilyn Holb, sales/design, Oakland Interiorscapes, Columbus, Ohio, observed that her market has been steady but slow for new, big projects. She said: “We are finding that we have the opportunity, then they go, ‘Let’s put that on hold. We got into our building. We have our furniture, but we want to hold off on art and plants.’ We’ve had several like that.”

Business has been “great but a little off” this year for Jim Mumford, president, Good Earth Plant & Flower Co., San Diego, Calif., but he said he expected it. He observed that “things are tightening – I wouldn’t say this is worse or better – just not as awesome as the last couple of years.”

Bozarth faces a more difficult situation in her market. “We’ve lost several accounts – probably one a month,” she said, “and we haven’t picked up (new business) to make up for it. The type of things coming in are a lot of small businesses and a lot of family-owned businesses that don’t want to spend money on plant service.”

FUEL FIASCO. The big story this year was the cost of fuel, which skyrocketed in summer to more than $2 a gallon in some parts of the country. This left interiorscapers shelling out more money than usual to cover gas for company vehicles, to reimburse technicians for mileage and to cover fuel surcharges from shipping companies.

“(Fuel) has cost me, and it is still costing me,” Heller said. “I increased our mileage refund to 35 cents, and that adds up.” Heller also has a 4,000-square-foot greenhouse, and the heating costs increased dramatically. “My overhead is really up there because of heating the greenhouse,” she said. “It went up 60 percent, so I’ve had to increase my rates to cover it. The rate increase is not a profit, it’s just keeping (profitability) the same.”

Like Heller, Wingard said his company’s fuel bill was bigger than usual this year. “It’s a cost you just have to deal with,” he said. “The majority of interiorscapers are locked into contracted prices, and we can’t call our clients and say, ‘We have a surcharge this month.’ You’ve got to take the cost and make it up somewhere else.

“We replaced 17 units this year – we moved from vans to S-10 pickups, and we didn’t just focus on fuel,” he continued. “We looked at our insurance and the upkeep of (our vehicles), and this dropped our costs in half.”

The high cost of fuel was a problem for Wittroch because of the number of miles his technicians travel and because the costs showed up in other places. “All the trucking companies tacked on fuel surcharges and that also got added on to containers and certain supplies,” Wittroch noted. “We got whammied with this throughout the year. We are seeing gas prices go down now, but the surcharges have stayed the same.”

In spite of the surcharges, Wittroch has not raised his clients’ prices. “We bit the bullet and we’re keeping our prices the same,” he said.

Novy said she noticed the fuel increase, but she had budgeted for it. “We did factor in higher fuel and energy costs into our overhead and we are trying to recoup those costs and find efficiencies through rerouting,” she explained. “We’ve also got some people taking trucks home and driving their trucks directly to their routes instead of coming into the office first.”

This year, Novy also had to deal with the California energy crisis, in which deregulation led to blackouts. Though the crisis has since stabilized, Novy said clients are trying to save on energy in any way they can. “Everybody is being requested to use less energy, so the air on weekends doesn’t go on and the lighting is shut off at every opportunity,” she said. “The plants react negatively and this causes us to replace plants more often. We are asking clients to move plants to other areas so the plants survive.”

THE LABOR MARKET. Interior Business magazine’s readership survey showed that 60 percent of interiorscapers think labor is currently one of the industry’s biggest challenges. Difficulties range from recruiting and hiring to retaining and motivating employees.

These labor challenges are compounded by rising wages. Not only is labor hard to find, but it also is increasingly expensive.

“The lead cost for us is labor – people cost money,” Wittroch said. “Getting people isn’t the problem, it’s getting good people – and they are commanding higher salaries, from technicians to managers. But this year has been better than last year. There have been layoffs in other industries and that has opened up the pool a little bit. We have been fortunate.”

Joe Haslett, president, Innovative Plantscapes, Northridge, Calif., said labor is always a challenge but seems to be improving. He also pointed to the high cost. “Our starting wages have increased by 15 percent,” Haslett said.

Besides the rising cost of employees, Anderson said retention is another problem area. “We have more difficulty retaining than attracting,” he said. “I think people think this is a ‘fun thing to do’ and then they go away when they find out that we really earn our money in this business.”

Many echoed Anderson’s sentiments, but not all had the same luck with recruiting. “It’s difficult to find good help,” Bozarth said. “One of our technicians quit in January, and we had a hard time getting somebody. It’s hard, physical work. When we worked four 10-hour days, we had a hard time getting somebody who wanted to do that, who would do a good job and be reliable.”

The company’s solution was to switch employees over to part-time schedules. The flexibility of the schedules attracted applicants and got routes done efficiently while reducing employee burn-out. “We have some older people and three stay-at-home moms,” she said. “One lady works every 10 days and has one route. It has really worked out.” Wittroch said his labor market has not improved since last year. “It is hard to find good, qualified help,” he said. “In Dallas, as far as I know, there’s not major unemployment – not like I’ve seen in the past. We used to have people drop by and fill out an application. Now we can put an ad in the newspaper and we might get calls or we might not. Most of the time they are unqualified or they have no transportation. I’m hoping we will have a new generation that wants to break a sweat.”

The single biggest challenge – bar none – is filling the interior service technician position, Barron said. “You can have 10 people who are great and one bozo comes in and you’re ruined,” he said. “You have a bad technician and you have a supervisor, salesperson, owner and installers tending to it.”

Simon agreed that a good technician is hard to find. “I got 450 resumes last week for an office position,” she said. “Obviously, there are pockets of labor that are tremendously plentiful. Technical labor is hard to find. You need people who know something about plants. They have to be salespeople, horticulturists and customer service people. We are looking for them under every rock.”

Finding technicians has gotten a little easier for Holb. “Last year was tough,” she said, “but in the last three or four months, the phone has been ringing off the hook. Also, we are getting people making career changes. Somebody who sat in an office now wants to be in the field.”

Novy also observed that her labor market has softened, thanks to layoffs in the dot-com industry. “A year ago, they were hiring everybody up,” she pointed out, “and we were losing people for these high-paying jobs. Since then, they’ve probably been laid off and are looking for jobs.”

Heller said she has been lucky to have employees who have been with the company anywhere from eight to 15 years. “The problem is keeping them motivated and keeping their quality up,” she said. “That’s an ongoing job. I’ve got a guy who’s doing quality control to make sure (the technicians) don’t miss this or that. The supervisor is going to the account and then I’m doing the fine tuning. Before this new supervisor, I was trying to figure out a way to get them to catch up on their own – just do a little extra every week. We did two contests where I evaluated and scored them on all their work and first and second place winners got a prize.”

THE PRICE IS RIGHT. Figuring out how to price accounts can be difficult, especially in a competitive bidding situation. Frequently, interiorscapers are challenged by others who underbid an account, losing the job and then picking it up later when the client is dissatisfied with the service.

Wingard said this “low-baller” phenomenon is nothing new. “There always will be a low baller – there has been since we started our company,” he said. “You don’t drop your prices. You have to charge a certain amount to give a professional service and keep plants up and keep your people. You always watch them and they go through phases. They take accounts from you or win contracts, they reach a saturation point where they have to hire employees and they will have to raise prices. Then they start to raise prices to what you’re charging. If you cut your prices, this drags your entire town down, so no one wins.”

Anderson, however, warns of throwing the term “low-baller” around loosely. “What exactly is a low-baller?” he asked. “Someone who runs a business at a much lower overhead than you? Someone who delivers a lesser, albeit wanted service? Someone who manages their costs better than you? As an industry, we should be careful of calling people low ballers. If they provide unprofessional service, if they don’t live up to their warranties and replace expensive plants with low cost, low quality plants, now that’s a different story. We should call them what they are – unprofessional and rip-off artists. If so, how is this affecting what you can charge for your services?

“It has no affect,” Anderson continued. “If that’s what customers want, that’s what they’ll buy. I’m not going to let what others do dictate our sales and service approach. What comes around goes around. Customers may take a short-term approach to their plant maintenance, but I have found they will in the long-run have spent the same amount, whether in monthly maintenance or in required upgrades due to short-term cost savings.”

Novy said Gardeners’ Guild isn’t too affected by companies who compete on price. “There is always someone who can do the job cheaper,” she said. “We believe you get what you pay for. We are usually in the middle.”

Bozarth, though, has lost some accounts to low-priced competitors. “That is (the reason for) some of our cancellations,” she said. “A lot of times, with the low ballers, it’s not that they always do a bad job. Most of the interior companies around here are one-man (operations), so they can do the job a lot cheaper. I’ve got employees and I have to charge more.”

According to Barron, industry consolidation could stabilize pricing and quality. “There need to be two or three major players other than Rentokil to bring the industry into its own,” he said. “The mom-and-pops aren’t going to do that. We’ve got one major company, and they can set a standard for themselves but not for the nation.” Simon disagrees. “Our competitors that consolidated can’t hold a candle to quality service,” she said. “They’re just so bureaucratic they’re not agile. When you’re not agile, you can’t fill the needs for the clients, you can’t understand their needs. They are bottom-line focused and don’t have appearance in mind. It endangers our market and our industry when the plants look horrible. Sooner or later, the clients will cancel them.”

KEYS TO FUTURE SUCCESS. The keys to success for every business differ. But there are some common themes across the industry – for example, finding labor, picking up new accounts, selling add-on services, increasing marketing and coming up with innovative solutions for clients.

Heller said the key to her company’s future success is controlled growth. “My goal is just to stay at the level I’m at,” she said, “and increase my profits a little bit. I’m not pushing really hard to be a big company. My claim to fame is that I do a lot of the entertainment industry and I have been in the business for 20 years, so I know the city inside and out, and I know a lot of people. I have built a name for myself. That’s the key to my success. Also, I think of myself as an intuitive designer. I feel that’s my calling card to keep the business that I have and to get new business.”

Bozarth said customer service is the ticket to keeping clients happy and the business healthy long-term. “We are doing the best we can and keeping our existing clientele happy,” she said. “We want to make people appreciate the service we provide and make them feel like it’s worthwhile to spend money on plants.”

Finding qualified people will be key to future growth, Wittroch said. He said he feels he’s on the right track with his company’s referral program. “We have had really good luck with in-house people referring other people,” he noted. “Those have been our best and longest-term employees. We are offering incentives to our employees if they refer somebody. They get a referral bonus.”

Barron’s No. 1 priority is employee retention, but he also keeps an eagle’s eye on costs. “We have to make sure that we’ve done effective fiscal control, monitoring the cost of goods,” he said. “We also need to look at consistency, safety and employee reviews, which are critical.”

Holb said she thinks the key to future success will be to “just keep doing what we’ve been doing.” She is pleased with the feedback the company has received from customers and would like to keep the positive momentum going. “Our customers say, ‘We like you, we see the same faces,’” she said. “This shows stability in a market that’s changing.” For Wingard, the keys to future success lie in “our employees and what we can do to get them to work together and work for our clients the best.” He also said increasing pricing and his company’s service area will be vital to growth. “We have to be looking at different things we can do for our clients and expanding our service base,” Wingard said. “If you stay single-focused, you fail.”

The author is Managing Editor of Interior Business magazine.

Click here to view the rest of the Sept./Oct. issue of Interior Business.