Predictions for the upcoming year
Alan Hodges, an economist and extension scientist in the food and resources economics department at the University of Florida, says that the U.S. narrowly averted a prolonged depression, and the unemployment numbers reflect that. Still, he says, there are many signs that the problems are moderating. In fact, the recession is officially over because the gross domestic product for the third quarter of 2009 increased by 2.3 percent at an annualized rate, putting a stop to successive decreases. Unemployment nationally was at about 10 percent, but the numbers in the green industry were improving over the year before, Hodges says. One driver is that real estate sales and prices are improving after a long decline, and the employment indicators are also showing some life. As home sales and employment increase, demand for sales and services will increase.
The U.S. Bureau of Labor Statistics reports that employment in the landscape construction and maintenance industry was down 6.7 percent in September from the same period in 2008, but that figure was at 9.6 percent in February. Golf and country club employment was down 5.4 percent in February from 2008, but in April it was down 7.9 percent. Employment in the lawn and garden supply segment was down 4 percent in September, but in March the figure was 5.1 percent. In early 2009, employment at municipal golf courses was actually up 5 percent from the year before.
“It looks like the employment situation for landscaping has moderated a bit,” Hodges says, and all of these statistics lead him to believe that by late 2010 there could be something of a turnaround in all sectors. “Employment is still down, but less so than it was earlier in 2009.”
Hodges says that his industry contacts are giving him “pretty dismal” reports from the field, and economists and businessmen are having a tough time making predictions during a situation that is unique and unprecedented. Still, the aggressive federal government measures and stimulus packages have helped the situation tremendously. There is still a question as to what will happen as the stimulus money is used up, but he notes that ultimately this is “just another cycle,” and the trend is now toward stability. Turf facilities and companies should be prepared for that.
“I certainly wouldn’t recommend sacrificing marketing efforts,” Hodges says, even though general cost-cutting can help smooth the effects of the economy. He notes that companies that position themselves for the recovery will be the first ones to take advantage of it, and advertising can be a big part of that. Companies should also look at how they can differentiate themselves from the competition. After the nation sees two or three months of growth in employment, that could be a sign that a turnaround is well and truly underway.
The L.T. Rich Products company had an exceptional year in 2009, increasing sales by 8 percent and setting a record for profits. Company President Tom Rich says that a solid development program for his company’s niche line of aerators and fertilizer sprayers, as well as a large downturn in the cost of commodities such as stainless steel and aluminum, helped boost the company, which sells to clients who maintain turfgrass.
Rich says there are several factors involved in his company’s “record year” in 2009, other than a decrease in cost of materials used to manufacture their sprayers and aerators. First, he cites the company’s push to develop new products, a push which continued during the recession. Second, he is in a specialty niche where there aren’t a lot of competitors, and, finally, L.T. Rich Products has a direct-sales system, utilizing a few regional sales reps, which emphasizes good customer service. That helped increase sales by 8 percent last year for the Lebanon, Ind., company.
“If our customer base wasn’t doing well, we wouldn’t be doing well,” Rich says, noting that he saw a definite turn for the better in the middle of the summer. Grass has to be maintained, after all. The development of new products will lead to the company releasing a new aerator and a new zero-turn fertilizer sprayer this year, and possibly another product later on. He is optimistic that they will find an economy in recovery.
David Taylor, owner of STEC (Specialized Turf Equipment Company) says that 2009 was “a very strange year” for his company. Overall sales were down about 25 percent for the year for the Anderson, S.C., company, primarily because sod farmers—the primary customers for their line of grading, seeding and other specialty construction equipment—were fixing up old equipment rather than buying new. Still, the company is in the middle of a makeover and added two new employees, released new products and is in the process of looking for a bigger building.
“The economy is bad, but we’re in a pretty good place, knock on wood,” Taylor says. He is expanding in order to diversify, which is a good survival tactic. The company will add new lines in 2010, both in equipment it manufactures and in equipment imported from Europe. He says there is always a demand for low-volume, high-quality specialty equipment in the turfgrass industry.
The primary means of attracting business will be to improve the company Web site, attend trade shows and conduct public introduction days for their equipment. Even though he is optimistic about the company’s prospects for the year, Taylor doesn’t see any chance of a major turnaround until at least the end of the year.
There was definitely a “shifting” within the green industry last year, says Bob Dolibois, executive vice president of the American Nursery and Landscape Association (ANLA) in Washington, D.C. It was away from paid landscaping to the do-it-yourself market. That only means that retailers weren’t as hard-hit as contractors and providers of materials for construction and renovation firms.
Businesses that had long-term production pipelines and could not reduce inventories during the recession were hardest hit, Dolibois says. Thus, tree growers, with their long production schedules, were harder hit than sod growers, who could at least either cut their input expenses or cut their losses before the crop matured. Any part of the industry that relied on new construction had a serious reduction in business. Maintenance operations were not as devastated.
“For our members who are doing landscape maintenance, the maintenance side was easily the most resilient,” Dolibois says. Even though there was a lot of price competition between maintenance firms for remaining business, what kept that business from a sizable drop-off were factors such as banks continuing upkeep on foreclosed homes.
One of the problems that created the crisis in the industry was the difficulty in getting credit, Dolibois says. It is hard to run a business if it has seen its line of credit dry up. Like unexpected bad weather, that makes it a volatile industry. He notes that a third major factor that is hardly ever mentioned is the maturing of the baby boomers. Where once they were a primary source of customers as they retired and renovated their yards, now their numbers are diminishing year by year, and the next generation isn’t providing as much buying power.
“We had kind of a perfect storm of weather, finance and a decline in the sheer number of customers.” Dolibois notes that this was seen clearly in states such as Florida, California and Arizona, where home foreclosures hit the economy hard and added another negative factor. As home sales declined, so did the “traditional churn” that comes from new homeowners relandscaping their yards.
What are some of the strategies for good businesses to take on the road to recovery? “First and foremost, you have to be really knowledgeable about what the true costs are in every dimension of your business,” Dolibois says. In high-cost areas, such as labor and production, it is especially important to be able to pinpoint costs and make efficiency moves. Even green industry businesses accustomed to cyclical seasons have to be able to understand these costs and make decisions that can save them during a severe recession.
Another positive step that businesses can take during hard times is to be able to identify the best client base to pursue. Dolibois points out that even in hard times a company can expand market share by capturing clients from companies that could not survive. This can be done through advertising and other promotions.
Kubota Tractor Corporation says that the company has not made any particular policy changes to cope with the recession and has scheduled the introduction of several new products in 2010. Kyle Hagen, turf product manager in Torrance, Calif., says that customers are now balancing needs versus wants and price-point versus quality.
“For Kubota, the long-run implemented strategy of continuous improvement, while offering quality products with innovative features at valued pricing, has more than helped us weather the storm,” Hagen says. He adds that the demand for durability and fuel economy are higher than ever, and Kubota is offering financing options with longer terms and lower down payments.
Don Dale resides in Altadena, Calif., and is a frequent contributor to Turf. He has covered the green industry for more than 10 years.