Looking ahead

At Cultivate’22, Dr. Charlie Hall, AmericanHort’s chief economist and the Ellison Chair of Texas A&M University’s Department of Horticultural Sciences, said that 2022 was mixed performance within a great year.

Growers reported sales up 20% as an across-the-board average. Nearly 40% of the growers Hall surveyed reported increases of between 1-10%, small increases compared to previous years. Still, Hall asked growers to consider where they were a few years ago. When comparing 2022 gross sales year-to-date to 2019, 63% of growers are up more than 25%. Growers’ profitability ranged from barely profitable to very profitable, depending on several factors.

Part of this is due to input cost increases. Hall showed aggregate input costs increased 10.1% in 2021, 8% year-to-date in 2022, and he is forecasting another 3.6% increase in 2023.

He hopes the industry can continue raising prices to compensate. However, in his research, he found that only 40% of green industry companies are passing 100% of their input cost increases on to their customers — which essentially means they are sharing their margins with their customers.

“That’s magnanimous of you,” he says, “but you won’t be in business for long.”

He also discussed a compensation study with data from the Bureau of Labor Statistics. In 2022, 21% of businesses said they increased wages over 10%, 58% said they increased wages between 6-10%, and 21% said they increased wages 1-5%. If green industry businesses want to attract or keep employees, Hall says their wages must keep up with cost of living and inflation.

Hall pointed to an Axiom marketing survey showing that 19% of respondents plan to add new shrubs or trees to their landscape, a number that compared favorably to other home improvement projects listed as choices.

Due to this, the green industry has been recession-resistant, but the Great Recession proved it isn't recession-proof. It affected all industries, and it took six years for the green industry to claw back to where it was before the crash.

Even though it was the best year ever overall, whether it was for your business might depend on your location. Local economic conditions are often influenced by local weather conditions, Hall says. In 2022, after two years of strong sales and profits, spring weather hurt a lot of the country. The Southwest had a dry spring. The Pacific Northwest, much of the Southeast and the Midwest had wet springs with flooding issues. New England had a mid-spring cooldown, which negatively impacted sales.

Hall also touched on supply chain and inflationary pressures. He showed a supply chain pressure gauge that revealed hope on the horizon. After more than a year of constricting pressure in various areas, the supply chain pressure began to relax in June and July 2022. “It’s improving, but it’s improving slowly,” he says.

The inflation the industry is seeing is due to both demand-pull and cost-push inflation, he said. In June, the Consumer Price Index, which tracks the price consumers pay for a variety of goods and services, was up 9.1% year-over-year, the highest mark over the last 40 years. Although it hasn’t reached the highs of the late 1970s and early 1980s, the last time inflation affected Americans so much.

On the retail side, price increases are keeping garden centers in the black. According to research shared from The Garden Center Group, total sales were down 5.5% year-to-date for 2022 and the total number of transactions was down 12.4%. However, the average sale was up 8.3%. Hall believes this is due to price increases the industry put forth because of supply chain disruptions and inflationary pressures. This is after 29.2% and 19% sales increases and 15.3% and 13.9% transaction increases in 2020 and 2021, respectively.

And finally, although nearly every indicator he showed was positive, Hall says he believes there is a 50% chance of a recession occurring between now and next summer. A correction is coming, he says, so what to do? Establish your value proposition, don’t expect massive sales and don’t overleverage your business, or you may be left holding excess inventory.