This weekend, florists across the country will send out millions of Valentine’s Day bouquets filled with roses, carnations, tulips and other blooming symbols of love. And some will lose money on almost every single sale.
The neighborhood flower store, once a retail staple, is rapidly disappearing. Nearly 40 percent of America’s floral businesses have closed since 2000, with 14,000 remaining at last count, in 2013, according to census data. The number of paid employees in the field has been cut in half. A recent market report from IBISWorld put it bluntly: “The florists industry has entered the declining stage of its life cycle.”
The recession and shoppers’ changing preferences have played a role: Fresh flowers are a luxury that tend to get scrapped when money is tight. But florists say one of their biggest challenges is a behind-the-scenes margin fight that plays out every time a buyer goes online to arrange a flower delivery.
If a shopper goes directly to a florist’s website, the store keeps most of the revenue from the sale. That calculation changes radically if buyers go through national merchants like 1-800-Flowers and FTD.com, or if they search for local sellers on Google and click the resulting ads, which are often placed by virtual companies with no inventory of their own. In all those cases, a big chunk of the transaction is captured by middlemen.
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That leaves the bricks-and-mortar merchants, to whom the orders are passed for fulfillment, typically collecting 70 percent or less of the sale price, fueling a sort of love-hate relationship with online merchants. While they can increase business for a florist, that business can come at a high price.
“It’s break-even at best on the vast majority,” Bonnie Bank, the controller of Superior Florist, an 86-year-old flower shop in Manhattan, said of the orders placed with her shop by outside sellers. “The higher-dollar ones, maybe you can make a small margin.”
The dilemma has also created an opening for new entrants into the online market – like BloomNation, a startup in Santa Monica, Calif., that bills itself as an Etsy for flowers, and GotFlowers, created by a software developer who is also based in California.
The industry’s current financial structure has its roots in a century-old practice. In 1910, a group of 15 American florists formed a cooperative, the Florists’ Telegraph Delivery service, to exchange orders. A customer in Denver would, for example, be able to walk into a local flower shop and arrange a delivery to a friend in Boston. The originating florist transmitted the order through the florists’ wire service and received a commission for the effort; the rest of the money was passed on to the fulfilling merchant.
Two changes upended that genteel arrangement. First, technology made it easier for customers to shop with national retailers offering a standardized product catalog, a trend that the Internet rapidly accelerated. And around the same time, the wire services began competing more directly with their merchants to capture incoming sales. In 1994, the members of FTD, which had by then been renamed Florists’ Transworld Delivery, privatized their co-op and sold it to an investment fund for $150 million.
In a typical wire service transaction today, the originating merchant receives 20 percent of the sale price, and the wire service – FTD, 1-800-Flowers and Teleflora are the industry’s big three – keeps 7 percent. If an order comes in directly through a wire service’s website, the service keeps the full 27 percent.
Amplifying the problem for merchants is the rise of “order gatherers” that create elaborate virtual storefronts and advertise extensively on search engines. Their aim is to capture the 20 percent commission, plus service and delivery fees. The flower shops that receive those orders through their wire services say they are stuck with low-price, low-margin orders, and consumer websites are filled with scathing reviews from customers complaining about how little the delivered flowers look like the photos they saw.
“It’s really deceptive,” said Mike Fiannaca, the president of Sparks Florist in Nevada, who created a YouTube video that demonstrates how order gatherers use his store’s name in their ad links. “We want to give all our customers the best possible value, and the experience with these sites is often terrible.”
Irked by misleading orders and the wire services’ fees, Rhoda Paurus, the owner of St. Cloud Floral in Minnesota, is considering dropping both of her services, FTD and Teleflora. She took the first step toward separation in May, when she switched her website’s e-commerce system from Teleflora’s to one run by BloomNation.
BloomNation charges a flat 10 percent fee on the orders it processes, and it does not have a standardized product catalog. Merchants take and post photos of their own arrangements.
That part particularly delights Paurus, who changes her photos daily.
“If we get a double shipment of roses, within a few minutes, we can have a rose special on our website,” she said. BloomNation’s executives say 1,500 shops are using their marketplace. Farbod Shoraka, one of the founders, began working on the concept five years ago after hearing from his aunt, a florist, about her business’s many pain points.
“The consumer was frustrated, the business owner was frustrated, and the middleman was making all the money,” Shoraka said. “It was a very clearly broken model, from a business standpoint.”
So why do florists stick with it? Some of them say they value the sales volume that the wire services bring in and have found ways to make the orders profitable. Others point to the industry’s reliance on the vendors it has worked with for decades.
“A lot of florists still rely on the wire services to send their outgoing orders, including many florists we have worked with for years and years,” Bank said. “Although we try to talk them into paying us directly, many are resistant. That’s why we will likely continue with Teleflora, to maintain those relationships.”
The wire services say they play a vital role in marketing florists’ goods.
“I truly believe, in my heart of hearts, that if it weren’t for people and organizations like ours, there would be no retail flower shops left,” said Mark Nance, president of the 1-800-Flowers wire service BloomNet. “The retail shop can’t compete on a worldwide scale. We’re doing everything we can for those shops so they won’t be displaced by something like Amazon.”
FTD noted that many florists gain new local customers from orders originated by FTD, and Teleflora said its fees were “in line with the standards needed to successfully promote consumer awareness and orders in a competitive marketplace.”
Chris Drummond, a third-generation florist and the president of Plaza Flowers in Philadelphia and Norristown, Pennsylvania, agrees with that view. He advertises aggressively through a variety of channels, including online campaigns, search engine ads, direct mail, fliers and promotional deliveries to potential business clients.
“We run analytics to quantify what it costs to acquire an order,” he said. “My cost across all of the platforms usually ranges from 24 to 30 percent. In the end, no matter what I use, I have to figure out how to make money on about 73 percent of the sale.”
But as their industry shrinks, some flower shop owners are stepping up their efforts to change the way it operates.
Real Local Florists, an advocacy group, began working several years ago with Sundaram Natarajan, a software developer, on an e-commerce system for florists’ websites that would offer a less expensive alternative to the wire services’ systems. Natarajan’s software, GotFlowers, is now used by 50 shops nationwide.
Recently the group requested a new feature, now in development, and it is one that sounds rather familiar.
“We had the idea that we wanted to create our own florist-to-florist network,” said Fiannaca, one of the group’s founders. “I can send an order to a member florist, and his or her products would populate on my Web page.”
So a century later, Real Local Florists is essentially working to re-create the kind of co-op that FTD pioneered. When asked about the similarity, Fiannaca laughed.
“It’s a good model,” he said. “It just has to be one that helps keep local florists in business.”