Flower Power

We often think our industry is so different from others that it’s governed by a special set of rules. Our products are labor intensive, highly personal, appeal to deep emotions, and possess high intrinsic value.

Taking these factors together, we do have a unique business. But when considering how gems and jewelry get distributed via different channels, we can safely say there are many sets of rules. A top-quality luxury retailer sources goods differently than a mass-market chain. When I chat with people in either segment, it’s clear that each has little idea of what the other does.

If we look at the market as a two-tier one, other trends begin to make sense, which I will come to shortly. This is a view I have held for years, but I recently saw a similar dichotomy in another industry that has three of the four attributes of jewelry listed above: flowers. On entering a restaurant with my family, I saw a young bride-to-be and her entourage leaving after a rehearsal dinner. She was carrying a beautiful bouquet of red roses. When we admired them, she immediately handed us one. The flower was large, deep red, perfect, and had a thorn-free stem at least 3 feet long. As one is apt to do, I smelled the rose. It had no fragrance!

I was surprised enough to do a little investigation. Flowers have become a $40 billion mass-produced product. Genetically engineered flowers are bred for size and longevity on huge farms in South America, Africa, Israel, Thailand, and elsewhere. They are flown to major distribution points in Amsterdam, Netherlands; Dubai, United Arab Emirates; and Mumbai, India. Thousands of buyers and suppliers converge at these sites where high-speed auctions are conducted every day; the flowers are repacked and reshipped to wherever in the world the buyers dictate. Growers may get 7 cents for a rose that sells for a few dollars at retail. The cost of shipping and reshipping is calculated to the penny. The margins are razor thin. Sound familiar?

On the flip side, local growers producing small quantities of special flowers the natural way are being squeezed out. In the right marketplace, people are willing to spend a lot for homegrown varieties, but that’s the other end of this two-tier market. It’s the same with free-range chickens and wild salmon. They’re becoming rarer and more expensive, but are still the preference of many affluent people.

Genetically engineered flowers (dare I call them enhanced or treated?) represent the bulk of the business, but problems like lost fragrance still nag the industry, and geneticists are hard at work to recover the smell. They are also experimenting with black roses and ones that smell like chocolate.

We may shudder at this, but it’s the free market at work. What are the parallels to our industry?

On the mass-market side, several channels (mall stores, warehouse clubs, department stores, and discounters) have consolidated and essentially control the popular and/or promotional business. Few players, if any, will enter that market in the coming years, though we should continue to see changes in ownership. As a group, they’ve made life difficult for independents that try to cater to the middle and lower market, leading to a decline in their ranks. It’s hard to counter the buying power of the majors, their advertising, their ability to source globally, and their increasingly strong presence on the Internet.

Upscale independents are the homegrown florists. But they too will need to adapt to shifting business models upstream. Not unlike the flower auctions that were enabled by modern transportation and communication, a futures market is being proposed for diamonds. If that happens, the present paradigm for diamond distribution and pricing will become obsolete. And all retailers will need to respond to our own versions of man-made flowers.