Retailer uprooted
The “all sales are final” signs are out, and the heavy discounting has begun in anticipation of Smith & Hawken’s closing by the end of the year. This was the capper on what has been a disappointing chapter for Scotts Miracle-Gro, which bought the struggling outdoor living brand in 2005 and was never able to point it in the right direction.
Scotts CEO Jim Hagedorn blamed the closure of the 56-store Smith & Hawken chain—whose sales were down 15% to 20% in 2009—on “the weak economy and the lack of scale.” But there may be more to the story, some industry observers say.
A survey done recently by Unity Marketing reported that affluent Americans—or those making $100,000 or more annually—are spending more on their outdoor living spaces: In fact, 22.6% more in 2008 than 2007, and 33% more in the first quarter of 2009, compared with the same period last year. Why did spending by this group not help Smith & Hawken? Unity Marketing president Pam Danziger thinks it should have.
“I questioned this deal from the start because Smith & Hawken as a company and brand doesn’t match the expertise that Scotts has,” she said. “Scotts is a chemical company, not a retailer who could have made the most of the brand. There was no synergy between the corporate parent and its stepchild.”
As for the “chemical company” label, Scotts officially considers itself a “leader in lawn, garden and outdoor living products and services.”
At an Oppenheimer & Co. investors conference last month, Scotts CFO Dave Evans explained that the original idea behind Smith & Hawken was to “take the brand and extend it into our channels where we were already doing business and had existing customer relationships.” But, he added, “That proved to be more challenging and became even more challenging in the economic environment we are in today.”
Rick Pontz, president of the Lawn & Garden Performance Group, believes the decision to take Smith & Hawken to the mass channel was ill-fated and was one of the main causes for the brand’s demise. Within days of purchasing Smith & Hawken, Scotts started talking about selling the brand in Home Depot and Lowe’s, an idea that didn’t sit well with independent retailers, many of which stopped selling Smith & Hawken products.
“All the back-tracking and spin by Scotts couldn’t re-establish their creditability with the independent retailers and regain their support,” Pontz said.
Scotts never was able to sell its Smith & Hawken store-within-a-store concept to Home Depot but did form a partnership with Target—beginning with 250 Target stores carrying a lower grade selection than the independent retailer. According to Pontz, however, there was little notable difference in the two lines, which “further eroded their core independent garden center business.”
Going forward, Smith & Hawken products will continue to be sold through its branded stores and other outlets until inventory is gone. Company spokeswoman Su Lok said Scotts is “still working with Target and reviewing the next steps” to determine the future of the Smith & Hawken brand in Target stores.
John Kinsella, managing director of Terrain, the upscale garden center concept launched last year by Urban Outfitters, declined to comment on Smith & Hawken, his former employer, but said the chain’s closure opened up a big opportunity for someone in the garden-inspired gift category. “Most nursery retailers have struggled with big ticket purchases, such as furniture and trees this year,” Kinsella added.
James Glassman, a senior economist and managing director with JP Morgan Chase & Co., said the Smith & Hawken story has been reflected in many high-end markets, including mattresses and bedding, jewelry and coffee. “It’s not that the high end is so bad off. It’s more that the tide was rising for this sector for sometime, and now it isn’t,” he said. “Retail businesses react slowly, so not that the high end is no longer rising on the margin, [but] those who were late to the party are finding that the party is winding down.”