Outlook for 2014 - An Industry Perspective
Hindsight is always 20/20. That's one of those sayings we all know is true, but it doesn't make going through tough times any easier. It's like one of my dad's idioms: "You'll feel better when you get over it." True, but I still wanted to know just how long the painful situation was going to last!
Looking back at our industry's experience since 2008, we see huge challenges and changes. In the grower and landscape segments, a number of industry members are no longer in business, and those that are still here are most likely operating very differently today than in 2008 or prior. While retail has remained more stable, the cost of doing business has certainly increased. We, as an industry, have changed a lot during this time. If we look at the chart below with respect to the grower and landscape segments, we see just how much change we've been through. The data are from 1978 through 2012.
The lowest valleys are 1981-82 on the left side, again in 1991, and then 2008-11 on the right side. This represents dramatic change. Actually, this is not sales data from our industry at all - but instead tracks historical U.S. new home sales (in millions of units), courtesy of the National Association of Home Builders (http://www.nahb.org). But this chart could easily be used to reflect overall sales in our industry, especially those of woody growers and landscape contractors. The retail segment's graph would have softer variations, and the valleys would not be as deep.
Tree Shortage Expected for 2014, 2015 and Possibly 2016
For wholesale woody growers, the reaction to the steep drop-off from 2006 through 2010 meant large shifts in production. Less was being planted, and inventory sizes were getting larger. Planting of trees, in particular, lagged much of the next two years (2011-2012). If you conclude tree planting was at an all-time low as late as 2011-2012 and average production time for field-grown trees to reach 2-inch-caliper size is four years, we are now at least one to two years away (2015-2016) from having increased supply of standard size tree varieties. This is compounded by the reduction in the number of wholesale nurseries today.
Let's now turn to what we see happening in demand for plants across the country. The chart reflects the recent low as approximately 530,000 new homes built in 2010. Most sources quote approximately 920,000 in 2013. Those are all down from a peak in 2006 of 2.2 million. Our average (since 1959) has been 1.45 million per year.
Kiplinger projects 16 percent increase in new home starts in 2014
Here's a quote from a December 30, 2013, article from Kiplinger: "There's more expansion ahead for the housing market in 2014, with starts and new-home sales continuing to rise at double-digit rates, thanks to tight inventory. But the pace of existing-home sales will moderate. We expect about a 4 percent increase in existing-home sales." Later the same article says, "Look for construction of about 1.07 million new homes to begin in 2014, as builders continue to respond to tight inventories. That's a 16 percent jump from estimated 2013 starts of around 920,000." (Read more at http://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/#iAtd5U6xjp9gRhUS.99)
Following are some regional observations:
SNA/Greater Atlanta Homebuilders: +28 percent increases expected in 2014
About two weeks ago, representing SNA, I spoke to David Ellis, executive vice president of the Greater Atlanta Home Builders Association, who said, "While the final numbers for single-family home starts in Metro Atlanta in 2013 are not yet in, it is expected to be nearly 14,000 units, up from 8,000 in 2012. Projections for 2014 are in the 18,000 to 22,000 range. Right now, our builder members are having a hard time keeping up with the demand."
Ellis explained that with the increase in home starts there are several challenges builders are facing to get their operations going. "Unlike prerecession times, contractors are not building spec homes," he said. "It is a build-on- demand environment due to bank funding and building loan restrictions as well as avoiding an oversupply of inventory. In addition, they are dealing with a diminished number of subcontractors, laborers and suppliers."
FNGLA reports stronger plant sales; construction up
FNGLA's CEO Ben Bolusky reports tropical foliage and houseplant sales to retailers, especially independent garden centers, are solid and getting stronger. Bold colors, striking textures, mixed containers and urban street plantings are driving sales. Some smaller foliage growers are still struggling, though. Trees are indeed selling very well again. This signals housing construction is up, as is commercial building across the state.
TXNLA reports demand up; shortage on some plants
TXNLA's President Amy Graham reports good things for the spring. Orders are strong, and shipping will begin soon. Most retailers had a good Christmas season, and because of the rain that has fallen in Texas, there is great optimism for spring. In fact, many believe there may be a shortage of some plants. Demand will be strong, but because of the pullback on production due to the drought, things may be tight. Water is still the main concern. Cities across Texas see water restrictions in their future. If we continue to see periodic rainfall, people will want to plant. So, our best strategy is to pray that heavy rain occurs in the lakes over the next several months, so we can make it through the summer. New construction forecasts are strong in Texas. It is driven by the continual influx of new residents from other states, as well as the oil and gas boom.
OAN reports growth; now seeing plant shortages
OAN's Executive Director Jeff Stone reports things are improving. "Horticulture in Oregon was knocked off its perch as the largest sector of agriculture during the downturn, but over the past couple of years we have recovered to get the top spot again. Sales are not where they were in 2007 when we broke through the $1 billion barrier; we took a 35 percent hit in sales. Now we are back up to $744 million (2012 figures) with an upward trajectory.
"We have a wide range of growing operations and market segments," Stone continues. "Both the regional and national markets, like many other nurseries in other parts of the nation, found sales hard to come by. Coupled with both housing declines (both new and remodel) and a drop in consumer confidence, production is more in line with actual demand than it was during the prime years. Due to production changes, we are now seeing shortages in the market. It will be interesting to see how this plays out, but those nurseries that survived the worst economic downturn in the industry's history are well suited to pick up the demand. Oregon nurseries will emerge more efficient, wiser to market changes, and poised to meet a shortage in product over the coming years."
Northeast / Massachusetts
MNLA reports consumer demand up; shortage of hot landscape plants, especially trees
MNLA's Executive Director Rena Sumner reports overall business outlook is good with a lot of excitement and energy for the new year. "Early signs show that the upscale building industry (both residential and commercial) is on the rise," she explained. "As always, retail still continues to be all about weather. I spoke with Pat Bigelow of Biglelow's Nurseries in Northboro, Mass., and she shared a very interesting insight on the retail sector of our industry, noting that the younger generation has a different vision of gardening than their parents/grandparents - more like 'gardening with an environmental overlay.' Which, of course, is an exciting opportunity for the green industry.
"It is expected that there will be a shortage of 'hot' landscape plants and most especially trees," Sumner continued. "The reason for this shortage relative to trees is obvious in tough economic times - the demand has been low and cash flow is challenged. It is difficult for growers to invest in a plant that will not be harvested for three to seven years under these conditions. The positive aspect of this shortage is that it will help to strengthen prices. The bottom line is that consumers are starting to spend, and after years of consumers holding their pennies close, we hope that this is an early indication that the green industry in Massachusetts will have a successful 2014."
ANA reports positive signs after a slower recovery start
ANA's Executive Director Cheryl Goar says, "We are cautiously optimistic for 2014. We are seeing new construction here, but Arizona had a deeper falloff with housing and it's been slower to rebound, but it's definitely starting. We are seeing some commercial and residential new construction. Sales of plants are up and are expected to continue in 2014, but availabilities are tight, especially with trees."
Special thanks to all the contributors to this article. In spite of headwinds from Washington, D.C., on small business, overall industry results in 2014 are expected to be positive with increasingly tighter plant supplies. This could be the turning point for our industry in much needed profitability, so be poised for increased demand!
Danny Summers owns Summers & Associates, along with his wife, Karen. They manage the SNA - the Southern Nursery Association - as well as a number of other not-for-profit organizations. Summers also functions as Managing Director for The Garden Center Group and is Executive Vice President of the Sidney B. Meadows Scholarship Endowment Fund. He can be reached at firstname.lastname@example.org.