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February Newsletter

Caroline Anderson - Wednesday, February 14, 2018

January in the Christmas tree business is surprisingly busy. I am often asked what we do once the season is over with the often unspoken assumption that there is little to do after the extreme demands of November and December. Well, there is actually a great deal to do as we deal with the aftermath of what just occurred which includes such activities as managing our account’s receivables, auditing our results, field clean up, field preparation, conducting customer meetings, and a whole host of additional tasks both large and small.

All and all, 2017 will be viewed as a modestly successful one as prices were up, sales were decent, and costs were somewhat manageable (despite ominous clouds on the horizon relative to labor and freight costs). Despite the sanguine feel that is part of the mix when evaluating 2017, it is always important to remember that the devil always resides in the details. Yes, prices were up and that is a very good and proper fact as it has allowed the surviving Christmas tree growers to work toward profitability, albeit modest. There were once many and now there are few. As an industry, we have lost roughly 25% of our 100 acre plus participants and approximately 75% of our smaller 100 acre and less operations in recent years and the accompanying contraction in supply has led to an increase in pricing to meet current demand. For the Big Box retailers, 2017 was a mixed bag as unit sales were modestly down and total dollars were up slightly as a result of higher retails. This sounds a little like 2016 with the caveat that lower unit sales were a given in light of the fact that Big Box buyers were quite cautious in 2017. A bit of a head scratcher to me in light of the fact that large numbers of independent retailers are either gone, have downsized, and/or have settled for varieties of trees that have not been their bread and butter in recent years. Reasons given for the cautious stance include worry over higher retails, strong artificial tree sales, an internal commitment to better margins and less shrink, and a desire to help growers who operate within a consignment model. The final answer is probably a mix of all of these factors, yet we know that an unwillingness to remain aggressive will eventually lead to a dramatic decrease in sales. Guaranteed…

The Christmas tree shortage story received noticeable media coverage in 2017. I read several articles on the subject during the season and I must say, I found the analysis to be highly inaccurate and downright misleading. I read several articles stating that the economic downturn of 2008 led to diminishing demand for Christmas trees. If that thesis were true, which it isn’t, one would expect a huge surge in demand as the economy has strengthened in recent years? Instead demand has remained fairly static while slightly contracting in the period from 2008-2017. As a matter of fact, Christmas trees are one of the most economically insensitive “products” on the planet. When times are tough, consumers who desire to buy a real Christmas tree continue to do so. Total dollars spent can certainly be affected but the ACTUAL purchase is virtually unaffected. The Christmas tree shortage is a direct byproduct of poor business practices conducted by Christmas tree growers. Our most recent oversupply cycle (growers chasing price without customers to meet that increased supply) led directly to a situation in which Christmas tree growers sold trees at prices LESS that the costs associated with growing, harvesting, and shipping a Christmas tree… This in turn led to huge attrition within the industry which included the elimination of millions of trees that were simply cut and burned in the fields as the money to care for the trees evaporated. Remember, it takes 8-10 years to bring a tree to market and the business is capital intensive during the maturation process. The survivors have learned from the past (hopefully) and are committed to not repeating a cycle of profitless business. We’ll see, stay tuned…

Having said all of this, demographics have changed. Don’t believe me? Just ask Toys R Us, Harley Davidson, Sears, Blockbuster, the NFL and a whole host of companies that have found themselves on the wrong side of the Millennial’s preference spectrum. Think it can’t happen to Christmas trees? Think again… Artificial Christmas tree sales were reported as robust once again in 2017 (double digit increases). A recent article in USA (12/11/17) suggests that the sky is falling and includes the following cryptic quote.

    “Of the estimated 95 million American households with Christmas trees this year, 81% will display fake ones, according to an American Christmas Tree Association survey conducted by Nielsen.” https://www.usatoday.com/story/money/2017/12/11/fake-christmas-trees-more-popular-real-people-year/924980001/  (copy and paste)

Other data has suggested that roughly six in ten households display a fake tree, approximately two in ten have no tree, and the real tree accounts for two in ten as well. We can all dispute the data until we are blue in the face. What we do know, and I feel this is very difficult to dispute is that Millennials (1982-2000) are the up and coming “alpha dog consumer” on the horizon and the Baby Boomer Generation (1945-1964) is starting to wane in importance as an impactful consumer of the future. It has been projected that by 2025, 75% of the workforce will be Millennials. It doesn’t require an advanced degree in economic demographics to understand that this generation’s endorsement of your given good or service is absolutely essential to future success or failure.

Now on to the perplexing part… While we know that Baby Boomers will continue to wane as viable real Christmas tree buyers in the years to come. We also know that the Millennial generation is a huge proponent of a “Green” lifestyle that includes a preference for organic foods, electric cars, and real Christmas trees. Oh wait, I made the last one up BUT it SHOULD be on the list. Instead, we hear “that the next wave of young families is not embracing the tradition of a real Christmas tree in the home as much as the previous generation.” This is a loaded statement that has both complex and simple interpretations. For now let’s stick with the simple… This would seem to suggest one of several conclusions. Either they are purchasing no tree or they are purchasing an artificial tree. If in fact they are purchasing an artificial tree it means that we as an industry have done an embarrassingly terrible job of convincing a group that have strongly ingrained natural biases toward “Green” that an artificial tree is the EXACT OPPOSITE of the kind of choice this generation makes in EVERY OTHER aspect of their consumer behavior!!! Let that sink in. They have every reason in the world to buy our product and we have let them slip away. Talk about snatching defeat from the jaws of victory!!! And, apparently price is not a huge deterrent despite all the hand wringing over rising retails. Take a look at the organic food section on your next trip for groceries if you need convincing.

We are allowing the artificial tree to literally get away with murder as it would be the bane of all ecologically sensitive people if the facts were revealed rather than distorted. Most are manufactured in China (Enemy #1 of the environmentally conscious crowd as they are the world’s top polluter), contain high amounts of toxic lead, are not biodegradable, and are (hello), ARTIFICIAL! Contrast that with a choice that produces oxygen while absorbing carbon dioxide, is completely biodegradable, and is (hello), REAL. Instead we have been painted as rapacious opportunists who cut down the forests and hurt the environment. How we have allowed ourselves to lose this war to date is both shameful and embarrassing. It is a battle that we should not only win but dominate. There is a lot at stake here in the years to come; it is a fight we cannot afford to lose if we expect to survive and thrive in the future. As an industry we have attempted to tell the story. The quality of the story is excellent, the delivery has been less than adequate and that needs to change. Double digit sales growth (artificial) contrasted with slight declines (real) is a recipe for disaster if we fail to get aggressive and smart in a big hurry.

Thomas M. Cook

McKenzie Farms LLC

2/16/18

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