Originally created 02/11/01

Company posts losses



When a national florist surged into town with plans to consolidate a fragmented industry, local independents faced a difficult choice: sell out or play the David to its Goliath.

Some sold, and some stood fast. Two years later, it seems David has won again.

Gerald Stevens Inc., through Augusta-based affiliate Martina's Flowers & Gifts, bought several local florists in 1999 for undisclosed amounts of cash and stock.

The company acquired more than 300 independent florists nationally. Since then, its stock has plummeted about 90 percent and it has been removed from the Nasdaq market's listings.

Brad Usry, the owner of Fat Man's Forest in Augusta and Fat Man's West in Evans, said he remembers getting an offer from Fort Lauderdale, Fla.-based Gerald Stevens.

"I can't remember what the offer was, but obviously it wasn't enough," Mr. Usry said. "We would be scared to death anyway to take stock for our blood, sweat and tears."

Before Gerald Stevens, there was little consolidation in the floral industry. Most of the nation's 40,000 florists were independents, and many were one-person shops with sales of less than $150,000 a year.

Gerald Stevens had plans to be the Blockbuster Video of the floral industry, using large-scale purchasing power and national advertising to either entice family-owned florists to sell or put them out of business.

In fact, the company was founded by former Blockbuster executives.

Gerald Stevens' stock once hovered around $20 but now sells for pennies.

"Obviously, if you're trading publicly, you'd like to be listed," said Gregory Royer, Gerald Stevens chief operating officer, referring to being delisted. "But we're sort of below the radar screen now, and we can make moves. Sure, it's a blow from our pride's point of view, but from the standpoint of getting things done it's actually been helpful."

The company implemented a 1-for-5 reverse stock split in November, hoping to improve the marketability and liquidity of its stock.

Gerald Stevens reported a net loss of $42.6 million for 2000. Excluding a one-time charge and a gain on the sale of assets, fourth quarter 2000's net loss was $12.4 million - compared with $4.6 million the same quarter 1999.

"Our growth plan was to grow into a billion-dollar company in four or five years," Mr. Royer said. "A couple things happened, though. First, our sales ... in the spring were below expectation. Second, investment money became difficult to get. So we had to slow our growth."

Corporate executives say they are confident they can turn it around. The company recently renegotiated its credit agreement to provide $7 million in working capital. Bank of America agreed to provide the extra funding through Feb. 28.

"We're already increasing marketing exposure," Mr. Royer said. "We're developing unique products, training our people to handle more business, focusing on purchasing with companies who have embraced us in the past, and we're making the process easier for customers by being more available."

But the company's business plan needs to be addressed. Industry experts say Gerald Stevens' flawed acquisition strategy, which closed transactions quicker than stores could be integrated, needs to be amended.

Getting Together

Generally, when a gigantic corporation targets a market the size of Augusta, little good can come to independents who don't want to sell.

But as a direct response to the Gerald Stevens corporate presence, local independents banded together to create the Florists Locally Owned Retail Association, a marketing group designed to form a unified front and take advantage of economies of scale.

FLORA has 14 members - 12 in the Augusta area and two in Statesboro - who pay monthly dues and meet regularly to discuss the industry and what they can do to get more people to buy flowers.

"It's a marketing tool; we pool our financial and creative resources and come together with promotions," Mr. Usry said. "A lot of it's top-of-the-mind advertising - keeping it in people's mind to send flowers. I think it works - Fat Man's has never been stronger."

All FLORA members pool money for cooperative advertising campaigns. Georgia State Floral Distributors on Telfair Street, the area's largest floral distributor, matches the pot.

"If I help my customers sell flowers and be more profitable, then I'll be more profitable," said Len Collins, the distributor's president. "So it's not a completely altruistic thing."

For example, FLORA financed a recent print advertising campaign geared toward men whose ads read, "How Mad Is She?" with pictures of small, medium and large flower arrangements.

The advertisements, which didn't promote any particular florist, were simply designed to get men thinking about flowers.

Local marketing company Alison & Associates Inc. helped organize FLORA and handles its promotions.

"What they wanted was to combat the big companies in a positive way," said Bert Dean, an account executive for the group. "Locally owned independent florists were having market-share erosion every year, and it wasn't getting any better."

In one of FLORA's more popular promotions, customers could buy a dozen roses for $10 and two cans of food would be donated. Called Caring Rose Week, the promotion generated 1,600 pounds of food for the Golden Harvest Food Bank.

"That's just unbelievably successful for a first go at charity work," Mr. Dean said. "Florists didn't make a whole lot of money off it, but it was certainly good to be associated positively with such a well-respected charity."

Mr. Collins said such promotions show that local dealers benefit local markets.

Though some profits from Gerald Stevens-affiliated stores are funneled to the corporation, the shops still employ local people and contribute to the local tax base.

Martina's Flowers and Gifts, for example, is still operated by the Partridge family and employs nearly three dozen people in various locations.

"Our stores are pretty much all still locally managed and operated," Mr. Royer said. "It's the strategy we used; we wanted to buy the best companies, and that's why we bought Martina's."

Reach John Bankston at (706) 823-3352 or jbanks15@hotmail.com.