Consumer expendituresfor lawn and gardenactivities have experi-enced strong growthover the past 15 years

and were estimated to be about $35billion in 2005, according to theNational Gardening Association.Others estimate even higher sales

levels. This growth occurred inresponse to many factors, includingrising incomes, housing starts andincreases in expenditures for homelandscaping. Industrial and com-mercial organizations, public andprivate institutions, and others alsohave increased their landscapingexpenditures.

The independent garden centeris the traditional retail outlet forproducts such as plants, suppliesand hard goods, but other kinds ofretailers, particularly home centersand mass merchandisers, havegained market share rapidly. Size ingreen products retailing is a continuumfrom the many small, locally owned

and operated firms that capture arelatively small portion of sales tothe few large firms that capture themajority of sales. Many indepen-dent garden centers have remainedviable by following differentiationor niche strategies and offeringconvenient access to many con-sumers, unusual plants and vari-eties, knowledgeable staff and aservice orientation.

Establishing AndOperating Study

One problem area for indepen-dent garden centers is access toobjective business and economicinformation. Books and other pub-lications are available from a varietyof sources, including industry asso-ciations, trade shows and onlinestores. However, little publicresearch has been reported to pro-vide support in particular aspects ofthe industry. In particular, criticaldecisions about whether to expanda business or start a new gardencenter are areas of sparse informa-tion. In response, results from astudy of costs of establishing andoperating retail garden centers,particularly regarding capitalneeds, operating costs and generalprocedures for creating and oper-ating these businesses, are going tobe reported here.

The study drew on research in eco-nomics, business and horticulturalexpertise to create a general guide tothe process of valuing physical facilitiesand operating inputs for garden cen-ters. Capital budgets were developed,operating costs were estimated andfinancial statements were created forhypothetical firms. The study also con-tained summaries of marketingstrategy, promotion, merchandising �

Profitable Or Not: A Guide to EvaluatingGarden CentersLearn the results from a study about costs of establishing and operating retail garden centers, particularly regarding capital needs, operating costs and general procedures for creating and operating such businesses.

By Roger Hinson

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Point of purchase material, like this program promoting native plants in collaboration with the National Federation for Wildlife, are becoming more popularat garden centers. (Photos: Sue Barton, University of Delaware)

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and personnel that should beunderstood and used by the owner/manager of a garden center. In thisarticle, an outline of the method ofgenerating capital requirements isprovided, indicating the invest-ment needed to generate a dollarof sales along with a summary offinancial results.

Given the objectives, the analysisillustrates a methodology to estimatecosts and use the results to calculatefinancial ratios that indicate businesshealth. Capital needs are based onunit costs, such as cost per acre ofland. The values used here may bevery different from those that actuallywould be paid in a given market. Sothese results should not be used tosuggest a particular situation mightbe a successful (or unsuccessful) gardencenter business. Such a recommen-dation would result only from astudy designed to answer the ques-tion for that specific situation.

MethodologyData on physical facilities, equip-

ment and personnel requirements,product mix profiles, and marketingand financial evaluations were col-lected from garden center managers.This information was evaluated by agroup of professionals with extensiveindustry experience. Business mod-els for two firm sizes were developed:

a small garden center with facilitiesand operations that could generategross sales of about $350,000 and alarger retail garden center with grosssales capability of about $1 million.

The business activity of eachmodel firm was assumed to be theretail sale of plants and suppliesonly. In contrast, many garden cen-ters have related businesses such asnursery production, landscape instal-lation or landscape maintenance todiversify their positions.

The firms were modeled to por-tray realistic differences in theoptions available to operators. Thelarger garden center was big enoughto gain some economies of size andscale but could not compete with thebuying power and other scale effi-ciencies of mass merchandisers andhome centers. So, as a strategy, bothgarden centers would want to differ-entiate themselves or focus on someparticular facet of the market.

For each model size, capital invest-ments in land, buildings and facilities,outdoor sales areas, and vehicles andequipment were estimated. Oper-ational expenses were itemized forthe two firms, emphasizing costs likepersonnel, marketing margins andproduct turnover using representativeindustry values. An individual followingour methodology would adjust thesecosts to reflect local costs.

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Initial Cost For Representative Garden Center Sizes

Initial cost in $

Item Large Small

Unimproved land 400,000 200,000

Improvements (road) 137,383 50,000

Parking lot and bumpers 52,258 4,498

Security (fences, lights, etc.) 35,398 4,150

Signs 5,000 1,000

Other 35,089 13,684

Total land and improvements 667,128 273,332

Sales building (and storage) 192,000 37,800

Greenhouse, work area, overwintering 50,000 13,550

Lath shade 6,510 1,240

Pole barn, bulk bins and apron, gazebo 17,495 n/a

Interior display shelves 6,800 2,050

Cashier counters 2,000 500

Total buildings 275,095 54,590

Total equipment (not itemized) 88,180 21,445

Total land, improvements and buildings 1,030,403 349,367

Figure 1. The capital items and their costs are presented in this figure. Results presented suggestinvestment costs were about $1 of investment for $1 of sales capability in a mature garden center.

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Pro-forma financial statementswere developed for the model firms.The statements were based on para-meters such as product mix, turnoverand gross margins that were repre-sentative of garden center retailing.Key financial measures were verifiedby secondary business, financial andeconomic sources, helping to ensurethe reliability of the models.

Required Capital ItemsInvestments were accumulated

under the headings of land andimprovements, such as buildings andparking lots. Land cost varies withlocation and other factors. Tradeoffsbetween desirability (visibility andaccess) and affordability often hap-pen as a location is chosen.

Basic layouts that followed designprinciples were defined for the gardencenters to provide data for costdetermination. The larger facility waslocated on 4 acres of unimprovedland with 300 ft. of frontage to allowsafe entry and exit. The cost at$100,000 per acre was $1,333 perfrontage ft. The smaller facility had 2acres of land and the same frontageat the same cost per acre. Landimprovement costs would vary, but avalue of $25,000 per acre was used forboth facilities, which would includeclearing, grading, gravel, drainage(retention pond) and a well and/ormunicipal utility hook-ups.

Other cost/design items wereincluded:

• Parking af fects customerturnover and should be sufficientfor the “peak usage” number of cars.Landscaped traffic islands added 10percent to the parking spacerequirement. The larger facility’s lotwas paved with 66 spaces, while thesmaller was graveled with 18 spaces.

• Security requirements dependon zoning regulations and uses of sur-rounding property. It might be assimple as a chain across the entrance,while other situations require a secu-rity fence that meets visual appealstandards.

• Handicap access must be con-sidered.

• A sales building for each facilityhad indoor display space, offices,restrooms and indoor storage andwas a wood-frame building with inte-rior dry wall, concrete floor andHVAC. The larger facility’s buildinghad about 6,000 sq.ft.; the smallerfacility had about 2,000 sq.ft.

• A display greenhouse (attached tothe sales building) helped extend theseason by providing an area for the dis-play of indoor plants and provided aselling space in inclement weather. Inthe larger facility, this was a 4,000 sq.ft.gutter-connected, acrylic greenhousewith heat and ventilation, while thesmaller facility had a 2,000 sq.ft. heatedand ventilated poly quonset house. Forboth firms, unheated poly quonsetoverwintering houses were included.

• An outdoor sales area consistedof an overhead lath shade structure,wooden display tables, display beds(for balled-and-burlapped plants)and display blocks (for containerplants). For the larger facility, it wasa combination of gravel and asphalt,while the smaller facility was gravel.

• Space for storage may be includedin the sales building or made avail-able in a variety of separate facilities.In the first case, it was a 12-ft.-highpole barn with metal siding and con-crete floor enclosed on three sides,while the smaller facility had an out-door shed (100 sq.ft.).

Vehicles and equipment for thelarger garden center included a �

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Angled bench displays and built-in endcaps enhance display space at this southwestern garden center.

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pick-up truck, a stake body truck withdump bed, an adapted skid loaderwith bucket and steel frame for pal-lets, and additional equipment. Thesmaller facility had only a pick-uptruck and selected additional items.

Product Mix And Turnover

Product mix included productlines, plant species and cultivars,varying size and quality, and servicesoffered. The mix was selected to

meet customer wants and needs andto fit the image of the garden center.The larger facility was assumed tosell more non-plant materials and toinclude more gift and seasonal items(a Christmas shop, for example).

Profitability EstimatesFinancial statements were calcu-

lated for the third year of opera-tion. Assumptions regarding man-agement expense , payrol l ,adver t i s ing/promot ion andother expenses were based onprinciples discussed above. Thenprofitability could be calculated.For the larger model with salescapability of $1 million, net profitbefore taxes was about $31,000, or9.8 percent return on investment(ROI). For the smaller model, thevalue was about $16,600 in netprofit, which was 12.1 percent ROI.

Are these estimates high, low orabout right? Part of the answerdepends on an evaluation of alter-native uses of resources. For example,values of $30,000 for the smallerand $50,000 for the larger modelwere expensed as a charge for

management. These managementskills might return a differentsalary if employed at another busi-ness. The ROIs exceed currentinterest rates, but are they highenough as premiums for smallbusiness risk? These questionsrequire answers before dollars areinvested in a garden center.

Author’s Note: This article is based on a pub-lication titled Establishing and Operatinga Garden Center by Susan Barton, BridgetBehe, Charles Hall, John Haydu, RogerHinson, Robert McNiel, Travis Phillips,Russell Powell and Forrest Stegelin, whichmay be ordered at www.nraes.org.

Roger Hinson is a professor in theDepartment of Agricultural Economics andAgribusiness LSU AgCenter at LouisianaState University, Baton Rouge, La. He canbe reached at rhinson@agcenter.lsu.edu.

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LearnMore!For more information related to this article, go to www.lgrmag.com/lm.cfm/lg060701

Product Turnover For Representative Garden Center Sizes

Product mix Gross margin percent by percentage

garden center size (same by size)

Merchandise Large Small

Balled-and-burlapped 9 10 75trees and shrubs

Container trees and shrubs 26 30 67

Bedding plants 11 17 50and perennials

Other plants 15 15 50

Hard goods 39 28 40

Total 100 100 n/a

Figure 2. The annual turnover for the alternative firm sizes was assumed to differ in that the largermodel had a higher turnover of container trees and shrubs. To estimate inventory, a weighted annualaverage turnover (product mix percentage x annual turnover) was calculated. Cost of goods wascalculated from an estimate of gross margins for each category of items in the product mix. The samegross margin calculation was used for each garden center. Gross margin ranged from a low of 40percent for hard goods to 75 percent for balled-and-burlapped trees and shrubs.

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