To successfully determine retail prices for Christmas trees, retailers must know their customers, understand their needs, and set their tree prices and services at a level that will match them. In addition, retailers must know how many trees they will need to sell at those prices to cover operating expenses and generate a worthwhile profit.
We have noticed that retailers can usually get a higher price for the same tree the farther South and West they are located from the Los Angeles area, and less the farther North and East. We see a spread of anywhere between 100 and 300 percent markup by retailers throughout California and Nevada as we visit them during their selling Season. Retailers that dress up their trees, keep them fresh, display them nicely, and work hard selling them, generally command a higher markup.
Being a unique product of nature, a delivery of #1 trees will vary in densities, tapers, colors, shapes, layering’s, heights, etc. A seasoned retailer will bring out more desirable qualities in some and sell at a premium price, and may mark others down that don’t seem as desirable as the rest. If damage is present, retailers normally make necessary repairs and/or sell at a discount.
Since growers and wholesalers don’t set retail prices for their customers, it would not make sense for them to request credit on a tree that they marked down without the grower or wholesaler also getting paid extra for a tree that they marked up.
Some things to consider when determining retail prices:
- Are Big Box retailers selling trees at or below their cost as loss leaders near you? If so, don’t try to compete price wise. Your success will depend on quality and service instead.
- What did your competitor’s sell their trees for during the prior Season?
- Do you want to sell based on price or on service and quality? It is hard for a customer to put a price on great service, high quality products, and a cherished, yearly family outing in a festive atmosphere.
- How many trees will need to be sold at your desired markup to cover operating costs and also make your efforts worthwhile? Is that quantity and/or markup realistic?
- Are you trying to develop a loyal, long term customer base? Make sure to have adequate stock so you don’t send potential customers to your competitor. Selling out early is nice if you are satisfied with your sales.
- Make sure that your merchandising and pricing strategy makes your trees look more attractive than the alternative artificial tree.
Oregon Farmers See Christmas Tree Shortage
As the 2017 Christmas tree season approaches farmers are beginning to see that the over abundance of Christmas trees is no longer on issue. In fact, it is quite opposite. Farms are now seeing a shortage in trees faster than they had thought. Here is an interesting article discussing the Christmas tree shortage in the upcoming years.
2017 Christmas Tree Forecast
We just returned from a week long journey through the Pacific Northwest Christmas tree growing region. Much of our time was dedicated to visiting with our current, loyal farms. We also made sure to allocate plenty of time searching for other farms that may be in a position to take on more customers. We returned with some great insight about the 2017 Christmas tree forecast, but did not find any other farms that could take on new business.
The 2016 Season marked the beginning of an overall shortage of Christmas trees. 2017 inventories will be tighter than 2016. In addition, many growers oversold in 2016 and were forced to cut into portions of their 2017 inventories to honor their commitments, increasing their shortage.
Big box retailers still appear to be the primary market for big farms. They are relying heavily on smaller farms to sell them the trees they need to complete their orders now. Big farm’s buyers are prepared to offer other growers whatever price is necessary to acquire their trees. It looks like most mid sized farms prefer to keep their relationships with their regular customers, however. Big farms were not able to acquire all of the trees they promised the big boxers in 2016. Maybe the retailers are finally gaining some ground on them.
In light of these and other changing conditions, growers are now weighing against many factors when determining the worth of their regular customers. We speculate that mid sized farms 2017 prices will increase again about as much as in 2016. Several mid size farms will likely eliminate some problem and late paying customers, freeing up some inventory for the rest.
In an effort to counteract an ever increasing shortage of labor, and rising freight costs, many farms are reshaping their trees to become narrower and lighter. This will reduce labor costs and increase the quantities that can fit in a van. We expect this to be the beginning of a trend that may eventually become the norm for them. Handle sizes are increasing to 10 -12 inches.
A few farms are out of the commodity market altogether. They are mostly family farms that cultivate premium trees on a small scale. By focusing entirely on quality and continually meeting their customers needs, the demand always exceeds their supply. We expect their prices to increase modestly, and their inventories to remain the same.
One can only speculate as to how this will all trickle down. We have been assured that our normal quantities of trees will be reserved for us. However, allocations of some popular sizes will be reduced and substituted with what is left. One farm that we buy many trees from will be down 40% on 7/8 Noble, 50% on 7-8 Douglas, and has no Nordmann over 8ft. Farms normal practice of outsourcing from neighboring farms to supplement and correctly fill their customer orders may not be much of a possibility in 2017. We think that premium big tree inventories 14 ft and up will decrease in 2017, and continue to diminish in future years. We expect tree quality to improve now that growers have more dollars to put into them. Some farms are still working through a bit of distressed inventory left over from the drought. Retailers may have to deal with them the best they can again since substitutions may not be available. Growers don’t want to be first to release their prices. They will likely wait as long as possible to release them.
Our strategy of getting orders to the farms early has helped us stay a step ahead of others so far. One would expect that some of our customers will contact other farms and shop for comparable options. We do not want to rush them through their normal decision making process. However, we are strongly encouraging these customers to perform their due diligence ahead and get the results of their comparisons early. We need them to be ready to make their educated purchasing decision early, since supplies are limited.
Although most retailers started the 2016 Season with a lot to overcome, most all sold out, many earlier than expected, and most reported an increase in profits over the 2015 Season. We don’t anticipate the 2017 Season to be much different for most retailers.
Modern Christmas Tree Retailing
Before the days of plantation grown trees, farmers worked with and harvested their trees from wild forested stands for the most part.
The retailers had to rely on their own skills and ingenuity to spruce them up into nice looking trees, attractively merchandise and market them, and then work hard to sell them.
Today’s trees are pretty magnificent comparatively speaking. Consequently, many of us will never need or acquire much of the knowledge and skills that these treasured old time retailers relied on. It is unrealistic for retailers to think that today’s growers can manufacture a tree to a specific set of standards at will, however. It is still a tree that is unique and governed by genetic characteristics and environmental conditions that cannot be overcome. It’s quality, shape, desirability, grade, and value are considered personal preferences that vary from consumer to consumer, for the most part.
It is still and always will be up to the retailers to know how and commit to making them look their best. Retailers will always need to rely on their own sales skills and strategies to sell their trees. As a general rule, it is not reasonable to expect trees to sell themselves, or acceptable to blame a grower if they don’t sell.
- Limbs can get twisted during the baling process. Spend a few moments studying the tree, and help it unfold back to it’s original shape.
- Shake it good to remove any debris or dropped needles.
- Inspect it’s overall shape. A selective clip here or there may help finish the tree to your satisfaction.
- Insert a branch to fill an unwanted opening. (plugging)
- Add a coat of flock to a drying or undesirable tree.
- Repair a broken top or branch.
- Reduce price if necessary.
Most of our great customers have been with us for 30 years, some 40, and a few over 50. These “Old Timers” built this great industry that we now enjoy with nothing but their own ingenuity and grit. They are treasure troves of hard earned knowledge and wisdom. We don’t need for them to tell us how they do it. No one was was there to tell them how to do it. Just do it and become your own treasure trove of knowledge and wisdom that others will one day find remarkable!
“The Tracks”-Southern California Christmas Tree Industry
Trains played a huge roll in getting the Southern California Christmas tree industry started. Without a doubt, Bishop and Mathews knew how to use the trains to their advantage! In fact, “The Tracks”, were the best place to be to get a fresh cut Christmas tree. They were auctioned right out of the boxcar to the highest bidder.
Ron Bishop wrote this great article in Christmas Tree Lookout about the beginnings of the Southern California Christmas tree industry. He tells us in this article what life was like being part of the up and growing Christmas tree industry. Ron lived it first hand and wrote this article based on his own personal experience and knowledge.
The costs of purchasing trees are on the rise. I spoke with a grower to learn firsthand about his costs of growing trees. I hoped to gain an understanding of his need to increase prices. This is a small family farm that we have been purchasing trees from for over 30 years. Following are just a few of the surprising things that I learned from the conversation we had:
- Overall, all of his trees over 7 ft. are still priced the same as 2005.
- Wages have risen $3.00 per hour since 2005.
- The Affordable Health Care Act increased their insurance premiums $5000 per year.
- Operating costs, such as fuel, chemicals, and fertilizer have continually increased substantially. For example, the cost of diesel was below $2.00 per gallon in 2005, and has risen as high as $4.00 per gallon in recent years. Over the 7 to 9 years that it takes to grow a tree, that is a considerable expense.
- Goods such as supplies, tree tags and top tie tape have also increased substantially.
- Seedlings have gone up 50% from 30 cents to 45 cents, if you can find them.
- Farm Insurance has risen.
- As trees grow and use minerals out of the ground, they need to be added back after a couple of rotations. The cost of lime rose from $120 per ton to $230 per ton in one year. To keep the trees in the healthy condition that his customers expect from him, he also adds potassium, phosphorous preplant, root dip, and nitrogen fertilizer. The cost of new pre-plant fertilizer alone increased $2000 on top of the already $5000 annual bill.
- Maintenance and repair of equipment costs continually increase. For example, an unexpected but necessary $11,000 repair bill on a tractor occurred this month.
- The Pacific Northwest Tree Association imposed a mandatory 15 cent fee for every tree harvested, to advertise and promote the value of real trees verses artificial, which amounted to a $1500 expense to the grower.
- Bookkeeping costs for payroll, etc., have risen over 40%.
The grower also explained that in the last few years over 1/3 of tree farms in the Pacific Northwest have gone out of business. This was because of the steady increases in costs, and not having the ability to sell their trees at a high enough price to cover those costs.
I also spoke with a retailer in Southern California. He has built a successful retail business lasting over 30 years. Top quality trees topped with excellent service is the business plan. He know his customers and finds the ways to meet their needs. “None of our customers NEED Christmas trees however, all of us NEED our customers to be successful”.
Having been through these up and down price cycles before, he plans on sticking around. He will stay with his normal proven business plan, and focus on meeting his customer’s needs. Lowering the markup on trees will be necessary to avoid having to “stick it” to his customers with a disproportionate sudden price spike . “Raising retail prices too fast would be detrimental to the industry. It would encourage some customers to switch to an artificial tree. Some may abandon their tradition of kicking off the Holiday Season with the family trip to the local tree lot altogether, and buy their tree from the big box retailer down the road”.
Home Depot and Lowes are his 2 closest competitors. They sold trees at his cost for several years. This forced him to lower his markup. In addition the costs of goods such as stands, flock, etc. has risen significantly. Also, competition from wholesale Christmas tree accessory suppliers has forced him to lower it.
In the long run, by keeping his customers loyal and happy he will again survive this cycle of rising costs. The farms will be able to sustain themselves. The laws of supply and demand will determine what the market will bear. Eventually, the supply will again exceed the demand. A new buyer’s market will born.
2015 Christmas Tree Season highlights
Other than a few minor weather issues, and tighter supplies of trees, our growers and retailers had praise for the 2015 Season in general. Truck availability was better than it has been for the last several years. Most of our retailers reported good sales. Noble fir continues to be the most popular tree. Nordmann fir popularity is still growing, and Douglas fir is holding it’s own.
By finally getting a higher dollar amount for their trees, our growers were able to put more money in to them increasing their overall quality. They again struggled to find adequate labor. This occasionally impacted their abilities to harvest and process their trees fast enough to keep up with the trucks as they rolled in, and completely fill your orders. In their efforts to attain profitability, various sizes, species, and grades suddenly disappeared from price lists. Some growers have lost hundreds if not thousands of seedlings to drier than normal weather. This affects their inventories, and will continue to do so for years ahead. We were able to outsource to get orders filled to a pretty good degree, but still noticed an undesirable increase in last minute surprise substitutions and/or out of stocks for some of our orders.
Looking ahead, growers are expecting a further tightening of supplies, and also more price increases. Noble fir seed is currently in short supply, which will keep inventories tight for the next 8 to 10 years. Many of the growers in the Pacific Northwest have gone out of business. It appears that a good portion of their growing ground is being replaced with hazelnuts.
Fortunately, we have long standing, solid relationships with some of the finest growers in the Pacific Northwest. More importantly, we are also lucky to have a customer base that consists of some of the finest retailers in California, many of which have been purchasing trees from us for 30 to 50 years. This enables us to consistently provide our growers with similar orders every year, for the most most part. The farms can then forecast our needs, plant ahead, and continually supply us with the trees that you need. A big benefit of all this is a common level of trust and respect that is gained. This allows all parties to pull together as a team, and work towards the common goal of customer satisfaction.
Receiving your Christmas trees is normally a simple process. Getting them to you can be a different story, however. Several parties are involved, and a multitude of factors can arise and affect your delivery and order. It is essential that all parties know and follow guidelines in order to successfully transfer the possession of your trees from the farm, to the driver, and finally to you. Bishop and Mathews has to account for all of the trees on the grower’s tally. Most of the time the farm tally matches up with the customer’s, give or take a tree or two, and everyone is happy. In the unfortunate case that a customer has a large discrepancy to claim, however; the customer must follow certain steps and procedures for us to be able to prove a discrepancy exists, we then present it to the farm, and get credits processed
From the farm to your lot
- The farm loads your trees one at a time by placing them on a conveyor belt. A different person tallies each tree as it passes by. In case of multiple receivers, farms use systems to differentiate or separate one order from another. Common dividing systems are plastic netting and plastic sheeting. Some farms differentiate loads by painting dots on the butts of one receiver’s trees, but not the other’s; instead of placing a barrier between them.
- Once the de-truck is loaded, the driver signs for the trees, and puts a seal on the doors. He has now taken possession of these trees and is responsible for delivering them per farm tally to you.
Once you verify the seal is intact, the driver opens the doors. For a multitude of possible reasons, farms occasionally have to make last minute substitutions/changes to customers orders, whether we like it or not. We agree to substitutions when we enter in to our Purchasing Agreement. As a result the trees that the farm loaded may not always exactly match up with what you ordered.
The farm/driver tally sheet reflects what the farm actually loaded for you and shows what the driver is responsible to deliver to you. It is your responsibility to accept this tally sheet upon delivery and re-tally as you offload your order. By following this procedure, a tally is created which can be compared to the farm tally, to check for errors, shortages, substitutions, mispicks, or mistags at the farm, or a previous stop.
- If discrepancies between the 2 tallies exist, call Bishop and Mathews immediately and alert the driver. The driver needs to double check, agree, and verify the discrepancy in writing. This creates a reliable document that Bishop and Mathews can present to the farm if credit is requested. We will then also immediately get to work doing everything possible to make things right again for you and your customers.
- We vigorously pursue our customer’s concerns with the growers. If you do not have this documentation, however, it can be difficult and often impossible for the farm to understand and agree with your request. In this case, we would be obligated to pay the farm per their tally for your trees, would bill you for the same, and create a conflict between us that would not resolve well, so lets not do that!!
- The Customer should email or fax should Bishop and Mathews within 24 hours of delivery for credit due to damage, quality, grading, sizing discrepancies, etc., It must include photos of every tree, and show it’s defect. Credit requests will not considered at the end of the Season.
- Our purchasing agreement also provides guidelines for us to follow so that we can successfully work together and achieve the common goal of you the customer’s satisfaction.
Bishop and Mathews Christmas Trees
Attached is our April 2015 Newsletter, which touches on some of the things we can expect in this upcoming Season.