FTD: May 2007 Archives

Earlier this week, an Associated Press article by business writer Mae Anderson covered FTD CEO Mike Soenen’s lowering of revenue forecasts for Mother’s Day. Based on national predictions of a positive holiday overall, the disclosure came as somewhat of a surprise.

“…industry analysts said the revision has more to do with FTD specifically than any Mother's Day slowdown.

Brean Murray & Co. analyst Eric Beder noted that, when it released its earnings report last week, 1-800-Flowers.com was bullish about the holiday.”

Seems Mr. Beder is correct. Here’s a strong signal of why Jim McCann of 1-800-Flowers was upbeat about sales while Soenen was lowering expectations:

FTD’s #1 'online only' affiliate, Blooms Today, has recently removed FTD floral designs from its sites and now features products delivered by local affiliates of 1-800-Flowers. With an estimated 500,000 orders sold annually through its various companies, which include BloomsUSA, Flowers Sent Today, FST, American Blooms and Blooms Today, the Haymarket, VA based call center’s move will clearly put a dent in FTD’s holiday order volume.

During Monday’s conference call, Soenen discussed selectively eliminating customers and mentioned two different ‘buckets’ of FTD affiliates.

I do have some customers on the other side who are in those top two quartiles who may have, by nature of their size or whatever, attractive financial incentives. You always have to look at those year to year and quarter to quarter and say well, Are these the types of relationships I want to maintain? For the most part the answer is yes. Some customers you obviously want to lose a little bit of money to keep them around, but then there are other customers where just the size of the loss or maybe they don’t have a long-term strategic value for the company, and while they have great near-term revenue that looks good on paper, long term they are financially draining. In some cases I've made elections to let those customers move on to competitors as a component of maintaining profitable growth and not sustaining unprofitable customers and introverting resources to that.

The financial incentives are per-order rebates, which essentially buy volume from large affiliates. With a whisper number of $8 per order paid to BloomsUSA set against a 7% clearinghouse fee earned by FTD in each transaction, FTD was clearly losing money on the deal. (No word on whether 1-800-Flowers upped FTD’s offer.)

The large rebates generate funds for the order gatherer to buy advertising like the multiple full-page Yellow Pages ads of BloomsUSA and American Blooms found in communities across the US. Ironic that some of their recent ad copy includes headlines of “FTD’s #1 Sender”.

Large, money-losing rebates have been used by every wire service to lure affiliates away from competitors. Rebates keep order volume up, which in turn keeps fulfillment oriented local florists paying dues, buying Point of Sale systems, using website hosting services and clearing credit card transactions – the ‘good bucket’ profitable parts or the florist wire service business.

To shore up order volume with other affiliates, FTD has recently been using a few carrots and a big stick. FTD affiliates that run independent florist Point of Sale systems which also offer access to multiple wire service sending systems (FTD’s Mercury, 1-800-Flowers’ Bloomnet and Teleflora’s Dove) have been threatened with $500/mo penalties if they also send orders through a competing wire service.

The threat could certainly stifle competition and negatively impact the future sales of these independent POS systems.

But it’s no surprise that FTD affiliates would be looking for secondary affiliations after the Mercury Network failed during Valentine’s Day holiday, losing tens of thousands of orders.