Market Leader 1-800-Flowers Could Face Greater Competition In The U.S. And Internationally

Oct.10.13 | About: 1-800 FLOWERS.COM, (FLWS)

While 1-800-Flowers (NASDAQ:FLWS) is leading the United States e-commerce florist market, opposition in the international marketplace in the crowded sector could see increased competition. Privately-held Bloomex, continued competition from ProFlowers and from the FTD brand, held by United Online (NASDAQ:UNTD), and the recent move by e-commerce behemoth Amazon (NASDAQ:AMZN) into the flower fulfillment sector means that 1-800-Flowers could see increased competition going forward.

Amazon has a massive customer database and the economy of scale to force its newfound competitors -- some of whom they take or took orders for -- to lower prices. Amazon's move could potentially spark a price war on high-volume products like roses and pre-assembled bouquets. The online florist industry is already a highly competitive sector, and the holiday season is traditionally one of the busiest times of year for these companies. Across all industries, Q4 e-commerce spending is on the rise year-over-year consistently for the last five years; Q4 consumer spending for 2012 was up 45.1% from 2007 in the United States.

The heavy competition is hardly restricted to the United States. In Canada alone, e-commerce spending was up to $22.3 billion for the year, according to Internet measurement firm comScore, Inc., with American e-commerce spending accounting for $186 billion in 2012. And with the floral industry valued at an estimated $100 billion worldwide annually, that has made the e-commerce florist sector a lucrative international space.

1-800-Flowers' share price has ranged from $2.77 to $7.17 over 52 weeks. It currently sits at $4.71, as of press time. United Online plans to separate FTD into its own subsidiary, though delays now have that taking place Nov. 1.

With the increased competition in the ever-crowded American marketplace, and the move by Amazon into the florist sector, companies like 1-800-Flowers will have to find ways to cut margins. There are two ways that stick out as options. The first is to increase their presence in less-saturated international markets, like the UK, Canada and Australia. The other potential shift in operations is towards a more niche-segmented market, as Bloomex has done with its BunchesDirect bulk wedding flower brand.

Whereas 1-800-Flowers and FTD maintain a conventional wire-service model, with its order fulfillment done by local florists, a small group of companies have changed the process by centralizing operations and managing their own order production and distribution through its network of e-commerce websites and owned production facilities. The heat's been turned up in the online florist space and without adaptation, some companies' revenues could potentially wilt.

Investors should tread carefully until the market plays itself out; it could possibly be prudent to delay action.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.