Growing from Commerce’s close

Former Commerce Corporation sales reps and customers are joining the ranks of past competitors as the garden supply giant closes its doors. BFG Supply Co. hired one manager and nine sales reps within days of Commerce’s close. Arett Sales, which tried to purchase the company back in December, and other suppliers have made moves to acquire the leftover business with lines such as Good Tidings and Michael Carr Designs.

Hiring and acquisitions have continued as Commerce has swung between conflicting closing reports since the end of December, with offices being shut down and workers laid off with little notice. In a letter dated Dec. 27, 2012, Richard Lessans, CEO of Commerce, said “unforeseen business circumstances resulting from actions taken by Commerce’s largest and most important suppliers” caused the company to close and lay off all employees working at both the Michigan and Baltimore offices permanently. The letter included a memo giving notice to the company and a list of more than 250 affected jobs.

The company wasn’t required to give employees the 60-day notice normally necessary before layoffs in the Worker Adjustment and Retraining Notification Act due to a sub-rule in the act that exempts employers if the layoffs are caused by unforeseeable circumstances, says Lessans in the letter.

“On behalf of my family and the entire management team, I want to thank you for the dedication and professionalism that each and every one of you has exhibited over the years,” he says. “This has been the most difficult decision of my life and I wish that the circumstances were better.”

Those circumstances looked better earlier in the year, before the company released information that Commerce’s past CEO, Malcomb Cork, had used some funds improperly. The company has taken suit against Cork, and he has countersued, in the Maryland District Court. But the impact was felt when the Scotts Company dropped Commerce as a distributor in mid-December, followed by Bonide.

“That was the piece that probably started the serious tumble,” says Jack VanSledright, formerly the general manager of Commerce Great Lakes. “If you don’t have your vendor support behind you, it makes it very difficult to go on. Obviously, there must’ve been something that Scotts saw that they weren’t comfortable with.”

As those vendors pulled out, Lessans promised an update and December 22, an e-mail was sent to employees announcing that negotiations to have the company bought out had fallen through. Many of the sales team was let go that weekend, says VanSledright, though some employees stayed on to help wind down the business.

How much the change has hurt distributors and retailers depends on size, says Greg Draiss, garden center manager for Adams Fairacre Farms and garden industry blogger.

“There’s a lot of smaller garden centers in Pennsylvania, Maryland and Virginia areas that Commerce was their only supplier,” he says. “Some guys are really scrambling. They don’t know what they’re going to do.”

But for larger retailers that pull from multiple distributors, it just takes a new letterhead, says Brian Hjelmstad, vice president of sales for SummerWinds Nursery.

“For us to change, it was a fairly seamless transition to convert our buying from one distributor to another,” he says. But the change did delay some orders for the beginning of the 2013 season by about two weeks, he says. Commerce’s past suppliers have shifted to other large distributors, like Scotts, which supplies through True Value Company.

“This whole transition is probably tougher on distributors than it is on retailers,” he says.

Though fingers have been pointed at Cork and others for poor management, the company’s downfall was at least partially due to its practices, says Hjelmstad. Commerce Corporation bought up companies as it grew, setting price points low to gain an edge, but the unsustainability of that caught up with the business.

“I do think it was poor management, not seeing this and trying to work through it,” he says. “It was some of the pricing and service they provided to a lot of key retailers that a lot of other distributors said they couldn’t do because it’s not profitable. In that regard, in the long haul that catches up to you.”

But that growth of major distributors has been a trend for the green industry, says Draiss.

“Commerce has been buying up companies for a long time,” he says. “There’s no room in the middle of the road. You’ve either got to be small and nimble and specialty or really big. That’s the only way you can compete anymore.

“It’s not going to be a good thing. The supply chain will get worked out. Some guys will get bigger, other people will just say ‘The heck with it’ and throw in the towel.”