Blooming Franchise

Stephen Alexander sold wireless infrastructure systems for a Fortune 500 company before he decided to invest in a product he thinks has even better growth potential - flowers. Now he spends his days surrounded by tulips, freesia, amaryllis, and roses. He's never been happier. "I'm selling something that makes people feel good," he said.

Alexander, 36, is the new owner of a KaBloom flower store in Hoboken. KaBloom is a franchise chain trying to get Americans hooked on flowers to the point that they need a daily dose of fresh-cut stems.

To get ready for Easter Sunday sales, Alexander went into his holiday mode last week, recruiting family members to work in the store, and stocking up on daffodils, irises, and two varieties of specialty tulips - parrot tulips ("It looks like ruffled feathers.") and French tulips. ("They have heads the size of a fist. They're really beautiful.") On Easter Sunday, the fourth busiest holiday of the year for florists, according to the Society of American Florists, there are enough sales to keep lots of flower sellers busy. But the KaBloom chain believes there's plenty of opportunities for profits year-round, and a chance to weed out the weaker competition.

The KaBloom chain, which first blossomed in Massachusetts, is the brainchild of the Thomas Stemberg, CEO of Staples, and David Hartstein, co-founder of Super Office, an Israeli office supply chain. It took root in New Jersey last year, and is now expanding in the state. In the past year, five KaBlooms have opened in New Jersey. The state's sixth KaBloom is set to open next month in Ridgewood. Another franchise investor is scouting locations in Ramsey and Paramus.

Veteran florists in North Jersey are watching KaBloom's growth warily, but they say, for the most part, they're not worried.

"It's basically just another florist, with a lot of hype behind it," said Connie Farnham, whose family has owned Peters Flowers and Gifts in Ramsey for 45 years. "This is a tough business to make money in. [Investment banker] Richard Perry figured that out when he bought FTD. ... They've been trying for about 10 years to make it work." "Am I worried?" asked Bill O'Shea, owner of the popular florist shop that bears his name. "Well, don't forget they'd have to go toe-to-toe with me." An institution in Hasbrouck Heights for 35 years, his shop - like many established local florists - depends on word of mouth from satisfied customers.

Jennifer Sparks, spokeswoman for the Society of American Florists, said florists are used to competition from supermarkets and roadside flower sellers, and that KaBloom could even help all flower sellers if it increases America's appetite for fresh blooms. The chain, she said, faces a hurdle with which local florists are all too familiar: "It's not a highly profitable business right away." The company has 67 stores now, and plans to have 125 stores in 30 states by the end of this year. It reported $24 million in sales for 2003 and expects to double that figure in 2004. Being privately held, the company does not report earnings.

When they created KaBloom in Boston in 1998, Stemberg and Hartstein described their concept as "the Starbucks of flowers" - a chain that would change the way Americans think about flowers the way Starbucks changed the concept of a morning cup of coffee from a 50-cent convenience store pour to a $3.75 latte prepared by a barista.

The original plan was to open upscale shops in downtowns, fill them with more than 100 varieties of fresh-cut flowers daily, and encourage shoppers to buy flowers as often as they buy bread, milk, or a bottle of wine.

Europeans buy far more fresh flowers for everyday enjoyment than Americans, who tend to think of flowers as centerpieces sent for birthdays, anniversaries, and other special occasions.

"It's ironic that the United States is the world's largest consumer of virtually everything else at retail, but not fresh-cut flowers," said Steve Siegel, KaBloom's chief operating and chief financial officer. KaBloom now is also going after the higher-profit pickings in the floral industry - weddings and special event jobs. The company touts itself as a full-service floral provider with mass buying power, and access to flowers that are shipped direct to KaBloom stores from growers in South America and elsewhere.

"We have better product, and we own it at a better price," Siegel said. "If the KaBloom in Hoboken orders roses from South America, the order goes directly to him. They're boxed with his store number on it. They don't sit in some distribution center and get repackaged. With any fresh product, the more times it is handled you lose something. Our product is handled much less." A previous attempt, by the founders of Blockbuster, to create a national florist chain failed miserably. That effort tried to create a chain of Gerald Stevens flower shops by buying high-volume local stores and chains and offering them stock in the new company. Gerald Stevens filed for bankruptcy in 2001, and many of the independents who sold their stores ended up buying them back at a loss.

KaBloom, under the guidance of Siegel, who used to head one of the top Dunkin' Donuts franchise groups in the Northeast, has chosen to grow more slowly and steadily by selling franchises. KaBloom encourages employees at its company-owned stores to invest in their own stores.

Natalia Jarden, 28, owner of the Upper Montclair KaBloom and the soon-to-open Ridgewood store, managed KaBloom stores in the Boston suburbs for several years before buying the rights to open seven franchises in New Jersey and Westchester County. "I saw KaBloom kind of explode up in Boston," she said.

Zafar Kahn is trying to find space for a KaBloom store at the Interstate Shopping Center on Route 17 in Ramsey, and also is looking for possible locations in Paramus.

Franchisees pay KaBloom a $30,000 fee for the right to open a store, and start-up costs range from $140,000 to $212,000 per store. Once the store is open, the franchisee pays a royalty fee equal to 5.5 percent of sales. KaBloom has no immediate plans to go public, a company spokeswoman said.

KaBloom franchisees get four weeks of training at KaBloom headquarters, and are advised to hire experienced floral designers to do their arrangements.Not all KaBloom franchisees are successful. Stephen Alexander purchased the Hoboken KaBloom from a franchisee who had his fill of the flower business after only eight months. But Alexander has an advantage. His father, a retired 3M executive, worked his way through college doing flower arrangements and helping out in a florist shop. So Alexander went into the new venture with lots of family support, an understanding of the long hours involved, and connections that helped him assemble a team of four floral designers, including one who teaches at the New York Botanical Garden.

Bill O'Shea, the Hasbrouck Heights shopkeeper, believes it is essential to have experienced floral arrangers, and questions whether KaBloom's four weeks of training is adequate preparation. "A lot of people buy into the flower business and haven't a clue," he said. "Even a six-month training doesn't make it, unless they get real florists to do the work." Farnham, of Peters Flowers and Gifts, said local florists face so much competition for gift dollars that KaBloom probably won't affect them that much. "Welcome to the pot," she said, "or maybe I should say, welcome to the flower bucket."

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