A Green Thumb

AeroGrow forecast a near-breakeven EBITDA for the quarter ended Dec. 31, marking a big improvement from last year's $3.7 million EBITDA loss in the same period. For the fiscal years 2007, 2008 and 2009, AeroGrow recorded sales of $13.1 million $38.4 million, and $37.4 million, respectively. Net losses for those same years were $10.1 million, $9.8 million and $10.3 million.

While AeroGrow saw a modest decline in overall revenue due to more targeted prospecting efforts, there were encouraging increases in several other segments: Sales to existing customers increased by over 30%; repeat purchases over the Web were up 62%; and the e-newsletter saw an increase in sales of 155% with the same media cost.

What's more, the portion of total sales taken over the Web — a low-cost order-taking vehicle — has increased from 30% in 2007 to 49% in 2008 and to 77% in 2009.

Catalogs key to growth

AeroGrow mailed more than 50,000 copies of its first catalog in June 2007. The company found that a 16-page prospect catalog was as effective as a 32-page prospect catalog, Wolfe says. “So the lower cost per catalog allowed us to increase our total prospect circulation, contributing to the 15% growth in the database.”

AeroGrow produces the catalog inhouse. “One great thing about being headquartered in Boulder, CO, is all of the outstanding creative people who live here,” Wolfe says. “That and a strong local direct marketing community has allowed us to build a strong inhouse team of direct marketers.”

Wolfe has extensive experience with catalogs, having worked with mailers such as Lillian Vernon, Dell and Williams-Sonoma while at Wiland Services. How will AeroGrow's emphasis on its direct division affect the role of its print catalog? “We have always measured our catalog as a pure direct response vehicle, and we always will,” he says.

“That being said, we're more mindful than ever about the interactive effect of our media,” he notes. “We're certain that some portion of the success of our e-newsletter and our other Web marketing programs is driven by the fact that the customer also receives a catalog.”

Expanding the line

Another key strategy for AeroGrow is improving its product offering, Wolfe says. “In addition to extending the line of prepackaged seed kits we offer to our customers, we also introduced custom seed kits last year.”

These kits allow customers to choose from a broad selection of herbs or flowers so they can grow exactly what they want in their AeroGardens. “The custom seed kits immediately became our best-selling seed kits and led to an increase in total seed kit sales to existing customers,” Wolfe says.

After conducting extensive testing during 2009, the company on Jan. 1 lowered all of its prices to the new “everyday low pricing” model. For example, the prices on the AeroGarden 3 (three-pod) went from $79.75 to $49.95, the AeroGarden 6 went from $129.95 to $79.95, and so on.

“We think this has clearly led to improved customer involvement with demand offsetting and exceeding the impact of pricing reductions,” Wolfe says.

But is AeroGrow's niche too narrow for product development? Not at all, according to Wolfe. “We've sold nearly 1 million AeroGardens to date to — we think — about 700,000 independent households,” he says.

He believes AeroGrow's product can achieve a minimum of 10% U.S. household penetration. Given that AeroGrow is now at about one-half of 1% household penetration, Wolfe notes, “we feel like we have a lot of runway with the product.”

A bumper crop of new product ideas

You might think AeroGrow International would have a hard time expanding beyond its kitchen counter garden roots. But its chief operating officer, J. Michael Wolfe, is not worried about that. “From a garden standpoint, look for us to extend our technology into other spaces in the home and office,” he says.

For example, AeroGrow has recently test-marketed a version of its AeroGarden that also serves as a desk lamp that emits fresh flower scents. “It tested higher than any product we've ever developed,” Wolfe says.

The company also aims to aggressively grow its accessories product line. “We've had very good success selling products like herb shears and salad dressing makers,” Wolfe says. It plans to add about 70 accessory SKUs this year — about half of which will be branded under the AeroGarden name.

AeroGrow is already seeing strong results in expanding the core line to appeal to niche markets, for instance, an AeroGarden designed in the likeness of a dog or a cat, Wolfe says. “The best-selling item in our line is a garden that looks like a Lady Bug.
—JT