Farm & ranch steams ahead
It’s not just Tractor Supply that’s riding a wave of growth in the sector for hobby farmers and backyard ranchers.
This is not an article about Tractor Supply.
But let’s face it. You can’t write about the farm-and-ranch retail sector without referring to the Brentwood, Tenn.-based giant either as a competitor or as a role model.
“Tractor,” as competitors invariably refer to the 1,300-store chain, has very publicly mowed down obstacles to growth during the housing market downturn. The company points to its knowledge of its customer and its execution in support of that customer as two ingredients of its success. But Tractor Supply is not alone. Across rural America, and in some cases encroaching on metropolitan areas, the farm-and-ranch supply retail sector is on a roll.
Peter Benedict, managing director of Baird Research, says his company’s proprietary research shows a healthy environment for the rural retailer serving the hobby farmer, the backyard rancher and the horse-owning rural lifestyle.
“This is a good customer demographic to serve,” he told HCN. “These [customers] tend to have slightly above-average incomes combined with slightly below-average costs of living. They tend to be pretty fiscally conservative, so they didn’t get way out over their skis with a lot of debt and then had to retrench. It’s a resilient customer demographic. I would say that in general it’s good to be in farm and ranch.”
He added, with a nod toward Tractor Supply: “but certainly better for some than others.”
At the recent True Value Reunion, FRAP — farm, ranch, auto and pet — was one of the show highlights, as the co-op works to expand the segment. The business generated about $12 million in new wholesale sales for True Value, a 13% boost over 2012.
No matter how good the demographics are, a retailer in 2014 must execute, must stay ahead of the curve and must adapt continually to customer trends. Those concepts are embraced by high-performing farm-and-ranch companies in boardrooms well beyond Brentwood, Tenn.
Case in point: Marshall, Minn.-based Runnings. “The FR sector in general has done very well over the last five to 10 years,” said Dennis Jensen, director of marketing for the 30-store chain.
“We really consider ourselves pretty fortunate to make it through times when many retailers were negatively impacted by a soft economy.”
He said the company was insulated from the housing market downturn. Another secret to the sector: the products are necessities. “They need these things to run their life,” he said.
By the same token, Runnings, a member of the Do it Best co-op, is not waiting for customers to come to them.
“Our team has worked very hard over the last several years to evolve our brand,” Jennings told HCN. “To not only be known for farm merchandise but to be a retail destination known for clothing, for footwear, tools, pet, lawn and garden, toys and specifically the sporting goods category is one that is exploding for us. We offer hunting, fishing, archery supplies, and some stores under the Runnings brand carry guns, so we’ve really expanded our brand position so that it’s farm and home, and so much more.”
Even more dramatic is the footprint, both in terms of store size and geography. In Rapid City, S.D., a 34,000-sq.-ft. Runnings reopened in a converted Sam’s Club. It’s now 119,000 sq. ft. A similar story took place in New Ulm, Minn. And the company is planning a move East, where it purchased stores formerly owned by mass retailers.
Five Runnings are in the works to open in New York State and one in New Hampshire in the fall of 2014 and spring of 2015.
“We believe that because of the landscape out there in terms of the climate and type of customers, we feel we could be very competitive,” he said.
Another major initiative is e-commerce, which Jensen says will be up and running in September.
Tom Mahlke, CEO of St. Paul, Minn.-based Mid-States Distributing, a co-op, buying group and major farm-and-ranch player, said the entire channel — not just Tractor Supply — is experiencing “very good growth.”
Farm-and-ranch stores are getting larger. They’re adjusting to their customers’ needs. Technology is advancing efficiencies in the back room. And farm-and-ranch stores are going to places where they simply haven’t been before. Maybe not Midtown Manhattan, but in suburbs that one might not consider rural.
Founded in 1954, Mid-States has more recently seen members across the board step up performance in categories, such as tools, lawn and garden, and pet food and products. “They have continued to evolve the model,” he said.
“Our members continue to grow and thrive,” he said. “Ultimately, understanding your consumer better than the other guy is core to their success.”
Twenty years ago, Mid-States’ footprint was about 350 stores. It’s now about 750. That’s still a little more than half of the footprint of Tractor Supply, a retailer that Mahlke credits for “creating awareness and validity” for the farm-and-ranch supply channel. He added: “But when Tractor opens a store, that’s competition.”
Perhaps the biggest competitive advantage for the independent farm-and-ranch retailer, said Mahlke, is local knowledge that comes from being immersed in the community. “These independents are community-minded,” he said. “They understand their business. They understand and know their markets and consumers. They’re very formidable competitors.”
D&L Farm and Home
The growth of D&L Farm and Home supports the theory that farm and ranch is an increasingly sophisticated retail channel. The five-store retailer, based in Aubrey, Texas, is a case study for Epicor’s Mobile manager system.
“It is invaluable in moving inven tory between stores and keeping up with that,” said Lezlie MacElroy, treasurer of D&L Farm and Home. “It also helps our inventory ordering and control and making sure that maximizes our investment.”
Speaking from the Purina Expo, MacElroy said the store is equally invested in keeping up with social trends. “We’re seeing a couple different movements,” she said. “We see a lot more customers becoming a lot more interested in organic and holistic products. That’s a big interest.”
Another one is chicken ranching. “What has grown substantially for us in the last few years is in chickens. Selling chickens. People want to raise their own and get their own eggs.”
Perhaps at the farthest end of the spectrum from Tractor Supply, single-unit Burns Feed Store in Gresham, Ore., believes it’s “large enough to supply your needs and small enough to care.”
Rawley Burns, a Farm Mart store and a Horizon Distributing customer, says one of the biggest decisions for the store was to remodel. “We had a gravel parking lot. We had aisles too narrow, poor lighting and low ceilings. We bit the bullet and remodeled.”
Updating the product mix is just as important. Burns described his horse tac area (saddles and related products). “We went to a couple of really good high school riding teams and asked, ‘What do we need that we don’t stock that you’d be interested in?’ And all these girls said you need more color and animal prints and zebra prints.
“You need to listen to your customer,” he said. “You have to be willing to adjust and change.”
Before and After: Orchard Supply
“Historically, we were just straight-aisled, fairly repetitious, fairly nondescript, and if you knew exactly where you were going, you could find it,” said Orchard Supply CFO Chris Newman. “But other than the signage, it didn’t say much about the experience.”
Things are changing at the neighborhood hardware chain. Now under the ownership of Lowe’s, but calling its own shots, San Jose, Calif.-based Orchard Supply is stepping up its store design initiative. In February, the company’s new format opened in Los Angeles. Five more are planned in 2014, and another 10 in 2015.
“Our goal was to create a warmer, less traditional environment and to make sure we were focusing on the adjacencies of products,” said Newman.
In order to make the most of the space without increasing square footage, the new format was formulated on a racetrack configuration, with wider boulevards to increase visibility. Additionally, Orchard threw in some color coding on the walls to help customers easily determine whether they were in the garden, tools or hardware section. The nursery section got more breathing room, and a Workbench station was set up in the front to help consolidate all the various services offered at Orchard.
The first store boasting the new format opened in September of 2011 at the San Jose Princeton Plaza location. Today, there are 19 stores — about 25% of the total Orchard franchise — adhering to the format.
The results are more than tangible. Orchard Supply has experienced double-digit comps, and stores with the new format have achieved an approximate 15% increase in sales. Beyond the numbers, Newman says the appealing redesign has attracted a higher number of women to the store, created a more accessible hardware experience overall and encouraged shoppers to linger in the store.
“It’s accessible, bright and easy to navigate,” he said. “Women say they like to shop the store and really spend time in it. It’s interesting to watch people and [take note] of how long they stay in the store, [encountering] new areas of discovery as they make their way around the racetrack.”
The stores get plenty of style points, but the key is people, Newman said. “We call it a neighborhood store for a reason. There’s a level of focus and localization that we bring to the store because we truly believe that we can be the neighborhood hardware store for these folks.”
Tile Shop hits the marble floor running
Is Tile Shop the fastest-growing specialty building product retailer in the country? Or does it just seem like it?
In the span of a month, Tile Shop locations cropped up in Tulsa, Danbury, San Antonio and Oklahoma City. And since it went public in August 2012, the Minneapolis-based retailer has been expanding aggressively. Twenty stores opened in 2013, debuting in new markets amid a beefed-up corporate infrastructure.
CEO Robert Rucker says earnings will come for the Tile Shop, which swung to a slight profit in the fourth quarter after two years of much bigger losses.
“While we made progress in strengthening The Tile Shop brand and infrastructure this past year, we recognize that we have more work in 2014 and beyond,” said Rucker in a prepared statement. “We continue to firmly believe that as our new stores mature, the company will return to the historical levels of profitability.”
One reason for that optimism, said Tile Shop COO Chris Homeister, is changing consumer tastes. “We feel that the timing within the industry is absolutely right,” he said. “There continues to be a growing acceptance and desire to have hard surface flooring and tile. We’ve been warmly received everywhere, even though we don’t advertise very much. We rely upon word of mouth and social media.”
Joan Storms, senior VP equity research at Wedbush Morgan Securities, believes it’s the fastest-growing retailer of its kind, just ahead of Lumber Liquidators. Publicly traded Tile Shop is aided by a “strong and best-in-industry store model supported by strong sourcing margins, since they source direct,” she said in an email.
The company is planning another 20 new stores in fiscal 2014. And Homeister said they’ll be staffed by designers who know the product: “We feel we can inspire people when we bring them into the store.”