Tractor Supply digs into expansion plans
New York Durable clothing and alternative heating — these are two of the merchandise categories Tractor Supply expects to grow in 2008.
At an investors’ conference Wednesday, Tractor Supply CEO Jim Wright described the company’s growth plans and explained an expense management program designed to help the farm and fleet retailer succeed in tough times.
The 791-store chain is coming off a year of 3.4 percent comparable-store sales growth. Comps declined 6.5 percent in the first quarter, but in 2008, the Brentwood, Tenn.-based company expects comp-store sales to grow in the 0 percent to 2 percent range.
The chain hopes to expand to 1,400 stores in the next five years. Ninety to 95 stores are expected to open in the current year. With $2.7 billion in 2007 sales, Tractor Supply ranks 11th on the Home Channel News Top 500 Retail Scoreboard.
Speaking to analysts gathered for the Piper Jaffray Consumer Conference in New York, Wright pointed to a “significant upside in clothing,” which currently accounts for 10 percent of the chain’s business. The apparel mix — emphasizing durability over fashion — includes brands such as Wrangler and Carhartt.
Also on the upswing is alternative heating through wood, wood pellet, space heaters or auxiliary heating products.
“We are focused to serve consumers who are looking for alternative ways of heating their house,” he said. “We expect heating to be more important to us [this year].”
Wright also described livestock and pet, which he defined as products designed for the health care, training and containment of animals, as “growing at a very significant rate in the last five years.” The category accounts for a third of Tractor Supply’s business.
When asked by HCN whether traditional home center retailers would compete more on the farm-and-fleet turf, Wright made a tongue-in-cheek comment that brought a laugh from analysts: “I think they will find our inventory and turns unacceptable in their current expense models. Please share that point of view.”
Wright further described Tractor Supply’s success in competing with Home Depot, specifically. Two to three years ago, Home Depot tested equine categories, horse feed and an expanded pet section. “We fought that fight in six stores, and we didn’t lose any market share,” he said.
Though Lowe’s has more rural roots than Home Depot, Wright described the Mooresville, N.C.-based retailer as, “for the most part, not in our space.”
“What makes Tractor Supply work is the eclectic mix of product that happens to produce a market basket that’s just a general store for people living their lifestyle,” Wright said. “I wouldn’t doubt that several people will continue to take runs at some of our categories. And when they do, we’ll respond.”
The company responded aggressively to macroeconomic conditions. Wright said he recognized in the first week of February that his customers were in an undeclared recession. “We got the team together and began a very rigorous expense management program,” he said.
The program began with careful payroll management, described by Wright as “by the store, by the week and [linked] to the store’s current sales trends. We’re doing a great job of that.”
Tractor Supply also initiated what Wright called a “hiring frost.” Not quite a hiring freeze, but a policy of limiting non-strategic hires. The company also decided early this year to postpone non-critical projects and cut non-essential capital expenditures. “We’re looking at the ROI on virtually every project,” Wright said.
Heat wave in East spurs AC, fan sales
As record temperatures scorched much of the Mid-Atlantic region over the last several days, home centers and hardware stores scrambled to keep up with the demand for air conditioning units, fans and related products.
Beginning June 7, much of the Eastern Seaboard faced four straight days of temperatures in the mid- to high-90s, although the National Weather Service said the humidity made it feel more like 105 degrees. Consumers started making a mad dash to stock up on air conditioners and fans as early as June 5, catching some store owners by surprise.
“It was a little early in the season for air conditioners, so we weren’t prepared,” said Glenn Rankin, owner of Rankin’s True Value Hardware in Warrenton, Va. “We got a few in on Friday (June 6), and they went out pretty fast. We didn’t have enough. The first heat wave of the season is always the hardest.”
Home Depot spokeswoman Jean Niemi said there has been high demand for cooling units in New York, Massachusetts, Baltimore, Philadelphia and North Carolina, but that Home Depot stores have been receiving continuous shipments of units to restock their shelves. “It is always a good idea for consumers to call ahead to check availability,” she said.
AHome Depot store in South Attleboro, Mass., sold more than 600 air conditioning units over the weekend and another 300 on Monday to pretty much deplete its stock. “We’ve got another 100 units coming in today, so we are replenishing,” said Trish Heim, the store’s operations manager. “It’s been an absolute frenzy – like when you have a snowstorm and people come in and buy you out of shovels and ice melt.”
Ed Dionne, assistant manager of a Home Depot in Rutland, Vt., said the rush started there June 6, as news reports of the impending heat wave began to surface. “We sold a lot of air conditioners on Friday and Saturday, but Sunday, Monday, Tuesday and yesterday, people couldn’t bear it and were buying anything they could get their hands on,” Dionne said. He said the store was able to replenish with stock from the warehouse as well as stores in other areas that didn’t get hit as hard, adding, “The demand was more of what you would see in July rather than June.”
Lumber Liquidators points to 300 stores by 2012
Lumber Liquidators, the 125-store specialty retailer of hardware flooring, hopes to grow to 300 stores by 2012. Meanwhile, the Toano, Va.-based retailer is testing a new home-installation strategy that relies on a single national installation services provider.
“So far, the test has been very encouraging,” said Jeffrey Griffiths, Lumber Liquidators’ CEO, speaking at Piper Jaffray’s 28th Annual Consumer Conference held Tuesday in New York City. The move would break from the retailer’s practice of creating market-to-market relationships with local installers.
About half of the retailer’s customers do their own installation, he said.
Griffiths’ key message to investors during his presentation dealt with the company’s sales momentum. The company has recorded 25 consecutive quarters of comp-store sales growth and a sales growth from $100.9 million in 2003 to $405.3 million in 2007.
“We’ve been doing well,” he said, describing customer service and low-risk no-frills stores as competitive advantages.
Griffith pointed to opportunity for growth in the fragmented hardwood flooring market, where the national home centers combine to carry about 20 percent of the share, compared to about 7 percent for Lumber Liquidators.
The big boxes do a “great job” in stained oak, bamboo, laminates and other low-end products, Griffith said. “But we feel we can compete strongly against them on the high end product.” A sales staff focused exclusively on flooring provides a key advantage for the specialty retailer, he said, adding: “Buying flooring is not an easy thing to do.”
Lumber Liquidators, which went public in November 2007, has stores in 42 states.