At Tractor Supply, new chief tells similar story
For the past several years, whenever Tractor Supply’s CEO Jim Wright spoke about his company’s earnings, he usually described a strong performance in a challenging environment — a 1,000-plus-store little engine that could.
Last month, his replacement, Greg Sandfort, picked up where Wright left off, pointing to a 10.8% fourth-quarter sales increase and a 24% increase in net income. In his first earnings call as CEO, Sandfort ran analysts through the Brentwood, Tenn.-based retailer’s challenges and opportunities.
The conservative customer:
"We have seen very little change from recent quarters regarding our customers’ purchasing behaviors. Our consumers are spending conservatively, and they are seeking out compelling values. Purchases are being driven by necessity and are taking place much closer to need."
The newness factor:
"In the first part of the year, we make most of our hard planogram changes. And we touch between 30% and 40% of the store. The second piece is what we do in the center corridor and on the outside of the store. Our team has done a wonderful job of bringing probably 50% to 60% of new product into those spaces year after year. You’ll see that again this year as you walk into our stores."
"We are now in year two of our price optimization [initiative]. We don’t just turn this system on and let it run. We test against control stores to make sure that we’re getting the right results. As I see this developing, it’s a much longer-term journey than I think I initially anticipated."
On smaller-format stores:
"We’re really pleased with the performance, and the thing about these small stores is, it’s really not a different concept. What we’ve done is modify some of the depth and breadth of assortment to match the market. The typical customer thinks this is the same Tractor Supply. It just is a smaller box."
On managing clearance:
"When we see products not selling to the degree that we’d like, we’ll take those first initial markdowns understanding that the 20% markdown gets me 80 cents on the dollar today, versus if I wait until January or February, I get 20 cents on the dollar when I’m at 80% off. So we’re fairly aggressive on moving through inventory when we see issues.
On the hot product of generators:
"I think what we’re going to see in the Northeast is individuals wanting to put what I’ll call standby generators in their homes. Not the portables, but standbys. This is the second year now that they’ve been without power."
New California tax irks lumberyards, retailers
Lumberyards and retailers say they’re getting stiffed by the state of California and its new tax on lumber.
Here’s the background. Since Jan. 1, California retailers have been required to collect a 1% assessment on sales of certain lumber products. However, so-called "secondary" wood products, in which additional labor has added significant value — such as furniture, windows and doors — are exempt.
To collect the tax, which was signed into law last fall, stores have worked quickly to reprogram their registers to calculate the higher rate on these sales. Adding to retailers’ angst, the law requires that this 1% assessment be shown separately on the invoice, separate from state or local sales taxes.
California’s Board of Equalization is allowing lumber-product retailers to keep $250 in sales tax per location to reimburse them for startup costs, but some say that is not enough. The West Coast Lumber and Building Material Association (WCLBMA), which represents independent retailers, has asked the board to provide up to $4,500 per location in reimbursement the first year and $1,500 annually thereafter to handle updates and product changes.
Ken Dunham, executive director of the WCLBMA, said the assessment is disproportionately unfair to his trade. "Most hardware stores, unless they have a full line of wood products, are in reality a minor player in this," he said. "Some of the hardware stores will carry a few types of things like 2x4s and some plywood, but not a lot else. They can handle that additional assessment pretty easily. The full lumberyard is another story."
The Home Depot, which had yet to upgrade all of its California stores by late January, argued in a letter to the Tax Policy Division of California that the law "fails to appreciate" that retailers will face ongoing costs to maintain their collection systems.
"Because items sold in the store are changing weekly, retailers would have to reprogram their collection systems continually to capture new products," the Home Depot letter stated. "It makes no sense to reimburse retailers for initial programming costs and then require them to shoulder those same costs to capture new lumber products."
The 1% assessment is expected to generate $30 million to $35 million annually to help California enforce its timber-harvesting regulations.
Dunham believes there has to be a better way. "Simply giving the state more money from the general public and making the lumber retailers collect it is not the answer," he said.
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Stat of the month
48Consecutive months the national unemployment rate was at 7.8% or higher, the most since the 1930s.
Source: Bureau of Labor Statistics
TV’s Bryant talks family values
Alan Bryant is the newest addition to the True Value Hardware Co. board of directors. The president of Bryant Homecenters in California spoke withHCNabout his three-location family business and what it’s like, at the age of 44, to be the youngest member of the True Value board.
HCN: You appear in an add with the slogan "Master of all things Hardwarian?" Does that describe you?
Bryant: I’m wearing a badge that says that.
HCN: Running a hardware store is not easy. Why do you do it?
Bryant: The hardware store is a critical part of small town America. It’s a gathering place. To be the owner of the local hardware store and make a difference in the community is a big draw to the younger generation.
HCN: A restaurant franchise might have tens of SKUs. A hardware store has thousands. What’s the key to managing everything?
Bryant: There is a lot to learn. Someone from another industry might be daunted. People wonder how you know so many different things. You definitely need to surround yourself with knowledgeable people. My brother [Paul] and I both started in the lumberyard stacking two-by-fours. Our father did us a great service by making us work through the business like everybody else. It was many years working side by side next to some really knowledgeable people.
HCN: You’re 44. What’s it like to be the youngest member of the True Value board of directors?
Bryant: I’m excited to be a part of that, and maybe add a little younger viewpoint to the board. It’s exciting to be part of something successful. Our goals are to expand membership and make it easier for people to open new stores. One of the key things to me is trying to make a difference and allowing me to be part of something bigger.
HCN: How has the business changed from the previous generation to your generation?
Bryant: It’s been interesting to watch the growth of the company with my father, and then getting to the point where we are now working on the technology side — social media and online shopping 24/7, for instance. We have great ways of gathering data through loyalty programs, things that previous generations never thought about doing.
HCN: What about the Yellow Pages?
Bryant: That, too. The days of putting an ad in the newspaper and hoping everyone sees it are long gone.