Tractors deliver profits

Tractors deliver profits

Bob Vereen, Hardware Journal’s US Correspondent

By targeting specific market segments, the Tennessee-based Tractor Supply Company is set to reach $1 billion in sales this year.Bob Vereen reports.

This specialty retailer, focusing on specific segments of today’s 240 million Americans, will be reaching $1 billion in sales this year from 420+ retail stores Ñ an average of $2.7 million per unit. And nearly 40% of those sales come from products sold in competing stores such as Home Depot, LoweÕs and neighborhood hardware stores.

Garden tractors and other large powered items are mass displayed outdoors

In 1938, Charles E. Schmidt Sr. of Chicago, Illinois established a mail order tractor parts business. By 1939, it had grown into a successful retail store in Minot, North Dakota. Now operating in 30 states across the US, Tractor Supply Company (TSC) is coming off its biggest growth year ever, having taken over a number of locations from a failed competitor. Taking advantage of these locations, the firm expects to have opened 112 new units by year end.

Next year, it will be much more conservative, planning only 20-25 new units, and spending the rest of management’s time focusing on improved training of its horde of new employees, improving gross margins and increasing its advertising efficiency. Joe Scarlett is the company’s chairman of the board and chief executive officer while Jim Wright serves as the president and chief operating officer.

Store profile
It recently appointed a new advertising agency with good brand-building experience since it also serves the Harley Davidson motorcycle company. Its advertising budget at $20 million includes regular multi-page circulars and catalogues.

Chain and wire rope is attractively displayed at Tractor Supply

Tractor Supply’s target customers are described as “recreational farmers and ranchers”, tradesmen and small businesses and to some degree, consumers. It also offers a wide range of pet supplies – everything from big bags of pet food to dog kennels and houses. Its stores are located in towns surrounding major markets as well as in rural communities.

The company’s stores typically range in size from 12,000 to 15,000 square feet of inside selling space and utilise at least as many square feet of outside selling space. But how can these stores compete with big-box stores like Home Depot and Lowe’s?

On many products they can’t because they don’t offer the variety, but on many other items they are intensely price-competitive and, being smaller, easier to shop. They also offer many big-ticket items not found in conventional hardware stores or home center chains – i.e., big jacks, air compressors, livestock stalls, etc.

All TSC units have ample parking and rely on outside sales space for bulky items. In most cases, employees appear to be quite knowledgeable, often far better informed about products such as powered garden equipment than those in other chains.

More emphasis is put on basic paints, less on custom color mixing in these stores.

The total SKU count at TSC ranges between 12,000 and 14,000, far less than those of hardware stores or home centres, but focused clearly on the needs of its targeted market segments. Paint, for example, is not a big department, but rather is focused on basic colors, and does not offer color matching to the degree found in many hardware stores and home centres or paint specialty stores.

Its hardware, tools, plumbing and electrical departments are also focused on repair and maintenance. You find no huge “light cloud” with dozens of light fixtures, but plenty of switches, hand and power tools, chain, wire rope and other basic hardware.

Another thing that distinguishes Tractor Supply from competitors is its focus on homes and businesses that need bigger equipment Ñ i.e., larger garden tractors, electric welders, tool boxes, etc. Instead of advertising the typical three or four cubic foot wheelbarrow, TSC recently promoted a 10 cubic foot model.

Heating outlying buildings (barns, etc.) requires supplementary heating products like these

Other major product categories include farm maintenance products (fencing, tractor parts and accessories, agricultural spraying equipment and tillage parts); animal and pet products (specialty feeds, supplements, medicines, veterinary supplies and livestock feeders); general maintenance products (air compressors, welders, generators, pumps, plumbing and tools); lawn and garden products (riding mowers, tillers and fertilizers); light truck equipment, and work clothing.

Its clothing line is work-oriented, not fashion-oriented such as heavy duty jeans, bib overalls, etc. Plus some western-wear style dress shirts and blouses. One part of its appeal has to be the uniqueness of its inventory. In many cases, its inventory is not to be found at the local hardware store, home centre or even a giant like Depot or Lowe’s. Items like utility trailers, fuel pumps, log splitters – even add-on furnaces.

Financial performance
Gross margins for the first six months of the year were 27.4% chain-wide, well below those of independent hardware stores and the margins on shelf goods obtained by most home centre chains. Depot and Lowe’s overall margins are similar, but only because so much of their business consists of lumber and building materials, low margin items not stocked by TSC.

A recent Menard circular promoted black asphalt sealer at $10 for 5 gallons; Tractor Supply featured a different name brand for $7. Like its other successful Southern retailer, Wal*Mart, Tractor Supply promises everyday low prices. Here is the company’s sales by product category:


  • Livestock and pet products – 30%
  • Seasonal (garden, for example) – 22%
  • Hardware and tools – 17%
  • Trucks, trailers and towing – 13%
  • Maintenance products for agriculture and rural use – 9%
  • Work clothing for the entire family – 9%

    Tractor Supply Co’s self-standing 12-14,000 sq. ft. stores utilise outside areas for bulky product displays

    Perhaps its most impressive statistic is the fact that same-store sales for the first six months of 2002 were up an astounding 12%, far above comp-store figures for any other hardlines retailer in the US. Total sales grew an amazing 46.6%, reflecting the increase of so many stores during the first half of the year. Last year it generated an impressive $209 in sales per sq. ft., chain-wide.

    Despite the burden of opening so many stores, the company maintained its profitability, with profits growing 34% for the first half. Sales for the six months were $585.9 million – more than it did in an entire year five years ago. One reason the company is profitable is its high employee productivity, averaging more than $275,000 per employee. A publicly owned company, the firm is listed on the NASDAQ exchange.