Tractor Supply Company
Tractor Supply Company
Incorporated: 1982 as Tractor Supply Co. Industries
Sales: $1.2 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: TSCO
NAIC: 422910 Farm Supplies Wholesalers
Based in Nashville, Tennessee, Tractor Supply Company (TSC) is the largest U.S. retail chain of farm and ranch stores, composed of more than 430 stores in 30 states, primarily located east of the Rocky Mountains. Although TSC stores offer daily farm and ranch maintenance supplies, a large number of the outlets are located in the suburbs of major cities, a reflection of a changing profile of TSC customers. For many years TSC served full-time farmers and ranchers, but as those numbers have declined the chain has shifted its focus to part-time farmers and, more important, to recreational farmers. Part-time farmers, often products of traditional farm families, farm on a limited basis to supplement their incomes from full-time jobs. The recreational farmer, on the other hand, typically lives on a small spread, from five to 20 acres in size, located within 20 to 50 miles of a major city. These customers do not depend financially on their farming or ranching activities. Rather, they pursue it as a lifestyle choice. According to Kiplinger’s Personal Finance in 2001, only 8 percent of TSC customers were full-time farmers, while 31 percent were “hobby farmers.” Because of this change in its customer base, TSC offers far more guidance than it once did, and each store has on staff at least one former farmer or rancher and at least one person who knows how to weld. The typical TSC store is no larger than 20,000 square feet, a far cry from the 200,000-square-foot big box affairs of Home Depot and Lowe’s. TSC, however, has carved out a special niche and does not compete against the giant home improvement retailers. TSC stocks merchandise in six categories: livestock and pet products; maintenance products for agricultural and rural use; hardware and tools; seasonal products such as lawn and garden power equipment; truck, trailer, and towing gear; and work clothing for men, women, and children. Despite the wide variety of products TSC offers, the most popular item it sells harkens back to the roots of the business: the simple lynchpin.
Founding TSC in 1938
The founder of TSC was Charles E. Schmidt, who, ironically, grew up a city boy, born in Chicago in 1912. He graduated from the University of Chicago, earning a doctorate in economics at the early age of 20. Because the country was in the midst of the Great Depression, Schmidt was reduced to working as a floor sweeper in the Chicago brokerage house of Shields & Co. But six years later, in 1938, he was ready to launch his own business, a mail-order tractor parts supply business he called Tractor Supply Co. According to company lore he laid out the plans for the catalog, the Tractor Supply Co. Blue Book, at his breakfast room table. In his first year in business Schmidt posted sales of $50,000. In his second year he was able to open his first tractor parts retail store in Minot, North Dakota. Other stores followed as the company prospered under Schmidt’s guidance. In 1958 he took the business public, and TSC shares began trading on the New York Stock Exchange. After he stepped away from the company, Schmidt moved to south Florida in 1964, then at the age of 63 started another career as banker, gaining control of a 27-bank chain, Gulfstream Banks, which became his second company to be listed on the New York Stock Exchange.
Management-Led 1982 Buyout
In 1969 Tractor Supply Co. was merged with National Industries, and then changed hands in 1978 when Fortune 500 conglomerate Fuqua Industries, Inc. bought the company. TSC struggled during this period and only four years later, in 1982, the company became independent once again when five executives of the company orchestrated a leveraged buyout of what was then called TSC Industries. One of the men was Joseph H. Scarlett, Jr., the current chairman of the board and chief executive officer. After working 15 years for a New Jersey retail chain, Two Guys Discount Stores, Scarlett came to TSC in 1979, a period of transition in the business. At the time two-thirds of the chain’s customers were full-time farmers. When management bought the company in 1982 it was generating annual revenues in the $125 million range, drawn from 135 stores.
Initially serving as chairman and CEO of the company after the management buyout was Thomas J. Hennesy, III, who had a long affiliation with Fuqua. He began his business career in the radio industry, in 1947 going to work for an Augusta, Georgia, radio station owned by J.B. Fuqua. After a stint in the service during the Korean War, he returned to Fuqua, where he served in a number of executive capacities until 1968 when he left to run his own business, the Daisy Corporation. When he rejoined Fuqua in 1974 it was a much more diversified company. He served as president of Half-Gaines Co., Arizona City, and Islander Yacht before becoming president of TSC. After the buyout, under Hennesy’s leadership TSC was able to turn around the business, make the adjustment to retailing in the contemporary state of agriculture, move its headquarters to the more central location of Nashville, pay off the debt incurred as a result of the leveraged buyout, and transform TSC into an industry leader.
In 1990 TSC, now with 148 stores, toyed with the idea of merging with ConAgra Inc., but in the end backed away from the deal after a letter of intent was drafted. Neither party was willing to comment on the reasons why talks broke off. Instead, TSC carried on, changing its name from TSC Industries back to Tractor Supply Company. In February 1992, Hennesy stepped down, replaced as chairman and CEO by Scarlett. At this point part-time and recreational farmers had become the target customers for the chain. Under Scarlett the company displayed strong growth, which led to the decision to take the company public once again in order to raise funds necessary to launch a major expansion of stores. The stock offering was completed in February 1994 and shares began trading on the NASDAQ.
By now TSC s present-day style of management was well entrenched. The company prided itself on taking chances, trying additions to the merchandise mix, then launching pilot programs to test how well they worked before rolling out system-wide. As much as possible the company believed in granting managers a good deal of latitude in how they ran their individual stores. Salespeople were also empowered, within a broad framework, to handle customer problems on the spot. As a way to reward initiative, every TSC employee, even part-timers, participated in an incentive plan. If sales associates met their sales quota for the month they received a check. Store managers took part in an annual profit incentive plan that in addition to money included trips as compensation.
Following its initial public offering, TSC made a push into North Carolina in 1994, and for the year added 13 stores to the chain with plans to add more at a clip of 20 stores per year. Management looked especially to the South, with its growing population and availability of real estate. TSC was especially successful in establishing a number of stores in former Wal-Mart locations, becoming Wal-Mart’s largest tenant in terms of numbers leased. Wal-Mart sites were attractive because their garden spaces were perfectly set up to accommodate TSC s outdoor merchandise. Although a TSC store would occupy only a fraction of the building, perhaps one quarter or a third, management found that the rates were still more economical than building a brand new building. In fact, only a quarter of TSC s new buildings were build-to-suits. The company was generally pleased with the size of its stores, in the range of 12,500 square feet, which took advantage of “big-box backlash,” especially among the type of consumer to which TSC appealed—the executive-recreational farmer who was trying to escape the fast-paced city and preferred more of a small town feel to his shopping. Nevertheless, TSC began to consider a slightly larger format.
Whether you’re caring for a backyard, or a “back 40,” we have the products and services to help you get the job done. Both homeowners and farmers can find what they need at Tractor Supply Company. All types of feed, fencing, mowers, tools, work clothing and much, much more, are included in our product offering.
Between 1996 and 1999 TSC opened 90 new stores and pursued several important initiatives. It became one of the first retailers in the United States to implement the SAP Retail enterprise resource planning systems. For a few years the company had been using perpetual inventory, keeping track of individual SKUs on a real-time basis. When this tracking system was combined with SAP, TSC was able to reduce supply-chain costs and inventory levels. TSC also looked to the Internet starting in 1997, purely as a way to provide information to its customers. When it launched an e-commerce initiative two years later there was no expectation that its web site would generate a massive amount of sales from home customers. Instead, TSC looked to e-commerce to enhance its in-store business. Although it could not possibly carry every spare part for every tractor and lawnmower in the world, by using customer-service kiosks, taking advantage of the company’s existing computer system, TSC associates were able to special-order these items on a vendor-direct basis. In addition, TSC took steps to attract more women into their stores, which for years had been the bastion of males, typically 50 years old. In 1997 the company launched a pilot program to address this issue. As Scarlett told Discount Merchandiser, “In an effort to attract more women into the store, we softened up a bit. . . . We don’t want to change our image in the eyes of our target customer, but we do want to make our customer’s wife a little more comfortable coming into the store. Instead of waiting in the pickup out front, we want Mrs. Farmer to hop out and take a look at what we’ve got and hopefully shop, too.” Encouraged by initial results, TSC took the next step and began to adjust its product mix to attract more business from women. In particular it introduced brand-name lines of ladies’ workwear, enlarged the pet department, and dramatically changed the equine department to appeal to women, who accounted for about 85 percent of purchases in this category. Furthermore, during the late 1990s TSC introduced its “big store format,” which offered as much as 20,000 square feet of sales floor space.
2000: Aggressive Move into Florida
TSC took a major step in 2000 when it moved aggressively into the Florida market, which because of its strong agricultural and equine customer base appeared to be well suited to the TSC model. After learning that the Florida Scottie’s home hardware chain might come up for sale, TSC sent a team to evaluate the market, which they concluded was fertile ground for their operation. Moreover, TSC s main competitor, Quality Stores Inc., was also looking to enter the market. Instead of buying all of the Scottie’s sites, however, TSC opted to build its own. In a matter of months the company succeeded in opening a slate of 11 stores, establishing a foothold in Florida before Quality Stores, which actually purchased some of the Scottie’s stores.
The price of TSC stock dipped to the $8 range in late 2000 as investors questioned the wisdom of the company’s rapid move into Florida, but when it was clear that the gambit was paying off investors began to drive up the price. It rose in value 300 percent in 2001, followed by a 121 percent jump in 2002. Quality Stores in the meantime had fallen on hard times. In 1999 it had merged with Central Tractor Farm & Country of Iowa, making it the largest farm store retailer in the United States, but the debt incurred, as well as a clash in corporate cultures, led to severe repercussions. In November 2001 the company was forced into bankruptcy. Never in its history had TSC attempted an acquisition (although it had also shown some interest in acquiring Central Tractor), but now presented with the rare opportunity to pick up the assets of its closest rival at bargain basement prices TSC came forward with an offer to the bankruptcy court in conjunction with liquidating partners Great American Group, Gordon Brothers Retail Partners, and DJM Asset Management. While the partners sold off the inventory, TSC cherry-picked the real estate for $35 million, selecting 85 of the Quality Stores it wanted. TSC then spent $12 million to redesign the stores and another $58 million to stock the shelves, part of a massive and successful effort by management to integrate the Quality Stores and their personnel into the TSC system. In one stroke TSC was able to expand its presence in key markets. The chain augmented its eight stores in New York and Pennsylvania with 25 new units. It also added five stores in West Virginia, an entirely new market. The rest of the new stores filled in markets where TSC already operated. As a result, TSC was unrivaled on the national scene in its niche operation. In 2002 it topped $1 billion in annual sales, and appeared well positioned for even greater growth in the coming years.
The Home Depot, Inc.; Sears, Roebuck and Co.; Southern States Cooperative, Incorporated.
- Charles E. Schmidt launches a mail-order business.
- The first retail store opens in North Dakota.
- The company goes public.
- The company is sold to National Industries.
- Fuqua Industries acquires the business.
- A management-led leveraged buyout takes place.
- The chain enters the Florida market.
- Sales top $1 billion.
Forrester, Brian, “Tractor Supply Plows Quality Row to Growth,” Nashville Business Journal, May 10, 2002, p. 1.
Gentry, Connie Robbins, “Chain Cultivates Farming Niche,” Chain Store Age, March 2000, pp. 67–77.
Kruger, Renee M., “Cultivating a Farmer’s Market,” Discount Merchandiser, August 1998, pp. 18–22.
McGrath, Courtney, “Harvesting a Nice Niche,” Kiplinger’s Personal Finance, October 2001, p. 68.
Pellet, Jennifer, “Tractor Supply: Filling the Farm Niche,” Discount Merchandiser, August 1995, p. 60.
Santaniello, Neil, and Lori Crouch, “Financier Charles Schmidt Dies at 83,” Sun Sentinel, May 3, 1996, p. IB.