0:03

Bloomberg Audio Studios, Podcasts,

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radio News.

0:20

Hello and welcome to another episode of the

0:22

Odd Lots podcast.

0:23

I'm Tracy Alloway and I'm Joe Wisenthal.

0:26

Joe, you know what I did this weekend?

0:27

Something outdoors in

0:29

your garden or maybe a home construction

0:32

project, but something that was very dirty

0:34

and costly and time consuming and

0:37

an.

0:37

Economical Thanks Joe.

0:39

Yeah, but.

0:41

I'm sure it's very satisfying on some level.

0:44

Well, I did do a lot of that. I'm

0:46

restoring an orchard at the moment, and

0:48

it's a lot of hard work and a lot

0:50

of supplies. As you pointed out, I'm currently

0:52

building a gate, and I think the gate is

0:55

going to be phenomenally expensive by

0:57

the time I finally finish it. But what

0:59

I actually did this weekend, or one of the things

1:01

I did, was I went over to tractor supply.

1:04

Oh I'm jealous, you know, amazingly

1:06

I still haven't been to one. Wait, Tracy, are

1:09

you a hobbyist farmer? It

1:11

would you call yourself that if you have an orchard?

1:14

Right?

1:14

Yeah, I mean I guess we have blueberries

1:17

and raspberries and strawberries and

1:19

apples and apple pears

1:21

and all of that stuff. So yeah, yeah,

1:24

I guess it's my hobby.

1:25

You know, we did that episode about Tractor Supply

1:27

last year with the professor who had done that HBS

1:29

study, and by it sounds like

1:32

you are the modal Tractor

1:34

Supply customer.

1:36

Please, Joe, I prefer cottage core

1:38

elder millennials.

1:39

Okay, well that's no.

1:40

It makes me sound like a character out of like Final

1:43

Fantasy or something.

1:44

No.

1:45

So I went over to Tractor Supply. And the reason

1:47

I went is because it's chicken

1:49

season. So they have all the

1:51

baby chicks over there and you

1:54

can kind of see them in their little enclosure, and

1:56

I can fantasize about the day

1:58

when I will have my own chicken and what kind

2:00

I will get.

2:01

But in the meantime, you have to build like ten other things

2:04

like and then you can get around to building the chicken

2:06

coop.

2:06

Yeah that's right. I've got big plans for the

2:08

chicken coop, all right. But the reason

2:10

I bring it up is because Tractor Supply

2:13

is a company that is sort of of perennial

2:16

interest to us. So last year

2:18

we recorded an episode with Michael

2:20

Roberto when he published

2:22

a case study for Harvard Business School

2:25

on Tractor Supply, and even

2:27

before then, I remember Samuel

2:30

Rnes, the CORBU analyst,

2:32

he had always called this company one

2:34

of the most interesting retailers on the

2:36

planet. So it's sort of loomed

2:39

large over our consciousness. And I think

2:41

the interesting thing about the Tractor

2:43

Supply Company is there's

2:46

this question of cyclical versus

2:48

structural. So this is one of the companies

2:51

who share a price and revenue

2:54

really boomed during the pandemic.

2:56

Lots of people were staying at home, lots

2:58

of people became hobby farmers,

3:00

as you point out Joe, buying tomato

3:03

cages and growing their own vegetables

3:05

from seed whatever, and so there

3:08

was an expectation that a lot of that business

3:10

would start to subside or at least slow

3:12

down as people started going back to work,

3:15

or some of the moving from

3:17

urban areas to the suburbs started

3:19

to reverse. But instead seems

3:22

like this particular market just continues

3:24

to grow, and Tractor Supply share price

3:27

is still very, very high.

3:29

You're absolutely right, So the stock is really close

3:31

to an all time high, continues to power

3:33

higher. You know, like fifteen years ago

3:35

this was like an eight dollars stock. Today it's

3:38

a two hundred and forty nine dollars stock. You

3:40

look like you could be looking at a chart of in video

3:42

or something, and it is striking that you don't

3:45

have to be an AI company.

3:46

To see charts like this.

3:48

If you like find the right product, the right lane,

3:50

the right store mix, et cetera, and you are

3:52

on the right secular trends such

3:54

as the rise of the hobbyist farmer, people moving

3:56

out to the exerbs, growing their own chickens, et

3:58

cetera. It's an amazing case study

4:01

on how to like, how to execute.

4:03

Absolutely So today I'm glad to say

4:05

we really do have the perfect guest because we are going

4:07

to be speaking to the CEO of

4:10

Tractor Supply, mister hal Lawton. He

4:12

joins us. Now, thank you so much for coming

4:14

on the show.

4:15

How Hi Tracy, Hi Joe, Thanks so much

4:17

for having me on. Look forward to talking with you all

4:19

today.

4:20

Likewise, we are very very excited

4:22

about this conversation, not least

4:24

because it's a way for me to sort of reflect

4:26

on my own spending happens so for

4:28

Tractor Supply, but maybe just

4:31

to begin with, you know, Joe called

4:33

it the hobbyist farmer.

4:35

There's a bunch of different names, cottage

4:37

core, millennial type lifestyle,

4:40

but like, who do you think of as your

4:43

primary customer? Rural enthusiast

4:45

is the other one that I remember.

4:47

Yeah, you know, I think all those names are

4:50

used frequently to reference our customer

4:52

and kind of our Our main kind of theme

4:55

that we ladder up to is life

4:57

out here. And the reason for that

4:59

is is we went out maybe

5:02

seven or eight years ago and talked with

5:04

our customers, and you

5:06

know, these customers range from living

5:09

in West Texas and they've you've got

5:11

cattle, maybe living in Wisconsin

5:13

and have a dairy farm, or you

5:16

know, could be living here in Tennessee

5:18

and have five to ten

5:20

acres and they do a little gardening. Maybe

5:22

they have some small animals, chickens, or

5:24

they could half acre, you know, one acre

5:27

unincorporated, you know, suburb exurb

5:29

with you know, a raised bed garden in their backyard,

5:32

or could be a dog breeder, and you

5:34

know, just these whole range of customers that

5:36

have different lives that they live. But what

5:38

we found when we talked with them was

5:40

they all used the words well out here

5:43

in the description of their lifestyle,

5:46

and it was just a very common

5:48

phrase that all of our customers used,

5:50

and so we ended up kind of laddering

5:52

it up to that and saying, you know, we're

5:54

built to serve life out here,

5:57

and that plays itself out

5:59

in so many different ways and so many,

6:01

you know, variants of the lifestyle, whether

6:04

it's hobby farmers, you know, horse

6:06

owners, chicken owners, you know, whatever the

6:09

passion they may be gardening, et cetera.

6:11

But at the end of the day, they all have a lifestyle

6:14

mentality philosophy that kind of ladders

6:16

up to this notion of life out here, which is

6:18

around freedom and self

6:20

reliance, homesteading,

6:23

the love of animals and pets and land.

6:26

I love that.

6:26

So since we are recording,

6:29

since Tracy and I are in the Bloomberg HQ

6:31

studios in Manhattan,

6:33

I'm going to use the phrase out there,

6:35

because we're certainly not out here right now, so

6:38

we're talking about out there. You know, obviously,

6:40

tractor supply has been growing a long time,

6:43

and then it does seem to have at least

6:45

helped been turbo charged by some

6:47

of the changes that happened during

6:49

COVID. I only realized this morning

6:51

that you started in January twenty twenty,

6:54

so you've probably never known like tractor

6:56

supplying the normal times. But talk to us

6:58

about, like how you distinguish

7:00

sort of long term and short term trends

7:03

in out heariness. Because I'm sure there was a bunch

7:05

of people like, Oh, we're gonna move out to the country,

7:07

We're gonna have chickens, we're gonna buy pets, et cetera.

7:09

We know that some of that has slowed down or some

7:11

of that was.

7:12

A one off.

7:13

So how do you think about the trajectory of

7:15

the outhereeness and whether COVID

7:17

was it an accelerant, was it something that went

7:20

up and then we're back to trend, Like, how do you think about

7:22

the growth of what's sustainable

7:25

out there.

7:26

It's a great question and it's one

7:28

that's been asked repeatedly

7:30

over the last few years about our business.

7:34

To your point, we were eight point

7:37

four billion dollars in revenue

7:39

in twenty and nineteen. We

7:41

did fourteen point six billion

7:44

dollars of revenue in

7:46

twenty twenty three. You

7:48

know, that's roughly a twenty percent compound

7:51

annual growth rad over those years, so

7:54

significant growth for you

7:56

know, particularly for our retailer with over

7:59

two thousand store so

8:01

reasonably mature. We would

8:04

articulate that the majority of that

8:06

sales lift we've seen and the increased

8:09

customer transactions and new customers

8:11

that are shopping us is structural

8:14

in nature, and I can get into the

8:16

reasons for that, but I would just say at the highest

8:18

level, I think, you know, what we've seen

8:20

in our business is very different than many

8:23

of the other kind of COVID

8:25

winners that you know went kind of boom

8:27

to bus to some degree, right, whether it was

8:29

everybody you know jumped on a

8:32

peloton because they couldn't go to a gym, and

8:34

then you know, we saw that reversion. Everyone

8:37

started you know, using videos, meetings,

8:40

things like zooms and stuff. And now you've got to

8:42

shift back right where people are still doing that

8:44

but obviously in person now. And you know,

8:46

you look at even like other retailers who

8:48

sell say electronics,

8:50

who had a huge search because everybody

8:52

needed a computer or a new router or

8:55

you know need some other needed wanted a

8:57

new TV, and then that all

9:00

back. I mean, there's a lot of circumstances. We can

9:02

think about different companies and different sectors

9:04

that had a boom and then a reversion

9:07

you know, with us, it's been different because

9:09

for the most part it's been macro

9:11

structural. But I would also assert that we've

9:14

done some things hopefully that have helped make

9:16

that, you know, structural. The big thing I

9:18

would push on is really just the millennial

9:20

generation. And at the timing

9:23

that COVID was occurring, the millennial

9:25

generation was kind of late twenties,

9:27

early thirties, and you know,

9:29

it'd been a question for a decade

9:32

whether or not that generation was going to

9:34

revert to to kind of the normal

9:36

behavioral trends that other generations had

9:39

followed, or were they

9:41

going to be different. Right, we'd read the numerous stories

9:43

on this is going to be a rental generation, and

9:45

it's going to be an urban generation, et

9:47

cetera, et cetera, right, and sharing

9:50

generation, and you know, lesser kids,

9:52

they're you know, lesser you know, buying

9:54

homes and those sorts of things. And

9:58

what we're seeing is that that gener generation

10:00

is reverting to previous

10:02

generational norms, they're just doing it a

10:05

little later. And what we would articulate

10:07

is that COVID was actually a.

10:09

Catch up versus a pull forward.

10:11

And historically that generation,

10:14

say twenty six twenty five

10:16

twenty seven would have started to you

10:18

know, create household, buy

10:21

homes, I begin to have children,

10:24

those sorts of things, and they just

10:26

pushed that out till twenty eight, thirty,

10:28

thirty, two, thirty three, depending on where their

10:30

age fell in that generational span. But

10:33

you know, they're following the same steps, which is

10:35

like, all right, like I've been in the city for.

10:37

Five or ten years, I've kind

10:39

of done that.

10:40

It's time for me to you know, kind of get on with

10:43

the next phase of my life. And

10:45

many of them did that in twenty twenty and twenty

10:47

twenty one and are continuing to do that.

10:49

I mean, we still see.

10:50

A net exodus out of urban even

10:53

in twenty three. And when

10:55

they're buying homes, both because

10:57

of the current home environment they have

10:59

to buy a bit more ex urban or

11:02

country suburban as we would call it, but

11:04

I think also their preference is to

11:06

buy in those areas, and so they're

11:08

buying homes and have been since twenty

11:11

twenty in the areas where our stores

11:13

are, and they're naturally

11:15

wired for our type

11:17

of business. You know, they come

11:20

predisposed to gardening,

11:22

they come predisposed to things

11:24

like recycling, and and whether

11:27

it's vegetarian or fresh foods. But

11:29

you know, if you think about the mental lifestyle that they were

11:31

living, even in a city, when they go out

11:34

into kind of country suburbia, ex urban

11:36

rural, you know, they want to have a similar

11:38

mentality. So they get animals. They do

11:40

raised bed gardens, they do chickens. In

11:43

fact, now we're seeing that generation

11:45

start to move into goats as they think

11:47

about, you know, the vegetables

11:51

and get the right milk.

11:53

My husband and I have been talking about goats. We've

11:55

been having a debate on goats versus

11:57

sheep. Specifically, there's a type of sheet

11:59

called a be doll sheep and it

12:01

looks absolutely adorable. Sorry

12:03

I interrupted you. How go ahead, I I could

12:06

talk about it.

12:07

Basically, you've catalyzed yet another whole

12:10

in Tracy's pocket book with the sheep.

12:12

The sheep, And.

12:30

That's really interesting. And you sort of jogged

12:32

my memory about some of the early

12:34

commentary on millennials, and it was

12:37

very much like, oh, this is a generation that

12:39

just isn't going to own houses, when

12:42

in fact, it seems like it just took

12:44

everyone a little bit longer to actually

12:46

buy a house for various reasons. But

12:50

going back to something you you alluded to just

12:52

then, you've sort of been riding a

12:54

wave of, you know, a cultural trend

12:56

and also demographic trend as millennials

12:59

get older, and in some respects

13:01

that could be considered a cyclical

13:03

development. But you mentioned doing

13:06

stuff to actually make it

13:08

more permanent or more structural.

13:11

What is it that you're doing to ensure

13:13

that, you know, something that is would

13:15

seem to be out of your control sticks around

13:18

for longer.

13:19

As we saw the surge in our

13:21

business, we doubled

13:23

down on the investment in

13:25

our business across a variety

13:28

of factors, with the

13:30

primary goal of really

13:33

staying ahead of our customer as it evolves

13:35

and to illuminate that a little

13:38

bit. In twenty nineteen, we

13:40

spent two hundred and seventy five million

13:42

dollars in capital expenditures.

13:45

We're now spending between seven

13:47

and eight hundred million dollars on

13:49

an annual basis, So we've you

13:51

know, nearly tripled the

13:53

amount of capital that we're spending on the

13:55

business on an annual basis,

13:58

and we're doing it across avariety of

14:00

areas, but really.

14:01

All with the goal of, of.

14:03

You know, better serving our customers and just making

14:06

sure we're staying ahead of them as they're rapidly,

14:08

you know, evolving in terms of both number

14:11

needs and you know, kind of the ways

14:13

that they're used to shopping. So a few examples

14:16

of that one would be in our membership

14:18

program or our loyalty program. We've

14:20

always had a little well we've had a littalto program

14:22

for the well over ten years, but

14:25

it really was a modest program,

14:27

kind of pre COVID, And

14:30

in March of twenty one, we

14:32

relaunched the program to be a tiered

14:34

based rewards based system where

14:36

kind of the more you spend, the more you earn, all

14:39

with the goal of driving behavior,

14:41

locking these new customers in getting them,

14:44

you know, kind of as used as possible

14:46

to routinely shopping tractors supply

14:48

and you know, I can talk more about our Neighbor's

14:51

Club program, but we now have thirty four million

14:53

members. It represents nearly eighty

14:55

percent of our sales. We've

14:57

seen substantial benefits from

14:59

that that investment. Second investment's

15:02

been in digital. We launched a consumer

15:04

mobile app in the summer of twenty twenty

15:06

one. It now represents nearly forty

15:09

percent of our sales online.

15:11

We rolled out deliver from Store

15:14

in a matter of weeks in the midst of twenty twenty

15:17

and in addition to kind of the e commerce

15:19

side of things, we've also rolled out in a

15:21

bunch of technology for our team members

15:23

to utilize in our stores, which has made

15:25

them more efficient and sophisticated in serving

15:28

our customers. And then the third

15:30

thing I would highlight was we rolled

15:32

out a store remodel program and

15:35

we're now remodeling roughly fifteen

15:37

percent of our stores on an annual

15:40

basis. At the conclusion of twenty twenty

15:42

three, remodeled forty percent of

15:44

our stores. There's a number of things that we get

15:46

out of that from a sales lift perspective, but

15:49

one of the other important benefits

15:51

is it contemporizes the store

15:53

and really shifts it from what was historically

15:57

perceived to be a kind of farm and ranch

15:59

store, which you know, kind of the as

16:01

you might imagine that when you're saying it, that was

16:03

kind of the perception and a bit the style that we

16:05

had in the store, and we, you know, we were able

16:07

to contemporize it and make

16:09

it feel a bit more like what it Millennial

16:12

would think of when they walk into any sort of store,

16:14

maybe they've been in an urban environment. But

16:16

we didn't fancy it up quote unquote enough

16:19

that our existing customer base they

16:21

still felt really comfortable shopping it, right.

16:23

We didn't kind of fire or alienate our

16:25

existing customer But those would

16:27

be three, you know, big investments that i'd

16:29

highlight that we've made over the last

16:31

few years, really all to

16:33

serve our existing customer base is even better, but

16:36

really to set ourselves up to be

16:38

a retailer of choice for

16:40

the new millennial customer.

16:42

Joe, you know how you note that you're old. Tell

16:44

me it's when businesses start catering

16:47

to your taste and when you're.

16:49

It's like, oh you're talking about me here.

16:50

Yeah, pretty much. When CEOs come

16:53

and say like, oh, we're redesigning

16:55

our stores to appeal to millennials

16:58

who might be more used to urban environments

17:00

but are now in rural areas, that's how you

17:02

know, and that's.

17:02

How you feel like you're looking in a mirror.

17:05

Actually, I want to ask, so, uh you

17:07

recently I think in twenty twenty two,

17:10

but a pet retailer pet sense and

17:12

I'm curious in terms of like becoming

17:14

less cyclical. I mean, you know, if people have

17:16

animals or if people have pets, whether it's

17:19

recession or a boom or whatever, they're probably

17:21

going to feed them the same amount.

17:23

How much does.

17:23

That business allow you or

17:26

was it sort of designed in order

17:28

to sort of build some more acyclicality

17:30

into the business.

17:32

Nearly ninety percent of our

17:34

customers have an animal

17:36

or pet. Wow, seventy five percent

17:38

of them have a dog. And

17:40

then you know there's an array of cats and everything.

17:43

It's just Tracy in this episode. Literally

17:45

everything you say just comes back to Tracy.

17:47

But yeah, keep going.

17:48

Sorry, I'm the art more than our customer.

17:50

Yeah, exactly, over half of

17:52

our customers have more than two dogs.

17:55

On average, our customer's dog weighs

17:57

twenty pounds more than the average dog across

17:59

the country. So you know, our customers have animals

18:01

and past they almost all have dogs.

18:03

Most have two dogs and their big dogs and a

18:06

compelling kind of an element of our businesses

18:08

for we've been around for eighty five years. We've

18:11

really been were built even

18:13

eighty five years ago to serve life out

18:15

here. But our business model

18:17

and our culture and our mission values have really been

18:19

consistent throughout that entire eighty five years. But

18:22

our business model has evolved over time to

18:24

better server customers. So forty years ago, we didn't

18:26

even sell animal feed for the most part,

18:29

horse feed, coffee, chicken.

18:30

Feed, et cetera.

18:31

And now we're far and away the largest player

18:33

of bagged animal feed in the United States between

18:35

a twenty and twenty five percent market share.

18:38

Twenty five years.

18:38

Ago, we didn't even sell pet food and

18:41

similar you know, realization, it's a better way

18:43

for server our customers. It has less

18:45

ups and downs both annually and also throughout

18:47

the year, you know, seasonally. So let's

18:49

start getting into pet food. And you know, now

18:51

we're right at that number four, number five largest

18:54

player and pet food in the country. And

18:56

you know, one of the initiatives that we

18:58

have in place to keep driving that expanded

19:01

pet business is pet Sentence.

19:04

And to your point, we did acquire that

19:06

company seven to eight years ago,

19:08

and in twenty twenty two we

19:10

rebranded it to be pet Scents by Tractors

19:13

Supply. We rolled out our neighbors

19:15

Club membership program that was work that worked

19:17

in Tractors Supply. We rolled that out to petscent

19:20

So it works in both name plates now

19:22

pet Sence. The ownership of pet Sentence

19:24

really over the last decade almost has given

19:26

us a lot of insights into the pet

19:29

industry, given us access to

19:31

brands that we would not have otherwise gotten access

19:33

to, and allowed us to bring that knowledge

19:36

and that those contacts into

19:38

the core track supply and make the business

19:40

better. We also are rapidly growing

19:42

the pet Sence brand and we've got over

19:44

two hundred stores now. They are

19:46

in the same towns as a tractor supply.

19:49

Ideally they're in a town that doesn't have a pet co.

19:51

It doesn't have a Pet Smart. Typically

19:53

our towns don't. We typically serve

19:55

call it a twenty thousand person town. The

19:58

tractor supply would be on the outs to

20:00

the town typically wherever the more agg related

20:02

you know, area is. But the

20:04

Pet Sense we want that in the center of

20:07

the town, kind of where the few

20:09

restaurants are, the grocery store, some

20:11

of the clothing stores that are in the town.

20:14

You know, there might be a two three strip malls or

20:16

malls in the town that are where the

20:18

commercial activity is located. That's

20:20

where we want a pet Sense and it does really two

20:23

things. It serves that inner

20:25

city quote unquote population that

20:27

doesn't have big yards and doesn't have horses

20:30

and cows and they've got you know, smaller

20:32

animals and pets. But then also

20:34

secondarily, in addition to serving that community

20:37

in a specialty like way, it also

20:40

serves convenience for the core tractor

20:42

supply customers. So to say, on a Friday

20:44

night, you're in town having dinner at the you

20:46

know, olive garden, and you need to

20:48

get some dog food or chicken

20:50

feed on the way home just to

20:52

get you through the weekend before you, you know, you

20:55

do your annual your weekly shop

20:57

at at track supply. Pet Sense also

20:59

serves that in the so it's a great win

21:01

win pet Sense tractor supply

21:04

commonality on the brand pet Sense

21:06

by tracks, by commonality on the loyalty program

21:09

Neighbor's Club a purposeful overlap

21:11

where it makes sense on assortment, but pet

21:13

Sense doing it's what it's good

21:15

at as well in terms of being a specialty player,

21:17

carrying you know, more cats and

21:19

even things for fish and lizards,

21:22

and you know that sort of side of a pet

21:24

specialty store.

21:26

Joe, I have coyfish too.

21:28

Of course you do.

21:29

There you go, so one of the things

21:31

I remember from when we spoke to Michael

21:33

Roberto, the author of the Harvard

21:36

Business case study on Tractor Supply.

21:39

He talked about how the essence of business

21:41

strategy is basically what

21:44

you don't do, so what you decide

21:46

not to do. After all, it's pretty easy

21:49

to say, we're going to go after this

21:51

massive market and this market, and

21:53

we're going to sell this, this and that, and

21:56

he described what Tractor Supply

21:58

had done as a sort of judo strategy

22:00

of basically avoiding head to head

22:03

competition with bigger

22:05

box stores like a Lows

22:08

or a home depot. Can you talk

22:10

a little bit more, perhaps about

22:12

what you've decided not to

22:14

do and how that maybe differentiates

22:16

the business.

22:17

So, and I think that's a very

22:20

fair description of who we are. We

22:22

want to be the best retailer

22:24

serving life out here, and

22:27

we're going to have store locations,

22:30

store size, assortment, customer

22:33

service technology, and

22:35

then a supply chain you know, in the

22:38

background, all built the

22:40

most optimally serve life

22:42

out here. And as

22:45

a consequence of that strategy, you know,

22:47

we're going to make a number of decisions

22:49

to optimize around that, but also to

22:51

position us uniquely against competition.

22:54

So a couple things. Less than ten percent

22:56

of our stores are suburban. Zero

23:00

some of our stores are urban. So

23:02

we are very purposely in

23:05

ex Surban and rural communities,

23:07

you know, very different than the

23:09

vast, vast majority of retailers.

23:12

You know, some of the names you mentioned are heavy

23:14

urban, heavy suburban. They may dabble

23:16

in ex Surban, but you know, very

23:18

few are purposely building in rural

23:21

America. So location wise,

23:23

you know, we oftentimes be are have

23:26

a twenty mile radius with minimal

23:29

competition. The second thing would

23:31

be store size. So our store

23:33

size is eighteen thousand square

23:35

feet plus or minus the size

23:38

of sale Walgreens, And if you think

23:40

about many of our competitors,

23:43

they're going to have much larger store

23:45

size. There's one hundred thousand square feet, eighty

23:47

thousand square feet. That puts

23:49

a lot of pressure on you to keep inventory,

23:52

to keep the.

23:53

Store updated, to staff

23:55

it.

23:56

And I think you know, what we've seen in retail

23:58

over the last ten twenty years is a

24:00

decreasing store size, right, and those retailers

24:02

that have these large, large store sizes

24:05

wish they had smaller ones. And you

24:07

know, I always mask what the you know,

24:09

if you look back over the history tracks by what are

24:11

some of the most important decisions ever made? And

24:14

you know, number one decision, most important decision

24:16

are made was how we built our culture. Hands

24:18

down, the writing of our mission and values,

24:21

creating a culture around it and always

24:24

staying on that path number one most important

24:27

decision. But I'd say a

24:29

very important second decision that was

24:31

made was the size of our stores, and

24:34

if anything, it forced us us to really prioritize

24:37

and only have the assortment necesser to really

24:39

serve life out here most optimally, and

24:41

it creates this element of convenience.

24:43

And we always say that our.

24:44

Worst parking spot and our stores

24:46

is better than the best parking spot

24:48

at a big box store.

24:50

Yeah.

24:50

So another decision that we've made is how

24:52

we execute online. Seventy

24:54

five eighty percent of our online businesses

24:56

picked up in store or fulfilled from

24:59

a store, delivered from a store. You

25:01

know, by comparison, most would be in the forty

25:03

or fifty percent range in retail or

25:06

even less. We've been very purposeful

25:08

and not choosing not to compete in

25:10

that kind of long tail assortment or

25:12

to have a marketplace on our website

25:14

because we just don't think that we're competitively

25:17

advantaged in that area and that you know,

25:19

we can build a robust, sustainable

25:21

business uh in that area. You know, we

25:23

know what we do best, which is serve

25:26

rural America, serve life out here

25:28

through an eighteen thousand square foot store

25:30

base with you know, the best

25:32

customer service in the industry from retail,

25:35

and doing that with the technology that you

25:37

know is best needed by our customers.

25:39

And to your point, it's been very purposeful over

25:42

decades and decades in terms of really

25:45

defining who we are and building

25:47

a real competitive advantage around that.

25:49

So one thing I was wondering, and you mentioned

25:51

the online business there and the idea

25:53

of you know, click and collect, which I believe

25:56

has been a source of growth for

25:58

a lot of brick and mortar companies

26:00

at this point. But you came

26:03

from Macy's and I

26:05

think home Depot before you joined Tractor

26:08

Supply, and I think at Macy's you

26:10

were actually heading up their online business. Can

26:12

you talk a little bit more about how that

26:14

experience may have informed

26:17

Tractor Supplies online strategy took.

26:20

One of the areas that I'm personally

26:22

very passionate about is the intersection of

26:25

retail and technology and

26:27

how that allows you to better serve your

26:30

customer, but also how that allows

26:32

your team members, your employees

26:35

to better serve your customers as

26:37

well, like you're strengthening their

26:39

ability to do so. And to your point,

26:41

I spent ten years at Home Depot for

26:44

which of that ten years I was running

26:46

the online business there two

26:48

thousand and nine to twenty thirteen, which was a

26:50

pretty big time period for digital transformation

26:53

in retail, coming on the

26:55

heels of the Amazon and really

26:57

coming on the forefront and then obviously the iPhone

26:59

line. And then I spent three years at eBay

27:02

running their North America business, you

27:04

know, thirty billion dollar plus marketplace

27:07

just in the United States and obviously global

27:09

in nature, and through my three years there that

27:11

was you know, big data, cloud computing

27:14

kind of the mid twenty fifteen

27:16

fourteen sixteen seventeen timeframe.

27:18

And then in seventeen to twenty

27:21

nineteen, that three year period, I worked at

27:24

Macy's where I was President of business and did have responsibility

27:26

for technology and online in that role. And

27:29

you know, those experiences have had substantial

27:31

impact on on, you know, my perspectives

27:34

of how technology can drive the business

27:36

better serve customers better, enable

27:39

team members, and try to bring some of

27:41

that in concert with the large team

27:43

that we had that thinks about these things every day.

27:45

And I think we've done an excellent

27:47

job in the last handful of years, you

27:49

know, from a technology perspective, and you

27:52

know ways it's influenced us. As I

27:54

mentioned earlier, the way we've executed our

27:56

consumer mobile app strategy, the way we've

27:58

executed our buyline pickup in store strategy,

28:00

but also the way we've set up

28:02

our team members to be successful.

28:04

All of our team members wear headsets that

28:06

allow for a variety of.

28:07

Point to point communications, tasking

28:10

knowledge tools, AI knowledge tools.

28:13

All of our team members have a handheld

28:15

device that they use for executing in the

28:18

stores, but that's complemented by a bring

28:20

your own device where we have our own app just

28:22

for our team members, and all three of those work seamlessly.

28:25

From our credentials and authentication perspective,

28:27

then we're also rolling out now kind of computer

28:29

vision, leveraging all of our cameras

28:32

in our stores and taking them from being kind of dumb

28:34

cameras to smart cameras and allowing

28:36

us to create use cases

28:38

to drive improve.

28:39

Customer service in our stores.

28:40

So you know, all these things that you

28:43

know, I've had a chance to participate in over

28:45

the last fifteen to twenty years in terms

28:47

of just you know, technology trends. I think

28:49

we're you know, trying to just leverage all of our

28:51

learnings across those to create

28:53

the best business we can. And of course we have a

28:56

great team who does a lot of this work as

28:58

well and have had you know, there's similar

29:00

set of experiences over the last

29:02

couple of decades.

29:03

So obviously we're really interested in supply

29:06

chains and things like that here

29:08

on odd Lodds. So one of the questions

29:10

or one of the things I think you said you have

29:13

nine distribution centers around

29:15

the country, and I think you're adding a tenth.

29:17

I think, can

29:20

you talk about the decision making that goes

29:22

into the upfront cost of

29:24

a new distribution center and

29:27

what that unlocks in terms

29:29

of possibilities at the end retail location.

29:31

When you build one out.

29:32

How do you think about when it makes sense to

29:34

spend the money to build a new distribution center.

29:36

In less than a month's time, our grand opening

29:39

for our tenth distribution center will

29:41

take place, and that's in Mammel Arkansas.

29:44

We just opened our ninth distribution

29:46

center a year ago a little every year

29:48

ago in Nabarrow, Ohio. In

29:50

addition to those and those ten distribution

29:53

centers of which each are about a million square

29:55

feet, we also have three import

29:57

distribution centers that you know, kind

29:59

of decon solid date product that it comes

30:01

in on containers.

30:02

And then we have sixteen mixing.

30:04

Centers, which are cross dock facilities

30:07

that in a label for faster replenishment

30:10

on full palate goods, which

30:13

is from us for the most part, our

30:15

high velocity items that are big bagged

30:17

items like food and feed, wood,

30:19

Pellot's fertilizer, et cetera. So

30:21

we have a very robust, you know, kind

30:23

of multi building type strategy

30:26

in our supply chain as

30:28

we build. To get back to your question on the

30:30

tenth distribution center, just kind of how do we think about

30:32

that. There's really two facets

30:35

to the buildout of one. One is just you

30:37

kind of got to have it from a capacity

30:40

perspective, and about every two hundred

30:42

and fifty stores we have to

30:44

build another distribution center to

30:46

just be able to you know, kind of keep them in stock

30:49

and have the capacity. All of our dcs run

30:51

twenty four hours a day, seven days a week. We're

30:53

maniacalon trying to make sure we get as much

30:55

through put through them as possible. Obviously

30:57

with team members in mind. As we think about that,

31:00

part of it is you just kind of have to. But

31:02

each of our dcs, in addition to that, does

31:04

provide a substantial financial benefit

31:07

as we roll out of DC. It

31:10

takes caught up between one hundred and one hundred

31:12

and fifty million dollars a capital to build one,

31:15

and call it thirty to forty

31:17

million dollars a year in annual operaing

31:19

expense from a labor perspective, et cetera.

31:22

But it allows us to significantly

31:24

reduce our mileage on

31:26

the truck perspective, so we

31:29

can reduce the inbound miles from ours

31:31

from our vendors to the DC because

31:33

we've got more more dcs across

31:35

the country and so you're reducing milage there.

31:38

But then secondly, we're able to build a distribution

31:41

center so that you know, the stores in which

31:43

they serve are closer and

31:46

we can reduce that distance as

31:48

well. In fact, over the last

31:50

six years, we've reduced our average

31:52

truck distance by one hundred and twenty

31:54

mile which has generated substantial

31:57

freight savings for us. And

32:00

so you know, our DCS as we think about it,

32:02

and there's kind of two main drivers for it. One we just

32:04

got to have it, but two, it does provide

32:06

a substantial financial benefit for

32:08

the business as well. And then what I

32:10

would say is they also create a unique

32:12

position for us in the marketplace where

32:15

all of our core farm and ranch competitors

32:17

for the most part, with exception of one or two,

32:19

buy through distribution. And

32:21

so that's going to slow their ability to replenish

32:24

down and create a higher cost for

32:26

that. And then those retailers

32:28

that we compete with that are more national retailers

32:30

that we compete with kind of category back category,

32:33

say a home approvement retailer or a pet retailer.

32:35

Last year, we processed

32:38

over eight billion pounds

32:40

of food and feed through our supply chain,

32:42

and so you know, we're just experts

32:44

at moving fifty pound bags of

32:47

animal feed, foods, fertilizer, wood

32:49

pellets, those sorts of things, and have far

32:51

away the lowest cost to serve on

32:53

those. So it gets us scale on a

32:55

cost to serve, It gets us speed

32:57

of replenishment, It reduces our

33:00

transportation costs that you know, also

33:02

just gives us that capacity to fuel our growth.

33:22

There was a line in one of your most

33:24

recent earnings calls

33:26

that sort of caught my eye, and

33:29

you were talking about how you had reduced

33:31

the attrition rate in your

33:34

supply chain team

33:36

by implementing a new progressive

33:38

wage scale. Is that just? Is that corporate

33:41

speak for, you know, you gave everyone raises

33:43

and they worked harder.

33:45

Yes and no.

33:45

So I'll start by saying one

33:48

of the things that we've invested in

33:50

over the last five years substantially

33:53

is in wages. Earlier, when I

33:55

was mentioning the investments that we've made

33:57

in the business specifically referenced

34:00

capital expenditures. There's obviously other

34:02

line items that would be reflective of

34:04

our investments, and one

34:06

of those has been in wages. And

34:08

our average hourly wage rate is

34:11

nearly sixteen dollars. Now, that's

34:13

inclusive of our forty five thousand team

34:15

members, store team members and nearly

34:17

five thousand distribution center

34:20

team members. It can go back and point

34:22

at numerous times over the last five years,

34:24

we've made incremental wage adjustments

34:26

for our team members. So in June of twenty

34:29

twenty, well before others

34:31

were doing so, we provided a

34:33

dollar per hour wage increase for

34:35

every team member hourly team member of

34:37

the company. At that same time, we

34:39

also started providing benefits to

34:41

all part time team members. Up until then,

34:43

you had to be full time to have access to benefits.

34:46

Now, if you work fifteen hours or more

34:48

a week at Tractor Supply, you have access

34:50

to benefits the same benefits I do. It's

34:52

one benefit set system for everyone,

34:55

and that fifteen hours.

34:57

Threshold is very low.

35:00

To other retailers.

35:00

If you were to go benchmark, most would be at

35:03

least twenty most or twenty five and upwards

35:05

of thirty. And we also started

35:07

in June of twenty twenty providing restricted

35:10

stock grants to our store managers so

35:12

that they felt that empowerment, that ownership

35:15

it, you know, in their in their role. Specific

35:17

to our distribution centers. Two

35:20

things we've done recently there. One

35:22

is all of our supervisors

35:24

and managers in the dcs now

35:26

receive restricted stock, which wasn't the case

35:29

prior, so again building ownership inside

35:31

that distribution center of our management

35:33

team in there. And then secondly, as far

35:35

as our hourly team members, we

35:37

shifted to what you you

35:39

as you called it a progressive wage

35:41

scale. Historically, our distribution

35:44

centers would have gotten their raises once

35:46

a year in an annual merit cycle.

35:48

And you know what we found through that

35:51

was in particular of the last two or three years

35:53

as you had a real crunch around

35:55

available labor, was that people

35:58

wanted merit increases fast, stir

36:00

more consistently. And so we

36:02

went to a one where you at ninety

36:04

days, do you get a raised. At one hundred and eighty days, you

36:06

get a raised. At three hundred and sixty days, you get a raised,

36:09

and then it's progressive from there. And so when

36:11

you join, you know what you start at, and you

36:13

know exactly what your rage rates are going to be

36:15

as you look at it's.

36:16

Very calendarized for you.

36:17

And and so that gave people certainty,

36:20

It gave people clarity, They

36:22

gave them a reward, a little bit of a reward

36:24

along, you know, along the way. Plus

36:26

their managers now have stock

36:29

incentive and you know, they're kind of treating it

36:31

a bit more like you know, an ownership and mentality.

36:34

And it's it's been very successful for us.

36:35

And we had a fifty point

36:38

a reduction in our supply chain attrition

36:40

last year, and we're continuing to see attrition

36:43

rates below down this year kind of three

36:45

months in.

36:45

So on your website it says currently I'm

36:48

looking at your history page, it says there are twenty

36:50

two hundred stores in the forty nine states,

36:52

and I think your goal per the last conference

36:54

call is to get up to three thousand

36:57

stores, So I have I guess it's a two part question.

36:59

Is what is the main constraint to

37:01

adding stores? Is it available land?

37:04

Is it just the capacity to plan them out?

37:06

Like where is the heart?

37:07

Is it materials and labor to build them?

37:09

Like?

37:09

What is that constraint? And then when you

37:11

talk about new store productivity, and

37:13

I think, as you've been saying that stores lately

37:16

have been getting up to full productivity

37:18

faster than they have in the past,

37:21

what is the dial that you can turn to

37:23

get a brand new store up and running

37:25

so that it's sort of on par with the legacy

37:27

stores.

37:28

Well summarized Joe on kind

37:30

of our store goal and

37:33

the number of stores we open annually, So we have

37:35

a three thousand store goal in

37:37

the United States. We have

37:39

a little over twenty two hundred stores, now

37:42

we build annually around eighty

37:45

stores, so we've got, you know,

37:47

basically a decade left of new store

37:49

growth. We do have a history

37:51

of increasing that as but you know,

37:54

but we feel very good about the three thousand store

37:56

goal, and you know, perhaps there's some more upside

37:58

beyond that. There's a variety of

38:00

factors that limit the number

38:02

of stores we build a year. As I mentioned, we're

38:05

currently this year planning to build eighty

38:07

tractor supply stores, and I should

38:09

mentioned ten to twenty pet scent stores.

38:12

I would say the main limiting

38:14

factor is our culture. And

38:17

I think the thing that keeps me up the most at

38:19

night is not allowing

38:21

our growth to exceed the pace

38:24

of our culture. And we

38:27

cannot be one of those companies that wakes up

38:29

five years from ago. We just had incredible

38:32

growth, but we're just not the same company that we were

38:34

five years ago from a culture and customer

38:36

service perspective. Obviously, in

38:38

addition to that limiting factor, there's a variety

38:40

of other things. Right, there's access

38:43

to all the construction

38:45

materials you need, there's access to you

38:47

know, local permitting resources, there's

38:49

access to you know, construction labor.

38:52

All those things that We've had over the last two or three

38:54

years nuances there that have impacted

38:56

our ability to move faster on store

38:59

rollout, just with you know, the supply cheam

39:01

directions that curbent COVID and such, and the

39:04

availability for people to.

39:05

Get out and approve permits and those sorts

39:07

of things.

39:07

But that's all reasonably settled now,

39:09

and I'd say it's mostly just back

39:11

to normal, with the exception of the higher interest rates

39:14

on building stores. But the main bottleneck

39:16

on an annual basis is just making sure

39:18

that we don't outgrow our culture. And you know,

39:20

we bring every new store manager, so we have

39:23

twelve percent store manager attrition, one of

39:25

the lowest, perhaps the lowest

39:27

in retail in terms of attrition. But

39:30

at twenty two hundred stores, that's a couple hundred and fifty

39:32

new store managers a year. Plus we have eighty

39:34

news stores, so you're talking three thirty

39:37

three hundred and fifty new store managers a year.

39:40

We bring every one of those store managers to

39:42

our store support center here in Brentwood,

39:44

Tennessee, right outside of Nashville.

39:47

They spend an entire week going through training.

39:49

They also spend ninety days prior

39:51

to starting at their store training at another

39:54

store, and so we invest a lot

39:56

of resource to make sure the store managers

39:59

are up and running and that you

40:01

can't tell a difference when you walk for when

40:03

you go into one store versus another, and

40:06

we're just so passionate about that.

40:07

I think you know that is the primary limiting.

40:09

Factor for our our new stores in

40:11

terms of number a year, and then trying

40:14

to get our stores up to volume as fast

40:16

as possible is kind of every retailer's

40:19

goal and focus. And typically

40:21

they started about seventy percent of our

40:23

estimated sales in the first year, and over

40:25

a three or four year time period will

40:27

ramp up to that one hundred percent of what we expect

40:30

out of that store. And they are

40:32

opening up at higher volumes

40:34

than they did pre COVID, and they are ramping faster,

40:36

and I think there's a number of reasons for

40:39

that, but I think the biggest is the improvement.

40:41

That we've made in our brand awareness.

40:43

And pre COVID, our unated brand

40:45

awareness was down in the thirties, and now

40:48

post COVID, our unaated brand awareness is nearly

40:50

doubled. And just so as we move

40:52

into markets, more people are aware of us,

40:54

they are more apt to consider shopping

40:56

us. And you know that just allows us to ramp

40:59

up to ramp up quicker.

41:01

How important are partnerships

41:03

to business growth now? Because famously

41:05

you have a partnership with car Heart,

41:08

So if you walk into a tractor supply store, you'll

41:10

see lots of car Heart hats

41:12

and you know, clothing of all

41:14

sorts. But I think you also have some sort of

41:16

deal with Yellowstone. And in

41:19

the course of researching for this interview,

41:21

I saw you have a line of garden

41:24

clothes with Martha Stewart.

41:26

Now, so that seems to be an area

41:28

of interest for you. How do you identify

41:31

these potential partnerships and then how important

41:33

is that for the overall business mix?

41:35

Nowadays Track Supply would not be

41:37

the same company absit the

41:40

many fantastic partners that we

41:42

have, And that's really across, you

41:44

know, all different facets of the business.

41:46

Certainly on the on the product

41:49

side, we have some

41:51

great partners that work

41:53

very closely with this help us

41:56

create unique product

41:58

experiences for our customers. It can only

42:00

be found a tractors supply to

42:02

your point, whether that's in apparel, car

42:05

Heart, who we're you know, one

42:07

of the largest seller of car hearts in the country

42:09

and we have you know, nearly one hundred store

42:11

within a store car.

42:12

Heart across our store base.

42:14

But even partners like Purina

42:17

on the feed side, and you know are

42:19

we have two private brands and feed do

42:21

More in producers Pride, and we work

42:23

very closely with Purina on the production

42:26

of those and in fact, our do More brand

42:28

is the only private brand product in

42:30

the United States that had that carries the Purina.

42:33

Checkerboard, you know.

42:34

And you can go across our business and we've got

42:36

these just really fantastic strong

42:39

partner relationships on the product

42:41

side, but also on the marketing side of your point. So we've

42:43

got great relationships with Yellowstone

42:46

and you know, Taylor Shared and that team,

42:48

and we were, you know, one of the very first partners

42:51

that they had and have always built

42:53

custom commercials for that. And you

42:55

know, Landy Wilson, we have a strong

42:57

multi year relationship with their professional

42:59

bull writing and we're one of the first inaugural

43:02

sponsors with them as that as that

43:04

has really grown as a sport and an

43:07

enterprise. But then also if you look

43:09

on the tech side, we have an incredibly

43:11

strong partnership with Microsoft and Microsoft

43:13

Azure particular and their cloud platform and

43:15

their AI capabilities, and I'd

43:17

say we're very much on the forefront of partnering

43:20

with them and experimenting and developing

43:22

scaled solutions. And then even

43:24

if you look at like on the community side, we're

43:26

far and away the largest contributor

43:29

and have been for thirty plus years

43:31

with FFA, the Future Farmers of America,

43:34

and we're in our second year of the

43:36

largest rural agriculture scholarship

43:38

program in the country to million

43:40

dollars a year, one hundred five

43:42

thousand dollars scholarships and fifty

43:45

ten thousand dollars scholarships. And so, you

43:47

know, whether it's on the community side, whether it's

43:49

on the tech side, whether it's on the merchandising

43:52

side, or on the marketing side,

43:54

you know, and in a variety of other stakeholders

43:57

as well. We had just incredible partnerships people

43:59

that that we've been with for quite

44:01

some time, and you know, there's synergies

44:03

between our businesses and their businesses,

44:05

and it just really allows us to be the best company

44:08

we can be.

44:09

I just have one more question, but since

44:11

you mentioned specifically interest rates,

44:14

in the context.

44:15

Of build out.

44:16

Can you just give a little like more specifics

44:19

about how does a high interest environment

44:21

affect the math of store rollouts?

44:25

And yeah, what and you mentioned

44:27

that on your call. That came up as one of the challenges

44:29

for twenty twenty three, along with weather and some

44:31

other things. But talk to us a little bit

44:33

about the effective interest the effective

44:35

elevated interest rates on expansion

44:38

decisions and how it changes how various

44:40

investments pencil out.

44:41

Yeah, absolutely so, I mean

44:43

interest rates are significant

44:45

in any sort of real estate project,

44:48

right, And historically we

44:50

have used third party contractors

44:53

to develop our locations

44:55

for us under assigned

44:58

contract and our commitment is part of

45:00

that signed contract is you know,

45:02

typically at a minimum fifteen years

45:04

or a twenty year lease within

45:07

two to three options on the back end

45:09

of that. So you know, we're signing up for fifteen

45:11

to thirty years saying in a location

45:14

with a lease dollars per month associated

45:17

with that, and as part of that

45:19

part of the agreement, then a developer would go build

45:22

that store for us, right, and that

45:24

includes acquiring the land,

45:27

you know, building the store, and

45:29

then once they've got us up and running,

45:32

most of our landing lords will then sell

45:34

that property to, you know, someone

45:36

who wants to own the long term cash flow

45:38

stream. So if you're a developer,

45:41

you are typically funding the

45:44

acquisition of that land and the build out

45:46

of that store through some sort of financing,

45:49

and then you're selling the property to someone

45:51

who's counting on those cash flows. And so both

45:54

the financing and the selling to someone who's

45:56

kind of that cash flows are significantly impacted

45:58

by interest rates. Right, what's the interest

46:00

rate you're going to pay on sixty

46:03

seven million dollars of capital for

46:05

a year to fifteen months while you're

46:07

building that store, and

46:09

then when you sell that tractors supply

46:11

to someone and it's got a three hundred thousand

46:14

dollars year annual revenue stream associated

46:16

with it, right from the least, what interest rate

46:18

are they going to use to discount that cash flow back

46:20

at?

46:21

And so it has.

46:22

Substantial implications on our real

46:24

estate developers. And with the movement

46:27

up in its rates obviously makes it more expensive to build,

46:29

and then you obviously are monetizing

46:31

those future cash flows at less right because

46:34

of higher interest rates, And so

46:36

they've got more risk and they've got a bunch of movement

46:38

and so it has significant implications.

46:40

And so one of the things we've done over the last twelve

46:43

months is start to actually finance

46:45

the build out ourselves. So we have gone

46:47

probably about half of our stores this year.

46:50

We will work with the developers still,

46:52

we'll say, look, you just build the

46:55

store, force, work with the contractors

46:56

on the property, you know, work with the

46:58

local scipalities around

47:01

zoning and permitting and all those sorts of things.

47:03

But don't worry about you know, buying the fixtures,

47:06

buying the HVAC, you know, buying the

47:08

concrete block, all those things.

47:09

We're going to do all that.

47:10

We will pay for it all and we're just going to give you

47:13

a four or five hundred thousand dollars fixed

47:15

fee to build that for us. But

47:18

the idea that you need to finance them on the front end

47:20

or worry about the sale on the back end, don't worry

47:22

about that anymore.

47:23

We will take that on.

47:24

And what we found is that it frees

47:27

up a lot of value because they were putting

47:29

a lot of risk in the model, particularly with the

47:31

variability and interest rates and how

47:33

things are moving around, and so it's

47:35

had significant impacts. We're fortunate to be investment

47:38

grade in terms of debt rating to be billion

47:40

dollars plus cash flow positive every year.

47:43

So we've got a lot of levers that we can we can

47:45

put in place to just kind of address

47:47

that situation. But it's certainly been a

47:50

big topic I think for all everyone

47:52

in real estate over the last eighteen months.

47:55

Since you guys are experts in moving big

47:57

bags of stuff, so can you just start

47:59

buying and also delivering materials

48:01

for new stores to yourself?

48:03

Right?

48:03

That's and that's exactly part of the benefit

48:06

that we've captured by bringing you know,

48:08

kind of self development in the house is

48:10

that we can go negotiate now

48:12

for you know, eighty HVAC

48:15

systems at one time. We can go negotiate

48:17

for all the fixtures at one time, all

48:20

the bailers that we have in the back

48:22

of our store, all those sorts of things that

48:24

in the past the contractor

48:27

would have singularly sourced

48:29

just for that store. We can now

48:31

do it, you know, in large batches,

48:33

fifty one hundred at a time and

48:36

get a nice reduction and price

48:38

by leveraging our volume.

48:40

Last quick question for me, just I mean, I know

48:42

you're writing these big secular trends, but things

48:44

like inflation, et cetera, labor

48:47

market. How do things look right now

48:49

we're recording this April nine, twenty twenty

48:51

four. Does it feel like we're something

48:53

like a normal environment.

48:55

I don't know if you're a retailer that feels

48:58

perfectly normal right now on I'll

49:00

get into that in just a second. But what I would say at the highest

49:02

level, I think our economy is strong right now. I mean

49:04

we're running, you know, as a country two

49:07

three four percent GDP right

49:09

kind of pick your quarter a month GDP solid

49:12

right now. You've got consumers

49:14

spending really leading the way on that.

49:17

You know, the PCEE personal conception

49:20

expenditures you know for the month of January

49:22

and February very solid in that you know,

49:25

two and a half to three and a half percent range,

49:28

very solid growth there.

49:29

You know.

49:30

The only thing I think from a retailer perspective,

49:32

why it doesn't feel normal right now

49:35

is consumers are still shifting their spend

49:37

from goods to services, and you

49:40

know, pre COVID services,

49:42

so things like you know, hotels, restaurants,

49:45

entertainment, cruises, those are you know,

49:47

airline tickets, those sorts of things.

49:50

They were about sixty nine percent of a

49:52

consumer spend, with goods

49:54

being the other thirty one percent. During

49:57

covid U, when people had less

49:59

travel than they could go do you

50:01

had these stimulus checks coming

50:03

through and people were feeling the need

50:06

to spend those goods as

50:08

a percent of consumer expenditures gotten

50:10

nearly as high as thirty seven percent,

50:12

with services, you know by comparison,

50:14

dropping down to sixty three Over

50:17

the last eighteen months. As our economy is opened

50:19

back up and people have gotten back to more

50:22

normal spending, perhaps some pent

50:24

up desire to travel, you've

50:26

seen that services spin start

50:28

to creep back towards sixty nine percent.

50:31

I think at the end of February it was

50:33

in the high sixty sevens, maybe right at

50:35

sixty eight percent. So and if

50:37

you look at the February SPIN, services

50:39

were up six percent, whereas goods

50:41

were only up one percent on spend.

50:44

So there's a big swing happening right

50:46

now between goods and services. But other

50:48

than that, I think, you know, our economy seems to be very

50:51

health healthy right now. The consumer continues

50:53

to spend, you know, inflations

50:56

moderating, I think people have started you

50:58

see that lesser as a

51:00

an issue when you do consumer surveys,

51:04

and you know, I think our economies is

51:06

very much stabilizing.

51:07

Hats off to the FED for everything they've

51:10

done.

51:10

Hell a lot and CEO of Tractor Supply, thank

51:13

you so much for coming on all thoughts and explaining

51:16

exactly how you are capturing so

51:18

much of my income. It

51:20

was great, all

51:31

right, Joe, Well, I thought that was fascinating,

51:33

and I can see why I am in fact spending

51:35

quite a decent amount of money at Chactor

51:38

Supply in recent years. There's

51:40

so much to pick out of that conversation. I

51:42

mean, I thought the point about distribution was

51:45

pretty interesting. This idea that you can build

51:47

up and expertise in moving a

51:49

particular type of things. So in

51:51

this case, I guess big bags of animal

51:54

feed and stuff like that, and so you can

51:56

start to get efficiencies out

51:58

of that and also maybe at some point point

52:00

start to you know, negotiate

52:03

supply for building your own stores

52:05

in bulk purchase as well.

52:06

No, I thought that was really fascinating

52:08

as well, because you can imagine, right, and

52:11

it's not you don't have to imagine that like, okay,

52:13

in something like pet food or something like that,

52:15

or feet. They're competing with a lot

52:17

of other companies. But if pet

52:19

if feed is such a dominant share of

52:22

their own supply chain, then

52:24

they can become the most

52:26

efficient or theoretically the most

52:28

efficient distributor of fifty pound

52:30

bags in a way that you might not expect.

52:33

Companies that specialize in so many other

52:35

things to like build that expertise and

52:37

so like a way of gaining scale

52:39

and price competitiveness even from

52:42

smaller side.

52:43

Yeah, and the other thing I was thinking, and this came

52:45

up in the episode we did before on the Harvard

52:47

Business case study, but this idea

52:49

of the choice of location for

52:51

opening stores and

52:53

not automatically migrating

52:56

or being attracted to urban centers

52:58

because I think, for you know, a large proportion

53:01

of retail, the thinking is always you want

53:03

to be where the people are. So even in the middle

53:05

of New York, you will have in fact,

53:07

I think we have a home depot right below

53:10

the Bloomberg offices in Midtown Manhattan.

53:12

Yeah, you will have those kind of big box

53:15

stores, you know, a Target or a home

53:17

depot or whatever. But it seems

53:19

like in the case of Chactor Supply, they're

53:21

sort of going where the animals are

53:24

not necessarily where the people are.

53:25

No totally.

53:26

And then I love like also, you know, in terms

53:28

of the strategic location hearing

53:31

them walk through the math of the

53:33

effective interest rates on store

53:36

development, and I always joke, you

53:38

know, it's like every company is a bank, but

53:40

that is basically like what he described,

53:43

which is like, why when Tractor

53:45

Supply has like a great credit rating

53:47

is really big, it's you know, it's not going

53:49

to go away. Why not bring

53:52

that sort of borrowing and lending capacity

53:54

onto the Tractor Supply balance

53:56

sheet and then free up

53:59

the developer who then can focus on the one

54:01

thing that they're really good at, which is constructing

54:03

a building, rather than having the developer

54:06

also take that financial risk and presumably

54:08

pay a higher spread for their borrowing

54:11

than tractor would you.

54:12

Know the other thing I was thinking this might

54:14

be kind of weird, but you know,

54:16

Tractor Supply is sort of keying off this big

54:19

demographic trend which we discuss aging

54:22

millennials and the fact that millennials want more space

54:24

and they're moving out of cities and they want

54:26

pets and things like that. I

54:28

sometimes wonder if like Tractor

54:31

Supply is going to be the Harley Davidson of

54:33

millennials, like everyone had pets

54:37

when they were a certain age, just like all the Baby

54:39

Boomers had a motorcycle when they were a certain

54:41

age, and then it kind of ages out.

54:43

I like the analogy. I'm

54:45

done with that analogy.

54:46

Oh you know what, Tracy. One other thing that we.

54:48

Have to do more episodes on is,

54:51

like I guess I would say, like the point

54:53

suffocation or reward program

54:55

Oh yeah, And I.

54:56

Just feel like, you know, I'm starting to think that.

54:59

You know, people like post about

55:01

prices for anything, like inflation is out

55:04

of control, and then another person posts like, here's

55:06

a screenshot from Walmart dot com and these prices

55:08

aren't nowhere near what you say, and stuff like that.

55:10

Yeah, and I feel like there is this.

55:12

Divide between the time people

55:14

who are like have the time and capacity

55:16

to be part of rewards programmed.

55:18

I've said this so many times. It's the price

55:21

pack architecture is becoming more sophisticated.

55:24

And McDonald's is my sort of ultimate

55:26

example of this, which is if you download

55:28

the app, and if you take the time to

55:30

order before you actually rock

55:33

up to the little takeout

55:35

window, you can get decent deals

55:37

and they are like a significant percentage

55:40

less than what you would get from just ordering

55:43

spontaneously, and it is kind of

55:45

it's weird, and it adds another layer

55:47

of complexity to inflation. I think it

55:50

also brings up questions about

55:52

privacy and fairness and

55:54

things like that.

55:55

It's interesting to hear him talk about like

55:57

how much he credits like

56:00

that to like, you know, getting that

56:02

consumer app. I think he said it was in summer

56:04

twenty twenty one, and like the sort

56:07

of taking it from a very rudimentary rewards

56:09

program to more advanced one.

56:11

Super interesting stuff.

56:12

Absolutely, and we really should do that

56:14

episode. Yeah, Okay, Well, in the

56:16

meantime, shall we leave it there?

56:17

Let's leave it there.

56:18

This has been another episode of the Oudlots

56:20

podcast. I'm Tracy Alloway. You can follow

56:22

me at Tracy Alloway.

56:24

And I'm Joe Wisenthal. You can follow me at

56:26

the Stalwart. Follow our guest Tractor Supply

56:28

CEO hel Lawton. He's at hell

56:30

Lawton. Follow our producers Carmen Rodriguez

56:33

at Carman Ermann dash El Bennett at

56:35

Dashbot, Kelbrooks at Kelbrooks.

56:37

Thank you to our producer Moses Ondam. For

56:40

more odd Lots content, go to Bloomberg dot com

56:42

slash odd Lots where you have transcripts, blog

56:45

and a newsletter, and you can chat about all of

56:47

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56:49

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56:53

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56:56

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56:58

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57:00

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