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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 3: I'm Tracy Alloway and I'm Joe Wisenthal.

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Speaker 2: Joe, you know what I did this weekend?

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Speaker 4: Something outdoors in your garden or maybe a home construction project,

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Speaker 4: but something that was very dirty and costly and time

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Speaker 4: consuming and an.

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Speaker 3: Economical Thanks Joe.

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Speaker 5: Yeah, but.

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Speaker 3: I'm sure it's very satisfying on some level.

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Speaker 2: Well, I did do a lot of that. I'm restoring

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Speaker 2: an orchard at the moment, and it's a lot of

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Speaker 2: hard work and a lot of supplies. As you pointed out,

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Speaker 2: I'm currently building a gate, and I think the gate

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Speaker 2: is going to be phenomenally expensive by the time I

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Speaker 2: finally finish it. But what I actually did this weekend,

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Speaker 2: or one of the things I did, was I went

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Speaker 2: over to tractor supply.

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Speaker 4: Oh I'm jealous, you know, amazingly I still haven't been

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Speaker 4: to one. Wait, Tracy, are you a hobbyist farmer? It

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Speaker 4: would you call yourself that if you have an orchard?

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Speaker 5: Right?

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Speaker 2: Yeah, I mean I guess we have blueberries and raspberries

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Speaker 2: and strawberries and apples and apple pears and all of

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Speaker 2: that stuff. So yeah, yeah, I guess it's my hobby.

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Speaker 4: You know, we did that episode about Tractor Supply last

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Speaker 4: year with the professor who had done that HBS study,

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Speaker 4: and by it sounds like you are the modal Tractor

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Speaker 4: Supply customer.

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Speaker 2: Please, Joe, I prefer cottage core elder millennials.

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Speaker 3: Okay, well that's no.

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Speaker 2: It makes me sound like a character out of like

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Speaker 2: Final Fantasy or something.

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Speaker 6: No.

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Speaker 2: So I went over to Tractor Supply. And the reason

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Speaker 2: I went is because it's chicken season. So they have

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Speaker 2: all the baby chicks over there and you can kind

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Speaker 2: of see them in their little enclosure, and I can

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Speaker 2: fantasize about the day when I will have my own

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Speaker 2: chicken and what kind I will get.

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Speaker 4: But in the meantime, you have to build like ten

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Speaker 4: other things like and then you can get around to

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Speaker 4: building the chicken coop.

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Speaker 2: Yeah that's right. I've got big plans for the chicken coop,

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Speaker 2: all right. But the reason I bring it up is

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Speaker 2: because Tractor Supply is a company that is sort of

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Speaker 2: of perennial interest to us. So last year we recorded

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Speaker 2: an episode with Michael Roberto when he published a case

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Speaker 2: study for Harvard Business School on Tractor Supply, and even

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Speaker 2: before then, I remember Samuel Rnes, the CORBU analyst, he

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Speaker 2: had always called this company one of the most interesting

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Speaker 2: retailers on the planet. So it's sort of loomed large

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Speaker 2: over our consciousness. And I think the interesting thing about

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Speaker 2: the Tractor Supply Company is there's this question of cyclical

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Speaker 2: versus structural. So this is one of the companies who

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Speaker 2: share a price and revenue really boomed during the pandemic.

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Speaker 2: Lots of people were staying at home, lots of people

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Speaker 2: became hobby farmers, as you point out Joe, buying tomato

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Speaker 2: cages and growing their own vegetables from seed whatever, and

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Speaker 2: so there was an expectation that a lot of that

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Speaker 2: business would start to subside or at least slow down

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Speaker 2: as people started going back to work, or some of

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Speaker 2: the moving from urban areas to the suburbs started to reverse.

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Speaker 2: But instead seems like this particular market just continues to grow,

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Speaker 2: and Tractor Supply share price is still very, very high.

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Speaker 4: You're absolutely right, So the stock is really close to

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Speaker 4: an all time high, continues to power higher. You know,

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Speaker 4: like fifteen years ago this was like an eight dollars stock.

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Speaker 4: Today it's a two hundred and forty nine dollars stock.

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Speaker 4: You look like you could be looking at a chart

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Speaker 4: of in video or something, and it is striking that

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Speaker 4: you don't have to be an AI company.

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Speaker 7: To see charts like this.

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Speaker 4: If you like find the right product, the right lane,

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Speaker 4: the right store mix, et cetera, and you are on

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Speaker 4: the right secular trends such as the rise of the

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Speaker 4: hobbyist farmer, people moving out to the exerbs, growing their

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Speaker 4: own chickens, et cetera. It's an amazing case study on

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Speaker 4: how to like, how to execute.

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Speaker 2: Absolutely So today I'm glad to say we really do

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Speaker 2: have the perfect guest because we are going to be

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Speaker 2: speaking to the CEO of Tractor Supply, mister hal Lawton.

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Speaker 2: He joins us. Now, thank you so much for coming

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Speaker 2: on the show.

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Speaker 6: How Hi Tracy, Hi Joe, Thanks so much for having

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Speaker 6: me on. Look forward to talking with you all today.

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Speaker 2: Likewise, we are very very excited about this conversation, not

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Speaker 2: least because it's a way for me to sort of

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Speaker 2: reflect on my own spending happens so for Tractor Supply,

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Speaker 2: but maybe just to begin with, you know, Joe called

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Speaker 2: it the hobbyist farmer. There's a bunch of different names,

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Speaker 2: cottage core, millennial type lifestyle, but like, who do you

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Speaker 2: think of as your primary customer? Rural enthusiast is the

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Speaker 2: other one that I remember.

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Speaker 6: Yeah, you know, I think all those names are used

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Speaker 6: frequently to reference our customer and kind of our Our

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Speaker 6: main kind of theme that we ladder up to is

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Speaker 6: life out here. And the reason for that is is

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Speaker 6: we went out maybe seven or eight years ago and

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Speaker 6: talked with our customers, and you know, these customers range

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Speaker 6: from living in West Texas and they've you've got cattle,

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Speaker 6: maybe living in Wisconsin and have a dairy farm, or

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Speaker 6: you know, could be living here in Tennessee and have

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Speaker 6: five to ten acres and they do a little gardening.

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Speaker 6: Maybe they have some small animals, chickens, or they could

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Speaker 6: half acre, you know, one acre unincorporated, you know, suburb

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Speaker 6: exurb with you know, a raised bed garden in their backyard,

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Speaker 6: or could be a dog breeder, and you know, just

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Speaker 6: these whole range of customers that have different lives that

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Speaker 6: they live. But what we found when we talked with

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Speaker 6: them was they all used the words well out here

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Speaker 6: in the description of their lifestyle, and it was just

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Speaker 6: a very common phrase that all of our customers used,

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Speaker 6: and so we ended up kind of laddering it up

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Speaker 6: to that and saying, you know, we're built to serve

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Speaker 6: life out here, and that plays itself out in so

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Speaker 6: many different ways and so many, you know, variants of

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Speaker 6: the lifestyle, whether it's hobby farmers, you know, horse owners,

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Speaker 6: chicken owners, you know, whatever the passion they may be gardening,

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Speaker 6: et cetera. But at the end of the day, they

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Speaker 6: all have a lifestyle mentality philosophy that kind of ladders

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Speaker 6: up to this notion of life out here, which is

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Speaker 6: around freedom and self reliance, homesteading, the love of animals

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Speaker 6: and pets and land.

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Speaker 7: I love that.

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Speaker 4: So since we are recording, since Tracy and I are

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Speaker 4: in the Bloomberg HQ studios in Manhattan, I'm going to

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Speaker 4: use the phrase out there, because we're certainly not out

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Speaker 4: here right now, so we're talking about out there. You know, obviously,

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Speaker 4: tractor supply has been growing a long time, and then

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Speaker 4: it does seem to have at least helped been turbo

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Speaker 4: charged by some of the changes that happened during COVID.

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Speaker 4: I only realized this morning that you started in January

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Speaker 4: twenty twenty, so you've probably never known like tractor supplying

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Speaker 4: the normal times. But talk to us about, like how

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Speaker 4: you distinguish sort of long term and short term trends

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Speaker 4: in out heariness. Because I'm sure there was a bunch

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Speaker 4: of people like, Oh, we're gonna move out to the country,

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Speaker 4: We're gonna have chickens, we're gonna buy pets, et cetera.

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Speaker 4: We know that some of that has slowed down or

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Speaker 4: some of that was.

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Speaker 3: A one off.

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Speaker 4: So how do you think about the trajectory of the

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Speaker 4: outhereeness and whether COVID was it an accelerant, was it

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Speaker 4: something that went up and then we're back to trend, Like,

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Speaker 4: how do you think about the growth of what's sustainable

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Speaker 4: out there.

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Speaker 6: It's a great question and it's one that's been asked

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Speaker 6: repeatedly over the last few years about our business. To

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Speaker 6: your point, we were eight point four billion dollars in

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Speaker 6: revenue in twenty and nineteen. We did fourteen point six

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Speaker 6: billion dollars of revenue in twenty twenty three. You know,

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Speaker 6: that's roughly a twenty percent compound annual growth rad over

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Speaker 6: those years, so significant growth for you know, particularly for

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Speaker 6: our retailer with over two thousand store so reasonably mature.

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Speaker 6: We would articulate that the majority of that sales lift

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Speaker 6: we've seen and the increased customer transactions and new customers

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Speaker 6: that are shopping us is structural in nature, and I

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Speaker 6: can get into the reasons for that, but I would

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Speaker 6: just say at the highest level, I think, you know,

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Speaker 6: what we've seen in our business is very different than

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Speaker 6: many of the other kind of COVID winners that you

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Speaker 6: know went kind of boom to bus to some degree, right,

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Speaker 6: whether it was everybody you know jumped on a peloton

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Speaker 6: because they couldn't go to a gym, and then you know,

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Speaker 6: we saw that reversion. Everyone started you know, using videos, meetings,

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Speaker 6: things like zooms and stuff. And now you've got to

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Speaker 6: shift back right where people are still doing that but

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Speaker 6: obviously in person now. And you know, you look at

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Speaker 6: even like other retailers who sell say electronics, who had

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Speaker 6: a huge search because everybody needed a computer or a

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Speaker 6: new router or you know need some other needed wanted

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Speaker 6: a new TV, and then that all back. I mean,

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Speaker 6: there's a lot of circumstances. We can think about different

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Speaker 6: companies and different sectors that had a boom and then

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Speaker 6: a reversion you know, with us, it's been different because

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Speaker 6: for the most part it's been macro structural. But I

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Speaker 6: would also assert that we've done some things hopefully that

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Speaker 6: have helped make that, you know, structural. The big thing

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Speaker 6: I would push on is really just the millennial generation.

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Speaker 6: And at the timing that COVID was occurring, the millennial

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Speaker 6: generation was kind of late twenties, early thirties, and you know,

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Speaker 6: it'd been a question for a decade whether or not

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Speaker 6: that generation was going to revert to to kind of

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Speaker 6: the normal behavioral trends that other generations had followed, or

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Speaker 6: were they going to be different. Right, we'd read the

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Speaker 6: numerous stories on this is going to be a rental generation,

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Speaker 6: and it's going to be an urban generation, et cetera,

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Speaker 6: et cetera, right, and sharing generation, and you know, lesser kids,

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Speaker 6: they're you know, lesser you know, buying homes and those

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Speaker 6: sorts of things. And what we're seeing is that that

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Speaker 6: gener generation is reverting to previous generational norms, they're just

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Speaker 6: doing it a little later. And what we would articulate

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Speaker 6: is that COVID was actually a.

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Speaker 5: Catch up versus a pull forward.

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Speaker 6: And historically that generation, say twenty six twenty five twenty

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Speaker 6: seven would have started to you know, create household, buy homes,

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Speaker 6: I begin to have children, those sorts of things, and

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Speaker 6: they just pushed that out till twenty eight, thirty, thirty, two,

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Speaker 6: thirty three, depending on where their age fell in that

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Speaker 6: generational span. But you know, they're following the same steps,

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Speaker 6: which is like, all right, like I've been in the

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Speaker 6: city for.

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Speaker 5: Five or ten years, I've kind of done that.

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Speaker 6: It's time for me to you know, kind of get

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Speaker 6: on with the next phase of my life. And many

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Speaker 6: of them did that in twenty twenty and twenty twenty

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Speaker 6: one and are continuing to do that.

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Speaker 5: I mean, we still see.

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Speaker 6: A net exodus out of urban even in twenty three.

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Speaker 6: And when they're buying homes, both because of the current

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Speaker 6: home environment they have to buy a bit more ex

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Speaker 6: urban or country suburban as we would call it, but

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Speaker 6: I think also their preference is to buy in those areas,

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Speaker 6: and so they're buying homes and have been since twenty

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Speaker 6: twenty in the areas where our stores are, and they're

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Speaker 6: naturally wired for our type of business. You know, they

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Speaker 6: come predisposed to gardening, they come predisposed to things like recycling,

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Speaker 6: and and whether it's vegetarian or fresh foods. But you know,

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Speaker 6: if you think about the mental lifestyle that they were living,

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Speaker 6: even in a city, when they go out into kind

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Speaker 6: of country suburbia, ex urban rural, you know, they want

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Speaker 6: to have a similar mentality. So they get animals. They

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Speaker 6: do raised bed gardens, they do chickens. In fact, now

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Speaker 6: we're seeing that generation start to move into goats as

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Speaker 6: they think about, you know, the vegetables and get the

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Speaker 6: right milk.

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Speaker 2: My husband and I have been talking about goats. We've

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Speaker 2: been having a debate on goats versus sheep. Specifically, there's

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Speaker 2: a type of sheet called a be doll sheep and

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Speaker 2: it looks absolutely adorable. Sorry I interrupted you. How go ahead,

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Speaker 2: I I could talk about it.

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Speaker 4: Basically, you've catalyzed yet another whole in Tracy's pocket book

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Speaker 4: with the sheep.

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Speaker 7: The sheep, And.

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Speaker 2: That's really interesting. And you sort of jogged my memory

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Speaker 2: about some of the early commentary on millennials, and it

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Speaker 2: was very much like, oh, this is a generation that

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Speaker 2: just isn't going to own houses, when in fact, it

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Speaker 2: seems like it just took everyone a little bit longer

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Speaker 2: to actually buy a house for various reasons. But going

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Speaker 2: back to something you you alluded to just then, you've

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Speaker 2: sort of been riding a wave of, you know, a

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Speaker 2: cultural trend and also demographic trend as millennials get older,

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Speaker 2: and in some respects that could be considered a cyclical development.

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Speaker 2: But you mentioned doing stuff to actually make it more

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Speaker 2: permanent or more structural. What is it that you're doing

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Speaker 2: to ensure that, you know, something that is would seem

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Speaker 2: to be out of your control sticks around for longer.

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Speaker 6: As we saw the surge in our business, we doubled

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Speaker 6: down on the investment in our business across a variety

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Speaker 6: of factors, with the primary goal of really staying ahead

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Speaker 6: of our customer as it evolves and to illuminate that

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Speaker 6: a little bit. In twenty nineteen, we spent two hundred

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Speaker 6: and seventy five million dollars in capital expenditures. We're now

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Speaker 6: spending between seven and eight hundred million dollars on an

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Speaker 6: annual basis, So we've you know, nearly tripled the amount

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Speaker 6: of capital that we're spending on the business on an

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Speaker 6: annual basis, and we're doing it across avariety of areas,

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Speaker 6: but really.

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Speaker 5: All with the goal of, of.

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Speaker 6: You know, better serving our customers and just making sure

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Speaker 6: we're staying ahead of them as they're rapidly, you know,

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Speaker 6: evolving in terms of both number needs and you know,

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Speaker 6: kind of the ways that they're used to shopping. So

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Speaker 6: a few examples of that one would be in our

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Speaker 6: membership program or our loyalty program. We've always had a

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Speaker 6: little well we've had a littalto program for the well

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Speaker 6: over ten years, but it really was a modest program,

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Speaker 6: kind of pre COVID, And in March of twenty one,

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Speaker 6: we relaunched the program to be a tiered based rewards

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Speaker 6: based system where kind of the more you spend, the

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Speaker 6: more you earn, all with the goal of driving behavior,

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Speaker 6: locking these new customers in getting them, you know, kind

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Speaker 6: of as used as possible to routinely shopping tractors supply

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Speaker 6: and you know, I can talk more about our Neighbor's

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Speaker 6: Club program, but we now have thirty four million members.

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Speaker 6: It represents nearly eighty percent of our sales. We've seen

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Speaker 6: substantial benefits from that that investment. Second investment's been in digital.

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Speaker 6: We launched a consumer mobile app in the summer of

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Speaker 6: twenty twenty one. It now represents nearly forty percent of

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Speaker 6: our sales online. We rolled out deliver from Store in

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Speaker 6: a matter of weeks in the midst of twenty twenty

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Speaker 6: and in addition to kind of the e commerce side

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Speaker 6: of things, we've also rolled out in a bunch of

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Speaker 6: technology for our team members to utilize in our stores,

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Speaker 6: which has made them more efficient and sophisticated in serving

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Speaker 6: our customers. And then the third thing I would highlight

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Speaker 6: was we rolled out a store remodel program and we're

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Speaker 6: now remodeling roughly fifteen percent of our stores on an

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Speaker 6: annual basis. At the conclusion of twenty twenty three, remodeled

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Speaker 6: forty percent of our stores. There's a number of things

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Speaker 6: that we get out of that from a sales lift perspective,

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Speaker 6: but one of the other important benefits is it contemporizes

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Speaker 6: the store and really shifts it from what was historically

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Speaker 6: perceived to be a kind of farm and ranch store,

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Speaker 6: which you know, kind of the as you might imagine

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Speaker 6: that when you're saying it, that was kind of the

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Speaker 6: perception and a bit the style that we had in

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Speaker 6: the store, and we, you know, we were able to

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Speaker 6: contemporize it and make it feel a bit more like

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Speaker 6: what it Millennial would think of when they walk into

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Speaker 6: any sort of store, maybe they've been in an urban environment.

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Speaker 6: But we didn't fancy it up quote unquote enough that

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Speaker 6: our existing customer base they still felt really comfortable shopping it, right.

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Speaker 6: We didn't kind of fire or alienate our existing customer

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Speaker 6: But those would be three, you know, big investments that

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Speaker 6: i'd highlight that we've made over the last few years,

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Speaker 6: really all to serve our existing customer base is even better,

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Speaker 6: but really to set ourselves up to be a retailer

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Speaker 6: of choice for the new millennial customer.

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Speaker 2: Joe, you know how you note that you're old. Tell

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Speaker 2: me it's when businesses start catering to your taste and

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Speaker 2: when you're.

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Speaker 3: It's like, oh you're talking about me here.

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Speaker 2: Yeah, pretty much. When CEOs come and say like, oh,

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Speaker 2: we're redesigning our stores to appeal to millennials who might

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Speaker 2: be more used to urban environments but are now in

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Speaker 2: rural areas, that's how you know, and that's.

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Speaker 3: How you feel like you're looking in a mirror.

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Speaker 4: Actually, I want to ask, so, uh you recently I

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Speaker 4: think in twenty twenty two, but a pet retailer pet

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Speaker 4: sense and I'm curious in terms of like becoming less cyclical.

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Speaker 4: I mean, you know, if people have animals or if

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Speaker 4: people have pets, whether it's recession or a boom or whatever,

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Speaker 4: they're probably going to feed them the same amount.

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Speaker 7: How much does.

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Speaker 4: That business allow you or was it sort of designed

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Speaker 4: in order to sort of build some more acyclicality into

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Speaker 4: the business.

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Speaker 6: Nearly ninety percent of our customers have an animal or pet. Wow,

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Speaker 6: seventy five percent of them have a dog. And then

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Speaker 6: you know there's an array of cats and everything.

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Speaker 4: It's just Tracy in this episode. Literally everything you say

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Speaker 4: just comes back to Tracy. But yeah, keep going.

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Speaker 2: Sorry, I'm the art more than our customer.

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Speaker 6: Yeah, exactly, over half of our customers have more than

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Speaker 6: two dogs. On average, our customer's dog weighs twenty pounds

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Speaker 6: more than the average dog across the country. So you know,

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Speaker 6: our customers have animals and past they almost all have dogs.

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Speaker 6: Most have two dogs and their big dogs and a

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Speaker 6: compelling kind of an element of our businesses for we've

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Speaker 6: been around for eighty five years. We've really been were

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Speaker 6: built even eighty five years ago to serve life out here.

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Speaker 6: But our business model and our culture and our mission

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Speaker 6: values have really been consistent throughout that entire eighty five years.

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Speaker 6: But our business model has evolved over time to better

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Speaker 6: server customers. So forty years ago, we didn't even sell

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Speaker 6: animal feed for the most part, horse feed, coffee, chicken.

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Speaker 5: Feed, et cetera.

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Speaker 6: And now we're far and away the largest player of

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Speaker 6: bagged animal feed in the United States between a twenty

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Speaker 6: and twenty five percent market share.

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Speaker 5: Twenty five years.

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Speaker 6: Ago, we didn't even sell pet food and similar you know, realization,

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Speaker 6: it's a better way for server our customers. It has

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Speaker 6: less ups and downs both annually and also throughout the year,

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Speaker 6: you know, seasonally. So let's start getting into pet food.

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Speaker 6: And you know, now we're right at that number four,

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Speaker 6: number five largest player and pet food in the country.

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Speaker 6: And you know, one of the initiatives that we have

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Speaker 6: in place to keep driving that expanded pet business is

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Speaker 6: pet Sentence. And to your point, we did acquire that

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Speaker 6: company seven to eight years ago, and in twenty twenty

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Speaker 6: two we rebranded it to be pet Scents by Tractors Supply.

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Speaker 6: We rolled out our neighbors Club membership program that was

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Speaker 6: work that worked in Tractors Supply. We rolled that out

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Speaker 6: to petscent So it works in both name plates now

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Speaker 6: pet Sence. The ownership of pet Sentence really over the

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Speaker 6: last decade almost has given us a lot of insights

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Speaker 6: into the pet industry, given us access to brands that

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Speaker 6: we would not have otherwise gotten access to, and allowed

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Speaker 6: us to bring that knowledge and that those contacts into

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Speaker 6: the core track supply and make the business better. We

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Speaker 6: also are rapidly growing the pet Sence brand and we've

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Speaker 6: got over two hundred stores now. They are in the

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Speaker 6: same towns as a tractor supply. Ideally they're in a

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Speaker 6: town that doesn't have a pet co. It doesn't have

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Speaker 6: a Pet Smart. Typically our towns don't. We typically serve

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Speaker 6: call it a twenty thousand person town. The tractor supply

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Speaker 6: would be on the outs to the town typically wherever

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Speaker 6: the more agg related you know, area is. But the

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Speaker 6: Pet Sense we want that in the center of the town,

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Speaker 6: kind of where the few restaurants are, the grocery store,

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Speaker 6: some of the clothing stores that are in the town.

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Speaker 6: You know, there might be a two three strip malls

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Speaker 6: or malls in the town that are where the commercial

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Speaker 6: activity is located. That's where we want a pet Sense

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Speaker 6: and it does really two things. It serves that inner

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Speaker 6: city quote unquote population that doesn't have big yards and

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Speaker 6: doesn't have horses and cows and they've got you know,

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Speaker 6: smaller animals and pets. But then also secondarily, in addition

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Speaker 6: to serving that community in a specialty like way, it

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Speaker 6: also serves convenience for the core tractor supply customers. So

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Speaker 6: to say, on a Friday night, you're in town having

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Speaker 6: dinner at the you know, olive garden, and you need

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Speaker 6: to get some dog food or chicken feed on the

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Speaker 6: way home just to get you through the weekend before you,

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Speaker 6: you know, you do your annual your weekly shop at

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Speaker 6: at track supply. Pet Sense also serves that in the

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Speaker 6: so it's a great win win pet Sense tractor supply

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Speaker 6: commonality on the brand pet Sense by tracks, by commonality

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Speaker 6: on the loyalty program Neighbor's Club a purposeful overlap where

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Speaker 6: it makes sense on assortment, but pet Sense doing it's

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Speaker 6: what it's good at as well in terms of being

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Speaker 6: a specialty player, carrying you know, more cats and even

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Speaker 6: things for fish and lizards, and you know that sort

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Speaker 6: of side of a pet specialty store.

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Speaker 2: Joe, I have coyfish too.

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Speaker 5: Of course you do.

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Speaker 2: There you go, so one of the things I remember

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Speaker 2: from when we spoke to Michael Roberto, the author of

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Speaker 2: the Harvard Business case study on Tractor Supply. He talked

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Speaker 2: about how the essence of business strategy is basically what

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Speaker 2: you don't do, so what you decide not to do.

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Speaker 2: After all, it's pretty easy to say, we're going to

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Speaker 2: go after this massive market and this market, and we're

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Speaker 2: going to sell this, this and that, and he described

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Speaker 2: what Tractor Supply had done as a sort of judo

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Speaker 2: strategy of basically avoiding head to head competition with bigger

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Speaker 2: box stores like a Lows or a home depot. Can

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Speaker 2: you talk a little bit more, perhaps about what you've

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Speaker 2: decided not to do and how that maybe differentiates the business.

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Speaker 6: So, and I think that's a very fair description of

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Speaker 6: who we are. We want to be the best retailer

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Speaker 6: serving life out here, and we're going to have store locations,

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Speaker 6: store size, assortment, customer service technology, and then a supply

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Speaker 6: chain you know, in the background, all built the most

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Speaker 6: optimally serve life out here. And as a consequence of

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Speaker 6: that strategy, you know, we're going to make a number

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Speaker 6: of decisions to optimize around that, but also to position

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Speaker 6: us uniquely against competition. So a couple things. Less than

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Speaker 6: ten percent of our stores are suburban. Zero some of

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Speaker 6: our stores are urban. So we are very purposely in

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Speaker 6: ex Surban and rural communities, you know, very different than

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Speaker 6: the vast, vast majority of retailers. You know, some of

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Speaker 6: the names you mentioned are heavy urban, heavy suburban. They

438
00:23:15,720 --> 00:23:19,120
Speaker 6: may dabble in ex Surban, but you know, very few

439
00:23:19,160 --> 00:23:24,159
Speaker 6: are purposely building in rural America. So location wise, you know,

440
00:23:24,200 --> 00:23:27,840
Speaker 6: we oftentimes be are have a twenty mile radius with

441
00:23:28,280 --> 00:23:32,919
Speaker 6: minimal competition. The second thing would be store size. So

442
00:23:32,960 --> 00:23:36,520
Speaker 6: our store size is eighteen thousand square feet plus or

443
00:23:36,560 --> 00:23:40,120
Speaker 6: minus the size of sale Walgreens, And if you think

444
00:23:40,160 --> 00:23:44,440
Speaker 6: about many of our competitors, they're going to have much

445
00:23:44,600 --> 00:23:47,399
Speaker 6: larger store size. There's one hundred thousand square feet, eighty

446
00:23:47,480 --> 00:23:50,800
Speaker 6: thousand square feet. That puts a lot of pressure on

447
00:23:50,960 --> 00:23:53,160
Speaker 6: you to keep inventory, to keep the.

448
00:23:53,119 --> 00:23:55,520
Speaker 5: Store updated, to staff it.

449
00:23:56,080 --> 00:23:58,119
Speaker 6: And I think you know, what we've seen in retail

450
00:23:58,119 --> 00:24:01,800
Speaker 6: over the last ten twenty years is a decreasing store size, right,

451
00:24:01,800 --> 00:24:05,000
Speaker 6: and those retailers that have these large, large store sizes

452
00:24:05,440 --> 00:24:08,320
Speaker 6: wish they had smaller ones. And you know, I always

453
00:24:08,400 --> 00:24:10,480
Speaker 6: mask what the you know, if you look back over

454
00:24:10,560 --> 00:24:12,280
Speaker 6: the history tracks by what are some of the most

455
00:24:12,280 --> 00:24:15,479
Speaker 6: important decisions ever made? And you know, number one decision,

456
00:24:15,520 --> 00:24:18,199
Speaker 6: most important decision are made was how we built our culture.

457
00:24:18,560 --> 00:24:21,959
Speaker 6: Hands down, the writing of our mission and values, creating

458
00:24:22,000 --> 00:24:25,879
Speaker 6: a culture around it and always staying on that path

459
00:24:26,000 --> 00:24:29,360
Speaker 6: number one most important decision. But I'd say a very

460
00:24:29,359 --> 00:24:32,480
Speaker 6: important second decision that was made was the size of

461
00:24:32,520 --> 00:24:35,760
Speaker 6: our stores, and if anything, it forced us us to

462
00:24:35,880 --> 00:24:39,160
Speaker 6: really prioritize and only have the assortment necesser to really

463
00:24:39,200 --> 00:24:42,000
Speaker 6: serve life out here most optimally, and it creates this

464
00:24:42,119 --> 00:24:43,159
Speaker 6: element of convenience.

465
00:24:43,200 --> 00:24:44,520
Speaker 5: And we always say that our.

466
00:24:44,400 --> 00:24:47,440
Speaker 6: Worst parking spot and our stores is better than the

467
00:24:47,440 --> 00:24:49,840
Speaker 6: best parking spot at a big box store.

468
00:24:50,040 --> 00:24:50,240
Speaker 5: Yeah.

469
00:24:50,240 --> 00:24:54,159
Speaker 6: So another decision that we've made is how we execute online.

470
00:24:54,240 --> 00:24:57,400
Speaker 6: Seventy five eighty percent of our online businesses picked up

471
00:24:57,400 --> 00:25:00,679
Speaker 6: in store or fulfilled from a store, delivered from a store.

472
00:25:01,080 --> 00:25:03,720
Speaker 6: You know, by comparison, most would be in the forty

473
00:25:03,760 --> 00:25:07,200
Speaker 6: or fifty percent range in retail or even less. We've

474
00:25:07,200 --> 00:25:10,239
Speaker 6: been very purposeful and not choosing not to compete in

475
00:25:10,280 --> 00:25:12,960
Speaker 6: that kind of long tail assortment or to have a

476
00:25:13,000 --> 00:25:16,000
Speaker 6: marketplace on our website because we just don't think that

477
00:25:16,119 --> 00:25:19,240
Speaker 6: we're competitively advantaged in that area and that you know,

478
00:25:19,280 --> 00:25:23,399
Speaker 6: we can build a robust, sustainable business uh in that area.

479
00:25:23,440 --> 00:25:25,240
Speaker 6: You know, we know what we do best, which is

480
00:25:25,680 --> 00:25:29,119
Speaker 6: serve rural America, serve life out here through an eighteen

481
00:25:29,160 --> 00:25:32,560
Speaker 6: thousand square foot store base with you know, the best

482
00:25:32,680 --> 00:25:36,040
Speaker 6: customer service in the industry from retail, and doing that

483
00:25:36,080 --> 00:25:38,600
Speaker 6: with the technology that you know is best needed by

484
00:25:38,600 --> 00:25:41,600
Speaker 6: our customers. And to your point, it's been very purposeful

485
00:25:42,160 --> 00:25:45,880
Speaker 6: over decades and decades in terms of really defining who

486
00:25:45,920 --> 00:25:48,760
Speaker 6: we are and building a real competitive advantage around that.

487
00:25:49,080 --> 00:25:51,679
Speaker 2: So one thing I was wondering, and you mentioned the

488
00:25:51,760 --> 00:25:54,680
Speaker 2: online business there and the idea of you know, click

489
00:25:54,720 --> 00:25:58,040
Speaker 2: and collect, which I believe has been a source of

490
00:25:58,080 --> 00:26:01,160
Speaker 2: growth for a lot of brick and mortar companies at

491
00:26:01,200 --> 00:26:05,760
Speaker 2: this point. But you came from Macy's and I think

492
00:26:05,800 --> 00:26:09,040
Speaker 2: home Depot before you joined Tractor Supply, and I think

493
00:26:09,040 --> 00:26:12,000
Speaker 2: at Macy's you were actually heading up their online business.

494
00:26:12,320 --> 00:26:14,680
Speaker 2: Can you talk a little bit more about how that

495
00:26:14,880 --> 00:26:20,000
Speaker 2: experience may have informed Tractor Supplies online strategy took.

496
00:26:20,200 --> 00:26:23,280
Speaker 6: One of the areas that I'm personally very passionate about

497
00:26:23,400 --> 00:26:28,000
Speaker 6: is the intersection of retail and technology and how that

498
00:26:28,040 --> 00:26:31,560
Speaker 6: allows you to better serve your customer, but also how

499
00:26:31,600 --> 00:26:36,440
Speaker 6: that allows your team members, your employees to better serve

500
00:26:36,480 --> 00:26:40,040
Speaker 6: your customers as well, like you're strengthening their ability to

501
00:26:40,080 --> 00:26:42,680
Speaker 6: do so. And to your point, I spent ten years

502
00:26:42,680 --> 00:26:45,679
Speaker 6: at Home Depot for which of that ten years I

503
00:26:45,720 --> 00:26:48,800
Speaker 6: was running the online business there two thousand and nine

504
00:26:48,840 --> 00:26:51,480
Speaker 6: to twenty thirteen, which was a pretty big time period

505
00:26:51,480 --> 00:26:55,600
Speaker 6: for digital transformation in retail, coming on the heels of

506
00:26:55,600 --> 00:26:58,760
Speaker 6: the Amazon and really coming on the forefront and then

507
00:26:58,840 --> 00:27:01,480
Speaker 6: obviously the iPhone line. And then I spent three years

508
00:27:01,480 --> 00:27:04,919
Speaker 6: at eBay running their North America business, you know, thirty

509
00:27:05,080 --> 00:27:08,399
Speaker 6: billion dollar plus marketplace just in the United States and

510
00:27:08,440 --> 00:27:11,200
Speaker 6: obviously global in nature, and through my three years there

511
00:27:11,280 --> 00:27:14,399
Speaker 6: that was you know, big data, cloud computing kind of

512
00:27:14,440 --> 00:27:19,320
Speaker 6: the mid twenty fifteen fourteen sixteen seventeen timeframe. And then

513
00:27:19,560 --> 00:27:23,479
Speaker 6: in seventeen to twenty nineteen, that three year period, I

514
00:27:23,520 --> 00:27:25,760
Speaker 6: worked at Macy's where I was President of business and

515
00:27:25,800 --> 00:27:28,480
Speaker 6: did have responsibility for technology and online in that role.

516
00:27:28,800 --> 00:27:33,040
Speaker 6: And you know, those experiences have had substantial impact on on,

517
00:27:33,160 --> 00:27:36,119
Speaker 6: you know, my perspectives of how technology can drive the

518
00:27:36,119 --> 00:27:40,360
Speaker 6: business better serve customers better, enable team members, and try

519
00:27:40,400 --> 00:27:42,960
Speaker 6: to bring some of that in concert with the large

520
00:27:43,000 --> 00:27:45,400
Speaker 6: team that we had that thinks about these things every day.

521
00:27:45,520 --> 00:27:48,320
Speaker 6: And I think we've done an excellent job in the

522
00:27:48,400 --> 00:27:51,359
Speaker 6: last handful of years, you know, from a technology perspective,

523
00:27:51,400 --> 00:27:54,800
Speaker 6: and you know ways it's influenced us. As I mentioned earlier,

524
00:27:54,800 --> 00:27:57,760
Speaker 6: the way we've executed our consumer mobile app strategy, the

525
00:27:57,800 --> 00:28:00,800
Speaker 6: way we've executed our buyline pickup in store strategy, but

526
00:28:00,880 --> 00:28:03,480
Speaker 6: also the way we've set up our team members to

527
00:28:03,480 --> 00:28:04,080
Speaker 6: be successful.

528
00:28:04,080 --> 00:28:06,840
Speaker 5: All of our team members wear headsets that allow for

529
00:28:06,920 --> 00:28:07,840
Speaker 5: a variety of.

530
00:28:07,800 --> 00:28:12,720
Speaker 6: Point to point communications, tasking knowledge tools, AI knowledge tools.

531
00:28:13,240 --> 00:28:16,280
Speaker 6: All of our team members have a handheld device that

532
00:28:16,320 --> 00:28:19,360
Speaker 6: they use for executing in the stores, but that's complemented

533
00:28:19,400 --> 00:28:21,560
Speaker 6: by a bring your own device where we have our

534
00:28:21,560 --> 00:28:23,800
Speaker 6: own app just for our team members, and all three

535
00:28:23,800 --> 00:28:27,399
Speaker 6: of those work seamlessly. From our credentials and authentication perspective,

536
00:28:27,480 --> 00:28:30,240
Speaker 6: then we're also rolling out now kind of computer vision,

537
00:28:30,320 --> 00:28:33,240
Speaker 6: leveraging all of our cameras in our stores and taking

538
00:28:33,240 --> 00:28:35,760
Speaker 6: them from being kind of dumb cameras to smart cameras

539
00:28:35,960 --> 00:28:39,800
Speaker 6: and allowing us to create use cases to drive improve.

540
00:28:39,520 --> 00:28:40,880
Speaker 5: Customer service in our stores.

541
00:28:40,960 --> 00:28:43,440
Speaker 6: So you know, all these things that you know, I've

542
00:28:43,440 --> 00:28:46,360
Speaker 6: had a chance to participate in over the last fifteen

543
00:28:46,360 --> 00:28:49,400
Speaker 6: to twenty years in terms of just you know, technology trends.

544
00:28:49,440 --> 00:28:51,560
Speaker 6: I think we're you know, trying to just leverage all

545
00:28:51,560 --> 00:28:54,520
Speaker 6: of our learnings across those to create the best business

546
00:28:54,600 --> 00:28:56,880
Speaker 6: we can. And of course we have a great team

547
00:28:56,960 --> 00:28:58,600
Speaker 6: who does a lot of this work as well and

548
00:28:58,680 --> 00:29:01,520
Speaker 6: have had you know, there's similar set of experiences over

549
00:29:01,560 --> 00:29:03,400
Speaker 6: the last couple of decades.

550
00:29:03,680 --> 00:29:07,480
Speaker 4: So obviously we're really interested in supply chains and things

551
00:29:07,560 --> 00:29:10,120
Speaker 4: like that here on odd Lodds. So one of the

552
00:29:10,320 --> 00:29:12,240
Speaker 4: questions or one of the things I think you said

553
00:29:12,440 --> 00:29:16,480
Speaker 4: you have nine distribution centers around the country, and I

554
00:29:16,520 --> 00:29:20,800
Speaker 4: think you're adding a tenth. I think, can you talk

555
00:29:20,840 --> 00:29:24,320
Speaker 4: about the decision making that goes into the upfront cost

556
00:29:24,520 --> 00:29:28,800
Speaker 4: of a new distribution center and what that unlocks in

557
00:29:28,880 --> 00:29:31,800
Speaker 4: terms of possibilities at the end retail location.

558
00:29:31,760 --> 00:29:32,680
Speaker 3: When you build one out.

559
00:29:32,720 --> 00:29:34,800
Speaker 4: How do you think about when it makes sense to

560
00:29:34,800 --> 00:29:36,840
Speaker 4: spend the money to build a new distribution center.

561
00:29:36,960 --> 00:29:39,239
Speaker 6: In less than a month's time, our grand opening for

562
00:29:39,320 --> 00:29:42,080
Speaker 6: our tenth distribution center will take place, and that's in

563
00:29:42,160 --> 00:29:46,880
Speaker 6: Mammel Arkansas. We just opened our ninth distribution center a

564
00:29:47,000 --> 00:29:50,360
Speaker 6: year ago a little every year ago in Nabarrow, Ohio.

565
00:29:50,680 --> 00:29:53,360
Speaker 6: In addition to those and those ten distribution centers of

566
00:29:53,440 --> 00:29:56,320
Speaker 6: which each are about a million square feet, we also

567
00:29:56,400 --> 00:29:59,640
Speaker 6: have three import distribution centers that you know, kind of

568
00:29:59,640 --> 00:30:02,480
Speaker 6: decon solid date product that it comes in on containers.

569
00:30:02,960 --> 00:30:04,920
Speaker 5: And then we have sixteen mixing.

570
00:30:04,600 --> 00:30:08,160
Speaker 6: Centers, which are cross dock facilities that in a label

571
00:30:08,320 --> 00:30:13,680
Speaker 6: for faster replenishment on full palate goods, which is from

572
00:30:13,800 --> 00:30:16,520
Speaker 6: us for the most part, our high velocity items that

573
00:30:16,560 --> 00:30:20,720
Speaker 6: are big bagged items like food and feed, wood, Pellot's fertilizer,

574
00:30:20,880 --> 00:30:23,480
Speaker 6: et cetera. So we have a very robust, you know,

575
00:30:23,560 --> 00:30:27,480
Speaker 6: kind of multi building type strategy in our supply chain

576
00:30:28,320 --> 00:30:30,480
Speaker 6: as we build. To get back to your question on

577
00:30:30,520 --> 00:30:32,440
Speaker 6: the tenth distribution center, just kind of how do we

578
00:30:32,440 --> 00:30:36,360
Speaker 6: think about that. There's really two facets to the buildout

579
00:30:36,360 --> 00:30:38,400
Speaker 6: of one. One is just you kind of got to

580
00:30:38,520 --> 00:30:41,800
Speaker 6: have it from a capacity perspective, and about every two

581
00:30:41,920 --> 00:30:45,520
Speaker 6: hundred and fifty stores we have to build another distribution

582
00:30:45,720 --> 00:30:48,120
Speaker 6: center to just be able to you know, kind of

583
00:30:48,200 --> 00:30:50,280
Speaker 6: keep them in stock and have the capacity. All of

584
00:30:50,320 --> 00:30:52,720
Speaker 6: our dcs run twenty four hours a day, seven days

585
00:30:52,760 --> 00:30:55,239
Speaker 6: a week. We're maniacalon trying to make sure we get

586
00:30:55,280 --> 00:30:57,920
Speaker 6: as much through put through them as possible. Obviously with

587
00:30:58,080 --> 00:31:00,320
Speaker 6: team members in mind. As we think about that, part

588
00:31:00,320 --> 00:31:02,160
Speaker 6: of it is you just kind of have to. But

589
00:31:02,280 --> 00:31:04,920
Speaker 6: each of our dcs, in addition to that, does provide

590
00:31:05,040 --> 00:31:09,120
Speaker 6: a substantial financial benefit as we roll out of DC.

591
00:31:09,840 --> 00:31:12,040
Speaker 6: It takes caught up between one hundred and one hundred

592
00:31:12,040 --> 00:31:15,160
Speaker 6: and fifty million dollars a capital to build one, and

593
00:31:15,560 --> 00:31:18,200
Speaker 6: call it thirty to forty million dollars a year in

594
00:31:18,360 --> 00:31:22,120
Speaker 6: annual operaing expense from a labor perspective, et cetera. But

595
00:31:22,560 --> 00:31:27,000
Speaker 6: it allows us to significantly reduce our mileage on the

596
00:31:27,040 --> 00:31:31,080
Speaker 6: truck perspective, so we can reduce the inbound miles from

597
00:31:31,080 --> 00:31:34,080
Speaker 6: ours from our vendors to the DC because we've got

598
00:31:34,080 --> 00:31:37,200
Speaker 6: more more dcs across the country and so you're reducing

599
00:31:37,280 --> 00:31:40,280
Speaker 6: milage there. But then secondly, we're able to build a

600
00:31:40,360 --> 00:31:43,200
Speaker 6: distribution center so that you know, the stores in which

601
00:31:43,240 --> 00:31:47,920
Speaker 6: they serve are closer and we can reduce that distance

602
00:31:47,960 --> 00:31:51,520
Speaker 6: as well. In fact, over the last six years, we've

603
00:31:51,560 --> 00:31:54,800
Speaker 6: reduced our average truck distance by one hundred and twenty

604
00:31:54,840 --> 00:32:00,080
Speaker 6: mile which has generated substantial freight savings for us. And

605
00:32:00,160 --> 00:32:02,200
Speaker 6: so you know, our DCS as we think about it,

606
00:32:02,160 --> 00:32:03,960
Speaker 6: and there's kind of two main drivers for it. One

607
00:32:04,000 --> 00:32:06,000
Speaker 6: we just got to have it, but two, it does

608
00:32:06,040 --> 00:32:09,520
Speaker 6: provide a substantial financial benefit for the business as well.

609
00:32:10,040 --> 00:32:12,240
Speaker 6: And then what I would say is they also create

610
00:32:12,280 --> 00:32:15,320
Speaker 6: a unique position for us in the marketplace where all

611
00:32:15,360 --> 00:32:18,360
Speaker 6: of our core farm and ranch competitors for the most part,

612
00:32:18,480 --> 00:32:21,920
Speaker 6: with exception of one or two, buy through distribution. And

613
00:32:21,960 --> 00:32:24,720
Speaker 6: so that's going to slow their ability to replenish down

614
00:32:24,920 --> 00:32:27,840
Speaker 6: and create a higher cost for that. And then those

615
00:32:27,960 --> 00:32:30,920
Speaker 6: retailers that we compete with that are more national retailers

616
00:32:30,960 --> 00:32:33,280
Speaker 6: that we compete with kind of category back category, say

617
00:32:33,320 --> 00:32:36,560
Speaker 6: a home approvement retailer or a pet retailer. Last year,

618
00:32:37,000 --> 00:32:41,600
Speaker 6: we processed over eight billion pounds of food and feed

619
00:32:41,680 --> 00:32:44,200
Speaker 6: through our supply chain, and so you know, we're just

620
00:32:44,440 --> 00:32:49,040
Speaker 6: experts at moving fifty pound bags of animal feed, foods, fertilizer,

621
00:32:49,080 --> 00:32:51,880
Speaker 6: wood pellets, those sorts of things, and have far away

622
00:32:51,920 --> 00:32:54,440
Speaker 6: the lowest cost to serve on those. So it gets

623
00:32:54,520 --> 00:32:57,320
Speaker 6: us scale on a cost to serve, It gets us

624
00:32:57,520 --> 00:33:02,080
Speaker 6: speed of replenishment, It reduces our transportation costs that you know,

625
00:33:02,320 --> 00:33:04,880
Speaker 6: also just gives us that capacity to fuel our growth.

626
00:33:22,040 --> 00:33:24,680
Speaker 2: There was a line in one of your most recent

627
00:33:25,120 --> 00:33:29,160
Speaker 2: earnings calls that sort of caught my eye, and you

628
00:33:29,200 --> 00:33:32,920
Speaker 2: were talking about how you had reduced the attrition rate

629
00:33:33,240 --> 00:33:38,240
Speaker 2: in your supply chain team by implementing a new progressive

630
00:33:38,440 --> 00:33:41,680
Speaker 2: wage scale. Is that just? Is that corporate speak for,

631
00:33:42,080 --> 00:33:44,800
Speaker 2: you know, you gave everyone raises and they worked harder.

632
00:33:45,000 --> 00:33:45,560
Speaker 5: Yes and no.

633
00:33:45,960 --> 00:33:48,920
Speaker 6: So I'll start by saying one of the things that

634
00:33:49,200 --> 00:33:53,440
Speaker 6: we've invested in over the last five years substantially is

635
00:33:53,760 --> 00:33:57,040
Speaker 6: in wages. Earlier, when I was mentioning the investments that

636
00:33:57,080 --> 00:34:01,520
Speaker 6: we've made in the business specifically referenced capital expenditures. There's

637
00:34:01,520 --> 00:34:05,800
Speaker 6: obviously other line items that would be reflective of our investments,

638
00:34:05,840 --> 00:34:09,160
Speaker 6: and one of those has been in wages. And our

639
00:34:09,360 --> 00:34:13,279
Speaker 6: average hourly wage rate is nearly sixteen dollars. Now, that's

640
00:34:13,320 --> 00:34:16,560
Speaker 6: inclusive of our forty five thousand team members, store team

641
00:34:16,560 --> 00:34:21,160
Speaker 6: members and nearly five thousand distribution center team members. It

642
00:34:21,239 --> 00:34:23,719
Speaker 6: can go back and point at numerous times over the

643
00:34:23,840 --> 00:34:26,920
Speaker 6: last five years, we've made incremental wage adjustments for our

644
00:34:26,920 --> 00:34:30,680
Speaker 6: team members. So in June of twenty twenty, well before

645
00:34:30,760 --> 00:34:34,480
Speaker 6: others were doing so, we provided a dollar per hour

646
00:34:34,560 --> 00:34:37,440
Speaker 6: wage increase for every team member hourly team member of

647
00:34:37,440 --> 00:34:40,719
Speaker 6: the company. At that same time, we also started providing

648
00:34:40,760 --> 00:34:43,799
Speaker 6: benefits to all part time team members. Up until then,

649
00:34:43,800 --> 00:34:46,719
Speaker 6: you had to be full time to have access to benefits. Now,

650
00:34:46,800 --> 00:34:49,200
Speaker 6: if you work fifteen hours or more a week at

651
00:34:49,239 --> 00:34:52,280
Speaker 6: Tractor Supply, you have access to benefits the same benefits

652
00:34:52,320 --> 00:34:55,959
Speaker 6: I do. It's one benefit set system for everyone, and

653
00:34:56,640 --> 00:34:57,880
Speaker 6: that fifteen hours.

654
00:34:57,719 --> 00:35:00,840
Speaker 5: Threshold is very low. To other retailers.

655
00:35:00,840 --> 00:35:02,880
Speaker 6: If you were to go benchmark, most would be at

656
00:35:03,000 --> 00:35:05,880
Speaker 6: least twenty most or twenty five and upwards of thirty.

657
00:35:06,320 --> 00:35:09,400
Speaker 6: And we also started in June of twenty twenty providing

658
00:35:09,480 --> 00:35:12,839
Speaker 6: restricted stock grants to our store managers so that they

659
00:35:12,840 --> 00:35:16,120
Speaker 6: felt that empowerment, that ownership it, you know, in their

660
00:35:16,239 --> 00:35:20,399
Speaker 6: in their role. Specific to our distribution centers. Two things

661
00:35:20,400 --> 00:35:24,440
Speaker 6: we've done recently there. One is all of our supervisors

662
00:35:24,560 --> 00:35:28,359
Speaker 6: and managers in the dcs now receive restricted stock, which

663
00:35:28,440 --> 00:35:31,279
Speaker 6: wasn't the case prior, so again building ownership inside that

664
00:35:31,320 --> 00:35:35,240
Speaker 6: distribution center of our management team in there. And then secondly,

665
00:35:35,239 --> 00:35:38,359
Speaker 6: as far as our hourly team members, we shifted to

666
00:35:38,400 --> 00:35:43,080
Speaker 6: what you you as you called it a progressive wage scale. Historically,

667
00:35:43,200 --> 00:35:46,239
Speaker 6: our distribution centers would have gotten their raises once a

668
00:35:46,320 --> 00:35:49,719
Speaker 6: year in an annual merit cycle. And you know what

669
00:35:49,800 --> 00:35:52,600
Speaker 6: we found through that was in particular of the last

670
00:35:52,640 --> 00:35:55,440
Speaker 6: two or three years as you had a real crunch

671
00:35:55,480 --> 00:35:59,919
Speaker 6: around available labor, was that people wanted merit increases fast,

672
00:36:00,080 --> 00:36:03,640
Speaker 6: stir more consistently. And so we went to a one

673
00:36:03,640 --> 00:36:05,719
Speaker 6: where you at ninety days, do you get a raised.

674
00:36:05,760 --> 00:36:07,360
Speaker 6: At one hundred and eighty days, you get a raised.

675
00:36:07,360 --> 00:36:09,080
Speaker 6: At three hundred and sixty days, you get a raised,

676
00:36:09,120 --> 00:36:11,840
Speaker 6: and then it's progressive from there. And so when you join,

677
00:36:12,000 --> 00:36:14,120
Speaker 6: you know what you start at, and you know exactly

678
00:36:14,160 --> 00:36:15,759
Speaker 6: what your rage rates are going to be as you

679
00:36:15,800 --> 00:36:16,560
Speaker 6: look at it's.

680
00:36:16,520 --> 00:36:17,759
Speaker 5: Very calendarized for you.

681
00:36:17,840 --> 00:36:21,600
Speaker 6: And and so that gave people certainty, It gave people clarity,

682
00:36:22,040 --> 00:36:24,160
Speaker 6: They gave them a reward, a little bit of a

683
00:36:24,200 --> 00:36:27,560
Speaker 6: reward along, you know, along the way. Plus their managers

684
00:36:27,600 --> 00:36:31,120
Speaker 6: now have stock incentive and you know, they're kind of

685
00:36:31,120 --> 00:36:33,240
Speaker 6: treating it a bit more like you know, an ownership

686
00:36:33,280 --> 00:36:34,000
Speaker 6: and mentality.

687
00:36:34,000 --> 00:36:35,880
Speaker 5: And it's it's been very successful for us.

688
00:36:35,920 --> 00:36:39,319
Speaker 6: And we had a fifty point a reduction in our

689
00:36:39,320 --> 00:36:42,520
Speaker 6: supply chain attrition last year, and we're continuing to see

690
00:36:42,520 --> 00:36:45,520
Speaker 6: attrition rates below down this year kind of three months in.

691
00:36:45,920 --> 00:36:48,319
Speaker 4: So on your website it says currently I'm looking at

692
00:36:48,360 --> 00:36:50,800
Speaker 4: your history page, it says there are twenty two hundred

693
00:36:50,840 --> 00:36:53,279
Speaker 4: stores in the forty nine states, and I think your

694
00:36:53,320 --> 00:36:55,799
Speaker 4: goal per the last conference call is to get up

695
00:36:55,840 --> 00:36:58,319
Speaker 4: to three thousand stores, So I have I guess it's

696
00:36:58,320 --> 00:37:01,360
Speaker 4: a two part question. Is what is the main constraint

697
00:37:01,480 --> 00:37:04,400
Speaker 4: to adding stores? Is it available land? Is it just

698
00:37:04,400 --> 00:37:06,000
Speaker 4: the capacity to plan them out?

699
00:37:06,120 --> 00:37:07,400
Speaker 7: Like where is the heart?

700
00:37:07,480 --> 00:37:09,560
Speaker 3: Is it materials and labor to build them?

701
00:37:09,600 --> 00:37:09,680
Speaker 6: Like?

702
00:37:09,719 --> 00:37:12,239
Speaker 4: What is that constraint? And then when you talk about

703
00:37:12,400 --> 00:37:14,879
Speaker 4: new store productivity, and I think, as you've been saying

704
00:37:14,880 --> 00:37:18,480
Speaker 4: that stores lately have been getting up to full productivity

705
00:37:18,560 --> 00:37:21,600
Speaker 4: faster than they have in the past, what is the

706
00:37:21,640 --> 00:37:24,080
Speaker 4: dial that you can turn to get a brand new

707
00:37:24,200 --> 00:37:26,400
Speaker 4: store up and running so that it's sort of on

708
00:37:26,520 --> 00:37:27,800
Speaker 4: par with the legacy stores.

709
00:37:28,360 --> 00:37:32,800
Speaker 6: Well summarized Joe on kind of our store goal and

710
00:37:33,040 --> 00:37:35,400
Speaker 6: the number of stores we open annually, So we have

711
00:37:35,520 --> 00:37:39,520
Speaker 6: a three thousand store goal in the United States. We

712
00:37:39,600 --> 00:37:42,759
Speaker 6: have a little over twenty two hundred stores, now we

713
00:37:42,800 --> 00:37:47,040
Speaker 6: build annually around eighty stores, so we've got, you know,

714
00:37:47,120 --> 00:37:50,560
Speaker 6: basically a decade left of new store growth. We do

715
00:37:50,680 --> 00:37:53,799
Speaker 6: have a history of increasing that as but you know,

716
00:37:54,440 --> 00:37:56,680
Speaker 6: but we feel very good about the three thousand store goal,

717
00:37:56,760 --> 00:37:59,040
Speaker 6: and you know, perhaps there's some more upside beyond that.

718
00:37:59,640 --> 00:38:02,880
Speaker 6: There's a variety of factors that limit the number of

719
00:38:02,920 --> 00:38:05,480
Speaker 6: stores we build a year. As I mentioned, we're currently

720
00:38:05,480 --> 00:38:08,759
Speaker 6: this year planning to build eighty tractor supply stores, and

721
00:38:09,280 --> 00:38:12,520
Speaker 6: I should mentioned ten to twenty pet scent stores. I

722
00:38:12,520 --> 00:38:17,160
Speaker 6: would say the main limiting factor is our culture. And

723
00:38:17,200 --> 00:38:19,080
Speaker 6: I think the thing that keeps me up the most

724
00:38:19,120 --> 00:38:23,520
Speaker 6: at night is not allowing our growth to exceed the

725
00:38:23,560 --> 00:38:28,320
Speaker 6: pace of our culture. And we cannot be one of

726
00:38:28,360 --> 00:38:31,239
Speaker 6: those companies that wakes up five years from ago. We

727
00:38:31,320 --> 00:38:33,439
Speaker 6: just had incredible growth, but we're just not the same

728
00:38:33,480 --> 00:38:35,840
Speaker 6: company that we were five years ago from a culture

729
00:38:35,920 --> 00:38:40,280
Speaker 6: and customer service perspective. Obviously, in addition to that limiting factor,

730
00:38:40,320 --> 00:38:43,080
Speaker 6: there's a variety of other things. Right, there's access to

731
00:38:43,640 --> 00:38:47,840
Speaker 6: all the construction materials you need, there's access to you know,

732
00:38:47,880 --> 00:38:52,160
Speaker 6: local permitting resources, there's access to you know, construction labor.

733
00:38:52,840 --> 00:38:54,640
Speaker 6: All those things that We've had over the last two

734
00:38:54,719 --> 00:38:57,520
Speaker 6: or three years nuances there that have impacted our ability

735
00:38:57,560 --> 00:39:00,799
Speaker 6: to move faster on store rollout, just with you know,

736
00:39:01,080 --> 00:39:03,640
Speaker 6: the supply cheam directions that curbent COVID and such, and

737
00:39:03,920 --> 00:39:05,239
Speaker 6: the availability for people to.

738
00:39:05,160 --> 00:39:07,439
Speaker 5: Get out and approve permits and those sorts of things.

739
00:39:07,440 --> 00:39:10,799
Speaker 6: But that's all reasonably settled now, and I'd say it's

740
00:39:10,880 --> 00:39:13,120
Speaker 6: mostly just back to normal, with the exception of the

741
00:39:13,200 --> 00:39:16,680
Speaker 6: higher interest rates on building stores. But the main bottleneck

742
00:39:16,719 --> 00:39:19,080
Speaker 6: on an annual basis is just making sure that we

743
00:39:19,080 --> 00:39:21,560
Speaker 6: don't outgrow our culture. And you know, we bring every

744
00:39:21,640 --> 00:39:25,240
Speaker 6: new store manager, so we have twelve percent store manager attrition,

745
00:39:25,360 --> 00:39:28,880
Speaker 6: one of the lowest, perhaps the lowest in retail in

746
00:39:28,960 --> 00:39:31,560
Speaker 6: terms of attrition. But at twenty two hundred stores, that's

747
00:39:31,560 --> 00:39:33,640
Speaker 6: a couple hundred and fifty new store managers a year.

748
00:39:33,640 --> 00:39:36,319
Speaker 6: Plus we have eighty news stores, so you're talking three

749
00:39:36,719 --> 00:39:39,439
Speaker 6: thirty three hundred and fifty new store managers a year.

750
00:39:40,160 --> 00:39:42,560
Speaker 6: We bring every one of those store managers to our

751
00:39:42,640 --> 00:39:46,960
Speaker 6: store support center here in Brentwood, Tennessee, right outside of Nashville.

752
00:39:47,040 --> 00:39:50,040
Speaker 6: They spend an entire week going through training. They also

753
00:39:50,080 --> 00:39:53,680
Speaker 6: spend ninety days prior to starting at their store training

754
00:39:53,719 --> 00:39:56,759
Speaker 6: at another store, and so we invest a lot of

755
00:39:56,840 --> 00:39:59,839
Speaker 6: resource to make sure the store managers are up and

756
00:40:00,080 --> 00:40:02,719
Speaker 6: running and that you can't tell a difference when you

757
00:40:02,760 --> 00:40:05,240
Speaker 6: walk for when you go into one store versus another,

758
00:40:05,400 --> 00:40:07,799
Speaker 6: and we're just so passionate about that.

759
00:40:07,880 --> 00:40:10,120
Speaker 5: I think you know that is the primary limiting.

760
00:40:09,760 --> 00:40:12,479
Speaker 6: Factor for our our new stores in terms of number

761
00:40:12,520 --> 00:40:15,480
Speaker 6: a year, and then trying to get our stores up

762
00:40:15,560 --> 00:40:18,400
Speaker 6: to volume as fast as possible is kind of every

763
00:40:18,440 --> 00:40:22,840
Speaker 6: retailer's goal and focus. And typically they started about seventy

764
00:40:22,880 --> 00:40:25,400
Speaker 6: percent of our estimated sales in the first year, and

765
00:40:25,480 --> 00:40:28,160
Speaker 6: over a three or four year time period will ramp

766
00:40:28,239 --> 00:40:30,240
Speaker 6: up to that one hundred percent of what we expect

767
00:40:30,239 --> 00:40:33,520
Speaker 6: out of that store. And they are opening up at

768
00:40:33,600 --> 00:40:35,880
Speaker 6: higher volumes than they did pre COVID, and they are

769
00:40:36,000 --> 00:40:38,800
Speaker 6: ramping faster, and I think there's a number of reasons

770
00:40:38,840 --> 00:40:41,960
Speaker 6: for that, but I think the biggest is the improvement.

771
00:40:41,480 --> 00:40:43,560
Speaker 5: That we've made in our brand awareness.

772
00:40:43,600 --> 00:40:46,799
Speaker 6: And pre COVID, our unated brand awareness was down in

773
00:40:46,840 --> 00:40:49,720
Speaker 6: the thirties, and now post COVID, our unaated brand awareness

774
00:40:49,760 --> 00:40:52,960
Speaker 6: is nearly doubled. And just so as we move into markets,

775
00:40:52,960 --> 00:40:55,320
Speaker 6: more people are aware of us, they are more apt

776
00:40:55,360 --> 00:40:58,080
Speaker 6: to consider shopping us. And you know that just allows

777
00:40:58,160 --> 00:41:00,640
Speaker 6: us to ramp up to ramp up quicker.

778
00:41:01,040 --> 00:41:05,719
Speaker 2: How important are partnerships to business growth now? Because famously

779
00:41:05,800 --> 00:41:08,520
Speaker 2: you have a partnership with car Heart, So if you

780
00:41:08,560 --> 00:41:11,080
Speaker 2: walk into a tractor supply store, you'll see lots of

781
00:41:11,320 --> 00:41:15,120
Speaker 2: car Heart hats and you know, clothing of all sorts.

782
00:41:15,160 --> 00:41:17,080
Speaker 2: But I think you also have some sort of deal

783
00:41:17,200 --> 00:41:21,720
Speaker 2: with Yellowstone. And in the course of researching for this interview,

784
00:41:21,800 --> 00:41:24,960
Speaker 2: I saw you have a line of garden clothes with

785
00:41:25,120 --> 00:41:28,560
Speaker 2: Martha Stewart. Now, so that seems to be an area

786
00:41:28,719 --> 00:41:32,040
Speaker 2: of interest for you. How do you identify these potential

787
00:41:32,080 --> 00:41:34,840
Speaker 2: partnerships and then how important is that for the overall

788
00:41:34,880 --> 00:41:35,480
Speaker 2: business mix?

789
00:41:35,560 --> 00:41:39,320
Speaker 6: Nowadays Track Supply would not be the same company absit

790
00:41:39,960 --> 00:41:44,040
Speaker 6: the many fantastic partners that we have, And that's really across,

791
00:41:44,320 --> 00:41:47,440
Speaker 6: you know, all different facets of the business. Certainly on

792
00:41:47,520 --> 00:41:52,440
Speaker 6: the on the product side, we have some great partners

793
00:41:52,960 --> 00:41:57,320
Speaker 6: that work very closely with this help us create unique

794
00:41:57,719 --> 00:42:00,880
Speaker 6: product experiences for our customers. It can only be found

795
00:42:00,880 --> 00:42:04,360
Speaker 6: a tractors supply to your point, whether that's in apparel,

796
00:42:04,840 --> 00:42:07,840
Speaker 6: car Heart, who we're you know, one of the largest

797
00:42:07,880 --> 00:42:09,759
Speaker 6: seller of car hearts in the country and we have

798
00:42:10,000 --> 00:42:12,680
Speaker 6: you know, nearly one hundred store within a store car.

799
00:42:12,440 --> 00:42:13,920
Speaker 5: Heart across our store base.

800
00:42:14,760 --> 00:42:18,239
Speaker 6: But even partners like Purina on the feed side, and

801
00:42:18,719 --> 00:42:21,280
Speaker 6: you know are we have two private brands and feed

802
00:42:21,400 --> 00:42:24,400
Speaker 6: do More in producers Pride, and we work very closely

803
00:42:24,440 --> 00:42:27,000
Speaker 6: with Purina on the production of those and in fact,

804
00:42:27,080 --> 00:42:30,200
Speaker 6: our do More brand is the only private brand product

805
00:42:30,400 --> 00:42:33,400
Speaker 6: in the United States that had that carries the Purina.

806
00:42:33,120 --> 00:42:34,160
Speaker 5: Checkerboard, you know.

807
00:42:34,320 --> 00:42:36,400
Speaker 6: And you can go across our business and we've got

808
00:42:36,480 --> 00:42:41,640
Speaker 6: these just really fantastic strong partner relationships on the product side,

809
00:42:41,640 --> 00:42:43,279
Speaker 6: but also on the marketing side of your point. So

810
00:42:43,280 --> 00:42:47,280
Speaker 6: we've got great relationships with Yellowstone and you know, Taylor

811
00:42:47,360 --> 00:42:49,759
Speaker 6: Shared and that team, and we were, you know, one

812
00:42:49,760 --> 00:42:52,560
Speaker 6: of the very first partners that they had and have

813
00:42:52,680 --> 00:42:56,480
Speaker 6: always built custom commercials for that. And you know, Landy Wilson,

814
00:42:56,719 --> 00:42:59,640
Speaker 6: we have a strong multi year relationship with their professional

815
00:42:59,680 --> 00:43:03,160
Speaker 6: bull writing and we're one of the first inaugural sponsors

816
00:43:03,200 --> 00:43:05,960
Speaker 6: with them as that as that has really grown as

817
00:43:06,000 --> 00:43:08,920
Speaker 6: a sport and an enterprise. But then also if you

818
00:43:08,920 --> 00:43:11,640
Speaker 6: look on the tech side, we have an incredibly strong

819
00:43:11,680 --> 00:43:15,360
Speaker 6: partnership with Microsoft and Microsoft Azure particular and their cloud

820
00:43:15,360 --> 00:43:18,480
Speaker 6: platform and their AI capabilities, and I'd say we're very

821
00:43:18,520 --> 00:43:21,400
Speaker 6: much on the forefront of partnering with them and experimenting

822
00:43:21,600 --> 00:43:24,960
Speaker 6: and developing scaled solutions. And then even if you look

823
00:43:25,000 --> 00:43:27,399
Speaker 6: at like on the community side, we're far and away

824
00:43:27,480 --> 00:43:31,840
Speaker 6: the largest contributor and have been for thirty plus years

825
00:43:31,840 --> 00:43:35,120
Speaker 6: with FFA, the Future Farmers of America, and we're in

826
00:43:35,160 --> 00:43:39,280
Speaker 6: our second year of the largest rural agriculture scholarship program

827
00:43:39,280 --> 00:43:42,680
Speaker 6: in the country to million dollars a year, one hundred

828
00:43:42,760 --> 00:43:46,759
Speaker 6: five thousand dollars scholarships and fifty ten thousand dollars scholarships.

829
00:43:46,800 --> 00:43:49,040
Speaker 6: And so, you know, whether it's on the community side,

830
00:43:49,120 --> 00:43:51,440
Speaker 6: whether it's on the tech side, whether it's on the

831
00:43:51,480 --> 00:43:55,160
Speaker 6: merchandising side, or on the marketing side, you know, and

832
00:43:55,480 --> 00:43:57,600
Speaker 6: in a variety of other stakeholders as well. We had

833
00:43:57,600 --> 00:44:01,080
Speaker 6: just incredible partnerships people that that we've been with for

834
00:44:01,239 --> 00:44:04,399
Speaker 6: quite some time, and you know, there's synergies between our

835
00:44:04,440 --> 00:44:07,319
Speaker 6: businesses and their businesses, and it just really allows us

836
00:44:07,320 --> 00:44:08,600
Speaker 6: to be the best company we can be.

837
00:44:09,080 --> 00:44:11,960
Speaker 4: I just have one more question, but since you mentioned

838
00:44:12,000 --> 00:44:15,520
Speaker 4: specifically interest rates, in the context.

839
00:44:15,040 --> 00:44:16,359
Speaker 5: Of build out.

840
00:44:16,719 --> 00:44:19,399
Speaker 4: Can you just give a little like more specifics about

841
00:44:19,480 --> 00:44:23,279
Speaker 4: how does a high interest environment affect the math of

842
00:44:23,480 --> 00:44:27,279
Speaker 4: store rollouts? And yeah, what and you mentioned that on

843
00:44:27,320 --> 00:44:29,160
Speaker 4: your call. That came up as one of the challenges

844
00:44:29,200 --> 00:44:31,759
Speaker 4: for twenty twenty three, along with weather and some other things.

845
00:44:31,800 --> 00:44:34,759
Speaker 4: But talk to us a little bit about the effective

846
00:44:34,800 --> 00:44:38,759
Speaker 4: interest the effective elevated interest rates on expansion decisions and

847
00:44:38,760 --> 00:44:41,360
Speaker 4: how it changes how various investments pencil out.

848
00:44:41,600 --> 00:44:46,000
Speaker 6: Yeah, absolutely so, I mean interest rates are significant in

849
00:44:46,080 --> 00:44:50,480
Speaker 6: any sort of real estate project, right, And historically we

850
00:44:50,600 --> 00:44:55,759
Speaker 6: have used third party contractors to develop our locations for

851
00:44:56,000 --> 00:45:00,120
Speaker 6: us under assigned contract and our commitment is part of

852
00:45:00,160 --> 00:45:03,840
Speaker 6: that signed contract is you know, typically at a minimum

853
00:45:03,920 --> 00:45:07,960
Speaker 6: fifteen years or a twenty year lease within two to

854
00:45:08,040 --> 00:45:10,360
Speaker 6: three options on the back end of that. So you know,

855
00:45:10,360 --> 00:45:13,520
Speaker 6: we're signing up for fifteen to thirty years saying in

856
00:45:13,560 --> 00:45:17,480
Speaker 6: a location with a lease dollars per month associated with that,

857
00:45:18,239 --> 00:45:20,600
Speaker 6: and as part of that part of the agreement, then

858
00:45:20,680 --> 00:45:23,440
Speaker 6: a developer would go build that store for us, right,

859
00:45:23,560 --> 00:45:28,960
Speaker 6: and that includes acquiring the land, you know, building the store,

860
00:45:29,280 --> 00:45:32,320
Speaker 6: and then once they've got us up and running, most

861
00:45:32,360 --> 00:45:35,520
Speaker 6: of our landing lords will then sell that property to,

862
00:45:35,920 --> 00:45:38,080
Speaker 6: you know, someone who wants to own the long term

863
00:45:38,120 --> 00:45:42,040
Speaker 6: cash flow stream. So if you're a developer, you are

864
00:45:42,400 --> 00:45:46,040
Speaker 6: typically funding the acquisition of that land and the build

865
00:45:46,080 --> 00:45:49,799
Speaker 6: out of that store through some sort of financing, and

866
00:45:49,880 --> 00:45:52,480
Speaker 6: then you're selling the property to someone who's counting on

867
00:45:52,520 --> 00:45:55,279
Speaker 6: those cash flows. And so both the financing and the

868
00:45:55,360 --> 00:45:57,399
Speaker 6: selling to someone who's kind of that cash flows are

869
00:45:57,440 --> 00:46:00,919
Speaker 6: significantly impacted by interest rates. Right, what's the interest rate

870
00:46:01,040 --> 00:46:04,680
Speaker 6: you're going to pay on sixty seven million dollars of

871
00:46:04,719 --> 00:46:08,120
Speaker 6: capital for a year to fifteen months while you're building

872
00:46:08,160 --> 00:46:11,880
Speaker 6: that store, and then when you sell that tractors supply

873
00:46:11,960 --> 00:46:14,279
Speaker 6: to someone and it's got a three hundred thousand dollars

874
00:46:14,400 --> 00:46:17,720
Speaker 6: year annual revenue stream associated with it, right from the least,

875
00:46:18,080 --> 00:46:19,880
Speaker 6: what interest rate are they going to use to discount

876
00:46:19,920 --> 00:46:21,240
Speaker 6: that cash flow back at?

877
00:46:21,719 --> 00:46:22,359
Speaker 5: And so it has.

878
00:46:22,320 --> 00:46:26,600
Speaker 6: Substantial implications on our real estate developers. And with the

879
00:46:26,640 --> 00:46:28,800
Speaker 6: movement up in its rates obviously makes it more expensive

880
00:46:28,800 --> 00:46:32,279
Speaker 6: to build, and then you obviously are monetizing those future

881
00:46:32,320 --> 00:46:35,120
Speaker 6: cash flows at less right because of higher interest rates,

882
00:46:35,640 --> 00:46:37,840
Speaker 6: And so they've got more risk and they've got a

883
00:46:37,840 --> 00:46:41,040
Speaker 6: bunch of movement and so it has significant implications. And

884
00:46:41,040 --> 00:46:42,880
Speaker 6: so one of the things we've done over the last

885
00:46:43,000 --> 00:46:46,839
Speaker 6: twelve months is start to actually finance the build out ourselves.

886
00:46:46,840 --> 00:46:49,480
Speaker 6: So we have gone probably about half of our stores

887
00:46:49,520 --> 00:46:53,760
Speaker 6: this year. We will work with the developers still, we'll say, look,

888
00:46:53,880 --> 00:46:57,279
Speaker 6: you just build the store, force, work with the contractors

889
00:46:56,920 --> 00:47:00,719
Speaker 6: on the property, you know, work with the local scipalities

890
00:47:00,800 --> 00:47:03,320
Speaker 6: around zoning and permitting and all those sorts of things.

891
00:47:03,719 --> 00:47:06,319
Speaker 6: But don't worry about you know, buying the fixtures, buying

892
00:47:06,360 --> 00:47:09,759
Speaker 6: the HVAC, you know, buying the concrete block, all those things.

893
00:47:09,840 --> 00:47:10,839
Speaker 5: We're going to do all that.

894
00:47:10,920 --> 00:47:12,520
Speaker 6: We will pay for it all and we're just going

895
00:47:12,600 --> 00:47:14,880
Speaker 6: to give you a four or five hundred thousand dollars

896
00:47:15,280 --> 00:47:18,880
Speaker 6: fixed fee to build that for us. But the idea

897
00:47:18,880 --> 00:47:20,480
Speaker 6: that you need to finance them on the front end

898
00:47:20,560 --> 00:47:22,360
Speaker 6: or worry about the sale on the back end, don't

899
00:47:22,360 --> 00:47:23,560
Speaker 6: worry about that anymore.

900
00:47:23,640 --> 00:47:24,719
Speaker 5: We will take that on.

901
00:47:24,960 --> 00:47:27,440
Speaker 6: And what we found is that it frees up a

902
00:47:27,480 --> 00:47:29,799
Speaker 6: lot of value because they were putting a lot of

903
00:47:29,920 --> 00:47:32,800
Speaker 6: risk in the model, particularly with the variability and interest

904
00:47:32,880 --> 00:47:35,879
Speaker 6: rates and how things are moving around, and so it's

905
00:47:35,920 --> 00:47:38,800
Speaker 6: had significant impacts. We're fortunate to be investment grade in

906
00:47:38,880 --> 00:47:41,759
Speaker 6: terms of debt rating to be billion dollars plus cash

907
00:47:41,760 --> 00:47:44,239
Speaker 6: flow positive every year. So we've got a lot of

908
00:47:44,320 --> 00:47:46,239
Speaker 6: levers that we can we can put in place to

909
00:47:46,400 --> 00:47:49,520
Speaker 6: just kind of address that situation. But it's certainly been

910
00:47:50,320 --> 00:47:52,839
Speaker 6: a big topic I think for all everyone in real

911
00:47:52,920 --> 00:47:55,000
Speaker 6: estate over the last eighteen months.

912
00:47:55,239 --> 00:47:58,240
Speaker 2: Since you guys are experts in moving big bags of stuff,

913
00:47:58,320 --> 00:48:01,880
Speaker 2: so can you just start buying and also delivering materials

914
00:48:01,880 --> 00:48:03,200
Speaker 2: for new stores to yourself?

915
00:48:03,520 --> 00:48:03,719
Speaker 5: Right?

916
00:48:03,760 --> 00:48:06,680
Speaker 6: That's and that's exactly part of the benefit that we've

917
00:48:06,760 --> 00:48:09,600
Speaker 6: captured by bringing you know, kind of self development in

918
00:48:09,640 --> 00:48:13,120
Speaker 6: the house is that we can go negotiate now for

919
00:48:13,360 --> 00:48:16,560
Speaker 6: you know, eighty HVAC systems at one time. We can

920
00:48:16,680 --> 00:48:20,439
Speaker 6: go negotiate for all the fixtures at one time, all

921
00:48:20,480 --> 00:48:23,200
Speaker 6: the bailers that we have in the back of our store,

922
00:48:23,440 --> 00:48:25,960
Speaker 6: all those sorts of things that in the past the

923
00:48:26,239 --> 00:48:31,000
Speaker 6: contractor would have singularly sourced just for that store. We

924
00:48:31,040 --> 00:48:33,960
Speaker 6: can now do it, you know, in large batches, fifty

925
00:48:34,000 --> 00:48:37,800
Speaker 6: one hundred at a time and get a nice reduction

926
00:48:37,880 --> 00:48:39,880
Speaker 6: and price by leveraging our volume.

927
00:48:40,080 --> 00:48:42,080
Speaker 4: Last quick question for me, just I mean, I know

928
00:48:42,160 --> 00:48:45,600
Speaker 4: you're writing these big secular trends, but things like inflation,

929
00:48:46,040 --> 00:48:49,520
Speaker 4: et cetera, labor market. How do things look right now

930
00:48:49,680 --> 00:48:52,319
Speaker 4: we're recording this April nine, twenty twenty four. Does it

931
00:48:52,360 --> 00:48:55,400
Speaker 4: feel like we're something like a normal environment.

932
00:48:55,800 --> 00:48:58,759
Speaker 6: I don't know if you're a retailer that feels perfectly

933
00:48:58,800 --> 00:49:00,960
Speaker 6: normal right now on I'll get into that in just

934
00:49:01,000 --> 00:49:02,799
Speaker 6: a second. But what I would say at the highest level,

935
00:49:02,800 --> 00:49:04,759
Speaker 6: I think our economy is strong right now. I mean

936
00:49:04,800 --> 00:49:08,319
Speaker 6: we're running, you know, as a country two three four

937
00:49:08,400 --> 00:49:11,359
Speaker 6: percent GDP right kind of pick your quarter a month

938
00:49:11,440 --> 00:49:16,200
Speaker 6: GDP solid right now. You've got consumers spending really leading

939
00:49:16,239 --> 00:49:20,120
Speaker 6: the way on that. You know, the PCEE personal conception

940
00:49:20,200 --> 00:49:23,680
Speaker 6: expenditures you know for the month of January and February

941
00:49:23,880 --> 00:49:25,720
Speaker 6: very solid in that you know, two and a half

942
00:49:25,840 --> 00:49:29,400
Speaker 6: to three and a half percent range, very solid growth there.

943
00:49:29,960 --> 00:49:30,120
Speaker 5: You know.

944
00:49:30,160 --> 00:49:32,759
Speaker 6: The only thing I think from a retailer perspective, why

945
00:49:32,760 --> 00:49:36,520
Speaker 6: it doesn't feel normal right now is consumers are still

946
00:49:36,560 --> 00:49:40,400
Speaker 6: shifting their spend from goods to services, and you know,

947
00:49:40,560 --> 00:49:46,840
Speaker 6: pre COVID services, so things like you know, hotels, restaurants, entertainment, cruises,

948
00:49:47,160 --> 00:49:49,800
Speaker 6: those are you know, airline tickets, those sorts of things.

949
00:49:50,120 --> 00:49:53,400
Speaker 6: They were about sixty nine percent of a consumer spend,

950
00:49:53,920 --> 00:49:57,920
Speaker 6: with goods being the other thirty one percent. During covid U,

951
00:49:58,120 --> 00:50:00,680
Speaker 6: when people had less travel than they could go do

952
00:50:01,440 --> 00:50:05,120
Speaker 6: you had these stimulus checks coming through and people were

953
00:50:05,400 --> 00:50:08,720
Speaker 6: feeling the need to spend those goods as a percent

954
00:50:08,800 --> 00:50:12,440
Speaker 6: of consumer expenditures gotten nearly as high as thirty seven percent,

955
00:50:12,480 --> 00:50:15,920
Speaker 6: with services, you know by comparison, dropping down to sixty

956
00:50:16,040 --> 00:50:19,279
Speaker 6: three Over the last eighteen months. As our economy is

957
00:50:19,440 --> 00:50:21,960
Speaker 6: opened back up and people have gotten back to more

958
00:50:22,000 --> 00:50:26,399
Speaker 6: normal spending, perhaps some pent up desire to travel, you've

959
00:50:26,480 --> 00:50:30,280
Speaker 6: seen that services spin start to creep back towards sixty

960
00:50:30,360 --> 00:50:33,160
Speaker 6: nine percent. I think at the end of February it

961
00:50:33,280 --> 00:50:35,800
Speaker 6: was in the high sixty sevens, maybe right at sixty

962
00:50:35,840 --> 00:50:38,959
Speaker 6: eight percent. So and if you look at the February SPIN,

963
00:50:39,200 --> 00:50:42,480
Speaker 6: services were up six percent, whereas goods were only up

964
00:50:42,640 --> 00:50:46,240
Speaker 6: one percent on spend. So there's a big swing happening

965
00:50:46,320 --> 00:50:49,040
Speaker 6: right now between goods and services. But other than that,

966
00:50:49,120 --> 00:50:50,880
Speaker 6: I think, you know, our economy seems to be very

967
00:50:51,000 --> 00:50:55,360
Speaker 6: health healthy right now. The consumer continues to spend, you know,

968
00:50:55,400 --> 00:50:58,920
Speaker 6: inflations moderating, I think people have started you see that

969
00:50:59,160 --> 00:51:03,160
Speaker 6: lesser as a an issue when you do consumer surveys,

970
00:51:04,080 --> 00:51:07,560
Speaker 6: and you know, I think our economies is very much stabilizing.

971
00:51:07,640 --> 00:51:10,640
Speaker 5: Hats off to the FED for everything they've done.

972
00:51:10,920 --> 00:51:13,200
Speaker 2: Hell a lot and CEO of Tractor Supply, thank you

973
00:51:13,239 --> 00:51:16,600
Speaker 2: so much for coming on all thoughts and explaining exactly

974
00:51:16,640 --> 00:51:20,520
Speaker 2: how you are capturing so much of my income. It

975
00:51:20,600 --> 00:51:33,120
Speaker 2: was great, all right, Joe, Well, I thought that was fascinating,

976
00:51:33,440 --> 00:51:35,800
Speaker 2: and I can see why I am in fact spending

977
00:51:35,920 --> 00:51:38,880
Speaker 2: quite a decent amount of money at Chactor Supply in

978
00:51:39,080 --> 00:51:42,440
Speaker 2: recent years. There's so much to pick out of that conversation.

979
00:51:42,600 --> 00:51:46,080
Speaker 2: I mean, I thought the point about distribution was pretty interesting.

980
00:51:46,080 --> 00:51:48,520
Speaker 2: This idea that you can build up and expertise in

981
00:51:48,640 --> 00:51:52,239
Speaker 2: moving a particular type of things. So in this case,

982
00:51:52,280 --> 00:51:55,399
Speaker 2: I guess big bags of animal feed and stuff like that,

983
00:51:55,600 --> 00:51:58,480
Speaker 2: and so you can start to get efficiencies out of

984
00:51:58,480 --> 00:52:01,000
Speaker 2: that and also maybe at some point point start to

985
00:52:01,880 --> 00:52:05,279
Speaker 2: you know, negotiate supply for building your own stores in

986
00:52:05,320 --> 00:52:06,439
Speaker 2: bulk purchase as well.

987
00:52:06,680 --> 00:52:09,520
Speaker 4: No, I thought that was really fascinating as well, because

988
00:52:09,520 --> 00:52:11,880
Speaker 4: you can imagine, right, and it's not you don't have

989
00:52:11,920 --> 00:52:14,640
Speaker 4: to imagine that like, okay, in something like pet food

990
00:52:14,800 --> 00:52:17,239
Speaker 4: or something like that, or feet. They're competing with a

991
00:52:17,280 --> 00:52:20,560
Speaker 4: lot of other companies. But if pet if feed is

992
00:52:20,640 --> 00:52:24,200
Speaker 4: such a dominant share of their own supply chain, then

993
00:52:24,280 --> 00:52:28,439
Speaker 4: they can become the most efficient or theoretically the most

994
00:52:28,440 --> 00:52:32,080
Speaker 4: efficient distributor of fifty pound bags in a way that

995
00:52:32,120 --> 00:52:35,359
Speaker 4: you might not expect. Companies that specialize in so many

996
00:52:35,400 --> 00:52:38,120
Speaker 4: other things to like build that expertise and so like

997
00:52:38,160 --> 00:52:42,080
Speaker 4: a way of gaining scale and price competitiveness even from

998
00:52:42,120 --> 00:52:42,880
Speaker 4: smaller side.

999
00:52:43,000 --> 00:52:44,759
Speaker 2: Yeah, and the other thing I was thinking, and this

1000
00:52:44,880 --> 00:52:46,759
Speaker 2: came up in the episode we did before on the

1001
00:52:46,800 --> 00:52:50,440
Speaker 2: Harvard Business case study, but this idea of the choice

1002
00:52:50,480 --> 00:52:56,799
Speaker 2: of location for opening stores and not automatically migrating or

1003
00:52:56,840 --> 00:53:00,120
Speaker 2: being attracted to urban centers because I think, for you know,

1004
00:53:00,200 --> 00:53:03,000
Speaker 2: a large proportion of retail, the thinking is always you

1005
00:53:03,000 --> 00:53:04,960
Speaker 2: want to be where the people are. So even in

1006
00:53:05,000 --> 00:53:07,479
Speaker 2: the middle of New York, you will have in fact,

1007
00:53:07,520 --> 00:53:10,040
Speaker 2: I think we have a home depot right below the

1008
00:53:10,080 --> 00:53:13,640
Speaker 2: Bloomberg offices in Midtown Manhattan. Yeah, you will have those

1009
00:53:13,719 --> 00:53:16,920
Speaker 2: kind of big box stores, you know, a Target or

1010
00:53:17,000 --> 00:53:20,120
Speaker 2: a home depot or whatever. But it seems like in

1011
00:53:20,160 --> 00:53:23,120
Speaker 2: the case of Chactor Supply, they're sort of going where

1012
00:53:23,120 --> 00:53:25,719
Speaker 2: the animals are not necessarily where the people are.

1013
00:53:25,920 --> 00:53:26,560
Speaker 5: No totally.

1014
00:53:26,640 --> 00:53:28,719
Speaker 4: And then I love like also, you know, in terms

1015
00:53:28,719 --> 00:53:32,200
Speaker 4: of the strategic location hearing them walk through the math

1016
00:53:32,719 --> 00:53:37,319
Speaker 4: of the effective interest rates on store development, and I

1017
00:53:37,400 --> 00:53:40,400
Speaker 4: always joke, you know, it's like every company is a bank,

1018
00:53:40,600 --> 00:53:43,799
Speaker 4: but that is basically like what he described, which is like,

1019
00:53:44,200 --> 00:53:47,560
Speaker 4: why when Tractor Supply has like a great credit rating

1020
00:53:47,760 --> 00:53:50,000
Speaker 4: is really big, it's you know, it's not going to

1021
00:53:50,080 --> 00:53:53,360
Speaker 4: go away. Why not bring that sort of borrowing and

1022
00:53:53,480 --> 00:53:57,919
Speaker 4: lending capacity onto the Tractor Supply balance sheet and then

1023
00:53:58,280 --> 00:54:01,040
Speaker 4: free up the developer who then can focus on the

1024
00:54:01,080 --> 00:54:03,360
Speaker 4: one thing that they're really good at, which is constructing

1025
00:54:03,400 --> 00:54:06,840
Speaker 4: a building, rather than having the developer also take that

1026
00:54:06,960 --> 00:54:10,359
Speaker 4: financial risk and presumably pay a higher spread for their

1027
00:54:10,360 --> 00:54:12,480
Speaker 4: borrowing than tractor would you.

1028
00:54:12,400 --> 00:54:14,560
Speaker 2: Know the other thing I was thinking this might be

1029
00:54:14,640 --> 00:54:17,839
Speaker 2: kind of weird, but you know, Tractor Supply is sort

1030
00:54:17,840 --> 00:54:21,240
Speaker 2: of keying off this big demographic trend which we discuss

1031
00:54:21,640 --> 00:54:24,200
Speaker 2: aging millennials and the fact that millennials want more space

1032
00:54:24,239 --> 00:54:26,680
Speaker 2: and they're moving out of cities and they want pets

1033
00:54:26,800 --> 00:54:31,160
Speaker 2: and things like that. I sometimes wonder if like Tractor

1034
00:54:31,160 --> 00:54:34,600
Speaker 2: Supply is going to be the Harley Davidson of millennials,

1035
00:54:34,640 --> 00:54:38,320
Speaker 2: like everyone had pets when they were a certain age,

1036
00:54:38,400 --> 00:54:40,879
Speaker 2: just like all the Baby Boomers had a motorcycle when

1037
00:54:40,880 --> 00:54:42,640
Speaker 2: they were a certain age, and then it kind of

1038
00:54:42,680 --> 00:54:43,680
Speaker 2: ages out.

1039
00:54:43,400 --> 00:54:46,480
Speaker 3: I like the analogy. I'm done with that analogy.

1040
00:54:46,880 --> 00:54:48,719
Speaker 7: Oh you know what, Tracy. One other thing that we.

1041
00:54:48,800 --> 00:54:51,839
Speaker 4: Have to do more episodes on is, like I guess

1042
00:54:51,880 --> 00:54:55,800
Speaker 4: I would say, like the point suffocation or reward program

1043
00:54:55,920 --> 00:54:56,959
Speaker 4: Oh yeah, And I.

1044
00:54:56,920 --> 00:54:59,000
Speaker 7: Just feel like, you know, I'm starting to think that.

1045
00:54:59,680 --> 00:55:03,200
Speaker 4: You know, people like post about prices for anything, like

1046
00:55:03,200 --> 00:55:05,920
Speaker 4: inflation is out of control, and then another person posts like,

1047
00:55:06,080 --> 00:55:08,520
Speaker 4: here's a screenshot from Walmart dot com and these prices

1048
00:55:08,560 --> 00:55:10,239
Speaker 4: aren't nowhere near what you say, and stuff like that.

1049
00:55:10,320 --> 00:55:12,240
Speaker 7: Yeah, and I feel like there is this.

1050
00:55:12,160 --> 00:55:15,640
Speaker 4: Divide between the time people who are like have the

1051
00:55:15,680 --> 00:55:18,440
Speaker 4: time and capacity to be part of rewards programmed.

1052
00:55:18,680 --> 00:55:21,319
Speaker 2: I've said this so many times. It's the price pack

1053
00:55:21,480 --> 00:55:25,640
Speaker 2: architecture is becoming more sophisticated. And McDonald's is my sort

1054
00:55:25,640 --> 00:55:28,480
Speaker 2: of ultimate example of this, which is if you download

1055
00:55:28,520 --> 00:55:31,200
Speaker 2: the app, and if you take the time to order

1056
00:55:31,360 --> 00:55:35,760
Speaker 2: before you actually rock up to the little takeout window,

1057
00:55:36,200 --> 00:55:38,920
Speaker 2: you can get decent deals and they are like a

1058
00:55:39,040 --> 00:55:42,560
Speaker 2: significant percentage less than what you would get from just

1059
00:55:42,840 --> 00:55:46,759
Speaker 2: ordering spontaneously, and it is kind of it's weird, and

1060
00:55:46,800 --> 00:55:49,759
Speaker 2: it adds another layer of complexity to inflation. I think

1061
00:55:49,880 --> 00:55:54,719
Speaker 2: it also brings up questions about privacy and fairness and

1062
00:55:54,760 --> 00:55:55,480
Speaker 2: things like that.

1063
00:55:55,640 --> 00:55:58,200
Speaker 4: It's interesting to hear him talk about like how much

1064
00:55:58,840 --> 00:56:02,440
Speaker 4: he credits like that to like, you know, getting that

1065
00:56:02,600 --> 00:56:04,600
Speaker 4: consumer app. I think he said it was in summer

1066
00:56:04,640 --> 00:56:07,880
Speaker 4: twenty twenty one, and like the sort of taking it

1067
00:56:07,880 --> 00:56:11,040
Speaker 4: from a very rudimentary rewards program to more advanced one.

1068
00:56:11,280 --> 00:56:12,320
Speaker 3: Super interesting stuff.

1069
00:56:12,360 --> 00:56:16,200
Speaker 2: Absolutely, and we really should do that episode. Yeah, Okay, Well,

1070
00:56:16,239 --> 00:56:17,640
Speaker 2: in the meantime, shall we leave it there?

1071
00:56:17,719 --> 00:56:18,439
Speaker 3: Let's leave it there.

1072
00:56:18,560 --> 00:56:21,480
Speaker 2: This has been another episode of the Oudlots podcast. I'm

1073
00:56:21,520 --> 00:56:24,080
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.

1074
00:56:24,239 --> 00:56:27,040
Speaker 4: And I'm Joe Wisenthal. You can follow me at the Stalwart.

1075
00:56:27,320 --> 00:56:30,680
Speaker 4: Follow our guest Tractor Supply CEO hel Lawton. He's at

1076
00:56:30,680 --> 00:56:34,360
Speaker 4: hell Lawton. Follow our producers Carmen Rodriguez at Carman Ermann

1077
00:56:34,480 --> 00:56:38,120
Speaker 4: dash El Bennett at Dashbot, Kelbrooks at Kelbrooks. Thank you

1078
00:56:38,160 --> 00:56:41,200
Speaker 4: to our producer Moses Ondam. For more odd Lots content,

1079
00:56:41,280 --> 00:56:43,440
Speaker 4: go to Bloomberg dot com slash odd Lots where you

1080
00:56:43,440 --> 00:56:46,560
Speaker 4: have transcripts, blog and a newsletter, and you can chat

1081
00:56:46,600 --> 00:56:49,239
Speaker 4: about all of these topics twenty four to seven in

1082
00:56:49,320 --> 00:56:53,400
Speaker 4: the discord with fellow listeners Discord dot gg slash oddlines.

1083
00:56:53,880 --> 00:56:56,360
Speaker 2: And if you enjoy odd Lots, if you like it

1084
00:56:56,400 --> 00:56:59,040
Speaker 2: when we do deep dives into the business model of

1085
00:56:59,080 --> 00:57:02,200
Speaker 2: companies like track Supply, then please leave us a positive

1086
00:57:02,239 --> 00:57:05,920
Speaker 2: review on your favorite podcast platform. And remember, if you're

1087
00:57:05,960 --> 00:57:08,520
Speaker 2: a Bloomberg subscriber, you can listen to all of our

1088
00:57:08,560 --> 00:57:11,960
Speaker 2: episodes absolutely ad free. All you need to do is

1089
00:57:12,200 --> 00:57:36,720
Speaker 2: connect your Bloomberg account with Apple Podcasts. Thanks for listening.