Tractor Supply Company History
Tractor Supply Company Tractor Supply Company (TSC) has moved from a mail order catalog into a retail store supplying the needs of hobby farmers and tradespersons. This company has found and filled a niche market with its goods and services. This market capture has allowed TSC to overcome its financial difficulties and operate as a profitable company.
History
Charles Schmidt established Tractor Supply Company in 1938 as a mail order company selling tractor parts and supplies to the American farmers. In 1939, Schmidt opened his first retail store in Minot, North Dakota (History, 2017). The company went public under the leadership of Schmidt in 1958. Later, after Schmidt stepped down from a leadership role, the company merged with National …show more content…
Industries in 1968, and then Fuqua Inc. bought it in 1979. Tractor Supply struggled as a company for the next four years until five executives of the company were able to execute a buy-out, taking the company private once again (History, 2017). With the new leadership and a new business model, the owners were able to pay off the debt of the company, streamline the products and services offered, and moved the headquarters of TSC from North Dakota to Nashville, Tennessee. After several years of growing and demonstrating strong market leadership, the owners decided to go public in 1994 (History, 2017). While the economy has had its difficulties over the last few decades, TSC has been able to grow by continuing to understand what customers want and need, and fulfilling those needs.
TSC sells almost anything that the small and medium sized farmer or hobby farmer could need. They sell fence supplies, landscape mulch, horse and other livestock feed. They also seasonally sell baby chicks and ducks, especially around the Easter season. TSC also offers a small yet important array of tractor parts and supplies, as well as common tools and parts needed on a frequent basis. Tractor Supply will order direct to the store whatever parts and supplies that the customers wants, if it is not in stock (History, 2017). The farm supplies are a large part of the inventory of TSC, yet they also sell a large selection of lawn care equipment.
As of December 2016, TSC is operating 1738 retail stores located in 47 states. The stores are primarily located in the outlying areas between rural and metropolitan areas (Tractor Supply Company, 2017). Strategically, TSC locates their stores in such a manner to reach their target market of hobby farmers and recreational enthusiasts.
The major competitors of TSC are the home improvement stores such as Home Depot and Lowes, as well as hardware stores like ACE. The company also competes against the Cooperatives in the southern states for customers, given that the cooperatives offer much of the same products as TSC, and cater to the small and large farmers (Tractor Supply Company, 2017).
TSC operates as most other retail and online stores. It offers products that customers want and need, with the exception that TSC does not have any long-term contracts with any one specific vendor. In fact, TSC has a list of 850 vendors that it orders from, with no one vendor being more preferred over any other (Tractor Supply Company History, 2017).
The target market for TSC for years was the American farmer, usually members of family farms, men, often in the late 40s (Tractor Supply Company History, 2017).
However, after research and understanding how the times have changed, TSC started to change the stores to bring in more female customers. TSC also realized that the large farms were not a viable customer base, as the large farms were able to deal directly with the grain mills and tractor dealerships, so they changed to focus more on the part-time farmer/rancher and the suburban population that wants to hobby farm or raise a few animals (Tractor Supply Company History, …show more content…
2017).
Ratios
Cash Ratio
The cash ratio for a business is very important, as it is a means for the organization to meet financial obligations such as payroll and monthly expenses (Bethel University, 2011).
In the instance of TSC, the current cash ratio is 0.07 to 1 (Appendix A). This ratio shows that TSC has on hand 7 cents of cash for each dollar of current liabilities (Bethel University, 2011). This ratio is slightly better than Lowes, which has a ratio of 0.05 to 1 (Lowes Form 10K, 2016). While the company is able to meets its obligations, this ratio is somewhat low, and TSC should make a concerted effort to increase their cash balance in order to be better prepared to handle contingencies and
emergencies.
Current Ratio
The current ratio demonstrates the ability for an organization to fulfill its near-term obligations by using the current assets (Bethel University, 2011). TSC has a current ratio of 1.95 (Appendix A). Any ratio between 1 and 2 is considered acceptable in the industry (Bethel University, 2011). TSC has an acceptable amount of assets available to pay obligations.
Quick Ratio
The quick ratio is a stricter ratio to demonstrate available cash for an organization rather than the current ratio. This ratio includes accounts receivable with the cash equivalents (Bethel University, 2011). TSC does not offer to sell items on a monthly payment plan, or on a 30, 60, 90 days same as cash. The company requires customers to pay in full upon receipt of merchandise. They do not have any accounts receivable, therefore its quick ratio is 1.95 to 1 (Appendix A).
Debt to Assets Ratio
The debt to assets ratio measures the proportion of assets financed by creditors for the organization (Bethel University, 2011). The debt to assets ratio for TSC is .46 (Appendix A). This means that creditors supplied 46% of the total financing for the company (Bethel University, 2011). Unfortunately, this ratio is quite high, and TSC must find a way to lower that ratio by increasing the net income and decreasing operating costs; however TSC is still able to remain current on all liabilities.
Inventory Turnover Ratio
The inventory turnover ratio shows the relationship between the available inventory with the amount of inventory sold during the quarter or year. TSC has an inventory turnover ratio of 3.36 (Appendix A), which means that TSC sells the on hand inventory 3.3 times throughout the year. This ratio equates to the inventory remaining on hand an average of 108 days (Appendix A). For a retail store, this turnover is low; TSC should find a way to bring in more customers to move the slow selling items faster.
Return on Equity Ratio
The return on equity ratio is used as a litmus test for the shareholders and future investors to determine if the company is profitable enough to warrant future or continued investment. This ratio demonstrates the relationship between the net income and the average stockholder equity (Bethel University, 2011). The return on equity ratio of 35% (Appendix A) demonstrates a return on stockholders’ equity of 35%.
Net Profit Margin Ratio
The net profit margin of an organization is the bottom line of the organization; how much of every sale was profit. This shows how much of the revenue from sales after expenses is counted as net income (Bethel University, 2011). TSC has a net profit margin of 0.06 (Appendix A), this means 6 cents of every dollar is profit.
Net Working Capital Ratio
The net working capital ratio further displays the ability of the organization to pay its obligations. This ratio focuses on the ability of the company to pay all current debts through the next 12 months. This ratio shows any creditors and vendors how much of current assets are available to pay the liabilities (Bethel University, 2011). As a future investor, one would look at this ratio to decide if TSC is barely staying afloat or is operating profitably. The ratio of 0.28 (Appendix A) shows that TSC has the ability to pay its liabilities by liquidating assets in the event of an emergency.
Possible Changes As a future potential business manager, or executive level decision maker, I have a few suggestions for the future of Tractor Supply Company. First, I would analyze the Inventory Turnover Ratio, and ascertain as to why the average inventory turnover is 108 days (Appendix A). The success of any retailer depends on the ability to turn over inventory rapidly (Bethel University, 2011). The stores need to identify what goods are slow sellers, and then the company must develop a plan to bring in more customers. Currently TSC has unveiled the new Neighbors program. It is a customer loyalty program that is designed to bring in repeat customers, with special deals and points available. The next suggestion I would offer is to find a way to increase the sales at the stores. One of the ideas to consider is to offer welding services at the retail locations. All of the stores have licensed welders as associates (History, 2016), it would take an investment to create workstations at each location, but the possibility of increased revenue from offering the service may outweigh the cost. There are many ways to improve the company; it just takes time and a willingness to improve.
Conclusion
The Tractor Supply corporate strategy is based on the motto of “repair don’t replace” (Staff, 2015). They pursue new customers and retaining current customers by selling the parts needed to fix your equipment as opposed to throwing it away and buying new equipment. This mindset has capitalized on the previous economic downturns that have plagued America by giving people better options for saving money. When James Wright took the helm of TSC as the CEO in 2004, he once stated that the company would focus on building the brand of the company and not focus on the recession (Staff, 2015). It is this mentality that has continued to serve the company by maintaining a customer service approach that is unrivaled by the big box competitors. Wright also wanted to ensure that the company maintains the smaller stores in order to provide more personal service instead of building the larger footprint stores like Lowes and Home Depot (Tractor Supply Company History, 2017). Wright also believed that the company has a better chance of surviving recessions by keeping a corporate culture that provides customers exceptional value for their money (Staff, 2015). The changes put forth by the CEO, as well as the steadfast performance of the associates in the stores has allowed Tractor Supply Company to maintain its control of the hobby and small farm market, and should keep that control for years to come.
References
Bethel University. (2011). Quantitative approaches to managerial decision making. Boston, MA: McGraw Hill.
Company History. Retrieved from http://ir.tractorsupply.com/CustomPage/Index?KeyGenPage=1073749542
Lowes Form 10-K (2016). Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved from https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000060667&owner=exclude&count=40&hidefilings=
Staff. (2015). How Tractor Supply beat the recession. Retrieved from https://www.beyond.com/articles/how-tractor-supply-beat-the-recession-11994-article.html
Tractor Supply Co (TSCO). Stock Price. Retrieved from http://www.reuters.com/finance/stocks/overview?symbol=TSCO.O
Tractor Supply Company Form 10-K(2016). Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved from https://www.sec.gov/cgi-bin/browse-edgar?CIK=TSCO&owner=exclude&action=getcompany&Find=Search
Tractor Supply Company History. Retrieved from http://www.fundinguniverse.com/company-histories/tractor-supply-company-history/
History
Charles Schmidt established Tractor Supply Company in 1938 as a mail order company selling tractor parts and supplies to the American farmers. In 1939, Schmidt opened his first retail store in Minot, North Dakota (History, 2017). The company went public under the leadership of Schmidt in 1958. Later, after Schmidt stepped down from a leadership role, the company merged with National …show more content…
Industries in 1968, and then Fuqua Inc. bought it in 1979. Tractor Supply struggled as a company for the next four years until five executives of the company were able to execute a buy-out, taking the company private once again (History, 2017). With the new leadership and a new business model, the owners were able to pay off the debt of the company, streamline the products and services offered, and moved the headquarters of TSC from North Dakota to Nashville, Tennessee. After several years of growing and demonstrating strong market leadership, the owners decided to go public in 1994 (History, 2017). While the economy has had its difficulties over the last few decades, TSC has been able to grow by continuing to understand what customers want and need, and fulfilling those needs.
TSC sells almost anything that the small and medium sized farmer or hobby farmer could need. They sell fence supplies, landscape mulch, horse and other livestock feed. They also seasonally sell baby chicks and ducks, especially around the Easter season. TSC also offers a small yet important array of tractor parts and supplies, as well as common tools and parts needed on a frequent basis. Tractor Supply will order direct to the store whatever parts and supplies that the customers wants, if it is not in stock (History, 2017). The farm supplies are a large part of the inventory of TSC, yet they also sell a large selection of lawn care equipment.
As of December 2016, TSC is operating 1738 retail stores located in 47 states. The stores are primarily located in the outlying areas between rural and metropolitan areas (Tractor Supply Company, 2017). Strategically, TSC locates their stores in such a manner to reach their target market of hobby farmers and recreational enthusiasts.
The major competitors of TSC are the home improvement stores such as Home Depot and Lowes, as well as hardware stores like ACE. The company also competes against the Cooperatives in the southern states for customers, given that the cooperatives offer much of the same products as TSC, and cater to the small and large farmers (Tractor Supply Company, 2017).
TSC operates as most other retail and online stores. It offers products that customers want and need, with the exception that TSC does not have any long-term contracts with any one specific vendor. In fact, TSC has a list of 850 vendors that it orders from, with no one vendor being more preferred over any other (Tractor Supply Company History, 2017).
The target market for TSC for years was the American farmer, usually members of family farms, men, often in the late 40s (Tractor Supply Company History, 2017).
However, after research and understanding how the times have changed, TSC started to change the stores to bring in more female customers. TSC also realized that the large farms were not a viable customer base, as the large farms were able to deal directly with the grain mills and tractor dealerships, so they changed to focus more on the part-time farmer/rancher and the suburban population that wants to hobby farm or raise a few animals (Tractor Supply Company History, …show more content…
2017).
Ratios
Cash Ratio
The cash ratio for a business is very important, as it is a means for the organization to meet financial obligations such as payroll and monthly expenses (Bethel University, 2011).
In the instance of TSC, the current cash ratio is 0.07 to 1 (Appendix A). This ratio shows that TSC has on hand 7 cents of cash for each dollar of current liabilities (Bethel University, 2011). This ratio is slightly better than Lowes, which has a ratio of 0.05 to 1 (Lowes Form 10K, 2016). While the company is able to meets its obligations, this ratio is somewhat low, and TSC should make a concerted effort to increase their cash balance in order to be better prepared to handle contingencies and
emergencies.
Current Ratio
The current ratio demonstrates the ability for an organization to fulfill its near-term obligations by using the current assets (Bethel University, 2011). TSC has a current ratio of 1.95 (Appendix A). Any ratio between 1 and 2 is considered acceptable in the industry (Bethel University, 2011). TSC has an acceptable amount of assets available to pay obligations.
Quick Ratio
The quick ratio is a stricter ratio to demonstrate available cash for an organization rather than the current ratio. This ratio includes accounts receivable with the cash equivalents (Bethel University, 2011). TSC does not offer to sell items on a monthly payment plan, or on a 30, 60, 90 days same as cash. The company requires customers to pay in full upon receipt of merchandise. They do not have any accounts receivable, therefore its quick ratio is 1.95 to 1 (Appendix A).
Debt to Assets Ratio
The debt to assets ratio measures the proportion of assets financed by creditors for the organization (Bethel University, 2011). The debt to assets ratio for TSC is .46 (Appendix A). This means that creditors supplied 46% of the total financing for the company (Bethel University, 2011). Unfortunately, this ratio is quite high, and TSC must find a way to lower that ratio by increasing the net income and decreasing operating costs; however TSC is still able to remain current on all liabilities.
Inventory Turnover Ratio
The inventory turnover ratio shows the relationship between the available inventory with the amount of inventory sold during the quarter or year. TSC has an inventory turnover ratio of 3.36 (Appendix A), which means that TSC sells the on hand inventory 3.3 times throughout the year. This ratio equates to the inventory remaining on hand an average of 108 days (Appendix A). For a retail store, this turnover is low; TSC should find a way to bring in more customers to move the slow selling items faster.
Return on Equity Ratio
The return on equity ratio is used as a litmus test for the shareholders and future investors to determine if the company is profitable enough to warrant future or continued investment. This ratio demonstrates the relationship between the net income and the average stockholder equity (Bethel University, 2011). The return on equity ratio of 35% (Appendix A) demonstrates a return on stockholders’ equity of 35%.
Net Profit Margin Ratio
The net profit margin of an organization is the bottom line of the organization; how much of every sale was profit. This shows how much of the revenue from sales after expenses is counted as net income (Bethel University, 2011). TSC has a net profit margin of 0.06 (Appendix A), this means 6 cents of every dollar is profit.
Net Working Capital Ratio
The net working capital ratio further displays the ability of the organization to pay its obligations. This ratio focuses on the ability of the company to pay all current debts through the next 12 months. This ratio shows any creditors and vendors how much of current assets are available to pay the liabilities (Bethel University, 2011). As a future investor, one would look at this ratio to decide if TSC is barely staying afloat or is operating profitably. The ratio of 0.28 (Appendix A) shows that TSC has the ability to pay its liabilities by liquidating assets in the event of an emergency.
Possible Changes As a future potential business manager, or executive level decision maker, I have a few suggestions for the future of Tractor Supply Company. First, I would analyze the Inventory Turnover Ratio, and ascertain as to why the average inventory turnover is 108 days (Appendix A). The success of any retailer depends on the ability to turn over inventory rapidly (Bethel University, 2011). The stores need to identify what goods are slow sellers, and then the company must develop a plan to bring in more customers. Currently TSC has unveiled the new Neighbors program. It is a customer loyalty program that is designed to bring in repeat customers, with special deals and points available. The next suggestion I would offer is to find a way to increase the sales at the stores. One of the ideas to consider is to offer welding services at the retail locations. All of the stores have licensed welders as associates (History, 2016), it would take an investment to create workstations at each location, but the possibility of increased revenue from offering the service may outweigh the cost. There are many ways to improve the company; it just takes time and a willingness to improve.
Conclusion
The Tractor Supply corporate strategy is based on the motto of “repair don’t replace” (Staff, 2015). They pursue new customers and retaining current customers by selling the parts needed to fix your equipment as opposed to throwing it away and buying new equipment. This mindset has capitalized on the previous economic downturns that have plagued America by giving people better options for saving money. When James Wright took the helm of TSC as the CEO in 2004, he once stated that the company would focus on building the brand of the company and not focus on the recession (Staff, 2015). It is this mentality that has continued to serve the company by maintaining a customer service approach that is unrivaled by the big box competitors. Wright also wanted to ensure that the company maintains the smaller stores in order to provide more personal service instead of building the larger footprint stores like Lowes and Home Depot (Tractor Supply Company History, 2017). Wright also believed that the company has a better chance of surviving recessions by keeping a corporate culture that provides customers exceptional value for their money (Staff, 2015). The changes put forth by the CEO, as well as the steadfast performance of the associates in the stores has allowed Tractor Supply Company to maintain its control of the hobby and small farm market, and should keep that control for years to come.
References
Bethel University. (2011). Quantitative approaches to managerial decision making. Boston, MA: McGraw Hill.
Company History. Retrieved from http://ir.tractorsupply.com/CustomPage/Index?KeyGenPage=1073749542
Lowes Form 10-K (2016). Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved from https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000060667&owner=exclude&count=40&hidefilings=
Staff. (2015). How Tractor Supply beat the recession. Retrieved from https://www.beyond.com/articles/how-tractor-supply-beat-the-recession-11994-article.html
Tractor Supply Co (TSCO). Stock Price. Retrieved from http://www.reuters.com/finance/stocks/overview?symbol=TSCO.O
Tractor Supply Company Form 10-K(2016). Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved from https://www.sec.gov/cgi-bin/browse-edgar?CIK=TSCO&owner=exclude&action=getcompany&Find=Search
Tractor Supply Company History. Retrieved from http://www.fundinguniverse.com/company-histories/tractor-supply-company-history/