How to Thrive with Agile Digital Transformation During the Pandemic

This content relates to : MARKETING INNOVATION

Hal Lawton

CEO, Tractor Supply Company

The Snyder Innovation Management Center presents the 2021 CEO series focusing on innovations in the retail sector in partnership with The Robin Report.  

Robin Lewis, founder and CEO of his namesake brand, the Robin report interviews Hal Lawton, CEO of Tractor Supply Company, an 83 year old company, for this exciting forum.

Robin Lewis: You had annual revenues this year in 2020 of over $10 billion, which was a 27% increase over $8 billion in 2019. And I will remind everybody that’s during the pandemic folks. You got over 1900 stores in 49 states where the product assortment , that runs from farm supplies, livestock feed, power tools, lawn and garden supplies, and even apparel, which I understand is 10% of your sales.

And the company website says that it sells everything except tractors. How ironic is that? So Hal, I have to applaud you and your employees and your management team for achieving record sales and earnings, particularly during 2020, it really, my hats off to you. And also I need to mention this, you made a great decision to allocate some of those earnings back to your store teams, to incentive compensation and appreciation bonus allocated to team members in your stores and distribution centers.

Furthermore, even through the pandemic I know you started a number of initiatives, including your loyalty program, and you ended that horrible year with nearly 19 million neighbors club members. More than 11 million new customers and over 6 million reactivated customers. I think that is incredible.

Hal Lawton: Thank you. You hit them all. Maybe the only other thing I’d mentioned is our, our digital business finished the year up over a hundred percent.

Thanks Robin, and a good morning. And it’s great to great to spend some time with everybody today and a great, great introduction there.

And to your point Tractor Supply that I think something that’s unique about us is we’re a lifestyle retailer. We are not a category retail. We don’t sell grocery or home improvement or apparel per se. You know, we, we, we cater to the lifestyle of our, of our customers and the communities that we live in and serve.

And you know, I kind of think about it. It’s you know, our customer wakes up in the morning has a number of chores on their land that they need to do before they go to work, maybe grabbing some eggs from their coop or milking their cows or feeding their horses, their dog, cats, then they get up and go to work. They may ride out, go down the street and work at the Nissan plant. They may work at a distribution center. They may work at a Tractor Supply. And then they come home and they’ve got more chores to work, but, and, and their life is all about out here. And, you know, what we want to be is their primary destination for their shopping list when they need items to support their out here lifestyle.

And to your point, that may be a pair of work gloves or a barn jacket you know, maybe a couple of 50 pound bags of dog. It may be some bird seed. It could be some fence, some fencing or a corral or a gate, you know, it could be a new trailer for their truck or, you know, it could be some seeds for their, for their garden that they’re planning right now.

And but it’s, we, you know, our focus is, is catering to that lifestyle. And to your point, we, we invest in customer service. I think there’s some, there’s, there’s going to be two sets of retailers over time. Some of those that look to take as much cost as they can out in customer services, they can out. And make it a purely transactional relationship. And there’s others that are going to build the relationship and invest in customer service and then expect the benefits of that. And, you know, we’re very much the latter, you know, we’re committed to serving our customers, providing expertise and knowledge in the aisles a great service, whether it’s in the store or outside the store for curbside pickup or online.

And it really is around catering and being a part of that out here, lifestyle for our customers. And so consequently to the strategy point that you mentioned, it was just a natural build to, to call the next version of our strategy, the “life out here”, strategy. And if you go through the major components of the strategy, they all, they all build off of the last you know, 80 plus years of the company and then the culture and the foundation and the customers we serve.

We always, you know, we’re demand driven. We’re, needs‐based, we’re, you know, very little of our businesses, discretionary it’s you know, are in many ways, we’re the grocery store for our customers’ lives.

Robin Lewis: So it was kind of a follow‐up to that question. And your value proposition, so forth, your strategic positioning, who then do you consider your main competition and why?

Hal Lawton: Because we’re a lifestyle retailer we compete against almost everyone you know, there’s not a you know, we, there’s certainly regional and local and, and you know, kind of farm and ranch competitors and co‐ops and such.

But you know, we also compete against Walmart. We compete against food drug and mass, we compete against some of the home improvement players. You know, we compete against Amazon and Chewy, you know, just on each of the categories that are in our business. You know, there’s a number of players that have market share there, Petco and PetSmart some of the other pet specialty players. But, you know, in terms of a head‐to‐head competitor there, there are very few and where they are, they’re kind of fragmented in terms of the kind of very, very comparable category makeup. And so we just spend most of our time just looking at our customer and saying, how do we best serve them? And what can we do to improve our service and make our value proposition better and, you know, gain share.

Robin Lewis: And I know you are already deep into several tech driven, you know, enhanced projects that are driving. And a couple of them you’ve mentioned that are driving what you call clustering of stores. It’s one, how you’re localizing or personalizing the experience and other kind of in store tech initiatives, including information armed associates. So can you expand on these now?

Hal Lawton: Yeah, absolutely. I think all businesses these days are technology companies to some degree and you know, I believe anytime you’re working on an issue or problem, you’ve got to think through people, process, systems, and structure and, and systems these days are becoming even more and more important component of it.

And I’d I’d caveat that by saying it’s not just about customer facing systems, but it’s the, it’s about the full suite of technologies that you’re using in your company and making sure that they’re interconnected to solve the customer’s need. And I, the example that I’ll give is our curbside delivery pickup, and almost the entirety of the experience that I’ll share here is new from last new, new, newly built in the last year. So if you’re a customer and you go into our mobile app that we released less than a year ago, and, and we’ve got well over a million downloads now, and you buy something curbside pickup; at the conclusion of your transaction, you can put in your, make your model and any preferences that you have around the curbside ;drop‐off; put it in the back of my truck, open my back door, put it in there, whatever the special instructions are. As soon as you could finish your order and hit purchase; within seconds advice. It’s a, it’s a earpiece. It’s connected to a little device on the belt, every single team member in the entire company, all 42,000 when they’re working wear one, and it’ll say customer, customer pickup order needs to be picked. And it will continue to say that until someone acknowledges it, completes the pick, and actually then scans it in using the mobile handheld devices of which we doubled our capacity last year. We then roll it and we do the 90% of our picks are in under an hour, but the vast majority are within 10 to 15 minutes. We then last year rolled out a fast team. 1200 team members that are focused on merchandising execution in the stores, that brand new team. Last year, we rolled out BOPUS curbside, BOPUS lockers in the front of all of our stores so we had easy access to the product. And so every single store in the company now you’ll see that they have the lockers. These were specially designed lockers for our product, with big bags of food and feed and oversized product. When the customer is on their way to our store, we have a, a privacy I think pretty unique kind of privacy feature in our app where you can click on it.

It says on my way, and what it does is it gives us kind of an hour to two hours of, of access to your location. But then after that we stop using it. So it’s a kind of, it’s a time‐based location, privacy. And then as you’re approaching again, the earpiece pops up and says “Hal Lawton’s approaching the store and he’s ready for his pickup.”

Then someone has to acknowledge that in the store and actually execute it. And they have to say, I’ve got that. And it acknowledges and says, okay, you know, Robin Lewis is taking that out to the customer. We’re doing. 90% of those checkouts those, those curbside takeouts in minutes and then we take the handheld device out there as we go.

We close out the order. We added access points to every single store in the company on the front side of our stores to enable this last year. So we upgraded our wifi systems. And then you know, the customer is off, off and gone and the curbside pickup is our highest rated customer satisfaction transaction in the company.

And it also represents 75% of our buy online pickup in store which is 75% of our online orders. So curbside pickup is about 50% of our total online orders. And none of that, we had built this time last year. Incredible, incredible.

Robin Lewis: I failed to ask this question, but you got roughly 1900 stores now, physical stores.

How many do you see in the future and also what percentage of your business in the future do you think will be online? The, so currently we’re around nineteen hundred forty, nineteen hundred and fifty stores. We’ve guided to a long‐term target of 2,500.

So call it 500 more to go. And we build up that 80 a year. So a nice six, seven year runway still on our new store builds. As a frame of reference, as I mentioned earlier, seventy‐five percent of our online orders are picked up in stores. So our stores are different than a lot of retailers are not only the basis for footsteps in for in‐store transactions, but also for, for our online transactions.

Our customers really prefer the convenience and the service of our stores, even when shopping online. As it relates to online, as you mentioned we see in our last earnings call, we talked about it that our online penetration had moved from three and a half percent to 6% last year. Our, our total transactions were up double digits in stores as well.

So we were fortunate to be able to grow both our online at over a hundred percent last year, but also grow our same store sales in store with footsteps last year. And then in terms of online penetration, I know it’s going up and I know it’s going to continue to go up at a significant pace.

And I think that it’s, it’s a question how, how much online will be of our business, but also overall e‐commerce. If you think about, I mean, of, of overall retail, if you think about it, 1998, Amazon and eBay registered their URLs, right. E‐commerce isn’t even 25 years old yet. Yeah, Steve jobs stood onstage with the iPhone, you know, in the late 2000s, mobile commerce is, you know, barely less than a decade old.

And you think about it being over 20% of total retail sales now. Pre pandemic e‐commerce was about as steady as you could be at like 15, 16, 17% growth a year. I mean, it was about as steady of a trend as there is.

And you know, I think, you know, once we exit this pandemic that we’re, you know, kind of the environment we’re living in now I would fully expect online to continue to grow at that high teens pace for the foreseeable future, really till whatever technology and disruption comes next that maybe none of us are aware of right now, you know, whether it’s virtual reality or who knows, but you know, I think online’s you know, going to, continue to grow and gain share of retail.

And it’s a, it’s a large macro trend. It’s not going away.

I appreciate it. Thank you. I appreciate it. Dr. Raj.

Hal Lawton

CEO, Tractor Supply Company