A “rural revitalization” during the pandemic turned out to be an unexpected tailwind for Tractor Supply Co., even with supply chain disruptions.
Teamwork among the retailer’s merchandising, finance, planning, forecasting and analysis teams helped as they focused on de-risking and diversification, leading to sales rising about 52 percent over the past couple of years.
“We’ve really benefitted from the evolution of consumer behavior over the last two years,” CEO Hal Lawton said Monday in a keynote talk during the National Retail Federation’s inaugural NRF Supply Chain 360 conference in Cleveland.
That evolution was seen in different parts of the country over the past couple years as more consumers worked from home or made the decision to move away from urban or suburban cities in favor of less populated areas.
For a retailer like Tractor Supply, with a recent market cap of $21.1 billion and an inventory roster that includes everything from animal feed and tools to apparel and footwear, the move helped drive the business especially among millennial consumers.
Category expansion has also helped, with areas such as women’s apparel seeing expanded business via more stock-keeping units from Carhartt and Wrangler among other labels.
All that is happening amid inflation and China’s zero-Covid policy that created new wrinkles in companies’ supply chains earlier this year, forcing Tractor Supply to also remain nimble.
Tractor Supply’s merchants and inventory teams had previously planned over three- to six-month periods.
“When you look at now, the team is literally hourly working every single order, every single container. ‘This manufacturer, they’re closest to the port, but now we can’t get that. Is that manufacturer close enough to another port? Can we truck it? Can we rail it? What’s the best way to get it over there?’” Lawton said of the questions the logistics team is consistently encountering. “You’re constantly not only prioritizing ports and containers and moving them, but then sometimes canceling an order and then creating a new order from a different vendor or a different manufacturer, perhaps sometimes even a whole different category, to take advantage of capacity.”
Lawton likened the situation to the game of Whac-A-Mole and said the more recent challenges in moving product from China during their more recent lockdowns created a similar scenario.
Some say the upside to the slowdown in product coming from China has allowed for domestic ports to clear some of the container backlog. Although, the glass-half-empty view on that is U.S. ports will eventually face an onslaught of containers once China resumes more normal shipping operations.
Lawton views the situation as two-fold when it comes to China.
“I think the first factor is a long-term factor, which is just given the geopolitical tensions that are out there, that folks are diversifying out of China,” the CEO said. “And that’s been happening really since the tariffs went in place, and to some degree, a little bit before that.”
Tractor Supply has moved around 10 percent of its business in China to Vietnam and other countries, according to Lawton. Some of that has also been brought even closer to Mexico and even domestically, he added.
“I think on the short-term side we’ve seen both in the GDP data, but also retailer announcements over the last few months, that we’ve got inventory building in the United States,” Lawton said.
He said the pile-up with seasonal and discretionary goods is now becoming an issue for other retailers.
“Many of those [categories] are not things that we play in at Tractor Supply, but I think more broadly speaking…retail folks have been dialing down their orders heading into the back half of the summer and into fall to just allow the inventory they’ve gotten more time to sell through,” he went on to say.
While sourcing and manufacturing diversification has helped Tractor Supply capitalize on shifting consumer habits and supply chain challenges, building up the inland infrastructure to accommodate that inventory has also been key.
The company last June began construction on its Navarre, Ohio distribution center. The 895,000-square-foot facility is expected to service 250 of the company’s 2,003 stores.
On an industrywide perspective, Lawton said, port infrastructure has suffered from underinvestment for decades, leading to a lack of automation and drayage space around critical marine terminal facilities.
Companies that focused on being risk averse during the height of the pandemic explored port diversification away from Los Angeles and Long Beach. However, what’s resulted from those moves, mixed with port underinvestment, is now being seen with congestion at ports such as Savannah and Houston.
“That’s something that’s been happening the last 12 or 18 months,” Lawton said of the newer congestion issues. “Everybody’s taking the same set of actions. ‘Let’s order up, let’s try to get space [on a container ship], let’s try to get it in earlier, let’s diversify out of L.A. and Long Beach.’ And you see that happening right here. So it’s been the game of Whac-A-Mole in China. It’s also been a game of Whac-A-Mole here in the U.S.”