Tractor Supply to buy 85 Quality stores: Purchase puts chain atop farm goods niche - Tractor Supply dominate in farm and garden equipment retailing sector - Brief Article

DSN Retailing Today, Jan 21, 2002 by Debbie Howell

NASHVILLE, TENN. -- Tractor Supply Co.'s purchase of 85 stores operated by bankrupt Quality Stores turned the tables on its long-time rival, moving the farming goods retailer into the top spot and eliminating national competition. With Quality liquidating its entire store base, Tractor Supply now dominates this retailing niche and will leap forward in its long-term growth strategy.

A bankruptcy judge in Michigan approved a bid last month by Tractor Supply and its joint venture partners Great American Group, Gordon Brothers Retail Partners and DJM Asset Management for 152 Quality units. Tractor Supply of Nashville opted for 85 of those units, with the balance to be sold by its partners. Another successful bidder was Missouri-based Orscheln Farm & Home, which bought 26 stores in Nebraska, Kansas, Colorado and Iowa. The remainder of Quality's stores west of the Mississippi, about 133. had already been closed by the time of the judge's decision.

The addition of 85 stores, along with Tractor Supply's previous plan to open 25 units this year, means the retailer will now boost its store count by 34%. By year's end, the company will have at least 433 units in 29 states, including a large presence in the Northeast, an area it had earmarked for future expansion. For Tractor Supply, the deal involved the purchase of 25 stores, as well as lease rights to 60 store locations and related furniture, equipment and fixtures, but not inventory.

Quality, once the largest farming retailer in the United States, filed for bankruptcy protection Nov. 1. Losses have plagued the company since 2000, due to trouble digesting its 1999 merger with Central Tractor Farm & Country.

Tractor Supply, which ironically also had its eye on Central Tractor at one time, intended to eventually grow in the Northeast, where it had a small presence. Ceo Joe Scarlett told DSN Retailing Today that 25 stores acquired are in New York and Pennsylvania, areas where Tractor Supply had eight units. Another five are in West Virginia, a completely new market for the company. The remaining 55 were in what Scarlett described as fill-in-markets.

"We were going to go into the Northeast in a much stronger way anyway, so it sort of fell into our lap," Scarlett said of the deal.

Although the acquired stores vary in size, ranging from 16,000 square feet to 50,000 square feet, Scarlett said retrofitting the units to fit Tractor Supply's format and prototype size of 14,000 square feet shouldn't be difficult. About 20 units may require subleasing unneeded space. In addition, the company may purchase a few more Quality units.

After existing inventory is liquidated by other members of the joint venture, the stores will be remodeled and reopened as Tractor Supply stores between March and June.

"One of the big pluses for us is we're going to, in almost every case, hire their store managers, who typically are residents of the community and know the customers very well. We feel pretty good about our prospects for the future," the ceo said.

Remnants of the old Quality Stores format won't be adopted. The chain offered a broader assortment of merchandise, while Tractor Supply prefers to specialize in goods for hobby farmers and ranchers unavailable at mass retail.

Scarlett said that Tractor Supply's distribution center in Pendleton, Ind., built two years ago, can handle the extra workload from the newly acquired stores.

Along with store managers, Scarlett said other executives of the former Muskegon, Mich.-based chain may be hired. To avoid culture clashes and animosity that may occur, Tractor Supply plans to work diligently with any former Quality employees.

"We're going to work very hard to make these managers and salespeople part of the team as fast as we can, to acclimate them to our environment," he said.

Tractor Supply, which reports fourth quarter results this week, was on track to generate about $852 million in sales for the year, a 12% gain from sales of $759 million in 2000. The addition of the Quality units and 25 more openings planned by Tractor Supply translates into about $330 million in revenue, based on average store sales of $3 million. As a result, for the first time Tractor Supply may reach $1 billion in sales, a figure comparable to Quality Stores' highest annual revenue in 2000 before the company collapsed.

With any luck, this first acquisition by Tractor Supply in its 64-year history won't befall the same fate as the merger between Quality and Central Tractor. A key difference is Tractor Supply won't try to meld the cultures of two distinct companies, but instead put its own proven formula into action.