Concept: This model consists of major lines, plus specialty manufacturers like Krone, Claas, Kuhn, Equipment Technologies and Bobcat who all have some company stores in operation along with dealer models.
Appeal: Neither Glass nor Russell could come up with any practical advantages of the company store relative to the traditional dealer model, except in the case where a line has been entirely shut out of a market and there’s no alternative.
Russell believes that a large and patient entrant into North America could, out of necessity, go the company store route, but only with difficulty.
Limitations: “Everyone has been left with such a bad taste in their mouths, so I don’t expect to see any more of that,” says Glass. “It can look good on paper, but they must function with a totally different mentality than manufacturing. International Harvester had a bunch of company stores in the 1960s and ‘70s and not one was profitable. They were known for having great arguments between departments and never having a focus, vs. a dealer-principal who would step in and say how something was going to go.”
Russell adds, “It’s very hard to get the right retail perspective with a big company store. Knowing how to set up a retail business and to run it requires a different skillset that is difficult for a manufacturer. I don’t see it coming back. In addition, company stores often caused problems with surrounding dealers who perceived a competitive advantage — real or not.”
Conclusion: “Manufacturers don’t want to sink a lot of money into their own stores,” says Glass. “With so many horror stories, I don’t see much activity in the future.”
Fowler is expecting that Krone may have to resort to company stores again (see box below). “We hope we don’t have to, but we can already see 2 or 3 spots where we’ll be forced to open dealerships. We will exhaust every possible measure to find representation first. But again, we will do whatever is necessary to keep those channels open. I believe more companies could do the same thing if they have the will and the resources.”
Company Stores a Last Resort for Shortline Manufacturers
Absolute necessity sometimes leads equipment manufacturers to do things they don’t want to do when it comes to distribution. This is what led to Krone North America to open 4 of its own locations: 1 in Wisconsin and 3 in California.
According to Rusty Fowler, the recently retired CEO of Krone North America, the company requires a dealership that is willing and able to commit itself to servicing highly sophisticated machinery like its forage harvesters, with price tags that can top a half-million dollars. He says he recently spoke to a custom harvester who runs Krone choppers. “This fellow said that throughout a typical year, he has only 5 weeks to produce a year’s worth of revenue. If he’s down a week, he loses 20% of his annual revenue.
“In California, we had been through 3 dealer groups and these organizations weren’t really able to commit themselves to our line because it’s so specialized. It takes a really strong focus and a commitment to make it go. Quite frankly, they weren’t willing to give us that. This occurs in a lot of areas and isn’t unique with a lot of shortlines.”
Fowler says the company had a strong customer base in California and was left with no one supporting them. “If we hadn’t stepped in and opened those stores, owners of our equipment would’ve auctioned it off and never bought anything from us again. So we had to make a commitment and we weren’t going to walk away from our customers.”
He says the company tried everything they could think of not to open its own retail locations, but really didn’t have a choice. “We hated to have to do this but fortunately we have the resources to do it. The same thing happened to us in Wisconsin where we had an 8 store Deere dealership handling our equipment. They told us they just couldn’t do it anymore and we know the reason why. But we couldn’t walk away from the area and we didn’t have another qualified dealer option.”
At one point in time, McConnell Manufacturing (pre-Art’s Way) had its own retail outlets specifically for the potato equipment it manufactured. “We had a retail store in Maine, one in Idaho and one in the Red River Valley,” Ward McConnell, company chairman, says. “It was pretty effective, but it was another overhead expense, and it takes some additional management. That business can be very volatile and during one of the bad years, the bank told me I had to sell 50 potato planters no matter what the price, but we couldn’t sell them even with a 50% discount. We recovered eventually, but we closed those stores and I don’t think I could be persuaded to do it again.”
Exclusively online extra
- Alternative Distribution: How Many Options Really Exist?
- Independent (No Mainline Tractor or Combine) Servicing Equipment Dealers
- Traditional Dealerships Setting Up Separate Entities to Sell Shortline Equipment
- Manufacturer-Owned Company Stores
- Joint-Venture Dealerships Owned by Several Shortline Manufacturers
- Co-Ops Adding Farm Equipment to Their Offering
- Direct to Farmer Sales; Subdealer Model for Service