Since I joined the Farm Equipment staff in 2005, I’ve heard about the John Deere dealer meeting that took place in 2002 in Louisville, Ky., that laid the groundwork for a lot of the dealer consolidation efforts that we’ve seen during the past decade.
Until recently, what happened at that meeting was only legend and folklore for me. I heard about it from a lot of dealers, so I assumed it was true. Of course, we’ve all seen and many have experienced the outcome of Deere’s 2002 edict: a lot fewer, but much larger dealers.
We moved to new offices a few weeks ago, and I was finally forced to look through a box of some old stuff that Mike Lessiter gave me 8 or 9 years ago that had been taking up space in my office. I just had never gotten around to looking through it, but with the move, I decided it was time to either move it or get rid of it.
All of it was stuff from the office of the late Bill Fogarty, who was the editor of Farm Equipment when the Lessiters acquired the magazine from Cygnus Publishing. I should have looked through it sooner.
One of the things that I came across was an email dated August 12, 2002. It was from one of Deere’s territory managers to his dealers. The original email had come from a branch manager and it was alerting the TMs that John Lagemann, who today is Deere’s senior vice president, sales & marketing, Americas and Australia, would be giving an important presentation on the last day of the meeting. The email outlined what Lagemann would speak about. Here’s a brief summary of the main points, according to the branch manager:
- “We must make it possible for our high performing dealers to improve — and not subsidize — low performance.”
- “The ‘Dealer of Tomorrow’ will have high performance in three areas: Financial Performance, Market Performance and Customer Satisfaction. Some metrics to consider are: 5% ROS, 3-4x Asset Turn, >90% Absorption, 60% Market Share, High Customer Satisfaction levels.
- “Dealers will be challenged by these metrics. It is critical that they know where they stand.”
- “How do we get to the point that makes sense and will lead to high performance? We believe the answer in many locations is through continued dealer consolidation. This new dealer structure may consist of 3-5 stores in contiguous trade areas and sales over $50 million.”
- “The presentation will be very specific: We will continue to support the Single Store, but the Multi-Store is going to be the Norm. With that strategy we must match our supporting processes accordingly; order fulfillment, incentives, parts, business systems, volume bonus and Dealer agreement will be geared towards the Multi-Store organization.”
- “John will close by again urging dealers to ask themselves where they are today and where they see themselves fitting into the future.”
Attached to the email was a copy of what appeared to be a slide entitled “Dealer Financial Vision” with a table that laid out the goals for dealers. (I’ve only included the metrics for ag dealers here.)
|Total Sales||30 to $60M|
|# Locations||3 to 5|
|Sales per location||$10M|
|Return on Equity||24 to 36%|
|Return on Sales||4 to 5%|
|Asset turns||3 to 4X|
|NORA||12 to 20%|
|Equity to Assets||30%|
It would appear that Deere’s consolidation strategy might be working even better than the company visualized (or maybe planned) 13 years ago. According to the most recent edition of Ag Equipment Intelligence’s “2015 Big Dealer Report,” more than 70% of Deere’s North American dealerships operate 5 or more store locations. (See the Ag Equipment Intelligence item in this edition of E-Watch for more detail.)
While some may argue about the merits of dealer consolidation, as farms continue to expand and become more sophisticated, it’s clear that dealers require more in the way of qualified personnel and capital resources to meet their customers’ growing demands. How that strategy has been implemented is at the heart of the real debate.