When retailers announce their plans to cut costs, the next line in the press release or annual report usually describes how many jobs are likely to be lost. But at Tractor Supply Co. (TSC)—a company buffeted by inflation and rising wholesale prices on virtually every item it sells—lowering the bottom line means adding more jobs. Its strategy acknowledges the value of well-qualified personnel who can help the retailer conduct sophisticated analyses and achieve its optimal performance.
In particular, TSC plans to double the membership of its financial planning team, which already had grown by nearly 40 percent in recent years. It is adding positions to its internal procurement team too (which obtains products and services that the company uses for its own operations, like computers or paper, rather than wholesale products that will be put up for sale in its stores). By adding these human resources to its corporate structure, TSC aims to find new and creative ways to cut costs. According to the firm’s CEO, everything needs to be reviewed, including fixed costs, supply lines, and occupancy rates. Such a comprehensive approach requires more hours of work, such that by spending more now to ensure enough people are performing the analyses, TSC believes it can save in the long run.
One of the things not subject to cost containment though is in-store staff. The company has explicitly noted that it does not plan to cut any jobs during this process. Rather, the efficiency efforts are focused on negotiating better deals and benefitting from reductions in the short-term COVID-19–related costs to which it was exposed earlier in the pandemic. In addition, it plans to reduce the amount of incentive compensation offered to executives, while also paying higher wages.
These long-term strategic moves are possible largely because TSC has established a strong, comfortable position for itself with increased sales. Its offerings of garden supplies, pet gear, and home improvement options were uniquely well-attuned to consumers’ preferences during the pandemic, such that its net sales rose 20 percent during 2021. Building on these trends, which it anticipates will persist, TSC has moved to ensure its assortment is even more appealing. For example, it is introducing greenhouses into more retail locations, to help relatively novice gardeners expand their new hobby into new directions and additional months of the year.
Rather than just enjoying the massive increase in sales though, TSC carefully noted that the costs of the goods it purchases to place in stores—including not only those new greenhouses but also corn for animal feed or steel for fences—have risen by around 9 percent across the board. Thus as its sales increase, so do its costs. And to maintain its enviable, successful status, TSC knows that it needs to encourage the former trend while actively limiting the latter. Such an objective is never easy. Hiring more smart and clever financial planners, with marketing and retail experience, who can find creative solutions, may be the best way to achieve it. To save money, TSC is going to invest more in its personnel.
Discussion Questions:
- Should more retailers add personnel when they aim to cut costs? What are the risks of such an approach?
- Tractor Supply Co. indicated that it was cutting incentive-based compensation but raising hourly wages. Why might it do so? What is the intended outcome of such a move?
Source: Kristin Broughton, “Tractor Supply Focuses on Cost Cutting as Inflation Pressure Mounts,” The Wall Street Journal, February 1, 2022; Tractor Supply Co., “Tractor Supply Company Reports Record Fourth Quarter and Fiscal 2021 Financial Results and Details Life Out Here Strategy Updates,” press release, January 27, 2022, https://corporate.tractorsupply.com/newsroom/news-releases/news-releases-details/2022/Tractor-Supply-Company-Reports-Record-Fourth-Quarter-and-Fiscal-2021-Financial-Results-and-Details-Life-Out-Here-Strategy-Updates/default.aspx