With news of the mortgage crisis, housing slump and the general economic malaise dominating the headlines these days, conventional wisdom might tell you that equipment dealers whose fortunes are tied to these segments of the economy might be panicking. But that's not the direction most dealers say they're heading.
Despite some tough sledding for housing sales and starts — indicators linked with the sale of small tractors and other equipment used by hobby farmers and large property owners (LPOs) — the results of Rural Lifestyle Dealer's first-ever survey indicates that dealers still see solid prospects ahead for improving sales in their rural lifestyle markets. And they're taking action to reinforce their positions for the inevitable turnaround in the economy.
More than 160 dealers participated in a primary research study aimed at determining how they're faring in the rural lifestyle market and what they see ahead for the remainder of 2008.
This group represents a solid cross-section of dealers from across North America. They sell more than a dozen different brands of farm tractors and nearly 90% of them say they expect business levels throughout 2008 to be as good as or better than they experienced in 2007.
In fact, half of them are projecting sales revenues will improve by 2% or more during the year. A full 15% say they expect revenue to increase by 8% or more during 2008.
Most rural lifestyle dealers continue to serve the needs of the professional farmer. At the same time, as their sales territories experience the sprawl of urbanization, they've altered their sales efforts to also meet the needs of new customers that want to "live on the land." Specifically, they're seeing a growing percentage of revenues coming from hobby farmers or large property owners, as well as lawn and landscape contractors.
In this survey, dealers were asked what percentage of their revenue comes from these two sources. They report that 42% is coming from hobby farm/LPO customers and nearly 16% is originating from landscape contractors.
More Than Tractors
While the sales of compact (<40 HP) and utility (40-100 HP) tractors are regarded as the primary benchmark for gauging the economic conditions of the rural lifestyle market, it's evident from the dealer responses that they're looking beyond tractors in projecting their sales performance for the coming year.
Last year's sales of small tractors may not have been anything to write home about — after skyrocketing in the last decade. But so far in 2008, the pace has picked up somewhat.
According to the latest sales figures from the Assn. of Equipment Manufacturers, North American sales of compact tractors through the first 2 months of '08 are up by 7.6%. Combined U.S. and Canada utility tractor sales through February were running ahead of the same period in 2007 by 6.7%.
Of the 21 product categories studied, dealers ranked compact tractors 13th and utility tractors 17th on their list of "best bets" for improving unit sales in 2008 vs. 2007.
Clearly, they see better potential in the variety of products that they carry to meet the diverse needs of the rural lifestyle customer base. This demonstrates one of the upsides for dealers that have expanded their customer reach.
Myriad of Products
With the wider range of gear rural lifestyle dealers carry — usually a far larger variety than is handled by traditional farm equipment-only stores — customer traffic can often be sustained even when the bigger equipment isn't moving.
Of the 21 product groups in the survey, dealers see the best potential during the coming months with power hand tools, as 97.5% expect unit sales in this category to be at least as good as or better than they were last year.
Number 2 on the dealers' list for best bets in '08 is front-end loaders. While 41.3% of the dealers indicate that sales of front-end loaders will be about the same as 2007, 55.5% see them increasing by more than 2%. In fact, nearly 40% of the dealers project front-end loader sales will grow 2-7% while nearly 17% expect sales to improve 8% or more.
Wood handling and cutting products — gear that's gained in popularity as the rural lifestyle customer base has grown — follows closely behind, with 96.3% of dealers expecting unit sales to be as good in 2008 as they were the previous year.
Rounding out the top 10 product categories where dealers see the strongest potential for sales in '08 are fertilizer spreaders and post-hole diggers, each with a 95.9% potential for sales being at least as good as or better than in 2007.
These are followed by snow removal equipment, seeders and UTVs/ATVs at 95.6% and rotary cutters and scrapers/graders, with a 94.8% and 94.3% potential to match or exceed last year's sales, respectively.
Top Selling Products
When dealers ranked product categories for unit sales growth only — that is 2% or more in 2008 compared with 2007 — the picture changes somewhat.
Rated this way, front-end loaders came away first on the list with 38.7% of dealers projecting a unit sales improvement of 2-7% and 16.8% expecting unit sales to increase by more than 8%.
Compact tractor sales also moved up the list, rated as the second-best bet for improving sales as 35.3% forecast growth of 2-7% and 17.9% expect an increase of 8% or more.
UTVs/ATVs followed with 49.6% expecting revenue increases of 2% or more for the year. Rotary cutters (47.4%) and utility tractors (45.1%) were also in the top-5 rated products for enhancing unit sales in 2008.
Others products that dealers see as having the greatest potential for improving sales revenue included: riding mowers (43.6%), hay tools/balers (40.2%), rotary tillers (31.1%) finish mowers (30.3%), skid-steer loaders (29.1%) and post-hole diggers (24.3%).
To Add or Not to Add
While shortlines at ag-focused dealerships are under pressure these days, the dealerships participating in the rural lifestyle market are planning to add to their product offerings. About 39% say they're planning to expand with new lines during the coming year.
At the same time, dealers acknowledge that the first-time tractor buyer is also their best candidate for implement and attachment sales. More than 76% of the equipment retailers polled say that first-timers will typically purchase additional pieces of equipment to go along with their tractor.
Nearly 20% indicate that their first-time tractor buyer will add as many as three or four implements and/or attachments. Only 3.2% of the dealers say that they don't usually sell any other equipment other then the tractor to a first-time purchase.
Many dealers say they also plan to maintain larger inventories of equipment because rural lifestyle customers expect immediate or fast delivery of their purchases.
Several dealers, including Darren Mead of Deems Farm Equipment of Nevada, Nevada, Mo., say they'll have more equipment "set up" on their lots so customers can see the machines fully equipped and "ready to go" rather than wait until a customer buys it. It helps with the sales process and facilitates quicker delivery, which rural lifestyle customers expect.
Where's the Competition?
Dealers serving the rural lifestyle market say their keenest competition is coming from their own — other farm equipment dealers. More than 43% identified traditional retailers that specialize in ag machinery as their most serious competitive threats for the dollars of hobby farmers, large property owners and other customers that are potential customers for smaller equipment.
Nearly 25% identified "rural retailers" (Tractor Supply Co., etc.) as being their biggest challengers for the rural lifestyle dollar. Big box stores (Home Depot, Lowes, etc.) were recognized by 19.6% of dealers as their biggest threats. Only 12.5% of farm equipment dealers say that lawn and garden dealers pose a challenge for sales to rural lifestyle customers.
Financing is Vital
Clearly, financing equipment is important to the rural lifestyle customer. Dealers say that a full two-thirds (67.3%) of their customer request (or demand) financing plans when they negotiate the purchase of new equipment for their spreads.
Michael Kelly, president of Kelly Ford Tractor in Longview, Texas, says that this will be one of his big pushes to increase sales in 2008. "Getting that monthly payment low appears to be what the customer is after. Our focus has always been to get the customer into our tractor with a payment he or she can afford."
An emphasis on better financing and "package deals" will be the thrust of Cleveland Tractor & Equipment's efforts, as well, according to Bobby Moffett, president and owner of the Cleveland, Texas, dealership.
Focusing Sales Efforts
On average, the dealers participating in the RLD survey employ 3.9 full-time salespeople. Of these, 1.9 are assigned to totally focus on selling to hobby farmers and rural lifestyle customers. And it's clear from dealer responses that they plan to devote additional resources this year to make sure their sales staffs are up to snuff in dealing with the rural lifestyle customer.
"We're working with our sales personnel to make sure they're up to date on the equipment and financing programs," says William Allen, Jr., president of Top Flight, Conroe, Texas.
Other dealers say they'll be pressing their entire staffs to get in on the act. "We've implemented a 'bird-dog' program throughout the store," says Dale Weldon, Browning Equipment, Purcellville, Va. "This includes 'all' employees getting involved in the sales process. Nobody walks!"