Wells Fargo’s Commercial Distribution Finance (CDF) serves more than 40,000 independent dealers across North America, Europe, Asia, Australia and New Zealand. Rural Lifestyle Dealer recently talked with Mike Horak, head of CDF’s outdoor products group, about the state of the industry and advantages that dealers shouldn’t overlook when competing with mass retailers.
Read on and see if what you’re seeing in your local market reflects these national trends CDF is seeing.
Rural Lifestyle Dealer: How would you describe the industry from a lender’s perspective?
Mike Horak: We are experiencing slow and steady growth overall in our portfolio. From a segment perspective, the commercial or professional lawn and garden segment is outpacing the consumer-oriented sales channel. We are also seeing slow and steady growth in consumer and commercial lending. A lot of our business is predicated on the weather, and the last couple of years we’ve had consistent precipitation throughout the summer months. The winters have been spotty in terms of snowfall, so that has created some aging inventory in pockets, which has dampened some enthusiasm.
Housing starts are a lead indicator and, while it hasn’t been robust, we’ve seen steady growth, so there has been a nice flow of equipment and the dealer network is strong and healthy.
The most prominent emerging trend in the industry comes from technology. Products are incorporating more smart technology and battery-powered options aimed at efficiency, as well as satisfying EPA directives. This translates into even more diverse equipment on dealer floors and an opportunity for them to differentiate their offerings.
RLD: Can you share specifics, such as what dealers are achieving in terms of inventory turns?
Horak: Our portfolio is showing inventory turns that are over 2.75 times — a historically high turn ratio, which is suggesting great overall portfolio health. This level of turn is representative of the changing business dynamic where our OEM, distributor and dealer customers are doing a good job managing channel inventory levels and delivering products to the customer when they need them. Improving manufacturing efficiencies combined with redesigned channel inventory management tools and processes are promoting turn and maximizing overall efficiencies. Two turns used to be standard in this industry and now dealers are achieving even higher than that as well as getting closer to “just in time” inventory.
RLD: To achieve those levels of turns year after year, dealers need to beat their competition, including mass retailers and big box stores. What is your take on the advantages that dealers have over these competitors?
Horak: When we first saw big box stores strongly emerge into the market 15 or 20 years ago, we knew it would create challenges for the independent dealers. The big box stores have strong buying power, national advertising, convenience, accessibility, attractive store fronts and strong internet presences — and a lot of resources supported with financial means.
However, independent dealers have managed through most challenges and are doing well because they are able to differentiate themselves within their local markets. They can deliver service more quickly than a mass merchant and are able to provide one-of-a-kind storefronts that attract people to their stores. By knowing their local market and customers, they are able to create a shopping experience for the whole family with a play area for kids or complimentary wine and cheese for adults to make shopping an event to enjoy. All of these factors build trust through personal interaction of employees, convenience, ambiance and exceptional customer service. When you layer that on top of an independent dealer’s service capability and knowledge, they become a competitor to the local big box stores.
A lot of independent dealers are working hard to build their brand and presence online to stay competitive. However, studies show that it takes an average of 6 or 7 clicks before a customer will buy online. This can be challenging for dealers, so they are targeting their strong web presence to attract customers to come to the dealership to purchase.
They are enhancing the customer experience and building loyalty through demos; fixing landscaper’s equipment quickly; and going as far as knowing what types of grasses customers might have. Ultimately, localized market knowledge is key.
I would implore independent dealers to take a step back and look at their businesses holistically. Clean storefronts and great service are important, but how do you pull customers in via the internet? Are you active on social media? If you are, you can still do very well and that’s what many have seen over the last number of years.
RLD: What are you seeing the more successful dealers doing in terms of monitoring their inventory financing?
Horak: We always recommend our dealers to pay for equipment as they sell it to keep their books up to date. We also encourage them to use all of the tools we make available to them through our online management system, such as monitoring and watching how their aging inventory is turning.
One of the tools we offer, the Insights tool, has been impactful for our dealers by allowing them to see how they compare with their peers and self-evaluate how they are doing. This is crucial for us as well because it means we can help them reduce their carrying costs.
RLD: How are you evaluating dealers in terms of their credit worthiness for floor plan financing?
Horak: For dealers with sales up to $1 million, we evaluate based on our credit scoring model that is primarily predicated on a customer’s external and internal (with CDF) payment experience with the customer. We have found that closely evaluating the manner in which customers with smaller credit lines take care of their personal and business payment obligations, managing inventory levels and focus on inventory turn is more representative of a customer’s credit worthiness than financial statements, which are lagging indicators.
For dealers with sales over $1 million, we evaluate financial statements; how current they are with their bills; how much capital they have; and a few other factors.
RLD: What are your expansion plans?
Horak: We sign up about 1,000 new dealers every year. While our portfolio is mostly east of the Mississippi, the Midwest has always been strong and the south has been strong as well, particularly in Texas and Louisiana. For those Texas and Louisiana dealers that were affected by Hurricane Harvey, we’re working with our key manufacturing partners on interest relief. We are also doing the same for dealers who have been affected by Hurricane Irma.
RLD: What about options for dealers in terms of consumer financing?
Horak: We are offering that in the commercial agriculture space, but not in the lawn & garden segment. We’re evaluating it and think it would be a nice enhancement to what we offer now. I think it would be fair to say that we would have our evaluation done within the next 2 years to see about adding it to the Wells Fargo portfolio for dealers.
RLD: What’s new in terms of your support for dealers?
Horak: Last year we launched CDFconnect, which is about bringing knowledge to our industry around succession planning, financial statements, and digital marketing. We also have a module about how we evaluate credit, so dealers can better understand how we evaluate their balance sheet and overall performance. We want to be very transparent with our dealer channel regarding how we evaluate them. CDFconnect is about driving the health of the channel and trying to differentiate ourselves.