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Slum Lord
MOLINE, Ill. -- For more than a century, Deere & Co. has relied on dealers to sell its iconic John Deere tractors and other farm equipment. Deere dealers like to brag that they "bleed green," the company's trademark color.
[Robert Lane]
But even as the farm boom helps Deere harvest record profits, dozens of North American dealerships are getting sent out to pasture, including some that have passed through families for generations. Chief Executive Robert Lane says times have changed. In an age when tractors use satellites to track the location of every seed, he says, dealers must match the sophistication and size of agribusiness customers.
"For years we talked about Deere as a family," says Mr. Lane, a former banker. "The fact is, we are not a family. What we are is a high-performance team....If someone is not pulling their weight, you're not on the high-performance team anymore."
Deere's overhaul is one answer to a challenge faced by many large businesses that distribute their products through independent retailers. These retailers are supposed to know the local turf and market the product more effectively than a big corporation could. But if the retailers are too small-scale, their inefficiencies could outweigh the advantages.
To some Deere dealers, the transition feels like a betrayal. Raymond Warren spent 34 years working his way up from salesman to owner of a dealership in Wakefield, Va. In late 2002, Mr. Warren says he began receiving letters, emails and visits from Deere officials almost monthly urging him either to bulk up by acquiring another dealer or cash out. (Deere declined to comment on individual cases.) He finally sold to another dealer in 2005.
Deere has "no feeling of remorse whatsoever or compassion for the dealer who has made them what they are today," says Mr. Warren.
One of his former customers, Paul Rogers Jr., agrees. When Mr. Rogers wanted to start his cotton harvest early last September, his Deere dealer was out of spindle grease for his cotton picker. "I got mad and told them what they could do with their spindle grease when they had it in," says the farmer. "When you own multiple stores, you don't give the same service as when you rely on a single store for your livelihood."
The 57-year-old Mr. Lane, who took the driver's seat at Deere seven years ago, fears small dealers don't have the wherewithal to hire enough skilled staff or track parts inventories. Also, Deere is trying to wean itself from years of overproduction at its factories, and it needs dealers who can manage inventory well.
By contract, dealers have to meet Deere's performance targets or face losing their right to sell Deere products. If someone wants to transfer his dealership to a child or anyone else, Deere must approve.
With the help of a strong U.S. farm economy, Deere has done well under Mr. Lane. Despite a recent dip, the company's stock price is nearly double the level of two years ago. It has doubled its dividend in the past three years.
Deere expects net income of $1.55 billion in the year ending Oct. 31. That's slightly above the previous year, excluding its discontinued health-care business, and well above $643 million four years ago. Sales are expected to top $20 billion this year, compared with $13.3 billion four years ago. (The sales figure doesn't include revenue from financial operations.)
Kip Tom, president of Tom Farms LLC in Leesburg, Ind., says he is pleased with Deere's changes. Mr. Tom owns or rents 12,000 acres growing corn, soybean and tomatoes. All of his 17 tractors are Deere machines, and he says he counts on the dealer to keep them running. A dealer has to have "a good set of business skills when you're managing a customer like us," he says. Deere's consolidation drive is "just basically sorting out the stronger ones."
In general, a big company has ample motive to consolidate its distributors. It needs fewer managers to oversee distribution and spends less time chasing bad debts from marginal operators. Also, giving dealers bigger territories reduces the chance that they'll engage in price wars. That's especially important today when customers, whether car buyers or farmers, can compare prices on the Internet, says Adam J. Fein, a consultant in Philadelphia.
[Deere]
Deere had 2,984 dealer locations in the U.S. and Canada as of last year, down 12% from the 3,400 it counted in 1996. Deere says the number of owners has shrunk at an even faster pace, as more owners take control of multiple locations, although it declines to give owner numbers.
Few manufacturers are more deeply rooted in the American soul than Deere, founded in 1837 by a blacksmith who devised a new type of plow that revolutionized Midwest farming. Over the decades, dealers sprouted throughout the country, reaching more than 10,000 in the 1920s.
The number began to decline in the 1930s and 1940s as mechanized farm equipment spread and service became a bigger part of the business. The traveling salesmen of an earlier era faded out in favor of dealers who could fix what they sold. Today, big dealership groups may ring up more than $100 million in annual sales, and even small dealers bring in $5 million to $8 million.
Mr. Lane inherited a company accustomed to big profit swings based on how the agricultural economy was faring. Like Detroit's Big Three car makers, Deere tended to pump out more product than its customers wanted, forcing dealers to discount to clear surplus inventory in weak times.
Mr. Lane tells a story of taking his then-10-year-old son to a Chevrolet dealership in Davenport, Iowa, 20 years ago. Shopping for a Suburban, Mr. Lane noted the dealership had eight of that model on the lot. He told his son he would reject eight offers by the salesman before agreeing to a deal. Sure enough, the salesman kept lowering his price. "He's got a lot to sell here, so he's really hungry," Mr. Lane recalls telling the boy.
That was the kind of situation Mr. Lane wanted Deere to avoid. He told his executives to find ways to boost profitability. One step was to streamline manufacturing plants so they could respond more quickly to changes in demand.
As the executives looked for inefficiencies, they also began to focus on dealers who were having trouble meeting profit and customer-loyalty targets. At a series of meetings in Louisville, Ky., in the summer of 2002, Deere's brass told dealers they should plan on a future in which they would either be a buyer or a seller. Tim Tyndall, who at the time owned a Deere store in Salisbury, Md., recalls attending a farm-equipment auction that fall. Several dealers half-jokingly went around the circle asking who would be shark and who would be bait. "Everybody said, 'Well, I'm a shark,' " he says.
Mr. Tyndall ended up becoming neither. He later merged his store with a dozen or so others to form a conglomerate.
Deere has also tried to force some dealers to sell Deere products exclusively, which can be tough on smaller dealers. A dealer association has threatened to take its concerns to state attorneys general over the exclusivity issue. Separately, at least two dealers have sued the company over its drive to force them to expand or sell out.
Deere's main competitors, Agco Corp. of Duluth, Ga., and CNH Global NV, which is majority-owned by Fiat Group SpA of Italy, are also pursuing dealer consolidation, but industry observers say Deere's push has been more aggressive.
Technology is a key reason size matters, says Deere. On some of today's tractors, farmers needn't even touch the steering wheel: The machines turn themselves, to ensure that no patch of soil is covered twice. Their computers can be programmed to track soil temperature and control fertilizer spraying.
Owen Palm, who co-owns five stores in western Nebraska, thinks the main advantage of getting bigger is that he can afford to hire more skilled managers and technicians. "If you have a single store or even a couple of stores, you don't have the volume to justify hiring the type of people you really need," he says.
Mr. Palm has bought equipment and assets from three dealerships over the past nine years, as their owners retired and Deere refused to let someone else take over. Mr. Palm says his bigger stores offer better service than the shuttered dealers, although some customers complain they now have to travel as much as an hour to reach their nearest dealer.
Drew Eggers farms about 700 acres of mint, winter wheat and corn in southwestern Idaho. Last October, during winter wheat planting season, the mechanical arm that raises and lowers his planter broke. His dealer didn't have the part, but a sister store 50 miles away owned by the same operator did. Mr. Eggers says he received the part the next morning and quickly had his machine back in service.
Consolidation hasn't always lowered costs, as Mr. Tyndall in Maryland found out when he joined with other dealers to create Atlantic Tractor LLC. Employee-benefit costs went up as Atlantic unified its benefits package under the more-generous terms some dealers had offered. To underscore the benefits of the merger, it offered customers next-day delivery of out-of-stock parts. That required overnight trucking runs costing $500,000 a year, says Mr. Tyndall.
Atlantic's total return on sales -- a measure of profitability closely watched at Deere -- was less than 1% last year. That compares with about 4% at each of the half-dozen individual dealers before the merger, says Gregg Rebar, Atlantic's chief operations officer. He believes Atlantic will eventually get back to that level.
Farm equipment accounts for about half of Deere's total sales, but the company also has a significant business selling machines such as $200 weed trimmers and $1,500 riding lawn mowers to consumers and commercial landscapers. Some dealers carry multiple Deere franchises and sell both to farmers and consumers.
Here too Deere has sought to consolidate its dealers. Seeing its customers migrating to home-improvement stores such as Home Depot or Lowe's, Deere has added those retailers to its lineup -- which left it with too many lawn-and-garden outlets dotted across the U.S.
Many dealers who have lost their Deere outlets are bitter. Jerry Marx, 72, spent most of his life working in Deere dealerships. He and his wife, Judy, had hoped to pass their store in Princeton, Ind., to their children. But Mr. Marx says a Deere official told them in August 2002 that other dealers in the region were growing larger and would eventually drive them out of business. Deere wouldn't allow the Marxes' children to take over the dealership.
The Marxes gave up their Deere dealership in January 2003, and the store has struggled trying to sell other brands of tractors and lawn mowers. "The whole thing is just like a nightmare," Mr. Marx says.
Mr. Lane allows that not all dealers are happy with the consolidation. "It really isn't about us liking or not liking" dealers, he says. "We explain what's going to happen, and they can make choices. Some may say, 'Well, that's not what grandfather had in mind but that's what I'm going to do.' "
[Robert Lane]
But even as the farm boom helps Deere harvest record profits, dozens of North American dealerships are getting sent out to pasture, including some that have passed through families for generations. Chief Executive Robert Lane says times have changed. In an age when tractors use satellites to track the location of every seed, he says, dealers must match the sophistication and size of agribusiness customers.
"For years we talked about Deere as a family," says Mr. Lane, a former banker. "The fact is, we are not a family. What we are is a high-performance team....If someone is not pulling their weight, you're not on the high-performance team anymore."
Deere's overhaul is one answer to a challenge faced by many large businesses that distribute their products through independent retailers. These retailers are supposed to know the local turf and market the product more effectively than a big corporation could. But if the retailers are too small-scale, their inefficiencies could outweigh the advantages.
To some Deere dealers, the transition feels like a betrayal. Raymond Warren spent 34 years working his way up from salesman to owner of a dealership in Wakefield, Va. In late 2002, Mr. Warren says he began receiving letters, emails and visits from Deere officials almost monthly urging him either to bulk up by acquiring another dealer or cash out. (Deere declined to comment on individual cases.) He finally sold to another dealer in 2005.
Deere has "no feeling of remorse whatsoever or compassion for the dealer who has made them what they are today," says Mr. Warren.
One of his former customers, Paul Rogers Jr., agrees. When Mr. Rogers wanted to start his cotton harvest early last September, his Deere dealer was out of spindle grease for his cotton picker. "I got mad and told them what they could do with their spindle grease when they had it in," says the farmer. "When you own multiple stores, you don't give the same service as when you rely on a single store for your livelihood."
The 57-year-old Mr. Lane, who took the driver's seat at Deere seven years ago, fears small dealers don't have the wherewithal to hire enough skilled staff or track parts inventories. Also, Deere is trying to wean itself from years of overproduction at its factories, and it needs dealers who can manage inventory well.
By contract, dealers have to meet Deere's performance targets or face losing their right to sell Deere products. If someone wants to transfer his dealership to a child or anyone else, Deere must approve.
With the help of a strong U.S. farm economy, Deere has done well under Mr. Lane. Despite a recent dip, the company's stock price is nearly double the level of two years ago. It has doubled its dividend in the past three years.
Deere expects net income of $1.55 billion in the year ending Oct. 31. That's slightly above the previous year, excluding its discontinued health-care business, and well above $643 million four years ago. Sales are expected to top $20 billion this year, compared with $13.3 billion four years ago. (The sales figure doesn't include revenue from financial operations.)
Kip Tom, president of Tom Farms LLC in Leesburg, Ind., says he is pleased with Deere's changes. Mr. Tom owns or rents 12,000 acres growing corn, soybean and tomatoes. All of his 17 tractors are Deere machines, and he says he counts on the dealer to keep them running. A dealer has to have "a good set of business skills when you're managing a customer like us," he says. Deere's consolidation drive is "just basically sorting out the stronger ones."
In general, a big company has ample motive to consolidate its distributors. It needs fewer managers to oversee distribution and spends less time chasing bad debts from marginal operators. Also, giving dealers bigger territories reduces the chance that they'll engage in price wars. That's especially important today when customers, whether car buyers or farmers, can compare prices on the Internet, says Adam J. Fein, a consultant in Philadelphia.
[Deere]
Deere had 2,984 dealer locations in the U.S. and Canada as of last year, down 12% from the 3,400 it counted in 1996. Deere says the number of owners has shrunk at an even faster pace, as more owners take control of multiple locations, although it declines to give owner numbers.
Few manufacturers are more deeply rooted in the American soul than Deere, founded in 1837 by a blacksmith who devised a new type of plow that revolutionized Midwest farming. Over the decades, dealers sprouted throughout the country, reaching more than 10,000 in the 1920s.
The number began to decline in the 1930s and 1940s as mechanized farm equipment spread and service became a bigger part of the business. The traveling salesmen of an earlier era faded out in favor of dealers who could fix what they sold. Today, big dealership groups may ring up more than $100 million in annual sales, and even small dealers bring in $5 million to $8 million.
Mr. Lane inherited a company accustomed to big profit swings based on how the agricultural economy was faring. Like Detroit's Big Three car makers, Deere tended to pump out more product than its customers wanted, forcing dealers to discount to clear surplus inventory in weak times.
Mr. Lane tells a story of taking his then-10-year-old son to a Chevrolet dealership in Davenport, Iowa, 20 years ago. Shopping for a Suburban, Mr. Lane noted the dealership had eight of that model on the lot. He told his son he would reject eight offers by the salesman before agreeing to a deal. Sure enough, the salesman kept lowering his price. "He's got a lot to sell here, so he's really hungry," Mr. Lane recalls telling the boy.
That was the kind of situation Mr. Lane wanted Deere to avoid. He told his executives to find ways to boost profitability. One step was to streamline manufacturing plants so they could respond more quickly to changes in demand.
As the executives looked for inefficiencies, they also began to focus on dealers who were having trouble meeting profit and customer-loyalty targets. At a series of meetings in Louisville, Ky., in the summer of 2002, Deere's brass told dealers they should plan on a future in which they would either be a buyer or a seller. Tim Tyndall, who at the time owned a Deere store in Salisbury, Md., recalls attending a farm-equipment auction that fall. Several dealers half-jokingly went around the circle asking who would be shark and who would be bait. "Everybody said, 'Well, I'm a shark,' " he says.
Mr. Tyndall ended up becoming neither. He later merged his store with a dozen or so others to form a conglomerate.
Deere has also tried to force some dealers to sell Deere products exclusively, which can be tough on smaller dealers. A dealer association has threatened to take its concerns to state attorneys general over the exclusivity issue. Separately, at least two dealers have sued the company over its drive to force them to expand or sell out.
Deere's main competitors, Agco Corp. of Duluth, Ga., and CNH Global NV, which is majority-owned by Fiat Group SpA of Italy, are also pursuing dealer consolidation, but industry observers say Deere's push has been more aggressive.
Technology is a key reason size matters, says Deere. On some of today's tractors, farmers needn't even touch the steering wheel: The machines turn themselves, to ensure that no patch of soil is covered twice. Their computers can be programmed to track soil temperature and control fertilizer spraying.
Owen Palm, who co-owns five stores in western Nebraska, thinks the main advantage of getting bigger is that he can afford to hire more skilled managers and technicians. "If you have a single store or even a couple of stores, you don't have the volume to justify hiring the type of people you really need," he says.
Mr. Palm has bought equipment and assets from three dealerships over the past nine years, as their owners retired and Deere refused to let someone else take over. Mr. Palm says his bigger stores offer better service than the shuttered dealers, although some customers complain they now have to travel as much as an hour to reach their nearest dealer.
Drew Eggers farms about 700 acres of mint, winter wheat and corn in southwestern Idaho. Last October, during winter wheat planting season, the mechanical arm that raises and lowers his planter broke. His dealer didn't have the part, but a sister store 50 miles away owned by the same operator did. Mr. Eggers says he received the part the next morning and quickly had his machine back in service.
Consolidation hasn't always lowered costs, as Mr. Tyndall in Maryland found out when he joined with other dealers to create Atlantic Tractor LLC. Employee-benefit costs went up as Atlantic unified its benefits package under the more-generous terms some dealers had offered. To underscore the benefits of the merger, it offered customers next-day delivery of out-of-stock parts. That required overnight trucking runs costing $500,000 a year, says Mr. Tyndall.
Atlantic's total return on sales -- a measure of profitability closely watched at Deere -- was less than 1% last year. That compares with about 4% at each of the half-dozen individual dealers before the merger, says Gregg Rebar, Atlantic's chief operations officer. He believes Atlantic will eventually get back to that level.
Farm equipment accounts for about half of Deere's total sales, but the company also has a significant business selling machines such as $200 weed trimmers and $1,500 riding lawn mowers to consumers and commercial landscapers. Some dealers carry multiple Deere franchises and sell both to farmers and consumers.
Here too Deere has sought to consolidate its dealers. Seeing its customers migrating to home-improvement stores such as Home Depot or Lowe's, Deere has added those retailers to its lineup -- which left it with too many lawn-and-garden outlets dotted across the U.S.
Many dealers who have lost their Deere outlets are bitter. Jerry Marx, 72, spent most of his life working in Deere dealerships. He and his wife, Judy, had hoped to pass their store in Princeton, Ind., to their children. But Mr. Marx says a Deere official told them in August 2002 that other dealers in the region were growing larger and would eventually drive them out of business. Deere wouldn't allow the Marxes' children to take over the dealership.
The Marxes gave up their Deere dealership in January 2003, and the store has struggled trying to sell other brands of tractors and lawn mowers. "The whole thing is just like a nightmare," Mr. Marx says.
Mr. Lane allows that not all dealers are happy with the consolidation. "It really isn't about us liking or not liking" dealers, he says. "We explain what's going to happen, and they can make choices. Some may say, 'Well, that's not what grandfather had in mind but that's what I'm going to do.' "
