Carole Lewis, president of Salem Farm Supply, didn’t plan on making her living as a farm equipment dealer, but life had different plans for her. Her father, Philip Lewis, purchased Salem Farm Supply in 1988 from the original owner. Philip was an investment banker from New York City who had moved to the area intending to buy a business. One day, he came in to Salem Farm Supply looking to buy a tractor, and he ended up buying the dealership, Lewis says.

Lewis, in a way, grew up in the dealership and spent summers working there. Then she went off to Bowdoin College in Maine to study history and planned to attend law school upon graduation. She had even taken the LSAT (Law School Admission Test) and had done internships in preparation to study law. But, her father had one request: come back and work at the dealership for 1 year. If she didn’t like it, she could go on with her law school plans with no questions asked.

So, Lewis returned to Salem Farm Supply and was working in a mostly administrative role. Philip, who had moved down to Florida in the mid-2000s due to health reasons, was still very active in the business but had removed himself from the day-to-day operation. In the spring of 2012, Philip passed away unexpectedly. Lewis had been at the dealership fulltime for just 1 year. “Because his death came quicker than he expected, he hadn’t really laid out a succession plan. He had passed along all the responsibilities to Bill (Martel, general manager) but we hadn’t, as a family, figured out exactly what was going to happen, if there would be an employee buy-in, or what the direction of the dealership would be,” Lewis says. In the end, she became a 50/50 owner with her mother, Berta Lewis.

“Believe it or not, a lot of our manufacturers were very hesitant to have a 23-year-old sign their dealer agreements — a 23-year-old who had one year of business experience and also was a girl, which I think some of them also took into consideration. A lot of them didn’t think that I was serious about pursuing the business.”

It turns out though, she was serious about pursuing the business and making sure it remained a large ag dealership. Thanks to a healthy dose of determination and focus on the parts of Lewis and Martel, along with an extremely supportive staff, Salem Farm Supply got through the crisis and came out on top. The dealership saw a 20% increase in revenue growth in 2013, followed by a 23% improvement in 2014. This healthy growth is why Salem Farm Supply was selected by an independent panel of judges as Farm Equipment’s 2014 Dealership of the Year in the under $75 million in revenues category.

Overcoming the Crisis

In addition to convincing their manufacturers they were serious about staying in business, Salem Farm Supply had to field questions and concerns from customers and what seemed like a never-ending line of other dealers who were looking to acquire the single-store Case IH dealer. “It was like a feeding frenzy. There were a lot of dealerships in Central New York and the region who were very interested in acquiring the dealership,” Lewis says. “It seemed inconceivable to a lot of people that the dealership wanted to continue under my family’s ownership and that I would be staying on and that Bill would be staying on.”

But, they both stayed on and in fact, the dealership experienced zero employee turnover during the transition. “Nobody left, which says a lot. There was a lot of confidence in the business, despite our manufacturers wavering a little,” Lewis says. (Related video: Developing a Manufacturer-Approved Succession Plan)

Convincing the manufacturers to stay on board was a bigger challenge, however. Lewis says several manufacturers put a number of conditions on the dealership in order to continue carrying their lines. “They said, ‘Well, you need to prove you’re committed to our brand.’ So, in addition to having market share goals that we had to meet, there were things with the facilities, like new signage, and they wanted us to hire new personnel. As a result, our employee number has grown significantly over the last 4 years,” she says.

To a certain extent, Lewis says the conditions Case IH put on the dealership to continue being a dealer mirrored the company’s Pinnacle program. “I can understand where they’re coming from with the signage to an extent. I think it does make some dealerships look more professional and the customer would spend more money at a place that actually looks like a dealership,” Lewis says. “But some of it is a little ridiculous.”

Lewis may be young, but she’s a smart young woman who pays attention to details. She says following her father’s death, some manufacturers came in and tried to strong-arm her. “If you read the dealer agreements very carefully, you’ll see that we were allowed X amount of days after the death of the owner to reorganize and regroup. And some of the manufacturers were disregarding that and trying to take advantage of the situation. So, it was just a lot of reading fine print on my part,” she says.

Ritchie Implement has seen solid growth over the last 3 years, with 2 consecutive years of revenue increasing more than 13%.

She also hired a lawyer to make sure she knew what their rights as a company were. The lawyer did contact a couple of the manufacturers to inform them the dealership had asked for legal counsel.

Lewis says the easy road would have been to let go of being a big ag dealer and focus on their Kubota line and consumer products. “We could have said, ‘It’s too much hassle,’ and focused on those other brands. And that probably would have been easier. We really had to decide to stick with it and commit to being a large ag dealership.”

The downside of that approach, Martel says, they likely would have had to lay off 5-8 people, primarily in the service department. “The shop is pretty much run on Case IH products and old International products. If you walk out the door, that’s what you’ll see — 90% of what’s there is red iron being worked on. Service work on Kubotas doesn’t pay the bills,” he says.

During this time, Salem Farm Supply was also in the process of recovering from losing a high-performing salesperson and an office manager in 2011.

“He was our main pusher of red iron. We were getting pressure to increase our market share when our contract was up in the air,” Lewis says. “So to lose the main person that was helping you reach those numbers and then to have a very short time period in which to replace them and exceed the numbers that experienced person was hitting was quite the challenge.”

Bill Martel, Salem Farm Supply’s general manager, says sales margins for the parts department is one of the most important metrics to watch. “You’ve got to have the margins in the parts department every month to carry the business,” he says.

As a result, sales in 2012 were down 13%. The pressure was on to be successful in 2013. “We knew that we had to sell X number of tractors in 2013 — and sell them come hell or high water,” Martel says. “If there were any deals we were going to lose money on, those were going to be the ones. But, we were going to get some Case IH tractors sold.” Even with the challenges the dealership faced, 2013 was a successful year as revenues increased by 20% over 2012.

“It was a very difficult period. But then 2014 came and we had the best year we’ve ever had in 60-some years of being in business,” Martel says.

A Fresh Perspective

Given the circumstances, Lewis had to do a lot of learning on the go. But, she did bring a fresh perspective to the dealership and how things were managed. “The biggest takeaway I got is just being flexible and keeping an open mind and listening to what the employees have to say,” she says. “One benefit of being younger and not a veteran of the industry is that I’m not necessarily stuck in a mindset of how a dealership should be run. I’m not a 50-year old who has been in the business for years and has blinders on about how the business should be operated. I’m a lot more willing to hear what people have to say and act on it.”

One area she’s taken a different stance than her late father is precision farming. “He was against hiring a GPS specialist. He didn’t like adding more people to the workforce and didn’t think we would get much return on investment by adding someone strictly devoted to precision farming,” Lewis explains.

Today Salem Farm Supply has a GPS specialist, and while Lewis isn’t 100% confident they’ve recouped the expense of adding the staff person, she is confident that it has added value to the dealership. It has also set the dealership apart from its closest competitor, which does not have a precision specialist on staff.

As well as tapping into Martel’s 25 years of dealership experience, Lewis has picked up a couple of mentors along the way. While she doesn’t have the personal history of living through the farm crisis of the 1980s, Lewis has made connections with dealers in other areas that she can go to for advice. One is another dealer in upstate New York. “I asked him, ‘Were the ‘80s really as bad as people make it out to be?’ He joked and told me he couldn’t remember.” Lewis also regularly emails a dealer in Canada to bounce ideas she has off her.

Tracking the Numbers

A large part of Salem Farm Supply’s success is its focus on the numbers. Both Lewis and Martel study their financial statement daily. “Our dealership is very cash oriented. I know a lot of people say that, but we show it through our actions,” Lewis says. “We have a very healthy cashflow. That is our number one priority. My mother and I invest a lot back into the dealership, and I try to subtract that out to see what the dealership is actually doing without the ownership’s equity.”

“I’m watching sales dollars, margins for used sales and wholegoods and the ratios. I have a good idea of what we need to do for sales for the month to break even. I can usually tell by the 20th of a month if we’re going to make any money or not. And if not, we’ve got to step it up and find some ways to get some things sold in the next 10 days,” Martel says.

What are the most critical numbers? For Martel it is sales dollars and the margins on the sales dollars. And that’s sales dollars across the board — used equipment, new equipment and parts, he says. “You’ve got to have the margins in the parts department every month to carry the business. Because you’ll never get to profitability in a month’s time if you don’t have that to support you.”

Currently, Lewis says their absorption rate has been about 70% for the year so far, which isn’t far off from the 74% absorption they achieved in 2014. After attending a management course on financial planning that was largely focused on absorption rates, Lewis wanted to make sure every Salem Farm Supply employee truly understood what the parts and service absorption rate is and why it is critical to the dealership’s success. “I wrote a memo on exactly what is absorption rate, what it shows and how to measure it. It was distributed to all the employees,” she says.

Today, Lewis says the service department knows exactly what its absorption rate is. “I also post their expenses for the month and compare what they spent during the month vs. the previous year so they can see the year-over-year change.”

For the parts department, Lewis tracks the gross margins weekly and sets a goal. “Typically, I’ll take the average of the previous 2 years’ gross margins for a given period. Then, depending on how our performance has been over the past few months, I might bump it up,” she explains. “The number gets posted by the parts manager’s office. They’re pretty good at meeting it once they see that number. And they know each week how close they are, how much of a gap there is.”

The majority of the time, Lewis says the parts department meets the goal. And when they hit the goal, everyone in the department gets an equal bonus. Since starting the incentive program, the dealership’s absorption rate has improved.

Inventory Turns

Another important metric is inventory turns. For new Kubota wholegoods, Martel says they are hitting slightly over 2 turns. Parts inventory is approaching a 4 times turns. The biggest challenge, as for many dealers, is used inventory turns. “Listing the used equipment online is helping with the inventory. It also comes down to being picky about what we accept for used inventory. Bill has passed on some sales just because we don’t want to be stuck with the trade,” Lewis says.

Salem Farm Supply works with a few equipment jockeys in the Mid-Atlantic area to move used equipment that has been sitting for too long. “Sometimes I’ll just use them to find out what they would pay for something. All some of these guys do is go to auction day after day. So, they are good to bounce off of what something’s real market value is,” Martel says.

Martel also uses Iron Guides, Fast Line, Tractor House and Equipment Locator to gauge the right price for a trade. “The books are good, but they’re not always gospel. Sometimes, you’ve got to put some real world sense into it too,” he says.

Today, Martel personally does all the pricing on trades, but that wasn’t always the case.

Martel says it can be challenging when the competition will give customers more on a trade than Salem will. “We’ve been doing this for 60-plus years — we know what 20-year old manure spreaders are worth. And they’ll go in and put three, four, five thousand dollars more on top of the trade than we will. But they will never get it back. They’re trying to buy the deal and hoping to get the next one. We just don’t want to play that game,” he says.

For some smaller used items, like old rakes, mowers and back blades, one salesperson will use Craigslist to sell them.

“It’s a great place for those items. He’ll put 10 pieces up there and the phone will ring off the hook. It works great for the less expensive, more widely used items.” Martel says.

Incentivizing Sales

Salem Farm Supply’s sales staff is completely salary based, unlike many other dealers who sell on commission. One reason, Martel says, is nearly every piece of equipment sold today has some sort of spiff attached to it. “Some of them are rather large. We had a salesman just settle on two skid loaders last week and they were $600 a piece and then $250 extra for the month of May, so he got $850 each. That’s $1,700 for two skid loaders — holy cow,” he says.

In the past, the dealership has used sales incentive programs.

“For example, the first salesperson to sell three red tractors would have a list of prizes they could choose from, like a new iPad, an office chair or a trip,” Lewis says.

The real benefit of the program though is all of the prizes were items that could be redeemed with the dealership’s credit card points, Lewis explains. “It was essentially free. We didn’t really have to put anything into it, and they responded well to it.”

Employee Focused

The success Salem Farm Supply has had in the last 2 years, and the 60 years prior, couldn’t have been achieved without a strong employee focus. “Other than that one blip in 2011, we have very little employee turnover. A lot of the people who work here started out really young,” Lewis says.

Everyone in a management position previously held another position within the dealership, and Lewis says they strongly believe in promoting from within. “A lot of people working here know that this is a career, not just a job. And a lot of them plan on working here for many, many years. That helps their customer service and willingness to go the extra mile to protect the reputation of the dealership,” she says.

Lewis and Martel have an open door policy with their employees, and they say their employees take full advantage of it. “People constantly come in and give their feedback. A lot of them will say, ‘In 5 or 10 years, I am interested in pursuing this position in sales or I am interested in going on the road or getting off the road.’ They tell us where they want to be in 5 or 10 years, and it’s always some place in the dealership. They’re not saying they want to leave, which is really nice especially when you invest so much money in training,” says Lewis.

Having employees who have worked in multiple departments has also helped improve the customer experience. For example, Salem Farm Supply has a salesperson who used to be in parts. “When customers come in to purchase a tractor, he’s very good at bringing them over to the parts department and easing the transition from being a wholegoods customer to being a future parts customer,” Lewis say.

Service manager Pete Beecher (r) discusses a service job with service technician Cody Keys. Salem Farm Supply has begun the process of planning an expansion project for the service shop.

The open door policy, along with a new crop of millennial employees, has resulted in a staff who is honest with Lewis and Martel when they’ve been approached about another job offer. “They’re trained really well, they are great at customer service and they have a great reputation. And a lot of them will tell us, ‘Someone’s approached me. Where do you see the dealership in 5 or 6 years?’ I think part of it is because they’re just younger and they have to know the reasons behind everything.

“We need to explain ourselves, which Bill and I have done a lot. And Bill’s commented that this is a new thing. But they’ll come in, they’ll say, ‘What is Salem Farm Supply going to do that is worth keeping me here?’ We plan on expanding the shop, not only just to accommodate more and larger equipment, but also to keep this a competitive workplace and a competitive employer. Some of our other competitors have built new shops. No one wants to work in the ‘ugly duckling’ shop,” Lewis says.

With a number of techs who travel quite far to work at Salem, Lewis says the dealership is willing to do whatever they can to make it a nice place to work and keep their interest.

“You have to listen to the employees and listen to the customers. Really, that’s at the heart of it all. You may not react every time a customer or an employee comes and gripes. But you’ve got to listen, some of it you’re going to use and some you’re not. But they need to know that they had their say,” Martel says.

To help keep its employees up to date, Salem Farm Supply also invests in training. The dealership has set off a separate office for the service department for Web-based learning. In addition, everyone from the parts counter through upper management regularly participates in other training programs.

“Recently we brought in a rep from our oil supplier who put on a presentation for the parts and service guys. He talked about new DEF fluids and made sure the employees were aware of what’s new. He taught them the sales side of why our product is better and not just more expensive.”

In 2011, the dealership brought in a DIS rep for onsite training on their business system. “I would highly recommend doing that,” Lewis says.

“The rep laughed at a couple of the ways we were doing some of our processes — entering payables and things like that. It was clear we were stuck in a rut and not doing things as efficiently as we could. It’s important to make sure that your training for your business system is really up-to-date,” Lewis says. “Having her come out was well worth the expense.”

In addition to regular product and sales training, Salem Farm Supply offers staff the opportunity to become CPR certified. The dealership brings in someone from the local rescue squad to teach first aid and CPR in an effort to create a safe work and retail environment for staff and customers alike.

Establishing a Succession Plan

One of the conditions Salem Farm Supply had to meet following Philip’s death in 2012 was establishing a succession plan. However, with an owner who is only 26, the strategy is a little different than perhaps the typical dealer succession plan. Lewis says if anything were to happen to her mother, she would retain 100% ownership of the dealership and vice versa. “If my mother was the surviving person, then an employee buy-in program would be pursued. I have an uncle in Indiana who has an accounting firm that serves some dealers. He would serve as a mediator. He’s familiar with the business, but would still be able to be unbiased and work with upper management to structure the plan,” Lewis explains.

Of course, if and when Lewis has children, the succession plan would have to be revisited, she says.

Planning for Growth

Lewis has big plans for Salem Farm Supply. “I want to be the premier tractor dealership where you walk in and it’s similar to the best car dealerships where the buying process is more streamlined,” she says. (Related video: Salem Farm Supply: Company Outlook & Goals)

Because Salem, N.Y., is a small community of less than 2,000 people, the dealership invests a significant amount of money on advertising to attract people to the area. “When you get here, we want it to be a destination that was worth the trip,” Martel says. “They’re not driving by us just because it’s a major highway out here. We’ve got to get people to drive here.” (Related video: Marketing for a Dealership in a Remote Area)

Lewis believes they are in the process of becoming a premier dealership. They are currently working with a builder to determine how they will expand the facility. For sure a new shop is being planned, but they have not ruled out a completely new facility. However, she is quick to add that they would not find a new location. She wants to keep the dealership where it is. Lewis says ideally they will have at least expanded the shop within the next 3 years.

“We’re going into a down cycle and it will be a big expense. But we’ve outgrown this shop. If we want to continue being competitive and support all the large pieces of equipment that we’ve already got in the field, it’s a necessary expense,” she says.

In addition to planning a facility expansion, Martel is also planning for staff turnover and expansion. “We’ve got a couple of 44-year veterans here. I know in the next 5 years we’re going to have some changes to deal with in our sales department, and I worry about that,” he says. “It’s my job to see we generate $15-plus million in wholegoods sales, whether it be new or used. Those two men generate $6-plus million of those sales. Finding the right people to fill those chairs concerns me, and it’s going to take a while to do. So I’m trying to make sure when that day comes, we’re prepared.”

Currently, Salem Farm Supply has 5 salespeople. Lewis says while they may not need 6 salespeople right now, they are actively looking for replacements for their more veteran staff even though they don’t know exactly when they will retire. “We may need to have 6 or 7 salesmen employed at the same time just to smooth the transition,” she says. “We don’t want to be understaffed in that department like we were before. We’d rather be overstaffed.”

While in the past Salem Farm Supply has been committed to remaining a single-store dealership, Lewis says now they are looking for expansion opportunities with other dealerships. One thing is for sure, Salem Farm Supply isn’t going anywhere.

“I have a lot of pride in Salem Farm Supply and I think we have a really unique story. Not just as a cautionary tale, but as a survival story. Being named Dealership of the Year just solidifies that we are here for the long run and that we’re serious about running a farm equipment dealership.”