Farm equipment dealers who cater to row-crop operations with large ag machinery and implements have been particularly affected by the downturn in the ag economy. And the beat down goes on. In January, U.S. sales of large tractor and combines fell by 34% and Canadian sales were down by 18%. This marked the 36th consecutive month of year-over-year declines.
In response to this ongoing trend and to position itself to emerge from the downturn stronger with streamlined operations, Titan Machinery announced it is closing several retail locations and introducing a new operating model that refocuses its local operations on parts and service sales.
On Feb. 9, Titan said it would be consolidating more than a dozen of its ag equipment locations during the first half of 2017. Lost in the reporting of the announcement was the fact that North America’s largest farm machinery dealer group is also completely restructuring operations at its remaining locations. The company is evolving the Strong Store Manager model that it used to expand to nearly 100 stores after going public in 2007 to what it calls, the Expert Team model.
“Reorganization of dealership management will result in area managers with a focus on certain offerings (e.g., equipment sales, equipment rental, product support) rather than each location having a manager for the entire business,” said Mig Dobre, analyst with RW Baird in a note to investors. “Management expects this to have some cost savings but we understand the primary motive to be more focused with talented management in each business area.”
Store Closings
The stores affected by the most recent announcement are many of the company’s smaller locations. They include:
- Iowa — Anthon and Cherokee
- Minnesota — Redwood Falls and Thief River Falls
- Nebraska — Broken Bow and Wahoo
- North Dakota — Arthur, Kintyre, Kulm and Mayville
- South Dakota — Milbank and Redfield
In addition to these stores, one construction equipment store closed in Williston, N.D., in December of last year.
Before its announcement, Titan was operating 89 store locations in 11 states, as well as 20 European locations. Some of its retail locations were focused on construction equipment, but a large majority focus on farm machines. In terms of number of locations, Titan is believed to be the largest ag equipment retailer worldwide.
In an interview with Ag Equipment Intelligence, David Meyer, Titan’s chairman and CEO, said, “This is not a knee-jerk decision. This is something we’ve been analyzing for a long time; how to really optimize our footprint for long term success.”
“Farms are getting fewer and larger and experiencing their own consolidation. At the same time, equipment keeps getting larger, more productive and increasingly complex, and it is our job to provide better solutions. So, what we do need, are experts at our stores to serve these customers. To have these experts, we need scale in the dealerships. We need highly trained technicians, as well as parts experts and a wide breadth of parts inventory. Our Expert Team model supports these efforts.”
Meyer added, “I want to emphasize that Titan is not abandoning customers in local markets who are impacted by the store closings. Some of these locations are within 20 miles of our other stores. Our sales and service will be consolidated into these neighboring stores and we will invest in field service trucks, parts drop-offs and other support in these communities.”
Strong to Expert
Titan’s restructuring will move the organization away from its Strong Store Manager structure, where one individual with only their local team was responsible for meeting increasing customer needs, to the Expert Team model. Under this new structure, Area Managers for both Sales and Product Support partner together to manage 2-4 store locations and pull upon the combined resources and expertise of the area to serve customers. There are 17 of these areas, which are divided into 4 regions (southwest, southeast, northwest, northeast). Local Parts and Service employees will report up through the Area Product Support Manager and the Equipment Sales Consultants will report up through the Area Sales Manager.
According to Jeff Bowman, Titan Machinery’s chief marketing officer, Precision Specialists will work closely with both area sales and product support teams to deliver precision farming and support solutions. “This operating shift allows us to bring the full resources of Titan for a customer as opposed to putting all the responsibility for meeting his need on the back of one store manager working with only the expertise available at one store. Our customers will get the benefit of the complete Titan team effort.”
“This restructuring will also shift more resources toward our product support business,” said Meyer. “We’re seeing a lot more complexity in the equipment that requires a higher level of expertise in both parts and service. The new structure emphasizes the growing importance of these areas and this requires a dedicated segment of the company. This also opens up new career paths for some of our most talented employees, who can grow from our front line service technician and parts counter roles into senior leaders.”
Financial Perspective
Titan also expects to reduce overall expenses after the restructuring. “Titan aims to mitigate the revenue impact of the store closures by strategically reducing store density in selected markets and serving affected customers through adjacent locations,” Rick Nelson, analyst for Stephens Inc., said in a note.
According to Nelson, the store closings are expected to reduce revenue by $40 million on an annualized basis, or about 3.5% of total company revenue. The impact to fiscal 2018 revenues is expected to be a reduction of $30 million. However, with expected cost savings, Titan’s pre-tax income is expected to increase by approximately $16 million (or $0.44 per diluted share) on an annual basis and $13 million (or $0.37 per diluted share) for fiscal 2018.
— Ag Equipment Intelligence, February 2017
