Dive Brief:

• Tractor Supply Company plans to add three new distribution centers to its network over the next five years, bringing its total distribution count to 11 as the company accelerates investments in its supply chain, executives said on the company's Q2 earnings call.
• Tractor Supply already broke ground on its ninth distribution center, which cost $70 million and will be located in Navarre, Ohio. It is scheduled to be completed by the fall of 2022, according to a press release. The locations of the next two facilities have not yet been named.
• The facilities are part of $2.5 billion in planned capital expenses over the next five years, a plan which executives detailed in October. On a July earnings call, CFO Kurt Barton said "we are looking to accelerate and would see us shifting some of the supply chain investments earlier in the next few years."

Dive Insight:

Tractor Supply laid out its five-year plan to investors in October, and new distribution centers are a key aspect.

"Our goal is to provide one-day delivery to 99% of our customers while improving our profitability," said Robert Mills, Tractor Supply's chief technology, digital commerce and strategy officer at the time.

But "fulfillment is not a one-size-fits-all," Mills said.

Tractor Supply has a wide assortment of products, from lawn mowers to pet supplies, which require a variety of fulfillment options to make next-day delivery possible. As a result, Mills said the company needs to be able to ship from stores as well as directly from distribution centers, and offer both curbside pickup and buy online, pickup in store to meet customers' varied needs.

"A critical component of this strategy is how we leverage our order management systems to optimize how we route orders across our different fulfillment channels, allowing us to deliver quickly and cost effectively to the customer," Mills said.

Another critical component is the location of its distribution centers.

Tractor Supply chose Navarre, Ohio, as the location of its next facility "based on access to workforce talent and logistics efficiencies," Mary Winn Pilkington, senior vice president of investor relations and public relations, said in an email. The facility will service more than 250 stores when it is at full capacity, according to a press release.

"The central location of this new facility in Navarre, Ohio, will allow us to more efficiently service our growing store base and online sales as we continue investing in our business for future success," Colin Yankee, chief supply chain officer at Tractor Supply, said in the press release.

At a panel during the National Retail Federation's "Retail Converge" conference, where various executives discussed how they adapted to recent disruptions, Yankee said a retailer's supply chain's agility could be defined by its ability to build options, and how those options are used to serve customers.

In addition to distribution centers, Tractor Supply has been investing in an increased store footprint since 2018, in a bid to enable more in-store pickup options. That year, the retailer opened 80 stores and increased its net sales by 9%. And on its Q2 earnings call in 2019, Tractor Supply said more than 70% of e-commerce orders were being fulfilled at the store level, thanks to BOPIS and direct delivery to store programs.

Of course, that was before the COVID-19 pandemic disrupted the global economy.

Two years later, Barton reminded investors that Tractor Supply sees investments in the supply chain as structural and forward-looking.

"You've heard us in the last couple of quarters emphasize the importance of our investment in our supply chain," Barton said on the Q2 2021 earnings call. "The important thing is the recognition or our confidence in the structural nature of this business and therefore the importance of our timing of investments in the supply chain."