Welcome, everybody, to Tractor Supply's Investment Community Day. We are absolutely thrilled to bring a little bit of Tractor Supply to New York City and share our passion for Life Out Here. For those that are joining via our webcast, we are also delighted to have you participate virtually. Today, we've designed this agenda specifically for you, filled with informative presentations, engaging discussions, and chances for meaningful interactions with our team. We've carefully planned every interaction and part of this program specifically to make sure you leave with a clean understanding of our goals and our growth plans. Please take note of our agenda. Hal Lawton, our CEO, will kick off our presentations today. After John Ordus, we'll take about a 30-minute break midway through. At that point, the expos will be open, and they're upstairs and downstairs.
We have a lot of representatives from Tractor Supply here that are excited to talk about all the great things that we're doing. During the expo, we're honored to welcome two of our community partners. We have representatives from one of the largest FFA chapters in the country, the John Bowne High School in Queens. That'll be here. And it's fitting that we have one of the largest chapters, given that we're one of the largest, we are the largest supporter of FFA. We also have representatives from K9s For Warriors. They save dogs from kill shelters and pair them with veterans. And this dedication and compassion towards veterans in our community truly inspires all of us. After our break, we'll return for executive presentations and our Q&A session. Then we'll follow that with a cocktail reception, and the expos will be open. And again, a few surprises there.
All presentation materials will be available for download on our Investor Relations website following today's event. That was not planned. I'm listening for anything, but we're going to continue. We do have a store tour tomorrow. I'm listening to if I need to do anything, but I'm going ahead. On the back of your name tag is your store registration information, so check that out. If anything changes, please let us know. If you're not registered and you'd like to join, we've got space on the early time slot. So more details are available at the registration desk. We hope you enjoy the day's events and leave with a deeper understanding of Tractor Supply's vision and strategy. Your engagement and feedback are invaluable to us, and we're eager to share our plans. First, I have to ask you to take note of our Safe Harbor statement.
I'd like to draw your attention to our forward-looking statement. Today's discussions may include projections and expectations about future business performance. These forward-looking statements are based on current assumptions and beliefs, and they involve risk and uncertainties that could cause actual results to differ materially from those anticipated. We encourage you to review our SEC filings at tractorsupply.com Investor Relations for a detailed discussion of these risks and uncertainties. Once again, thank you for joining us on a very busy day. Let's get started.
Out here, we know who we are, and we know where we're headed. We're Tractor Supply Company.
We work hard, have fun, and make money by providing legendary service and great products at everyday low prices.
With unwavering dedication, we find joy in the simplest moments and look to make a difference.
Our customers aren't just people we serve. They are our community.
Our neighbors.
Our friends.
Our family.
We share their passions.
We embrace this way of life, and we hold in the highest regard the strength and integrity it takes to live Life Out Here.
For more than eight decades, we have gone the country mile to meet and exceed the evolving needs of our customers. We constantly innovate, adapting our products and services to stay ahead of the curve and remain the trusted lifeline for those who love the rural lifestyle.
Over our history, we've been on an incredible journey of growth and success. Our reputation for strong sales and store expansion is a testament to our relentless drive and refusal to settle for the ordinary.
With nearly 2,300 stores, our knack for making every penny work as hard as we do is celebrated not just on Wall Street, but in every hometown we touch.
We are Tractor Supply.
We are life.
Life.
Life out here. Please welcome to the stage Tractor Supply's President and Chief Executive Officer, Hal Lawton.
Good afternoon. Welcome, and thank you for attending our 2024 Investment Community Day. We introduced our Life Out Here strategy in late 2020. Over the past four years, we've been executing that playbook with focus and determination. I'm excited to give you all an update today on that and to talk about our 2030 Life Out Here strategy. But before I do, we got a lot of Tractor Supply team members in the room, and they're very special. I want to just give a shout-out to them. We've got 10 team members here from our Store Support Center, our DCs, and our stores. They were all award winners last year. Let's give them a shout. May I ask them to stand, please? Can y'all stand, please?
Yeah.
All right. We also have an audience of first responders and veterans, our hometown heroes, and thank you all for your service, and we've got a special guest here today that I'd like to introduce, Cheryl White. Cheryl has been with the company for 49 years and is actually celebrating her anniversary today. So Cheryl, could you stand up? Thank you, Cheryl. One of the most passionate, caring, and culture-carrying of Tractor Supply's mission and values, and great to start out by introducing our team members, because that's what Tractor Supply ultimately is all about, is our team members and our customers and the communities that we call home. Glad that everybody could be here today to join us. I'd also like to call out our executive team. Could I ask our executive team to please stand?
Best team I've ever worked with, best team in retail, over 100 years of combined Tractor Supply experience, as well as over 200 years of retail experience. I'm excited for everybody to have a chance today to hear from them and also interact out on the expo hall. Thanks, team. Our goal today is very simple: for you to be as excited about Tractor Supply's future as you are about our rich history. We are a unique and differentiated retailer. We've got a track record of success. Our Life Out Here strategy is working, and it's transforming our business. We've got some exciting new initiatives that we're going to talk about today that will couple with our existing strategy. And these shape up to create an exciting and compelling back half of the decade strategy for us.
We're certain it's going to be another bright period of time for Tractor Supply. A little about Tractor Supply: founded in 1938, the largest rural lifestyle retailer in the United States. We compete in a very attractive market of retail with a very differentiated business model. Our brand is nationally recognized. We have one of the leading loyalty programs in the country. We build and operate high-return stores. We have a purpose-built, low-cost supply chain that last year moved 8.6 billion pounds of consumable, usable, and edible products. And we generate over $1 billion in sales a year in our online business. But most importantly, we're viewed by our team members and our customers as the hometown store. No matter how big of a national presence we ultimately have, that's what's most important. Our team members live the lifestyle and know our customers.
They're experts in livestock, pet, gardening, welding, and so much more, and I'm excited for you all to see that in your store visits tomorrow. Our customers are our neighbors, truly our neighbors, and they rely on us, and we help them live Life O ut Here. Our culture is our secret sauce behind our success. We're a very purpose-driven, stakeholder-focused company. Our 50,000 team members embody our mission and values every single day. We truly believe that if you take care of your team, they take care of the customers, and everything else takes care of itself. Team member engagement is so difficult to be modeled, but it certainly and absolutely impacts our bottom line, and our mission and values are the foundation of our success. We believe in doing the right thing. We believe together, everyone achieves more.
Today's stock split, a 5-for-1 stock split, is a great example of our values in action. We want our stock to be affordable for our team members. We have an employee stock purchase program that allows our team members to purchase at a 15% discount, and we want our team members to be able to take advantage of that. They need a price point somewhere in the $40-$80 range to be able to do that on a biweekly basis in the context of a quarter and do it in an affordable way. We also want to create access to broader retail investors. Those are the reasons that we announced the stock split today, and we're committed to creating sustainable value for all of our shareholders. Our mission statement articulates a clear flywheel for our business.
And it starts with our ethos: work hard and have fun. And it defines how we make money: legendary service, great products, and everyday low prices. The combination of these two is what creates Tractor Supply's powerful flywheel. And over decades and decades and decades, we have made consistent investments and taken actions in our flywheel that have led to compounding benefits. And our strategy has and will continue to evolve over the history of the company, but our flywheel, flywheel, excuse me, will never change. We have a track record of industry-leading performance. Over the last 20 years, we have averaged double-digit sales growth. And during that time, we have only had one year of negative comps, and that was during the great financial crisis. In fact, over this cycle, we have averaged nearly four and a half points of annual comp growth over these 20 years plus.
New stores have been a key driver of our growth during this period. Over the past 20 years, we've opened between 70 and 100 stores per year. Our new stores are highly productive. They have a strong return profile, and the combination of consistent comp store growth and a robust new store pipeline defines Tractor Supply. Our strong sales growth, combined with our strong operational execution, has led to exceptional earnings growth. Over the past 20-plus years, we've averaged nearly 20% EPS growth. We have a proven track record of delivering strong results consistently, and we've achieved success across diverse economic cycles, and we're excited to carry this momentum into the back half of the decade. We introduced our Life Out Here strategy in October of 2020. Some of you may have participated in that Investment Community Day. We did it virtually. Obviously, we're in the midst of COVID.
During that time, in the midst of COVID, we were experiencing substantial growth. We used this COVID dividend, the benefits from this bump, to invest in our business and transform the company. We launched growth initiatives like Project Fusion and Garden Centers. We introduced efficiency programs like our Field Activity Support Team. We doubled down on our Tractor Supply investments and built two distribution centers. We announced a transformation of our Neighbor's Club. Let's go through those activities and others in a little more detail. New stores, they have always been a hallmark of Tractor Supply strategies. No matter how our strategies have evolved over past decades, they've always been a core part of our strategy. Over the past five years, we've added nearly 500 stores to our chain.
We've opened 70-plus stores per year in spite of COVID, supply chain disruptions, inflation, and many other obstacles. Additionally, we successfully acquired and integrated Orscheln Farm and Home. But most importantly, this activity has delivered excellent returns for our shareholders. And looking forward, we've raised our new store target to 3,200, and we've got at least a decade of new store growth ahead of us. Project Fusion, this is an instrumental component of our Life Out Here strategy. Its primary intent is to drive sales productivity. Additionally, the program allows our—it extends the life of our stores and kind of, if you will, pushes up the terminal value of our stores another 10 or 15 years. And it's been implemented now in nearly 50% of our chain. It's delivering mid-single-digit comp lift on a year-over-year basis once we implement it.
It's attracting newer customers to our stores, and our Fusion stores have our highest customer satisfaction scores. Looking forward over the back half of the decade, we plan to complete the rollout of Project Fusion to virtually all of our stores by 2030. Another key component of our Life Out Here strategy is garden centers. Their primary objective is to both improve space productivity, but also create another destination category for our business. We're about a third of the way through our targeted S ide Lot transformations. The vast majority of our new stores have garden centers, and then garden centers are in about two-thirds of our Fusion remodels. Our garden stores have the highest percentage of millennial shoppers and the highest percentage of female shoppers. They have very high customer satisfaction scores, and they continue to deliver strong growth.
We're pleased, but not satisfied with our growth here, and we're going to continue to target that high single-digit comp lift for both Fusion and combo and garden center stores, what we call combo stores, moving forward. Neighbor's Club, one of the largest loyalty programs in retail. We relaunched it to a tiered rewards program in 2021, and recent enhancements made the rewards more accessible with some easier tier qualifications. We also made some changes to the way you can redeem to deepen our customer engagement and loyalty, and we've also made a number of changes behind the scenes to improve our personalization. We have remarkable retention rates in our Neighbor's Club program, and it now represents about 80% of our sales. It is a powerful growth engine for us and will be a mainstay of our strategy over the back half of the decade and beyond.
We've substantially improved our omnichannel capabilities over the last five years. We introduced curbside pickup and same-day delivery during COVID. We rolled out meaningful technology enhancements to our stores. We revamped our website. We introduced our mobile app. Our digital sales have grown more than 340% over the last four years to over $1 billion. We've rolled out technology in our stores, including handhelds and headsets, and 80% of our online business now is picked up in store, which is the most efficient and best way to fulfill product, and more recently, we've used AI inside of our stores, and you'll hear more about that from Rob today. Net net, we're committed to leveraging technology for scalable growth in our business, both in e-commerce, but also in our stores, distribution centers, and elsewhere in the business. Since 2019, we've made substantial investments in our supply chain.
We opened two distribution centers to add 2.2 million sq ft of space to our distribution network. We also added 10 mixing centers. These are cross-dock facilities that allow us to move goods in a bulk way, in a low-cost way, and a fast way to our stores. And we built a third import trade center. These investments have supported our sales growth. They've allowed us to improve our low-cost-to-serve advantage that we have in the market. And we did so while also improving productivity gains in our existing DCs. And collectively, over this time, we've reduced our stem miles by 20%, 20% reduction in stem miles inside of our business. Supply chain is a competitive differentiator for Tractor Supply. We have a purpose-built supply chain for our business. So let's recap. Back in 2020, we laid out an ambitious strategy and told you what our goals were.
And today, I'm proud to say that we've consistently delivered on our strategic initiatives and commitments. We've substantially strengthened our business. We've furthered our competitive moat, and Tractor Supply has never been stronger. And a true testament to our strategic execution has been our financial results. Over the last five years, net sales have increased 80%, and our average sales per store has grown 45%. EPS CAGR is more than 17%. You can also see the mix in average ticket and average transactions, which I think is quite unique in retail. And we've also reinvested $3 billion into our business, the majority against growth initiatives. And we've returned $4.7 billion to shareholders through a growing and competitive dividend and consistent share repurchases. Remarkable gains over the last five years, and we've not given anything back.
I think we are one of two retailers over the last five years, major retailers, that have not had a negative comp. We've delivered against our strategy, and we've delivered strong financial results, and we're excited to do that also in the back half of the decade, so as I said, today, we're excited to launch our plans for the back half of the decade. Our Life Out Here 2030 strategy continues the momentum from our existing strategy and launches some new initiatives to expand into some new addressable markets for us, and it's designed to create sustained growth and long-term shareholder value. We operate in a large and highly fragmented market. We have no direct head-to-head national competitor. We compete against 8,000 farm and ranch locations across the country. The vast majority of those are independently owned with some regional and local chains as well.
We also compete against numerous category retailers in pet, home improvement, garden, apparel, and elsewhere. In the context of that market, we continue to take share every quarter and every year. We now estimate our TAM to be $225 billion. This is an increase from our previous estimate of $180 billion. It reflects two things: organic market growth, and as you can see there, during this time, we've outgrown the market by 2X, our core market. It also addresses adding some new markets to our total addressable market to reflect the new capabilities and categories that we're going to be entering in a more fulsome way, including direct sales and Rx. Our robust TAM, coupled with our scale and capabilities, allows us to have significant runway for growth. We entered the back half of the decade with momentum and opportunity. Our existing initiatives have substantially continued to drive share gain.
Our goal is to build approximately 500 stores over the next five years, complemented by robust online growth. We plan to have Fusion in virtually all stores and will continue building garden centers, and we'll have over 1,000 by the end of the decade. Neighbor's Club will continue to grow and evolve as we attract new customers and deepen our engagement with existing customers. Our existing strategy has significant runway for growth, and today, we're very excited to couple our existing strategy with some new initiatives. The first of those that we'll be talking about today is localization. This is the next logical phase of our Fusion program, and excited for you to hear from Seth on this. Direct sales and Rx, these are both billion-dollar-plus opportunities for us and at scale, and we absolutely have a right to win in both of those areas.
We'll also, over the next five and a half years, be accelerating our exclusive brand penetration, and we'll be leveraging our scale and our supply chain initiatives. This offers at least a $50 million profit opportunity for us. Finally, two initiatives that we've been working on the last couple of years, and we've been piloting, and they're ready to scale, and we're ready to accelerate our final mile delivery and retail media. I'm excited for you to hear from Colin and from Rob on those initiatives. Let's put it all together. Our Life Out Here strategy, it's an evolving platform. It's designed to capture more than our fair share of our growing TAM. We entered the back half of the decade with momentum and opportunity. Our existing initiatives are creating value and have runway for growth.
Our new initiatives are significant opportunities, and we are absolutely positioned to capitalize on them. The next five years are going to be very exciting for Tractor Supply. Before transitioning to the remainder of the presentation, I'd like to comment briefly on 2025. After two years of flattish comps, we expect 2025 to be a year of positive inflection for our business. We anticipate the headwinds we're facing will moderate throughout the year. For example, deflation should be neutral by mid-year or earlier. Additionally, we see signs that the pet industry and also PCE goods versus services are stabilizing, and while there are many unknowns as it relates to the new presidential administration, for example, tariffs, we're confident in our ability to navigate any of those circumstances as they evolve.
NetNet, we see the opportunity for positive comp sales in the year and for them to improve as we move through the year. That said, as always, we'll be building a plan with a lot of flexibility, and regardless of the environment, our goal is to continue to gain share and efficiently operate our business. As always, we'll provide more clarity in our fourth quarter earnings call. We will invest in our flywheel for the long term to get our new Life Out Here strategy initiatives off to a strong start. Over the back half of the decade, we're committed to creating long-term value for our shareholders, and we'll be operating around a long-term algorithm as follows. The algorithm is anchored in comp sales growth of 3%-5%. As mentioned, we're updating our new long-term store opportunity at 3,200.
And those new stores should provide between 2%-3% sales growth per year. We're committed to operating leverage when our comps are in our algo range. As our sales growth, combined with this operating leverage and our share buybacks, those three together design and deliver EPS growth of 8%-11% annually. In addition, we're committed to a dividend payout of approximately 40% and to increase that each year. And we believe we have a compelling value creation story, and that is what today is all about. I'm excited for you to hear more from the team. I'm excited for you to look forward to seeing you a little bit later in the presentation. And now let me hand it over to Kimberley to talk more about our customers and marketing. Thank you so much.
All right. Good afternoon, everyone. So I joined Tractor Supply just over two and a half years ago for a lot of the reasons that Hal just mentioned: our phenomenal mission and values, our culture, our team members, and most of all, our customers. So let's dive in. So our customer base is large, diverse, and growing, and that's a key strategic advantage for Tractor Supply. When you think about it, we have 500 million visitors to our stores every year. That's 10 times more than Disney World. Now, we are a unique and growing brand, and we continue to have that national reach with that really special hometown feel that makes us truly differentiated in the market. Neighbor's Club continues to evolve and power new initiatives. Over the past five years, we've continued to evolve Neighbor's Club, and we've seen 150% growth in this program.
This gives us the confidence to deliver on our six key growth initiatives, as well as organic store growth and digital growth for the back half of the decade. Now, at Tractor Supply, we always start with our customers. We've got a vast set of customers across the country that we know better than anyone, as wide-ranging as a gardener in California to a rancher in Texas to a Backyard Homesteader in North Carolina. One way we want to understand our customers better is to dimensionalize them by segments based on what they buy. And you can see here from left to right, first off, our Country Dabblers. These are our new customers. They come in for a specific mission, usually driven by something like clothing, truck tool and hardware, and apparel.
Pet Enthusiasts, Backyard Homesteaders, and our H obby Farmers are driven primarily through C.U.E. for everyday essentials for their pets, their animals, and taking care of their land. That's really significant because, as you can see here, our C.U.E. customers spend three times as much as our average customers. Finally, Big Barn customers. These are folks that have 10 or plus acres of land. We see them shopping at the highest frequency, as you can see here, and the highest share of wallet across the entire store. Our Big Barn owners are worth 10 times the average customer, like I said, and we currently only have one-third of their wallet spent today. They really think of us as their Life Out Here partner, and it really gives us some great opportunities in terms of harnessing the value for direct sales that you'll hear about later.
Now, I've mentioned we've done a lot of significant research around our customers. It's honestly one of my favorite things to do. But there's no better way to hear from our customers than from themselves. So let's take a look.
Walking into Tractor Supply, it was very welcoming. Being a homeowner now, I could definitely see myself going there more often. Their barbecue selection was very robust, and anything that you could really use in a lawn and garden.
I primarily lived in the suburbs. I'd love to be able to give that to our girls here.
My name is Kristin, and I absolutely love dogs. I'm actually from the city. I was a city girl, and I married kind of a country boy. Our local Tractor Supply here, they're starting to know her. They're starting to remember her name. She knows she walks in the door, and she goes straight to the counter because she knows they're going to give her a treat. So she loves Tractor Supply.
I have 43 chickens and a bunny. I get about 22 eggs a day. Mostly, I give them away. Some people, they've never had fresh eggs. And you give them fresh eggs, and they're like, "Wow, these are so good.
Welcome to our ranch. It's our little piece of paradise.
We have four dogs. We have two sheep, three horses, and then we have about eight chickens.
The one thing about property, you know, there's always things that pop up. It's definitely not work to me. We love the whole lifestyle.
We've got 62 acres here. A typical day for me is make sure the chickens are fed, the horses are taken care of. I decide if we're going to cut hay, split wood. It's a full-time job. I feel like I get up most days thinking I'm the luckiest guy around. I don't have to get up and put a suit and tie on, go to the office. It just works.
I love hearing people talk about how much they love Life Out Here. And I encourage you to go into the expo area during the break. We've got more information about all these key customer groups, and you can learn more about the things that they shop for and what drives them into Tractor Supply. Now, as we think about growth opportunities from a customer standpoint going forward, obviously, rural migration into markets remains a strong structural advantage for Tractor Supply. And why? Over the last five years, we've seen migration into rural communities, while urban migration has declined. And as you can see, that migration has continued post-COVID. Two key drivers of this rural lifestyle affinity: affordability and quality of life, both enduring elements.
As we've seen more return to work, what we're not seeing is this population coming back to urban centers, but rather they're staying in their locales, driven again by quality of life and affordability. We continue to see net migration from urban areas into these rural markets across the country, driven in large part by millennials. Now, our brand at the core is all about leveraging our national scale and delivering a very hometown feel. When we talk to our customers, they talk about two key reasons why they come into Tractor Supply and why they love this brand so much. First off, our national scale makes us a dependable and convenient supplier. With over 2,300 stores across the country, that's 2,300 communities that we're in. That's 10 times more touchpoints than our nearest competitors.
The second reason, it's the way our team members make our customers feel when they come into a Tractor Supply and how integral they feel our Tractor Supply brand and our team members are to our communities that we serve. For example, we support 4-H, FFA, chapters across the country. We do lots of local community events. We're really embedded in the communities, and half of our customers visit a store on a monthly basis, so when you walk into our stores, it's very common that our team members know our customers by name. They know about their pets, their family life, etc. It's pretty special. Now, this local feel purchase driver we know is even more important to millennials and Gen Z customers, 70% of whom say they prefer to shop with an independent store versus a chain.
Now, we're driving more traffic and more transactions to Tractor Supply across our core customers and new customers at the same time. In essence, our focus is really on how do we nurture the core and grow the base, meeting our customers where they are. The examples you see here are team members doing how-to gardening content, music, events that we do, especially country music, no surprise. Pets, we've got a great partnership with Miranda Lambert and Mutt Nation. Western sports, and you're going to hear a lot more about that in the future, continue to really connect us with our core customer and help drive double-digit growth that we've seen from millennials, a core customer base in terms of our growth. It's exciting to also see brand awareness with our millennial customers continue to grow. This is what we're doing today.
But knowing that we have 30-40 million people who live in our trade areas and behave and look like our customers that don't shop us yet, that's exciting, and we have significant room to grow. Now, keeping our core engaged and attracting net new customers is essential. So let's turn to Neighbor's Club. As Hal mentioned, one of the largest and fastest-growing loyalty programs in retail. Neighbor's Club, we've got over 37 million members, and that represents $12 billion in sales. We're unique in the market, and it is the largest database of farm and retail customers, bar none. As we've continued to invest and evolve with the program, we have more than doubled our membership and nearly tripled our percentage of sales to 80%. And we've got significant benefits that we've added and rewards along the way.
Over the last 12 months, we've added 5 million new Neighbor's Club customers. For context, what that means now is one out of every seven adults in the U.S. is a Neighbor's Club member. We're retaining those customers through Neighbor's Club year over year. In fact, we've seen a 9% increase in customer retention over the last 12 months, which is outstanding. With a runway to add about 18 million new members in the back half of the decade, we're just getting started. Now, when it comes to Neighbor's Club, our mindset has never been launch and leave. In fact, it's always been about evolve and grow to increase frequency, build baskets, and establish greater retention. Over the past several months, we've made many significant enhancements to Neighbor's Club to enable better recognition, reducing the threshold to earn that first reward from $1,000 to $200, made it more rewarding.
We've retired the preferred level, so now customers who spend just $500 qualify for this level. You earn more points for every purchase, and you qualify for benefits like free shipping. We've also improved relevancy through increasing personalized messaging by customer segment, by customer journey, and by season. And we're particularly proud of the way that we're honoring our heroes, our veterans, and our first responders. Cornelius, who you see here, he is from our store in Dublin, Georgia. And he's not only one of our awesome team members, but he's also a sergeant in his local sheriff's department and a member of the SWAT team. Pretty impressive. Hometown heroes like Cornelius now receive top-tier recognition from our Neighbor's Club and all the benefits that brings, along with quarterly discounts and discounts on First Responders Day and Veterans Day.
Now, speaking of these two holidays, between this past First Responders Day and Veterans Day, we launched our first Hometown Heroes Days, where all of our stores participated in honoring our heroes with a discount and thank you cards. And nearly half of our stores did some sort of a community event, like Touch-a-T ruck, to drive people into the store and really thank this population, which we're really excited about. And it's exciting to see that 15% are new to Tractor Supply of those Hometown Heroes we've signed up so far, and 20% are new to Neighbor's Club. Now, our Neighbor's Club program allows us to honor and provide value to these Hometown Heroes. And I'm especially excited today that we are adding two new Hometown Heroes by donating $5,000 each in honor of David and Adam from K9s For Warriors that are here today.
Please stop by and meet them in the expo during the break. Now, as I mentioned, we have a lot of runway to grow with our volume of customers, but we also are here to grow the value of existing Neighbor's Club members. And we see them spending 50% more two years after joining the club. More than just your standard loyalty program, Neighbor's Club is the key to unlocking growth in customer spend, transaction, cross-category shopping. And you can see in their transactions almost double, and their category shop increased by over 50% in just the first two years in the program. And like I mentioned earlier, an accelerator to this is growth, sorry, is C.U.E., which you can see here as being really added with pet, poultry, and large animal as our customers grow into their Life Out Here.
Now, Neighbor's Club has really developed into the strategic flywheel that drives impactful insights from our customer data that powers business decisions across the entire Tractor Supply organization. We've got substantial customer data that allows us to drive more frequency, transaction size, and retention. And more broadly, we take those insights and we put them into action with everything from real estate, supply chain, inventory, assortment, Neighbor's Club offers, and the overall customer experience. They're all now informed by these insights. And now there's been a lot of talk about personalization. Let's see exactly what we're doing and how we're bringing it to life today at Tractor Supply. At Tractor Supply, we are leveraging AI with data science and machine learning models to deliver personalization. And with our recently launched customer data platform, we can now scale this at speed.
These models are working together to drive more transactions, more sales per customer, and greater retention. Let's walk through a few quick examples. First off, to drive more transactions, our triggered offers are sent as soon as a certain purchase behavior occurs. For example, one of the ways that we can incentivize a customer that we haven't seen for a while to come back, here they make a purchase of $75 over the course of a couple of months. We send them a triggered offer for $15 to come back to our stores, all of which are driving increased transaction through AI-supported messaging and offers. Next, to increase our sales per customer, we have a new recommendation engine that's working with cross-selling models and new category journeys that are all working together. Here, we've created a journey that helps our new poultry customer start, grow, and maintain their flock.
Tractor Supply really has everything for this customer needs: coops, feeds, treats, pens, and even toys. Now, to drive greater retention, we incorporate omnichannel orchestration, send-time optimization, and churn models to better retain our customers. You can see here how we've been able to notify a customer through email, text, mobile app. Our models will tell us which channel a customer prefers, when to send it, when they're most likely to open, the best offer to send, and then what content they're more likely to respond to. Of our identified customers, we're using these models to deliver personalization and drive incrementality. Combined, these models are leading us to a 1.8% increase in transactions, a 70-point basis lift to our sales per customer, and 2.5% greater retention across that identified file. Now, Neighbor's Club is truly the fuel for this tractor's engine.
Our capabilities underlie the strategic initiatives and organic growth that we are driving towards. Two quick examples. Insights from our Big Barn customer that we talked about before, they're helping to inform our direct sales initiative to take shape as we speak. You'll hear more about that from John in just a bit. And Pet and Animal Rx, which we leverage existing Neighbor's Club members to grow our Rx base. And we're bringing Allivet customers into Neighbor's Club to grow our total file. With 37 million Neighbor's Club members, it's truly a unique competitive advantage in the marketplace. And it gives us that data-backed confidence to invest in new strategic initiatives you'll hear more about from Seth, Colin, John, and Rob today. So our headlines. Tractor Supply is truly a unique brand with an unmatched ability to serve our customers.
Our national scale and that special hometown feel are really key differentiators in the marketplace. Everything you've seen today is only going to get bigger and more impactful. While today we are at 37 million Neighbor's Club members, we have an incredible runway for the back half of the decade to get to 55 million and beyond. Finally, Neighbor's Club is the foundation for the growth opportunities and strategic initiatives you'll hear about today. The road ahead looks bigger and brighter. Speaking of tremendous growth to our business, I'd love to hand it over to Seth to talk about our merchandising initiatives and how we're going to be driving more space productivity. Thank you.
Thank you, Kimberly, and thank you for everybody being here today.
Hey, we'll now shift the presentation over again to a few of our merchandising strategies and some of the initiatives as we approach the back half of the decade. So for the next few minutes, there are three primary messages that I want to talk about today. First, I want to share a little bit about our differentiated merchandising strategy of offering great products at everyday low prices focused on Life Out Here. As everything we do from a merchandising perspective relates exactly to what Kimberly just talked about, it's focused on our customer, the needs-based lifestyle that we serve. Second, we're going to showcase our portfolio strategy and the opportunity to double down on private label and exclusive brands.
And then third, we're going to speak to our space productivity gains that we've had since the launch of our Life Out Here strategy and how we think we have an opportunity to continue to expand upon that productivity, particularly through some localization efforts that we're launching. So as Hal mentioned, let's start with our secret sauce. Our merchandising strategy is rooted in our mission of being the most dependable supplier of Out Here lifestyle solutions with great products at everyday low prices. Our assortments are built to support the needs-based and demand-driven lifestyle of our customers. And when you think about that needs-based demand-driven lifestyle of our customer, it starts with C.U.E., our consumable, usable, and edible products, which represents close to 40%-45% of our total sales depending on the quarter. For us, C.U.E. drives footsteps. It drives repeat purchases.
And it's very important to us and to our customers because it's important for how they care for their land, their animals, their pets, and their homes. We found at Tractor Supply, when you combine C.U.E. with innovation, differentiation, localization, and value with both a digital and a great in-store experience, it is an absolute winning formula at Tractor Supply. Our merchandising offering is unique. Our assortment is a collection of leading national brands, one-of-a-kind products tailored for Life Out Here, as well as great private label and exclusive partnerships. This curated lifestyle assortment, it is the foundation of our merchandising strength, and it is focused solely on driving market share. Our portfolio across our national brands, it's unparalleled in the farm and ranch space.
Whether it's longtime partners like Carhartt or Purina or Cub Cadet or brands of recently expanded categories like we call it Weber or YETI or Blackstone, we're always listening to our teams. We're always listening to our customers to make sure we have the brands that they love as well as the brands that they trust to support this lifestyle. Across all of our brands and our products, driving differentiation for Life Out Here is absolutely imperative. We continue to have success partnering and leveraging our scale to develop unique and exclusive items. I'd highlight a couple that you see up here on screen today. One I'd highlight would be like the Toro Havoc series of zero-turn mowers. It was specifically designed by researching our consumer base, and it was built for large acreage customers specifically for Tractor Supply.
One of my other favorite items is the recent social media viral sensation item of the six-foot skeleton rooster. Many of you might have seen this out there on social media. It is a part of our expanded and unique Halloween assortment. It's a differentiated Halloween assortment versus what you would see versus our competition. And finally, more broadly, our differentiated assortment of pet food, where nearly 70% of our sales are in brands that are not found in mass grocery. Leveraging our scale and developing items and assortments specifically tailored for Life Out Here will continue to be a focus for us. Speaking of differentiation, we have built a compelling portfolio of private brands and exclusive partnerships. Today, we have roughly 20 private brands across the store that represent around 29% of our total sales.
Within that, we have two brands that have over $500 million in revenue, four over $400 million, and six over $300 million in revenue dollars today. And it's driven by our C.U.E. brands like Producer's Pride, Retriever, or 4health. Our customers trust these brands, and they consistently view them as national brands available exclusively at Tractor Supply. We're always innovating. We're always launching new items in these brands. For example, when you're at the expo show, you'll see our new 4health lineup of our 4health shreds. This is a white space in that portfolio of the most important brand of pet food at Tractor Supply. It has the quality, and it has the value that our customers expect. And we're excited to see this launch in the coming weeks.
I'd encourage you to walk the rest of the expo show, and you'll see a lot of these private brands on display. In addition to our private label brands, we also are having great success with exclusive partnerships, such as pet products from Miranda Lambert's MuttNation or Even Embers Grills, which consistently get top ratings on quality and value from Consumer Reports. Or soon, we'll be launching a new apparel collaboration with Molly Yeh that's specifically targeted to our new millennial female cohort. You'll continue to see us find and create these brands and partnerships in addition to our private brands so that we can offer excitement and consideration to our customer segments that Kimberly just spoke about. But as we look at the back half of the decade, we are doubling down on private label and exclusive brands. Private brands drive loyalty.
They increase sales, and they expand margins at Tractor Supply. In fact, customers who buy private brands at TSC have a 65% higher retention rate. It's been four times the annual amount as non-private label shoppers. And on average, our private label products carry around a 500 basis point margin rate improvement versus the national brand equivalents. Our goal over the course of the next five years is to increase private label penetration from around 29%-33%, which represents around a $50 million margin dollar opportunity by 2030. Doubling down on private brands at Tractor Supply is a sales and a margin driver. In addition to developing great private brands, we've also been building a very strong global sourcing capability. We all know that potential tariff exposure is on all of our minds.
As a reminder, direct imports currently represent only around 10%-15% of our total sales. And since 301 Tariffs were imposed, our dedicated global sourcing team has worked hard to diversify our global supply around the globe. We've cut our exposure to Chinese direct imports by nearly a third since that time, with a clear roadmap for further diversification. While all retailers will be impacted if new tariffs are imposed, we have a track record for success, and we've successfully navigated tariffs in the past. And I have confidence that we have a game plan to successfully navigate them in the future. Let's now shift to Project Fusion. This has been, as Hal mentioned, a key component of our Life Out Here strategy. As Hal mentioned earlier, we continue to be pleased with the results and remained excited about this initiative.
Looking at our most recent cohort of remodeled stores from 2023 and earlier this year in 2024, these stores are driving positive year-to-date comp store sales above chain averages, with every buying team having positive pre-post lifts. This is a big shift because, on average, prior to the Fusion remodels, these stores were actually underperforming the chain average. Thus, when we look at Fusion, Fusion remodels are taking, on average, underperforming stores and turning them into comp sales drivers. With that, we believe that Fusion and Garden Centers have significant runway in our Life Out Here 2030 strategy. Over the course of the next five years, we plan to remodel around 175-200 stores per year, as well as open our new stores in our Fusion format.
We like this cadence of remodels as the annual count aligns nicely with lease term renewals and negotiations to make sure that we are maximizing our return on invested capital. As a result, this puts us on pace to have 100% of the chain in the Fusion format with around 1,000 Garden Centers by 2030. At its core, Fusion has always been about driving space productivity. Coupled with our everyday merchandising activities such as resets or new brand or item launches, sales per square foot has increased 40% since the launch of our Life Out Here strategy. That also includes the 80 Orscheln Farm and Home stores that, on average, are much larger in size and are much more competitive markets. This year, we are forecasting sales per foot to be around $382 per foot versus around $271 in 2019.
As we look ahead, we have an opportunity to continue to drive substantial space productivity gains. And a key driver that we've mentioned is through a focus on localization, localization at scale. It's all about having the right product in the right place, in the right space, and at the right time. We're going to be focused on localization in our assortments as well as our seasonal timing as well as macro space. Specifically, macro space localization is going to be the next evolution of our Fusion program. Over the last few months, we've been developing data-driven archetypes that incorporate sales, margin, space, customer, market, and demographic data, basically bringing together all the data sources we have at Tractor Supply. As a result, we've landed on eight unique site-level archetypes that will influence the floor plans of our go-forward Fusion remodels and new stores.
Stores will still look very similar with around 75% of the space consistent from store to store. But we believe the variation of that 25% of space will better reflect the incremental sales opportunity of each unique site. For example, you'll see the Houston market on the right-hand side of the screen. While serving Life Out Here in each of these stores, there is very similar variations in demographics, hobbies, animal ownership, and other aspects of living the Out Here lifestyle in the market. We believe Fusion localization will drive an incremental low single-digit Fusion sales lift in the converted stores as we begin to roll out the localized floor plans throughout the course of 2025, with the goal of having this included in our new stores and Fusion remodels going forward while we pilot in early 2025 with full rollout in the back half of the year.
As previously mentioned, we believe we can continue to drive space productivity. Coupling our core merchandising and impact programs with the 2030 Life Out Here Strategy across all of our initiatives in organic growth, we're targeting another 20% improvement in space productivity growing to approximately $460 a foot by the end of 2029. As a recap, as a dependable supplier for Life Out Here solutions, our merchandising strategy is rooted in our mission to offer great products at everyday low prices. Second, we are doubling down on private label and exclusive partnerships as it is a sales, loyalty, and margin driver for us at Tractor Supply. Third, localization will complement our in-flight Life Out Here initiatives as we believe this will further drive space productivity gains. Thank you for your time today.
I'm now going to turn it over to John Ordus, who's going to discuss how we're leading with legendary customer service.
Thanks, Seth. So, you've seen a lot of exciting things so far. You're going to see a lot of exciting things the rest of the day. I get the opportunity to bring it all to life for you, how it happens inside the store. So, for my time today, we're going to talk about how we deliver on this promise we have of legendary customer service. I'm going to talk about tools and technology that we have not only to give better customer service, but also productivity in the stores. And finally, I'm going to talk about our right to win when it comes to direct sales. So, over last year, we've rolled out a new way of this legendary customer service inside of our stores. We've asked our experts, our store managers, one in each region, 14 regions across, and they built this program. They changed it.
They made it better, and they continue to test it over the last year. Legendary customer service is how we do business at Tractor Supply. It's who we are. It's our lifestyle. It's our way of doing business. And we hire our customers that live this lifestyle, so farmers, welders, ranchers, horse owners, pet lovers. We love to hire people that love to talk about the business because when you love to talk about the business, you're going to talk to other people about it. So, over the past two years, we've received a lot of recognition, recognition we've never received before. You see a few of them up here on the slide now. And it's continuing to work. And we have now 42 straight months where we have had year-over-year improvement on customer satisfaction scores.
Legendary customer service is built off our mission: work hard, have fun, make money by providing legendary service and great products at everyday low prices. We've implemented values in this rollout as we've done it as well, things like change, initiative, teamwork. These are all things that have helped us roll out this program in order to get better customer service inside of our stores. Our approach on legendary service is with GURA. GURA is always going to be the foundation of what we do: greet, uncover, recommend, ask, and appreciate. GURA is how we do business. It's a way of life at Tractor Supply. When we know that when we can sell, when our people love talking about that lifestyle, but now we teach them how to sell, which is what legendary service is, we are completing the project.
Think about a customer that comes in, and they're looking for a hitch, a two-inch receiver for a hitch. At Tractor Supply, we are great at taking that customer over there, showing them exactly what we offer, telling them about it, and selling that to them. We'll say, "Hey, do you want anything else?" Now it's about how we approach that customer when they're ready, when we know that they're ready for us to have that interaction with them, and we're completing the project by selling up to them. When we get in front of our customers and we GURA, we see a substantial lift in the spend, that average transaction, and we see better overall satisfaction scores. Some of the technology we've been investing in, and we've been rolling out inside the stores. Here's one that you see: AI-driven technology.
So, this gives the answer to the test to every one of our managers. Our managers get missions each day. They go in there, they look at the mission, and then they go out there and they improve whatever that mission was. So, it's technology that looks across this. It'll say, "Okay, this store right here is in this weather pattern, this geo region, same things are going on. Out of these 350 stores, this store is ranked 332nd in whatever product this is." And it will help that store manager know to go out there and improve that area. So, an example would be: I'm in a store a few weeks ago. I asked the manager, I pulled up the missions, and one of them is sprinklers. So, I said, "Okay, let's look at it." We look at it together. We go over there.
On it, it will say that tripod sprinklers are the number one SKU that we have there. We go over there, we look at tripod sprinklers. They're empty on the shelf. We scan it. We show four. The tripod sprinklers were down a couple aisles over on top stock. It's given the answer to the question to each of our managers and helping us to make sure we go to the right areas in order to prove the most that we can in sales right then and there. Over the next four weeks, we will see an improvement and have seen an improvement in those sales in that category. I'm in a store the other day, and we had just did a roll down a side change.
We're over by the rat bait, mite bait, and we're looking at it over there, and we've moved live traps over the other side of the store. Live traps are down inside the store from the planogram change. The team members, now we can train the team members, make sure they know to go over there and help the customer, show the customer where the live traps are. These are things that we're doing in order to help our stores get to the answers quicker. Other technology we have is learning on the go. Learning on the go is where a team member can walk through the store and get training while in front of the product. I'm in a store. I go in the break room. I talked to a team member. The team member is brand new that day.
I said, "Hi, how's your training going?" They're like, "Well, I've been in the break room for the last few hours." Right then and there, we knew that where the action is, is on the sales floor. We got to make sure the team members are training on the sales floor. So, we implemented what's called learning on the go, where a team member can walk inside the store and spend time learning about that, both product knowledge and selling skills. Scavenger hunt is something that we do with this learning on the go, where a team member will go out and do a scavenger hunt. We've done over 1.5 million of those scavenger hunts inside of our stores since rolling it out. And they do it as a group.
The team members that are together at the time, when they're not interacting with a customer, they're doing these scavenger hunts to learn more about the product. And then, Hey GURA. It's a tool that allows our team members to get an answer to any question they have at any given time. This is technology to make sure that we can help the customer quicker. So, I'll give you an example. A day after Thanksgiving, I'm up in Springfield, Tennessee. Walk up to the front of the store as we pull up. Customers are looking at a log splitter, 28-ton log splitter. I'm talking to them, asking questions, getting to the results there. And the customer says, "Well, how big a log can I cut with this?" So, I said, "Well, let's find out." We go inside. We ask the manager.
Manager asks, "Hey, GURA, it'll do a 28-inch ton log." That's how quick we can get the answer. And it continues to improve itself all the time by the more we talk to it and the more we ask it questions. Tractor Vision is something that we've worked with the IT team on, on implementing inside of our stores. We've gotten in a little bit around 500 stores today. And what Tractor Vision does is it helps us to know where the customer's at at any given time so we can help the customer. So, you see a customer here who's in the garden center. We don't always have payroll inside the garden center, especially in the off-season.
What it does tell us is that somebody has entered that area, and it will tell us, and it will alert us into our ear that there's a customer that needs help out there. We will then go out there and take care of that customer. Same thing you see up here on the register. If there's more than two people in line at a register, it will alert us to get somebody up there. Safety features like having the back door open. If it's open too long, we don't want that door open, so it'll tell us and alert us to get it shut. There's so much more that it will do, like power tool aisle. It'll help us with knowing that down the road that somebody's at propane or somebody's doing a BOPIS order, buy online, pick up in store order.
And then the biggest thing it does is helps us with conversion. We know exactly how many customers are coming to our store, and we know exactly what we're converting that customer to. So, technology that's helping us to get better productivity inside of our stores, but also a lot better customer service. The Power of the Red Vest is all about our team members. And this comes off of the function that we have with that HRIS draw of about TSC and Me. And this is something that communicates to the team member both on their personal and their device inside the store. They can get all the communication they need about Tractor Supply. It helps them with recognition, especially in the Power of the Red Vest side.
All the tools they need is right in this one area, so you're not going to different apps in the different areas. It's right in one area. And it's helping our team members with what they do inside the store. So, for instance, if a team member does 60% of the propane fills in a store, it's going to tell them, "Hey, thank you very much for doing 60% of the propane fills inside this store. You've done this many. You've done this many over the last few weeks. Thank you." When you beat your sales goal, it's going to alert you and thank you. You can click at any time and see where you're at in sales to plan. It's going to give you your GURA scores and overall satisfaction scores.
It continues to help that team member with exactly where we are inside that store and communicate more. We've also been, over the last few years, rolling out a delivery pilot. This is a pilot where we have delivery drivers that are going to stores, that are going to customers' homes and helping them. We have around 230 of these trucks that cover about 340 stores. On the screen, you can see that we pick up the product at the store. We take it to the customer's address. We show the customer how to use it. We have learned a lot over time, and we're thrilled with the success we've seen in this program. We get way better overall satisfaction scores than third parties do.
We're seeing that it's continuing to help us drive more deliveries and top line inside of our stores. It's an initiative that has provided us some valuable learning throughout this time. And now we know that our delivered merchandise is something that customers want, and some of the things that they're asking for and the best-selling SKUs that we're doing on this are big things like feed, chicken feed, equine feed, stall mats, safes, things like that. You're going to hear a lot more from Colin on how this final mile goes to the stores. But what we've learned over the last three years is that we need a direct sales team in order to make this very, very strong for Tractor Supply. So, our Big Barn customer you heard Kimberly talk about a little bit ago.
This customer is a customer that is a key driver of success to this program. They're high-value customers. They tend to own more land and more animals than our average customer. They make purchases about once a week on average, 52 times a year. When they do, they spend 10 times as much. And it's less than 5% of our initial customer base today. Despite our early success with this customer, we know that there is significantly more that we can do to take care of this customer. Today, these customers, as I mentioned, represent less than 5%, and we went out and talked to these customers. We spent time over the last year talking to these customers on what we need to do better in order to take care of them.
Over this last year that we spent time talking, we've learned that they want direct sales force out there. They want to talk to one person. They want to interact with that one person. And we know there's a lot more we can do inside of this program. We know that it's an improved shopping experience for these larger customers, and we know that this larger customer, that this is our right to win with them. This initiative focuses on building a new suite of capabilities that will help us capture three key growth areas. So, one, increasing share of wallet with this existing customer. Two, gaining incremental B2B customers throughout the direct sales force team. And three, creating exclusive partnerships with arenas, event centers, and event spaces. We are uniquely positioned to serve these large farm and ranch customers with a right to win in this space.
We've already seen significant growth within our Big Barn customers since we've piloted delivery. Already today, one in four farm and ranch customers shops with us. There's a ton of opportunity to get the rest. As far as arenas and event spaces, we've partnered with South Point Casino in Las Vegas. We've partnered with the Saratoga Springs Race Course here in New York, where the Belmont Stakes is right now, and WestWorld in Arizona. Just think about in Las Vegas with South Point. Customers there, they're doing an equine show. Right there, we have an iPad that we're able to get whatever the customer needs. We deliver it that day and have it right there for them. It's a store within a store right there. As I mentioned, over the past year, we've been conducting this research and talking directly to these customers.
The research has helped us inform the path forward and the capabilities in the mix that we're building today. Today, we offer bulk delivery services. We offer a commercial credit card, subscriptions, and the ability for customers to submit requests for large orders. Now, we're able to take this and take the feedback from the customer and build on these highly functional direct sales teams, which is why we're currently building this team, is to have that one-on-one interaction with that customer. We will offer customers the ability to make purchases directly on their property, either on our B2B digital selling platform or directly with the sales rep. As we continue to learn and refine our offerings, we are planning on offering more payment flexibility designed for businesses that require payment through invoices or RFP bids.
We have also continued to work with Kimberly's team to make sure we have a compelling loyalty program to provide these customers with additional benefits that they're looking for. Direct sales is already well underway. We have already begun building on the team and the technology required to bring this initiative to life. However, we look at this initiative as a phased approach. Throughout the back half of the decade, 2025 will be focused on building the tech foundation while launching our direct sales force in various pilot markets. 2026 and 2027, we'll work in lockstep with Colin's team in final mile to grow our sales capabilities in tandem with the expanded delivery team, which you will hear more about from Colin later. Finally, in 2028 and 2029, we will aim to have our sales capabilities across the country with all of our technology and offerings finalized.
So, what are the headlines? The headlines are, we have the competitive advantage with our team and our culture at Tractor Supply. We are investing in technology to drive sales, be more productive, and be better at legendary customer service in our stores. Direct sales is a significant opportunity for Tractor Supply. And we will be out there with our right to win, and we are going to win when it comes to direct sales. Thank you for your time today. Now, I'm going to bring Mary Winn up to introduce you to the rest of the time.
Thank you, John. All right, everybody, we've got a break now. We'll take about 30 minutes or so. So, if we could be back in the room here at 2:45 or so. Our expos are open. They're both upstairs and downstairs.
We've got a lot of Tractor Supply experts in this room, and they're thrilled to talk about you. So, please take advantage of that time. There are beverages and snacks out in the front, and they've got a little bit of a Nashville flavor to them, I'll say. So, I'll see you at break. Thank you.
It's always nice to have someone lend a hand. That's why we started Tractor Supply 85 years ago, to help folks with exactly what they need. No matter what you're starting, the team members at Tractor Supply are happy to pitch in, whether you're mending fences, planting a garden, feeding animals, or finding a new friend. Because that's what neighbors do. They help each other. And together, we all grow. Tractor Supply, for Life Out Here. When you come through that door...
Welcome to Tractor Supply.
You're going to be treated like one of our family.
I love to help people. You can be the smile that brightens up their day.
Tractor Supply is different from other stores. We are friends and we're family.
There's no other store like it.
Everything we do at work, we also do outside of work.
I'm an animal lover myself.
I've got a dog and four chickens. I really don't think you get this kind of service anywhere else.
We're here to help.
Tractor Supply for Life Out Here. Out here, we get it.
It's not just about cutting the lawn. It's about cutting distractions.
It's not just a backyard. It's a place to gather.
It's getting your hands dirty.
Having the right tools to get the best results.
Taking in the sunrise.
It's more than their favorite store. It's where they can meet new friends and show off for old ones.
We love helping you do what you love. Out here, we get it. Sharing your yard with pets and plenty of feathered friends all adds up to a great place called home.
Getting a lot done with a little time takes a lot of power.
And it's more than just grilling season. It's a picking party. From the garden to the griddle to your family. Tractor Supply for Life Out Here. At Tractor Supply, we understand that out here, no two days are the same. Some days start early. Others end a little late. Some days you're taking things a step at a time. Others you're just stepping away from it all. Some days you're caring for your property. Others your family. And on game days, well, you just care about your team. At Tractor Supply, we'll help you make the most of Life Out Here, no matter how you live it . Tractor Supply for Life Out Here.
Please welcome back to the stage Tractor Supply's Senior Vice President, Investor and Public Relations, Mary Winn Pilkington.
Oh, well, thank you, everyone.
I hope everybody got a chance to visit some of the expos and made it downstairs to visit with the K9s For Warriors and the FFA chapter. I'm really pleased to announce that today we're going to be helping send the FFA chapter from John Bowne High School to the convention next year in Indianapolis. It's the largest gathering of youth in the United States, and we'll be helping underwrite that for this chapter to go attend convention and really invest in that future of Life Out Here. So, thank you. So with that, we will have some other exciting things that are happening in the expo this afternoon. I'll go ahead and let you know we have an adorable Highland cow. We'll be in the building along with Nigerian dwarf goats and some specialty chickens. So don't miss out d ownstairs.
I know it'll be a hit and exciting for everybody as we bring a little bit of Life Out Here. So up next, though, we've got Rob Mills. He'll take us through our digital and AI transformation.
Thanks, my friend. All right, well, good afternoon, everyone. I hope everyone enjoyed their quick break, and I am super excited to be here today to talk about our investment in technology, the digital business, and overall, just the strategic updates for a few of the Tractor Supply initiatives that you've heard about earlier today. Over the last few years, we have made significant progress in the Life Out Here strategy, specifically related to scaling world-class technology that have supported the rapid growth of the organization. While digitally transforming and introducing AI technologies that drove digital acceleration and overall supported data analytics improved customer experiences across all of our channels.
We view our digital business as a competitive advantage. Most importantly, it's a platform for rapid growth. Our growth will come through supporting the businesses, the initiatives that you've heard about this morning or this afternoon, as well as continuously to grow our same-store sales growth and the digital business. Also, about a month ago, we were very excited to announce the acquisition of Allivet. I am pleased to share that we are past the HSR filing timeframe. This puts us in a position to share in the coming weeks to close on this business. And today I'm going to share a little bit more about how we're thinking about this $15 billion addressable market opportunity for the organization. And lastly, over the last few years, we've invested in tools, resources to introduce the Tractor Supply retail media network that Hal mentioned earlier.
I'm going to share more about how we're going to launch this capability in 2025, which ultimately will grow $130-$150 million in operating margin impact in the coming years. Over the last five years, we have positioned ourselves as a digital leader in Farm and Ranch. Ultimately, this was delivered and accomplished through best-in-class technology. We have been recognized through the industry as having a best-in-class technology organization, and we were most recently identified and named as a top 10 online best-in-class shop. Over the last few years, we've grown the online business to just north of $1.2 billion in revenue from a starting point of $270 million just a few years ago.
At the same time, while growing our digital business, we've leveraged the technology investments into our core business by introducing team member solutions such as Hey GURA and TSC and Me, which are all built on our digital technology platforms and leveraging AI technologies. As you've heard from John, these platforms are examples of technologies that we're introducing to drive and improve team member productivity, increase team member effectiveness related to sales, and ultimately continue to drive what we're known for, for legendary customer service both in store and online. We're in a strong, strong position to accelerate our digital sales growth in the next few years. We expect to more than double the business through continuing to enhance our shopping experience, optimizing our assortment, and ultimately increasing our traffic effectiveness and conversion.
Currently, our digital business represents about 7.5%-8% of our total sales, and our goal is to increase the digital penetration between 10%-12% by 2029, which would equate to about $2.4 billion for the online business, so doubling it from today. Our digital business alone is larger than the total of many of our Farm and Ranch competitors. We stand tall, very tall, not just in Farm and Ranch, but in the retail industry as a whole. We have made smart technology investments over the past few years, and now we're going to use this technology to enable some of the rapid growth in the coming years. I want to talk a little bit now about how we're planning on achieving this growth through our digital business.
We'll continue to build upon all the strong momentum that you've seen over the past couple of years in the digital and AI transformation at Tractor Supply. Our goal is ultimately to increase basket size, drive conversion, and through several of the initiatives that you've heard about today, as well as final mile, improve our margin structure. First, I'm going to start down a path called discoverability with AI, something that we've kind of coined here within internally at Tractor. But based upon how the customer is interacting with us in the moment, we're going to be able to serve up specific products based upon their needs. If you look to the right of me, this is a great example of where a customer is looking for a lawnmower to care for their land.
As you can see, we've taken the customer search, additional information about their browse, leveraging Neighbor's Club, and really tailored that search to direct them to a product that best fits their needs. What does this do? Ultimately, it's going to drive a higher conversion and increase the basket size. Second, through the checkout process, we're going to be serving up opportunities to focus on the basket size, using our Neighbor's Club data, a lot of the information that Kimberly shared about earlier to really drive impulse shopping purchases during the checkout process. As you can also see in the video to my right, we're going to use pet profile information just as one example and combining that with their purchase history to make specific recommendations for their pet, really driving that level of personalization. And then lastly, and third, it's all about convenience.
We believe convenience is and will continue to be a major part of what our customer expects from us. Over the last few years, we have successfully implemented different convenience features such as buy online, pick up in store, ship from store, curbside pick up, all focusing on making that customer experience our number one priority. It's about convenience. As you've heard from John for direct sales, and you're going to hear from Colin on final mile capabilities, we're going to be committed, we are committed, to taking the legendary service that's known for in store and online to the customer's property as well. We feel these capabilities will have an impact on the basket size, will continue to enhance our convenience offering, and ultimately improve the profitability of the digital business.
The other area that you're going to see us continue to focus on is about our assortment and aligning our assortment to the customers and the out here lifestyle. First, you're going to see us continue to invest with our key partners to ensure we offer the full assortment on TractorSupply.com. Examples of this could be anywhere from additional sizes, colors, makes, models. Second, you're going to see us continue to invest in expanding our assortment and what we are called tractorizing our products. We offer extended categories and assortments, specifically focusing on Life Out Here, the lifestyle needs of our customer. Example of this could be around camping, fishing, sporting goods. Combining with this, the full selection of our assortment and our products, leveraging our content and the knowledge that we're known for in these categories, it's all about digitizing this experience through specific shops.
A great example of this is our fishing shop shown to the right, which aligns the category and the customer's lifestyle and takes full advantage of our full selection of products, both in store and online. That's going to be able to localize the experience for the customer, ultimately improves the customer experience, drives relevant curated assortment, which will have an impact on growing our sales. And lastly, I want to highlight in the meaningful way that we're positioning ourselves around increasing our quality of traffic and conversion. Over the last few years, we have over 10 million downloads on our mobile app. We have strong retention rates. We're continuing to see an increase in shift in traffic from our website to our mobile experience.
Our goal is to ensure that we're leveraging mobile technology so we're always connected to that customer no matter where they're at, in store, on their property. We're going to continue to leverage Neighbor's Club and use that rich data to drive targeted campaigns through the web experience as well as the mobile experience. And finally, we're going to highlight for our traffic and conversion and drive what we're calling engagement booster features. And this is all about driving interactive content features to our customers that could be anywhere from product finders, shop by categories, all powered by AI, leveraging Neighbor's Club data and history. You've heard me talk a little bit now about how we're thinking about digital and how we're expanding our capabilities, and we're going to grow our digital business. I'm now going to shift and talk a little bit about expanding our services in Rx.
We are really, really very excited about the recent announcement of the acquisition of Allivet. I'm going to take a few moments here and introduce Allivet. Allivet has been a longstanding partner, and we've learned a lot over the years. Rx is one of the fastest growing online categories, and Allivet brings us a world-class platform when it comes to pet and animal Rx solutions. Allivet has a solid, solid track record of success and is fueled by a management team with industry knowledge. Allivet not just provides a robust fulfillment and distribution capabilities, but they have licensed pharmacists in all 50 states, which will be available to us on day one. Over the last few years, the Allivet partnership, we've heard and learned a lot from our customers. There's a need in the out here market to support pet and animal Rx.
We feel this is over a $15 billion addressable market and ultimately will drive to $1 billion in revenue opportunity at full scale. Both companies share similar values and culture, which is very important to us. This acquisition is also going to enable us to provide accretive margins, a scalable infrastructure, and ultimately will enable us to further expand our private label in Rx. As I mentioned just a few minutes ago, we are past the HSR filing period, and we're finalizing the details for our pending closing in the coming weeks. This acquisition ultimately brings Allivet and Tractor Supply capabilities to uniquely position us to bring what we call a value-oriented Rx solution to a customer on day one. We're going to leverage Allivet's world-class capabilities in AutoS hip and other features across all of our digital platforms.
We're going to build upon the Neighbor's Club program and integrate Neighbor's Club into driving rewards for our Rx customers. We'll not just introduce Rx online, but we're going to bring it to an in-store experience too and ultimately do this through supporting vets in our Vets Out Here network. We have identified endless, endless opportunities in the coming years that gives us confidence that we have a billion-dollar opportunity in the coming years. Allivet gives us the ability to ensure a seamless integration between the customer's vet while at the same time leveraging the scale and the power of Tractor Supply, both store and digital capabilities. Lastly, when you think about our digital portfolio of offerings, we have a platform in place to accelerate our digital business. We've made smart investments, as I've mentioned.
We're extremely focused on that customer experience, and we're driving the best world-class omnichannel capabilities. But now we're also going to take this and scale our Tractor Supply retail media network, which ultimately will drive sales, enhance our brand experience, and drive an improved margin structure. Over the last couple of years, we made investments already in the technology and the digital reporting capabilities and have put an infrastructure in place. And our retail media business is well underway and has begun to provide returns. The key is we're ready to scale, and that's what we're going to do starting in 2025. Through this increased partnership with our vendors, we're going to be able to drive enriched content, a more integrated approach, specifically with Neighbor's Club, and ultimately a better customer experience. What will this do?
Drive sales and ultimately support the growth of Tractor Supply with the double-digit growth of the digital business while bringing incremental margin dollar improvements, so we've talked a lot about new initiatives, new capabilities. As you can see, the team's really excited about all these new capabilities and technologies that we'll be bringing forward. Ultimately, we'll support driving sales, comp sales, at the same time introducing new business opportunities such as direct sales, Rx, and final mile. We have a significant opportunity to double our digital business while introducing new categories and capabilities such as Rx that ultimately is going to deliver over $1 billion of revenue at full scale, and lastly, we're going to scale the Tractor Supply retail media network to ensure that we're supporting the growth by targeted offers while improving our margin structure.
The team and I are extremely incredible and excited about the opportunity that exists in front of us. Just as a closing quick plug, what I would ask you is to take a stop downstairs at some of the tech demo booth. You'll have a great opportunity to meet the team, see some of these features in action, and then more importantly, learn about the capabilities that's going to fuel the business. So with that, I'd like to turn it over to Colin, and he's going to share a little bit more about final mile. Thank you, everyone.
All right, thanks, Rob. Over the last several years, our supply chain has delivered on its promise of being a dependable supplier, supporting our growth and leveraging our scale to drive a lot of efficiency into our network.
Today, I'm going to reflect back on several accomplishments since our last Investor Community Day and outline where we see our greatest potential for the back half of the decade. First, we are proud of our purpose-built supply chain that's uniquely designed for Life Out Here. We built a network to support a specialized store format, ensuring that our customers have access to the products they need to take care of their land, their livestock, their livelihood, and their lifestyle. Over the last five years, we've invested in our supply chain, and those investments have driven material returns, and looking forward, we are really excited to introduce our final mile solution. It's that final mile solution that's going to be the foundation for driving our digital sales that Rob talked about and the direct sales business that John talked about.
We are purpose-built for our smaller store format and the products we carry. We move a lot of tonnage through that small store footprint, and that means we have to be precise in how we source product, flow product, and then react to demand patterns. There isn't much room for error, and we built an integrated end-to-end supply chain that uses world-class technology and data analytics to make all that happen. In the last few years, we've seen our use of machine learning for inventory planning scale to touch most of the business. Today, 84% of all of our sales units are forecasted using machine learning. That allows us to predict the impact of demand drivers, including merchandising decisions, external events, and seasonality to increase our forecast accuracy.
We've also driven more automation into our distribution network, deploying advanced labor planning tools for our leaders and shift scheduling apps for our team members. And that's putting power in the hands of our frontline team members to adapt to the workload. We're continuing our robotics journey through the use of autonomous mobile robots and goods-to-person fulfillment technologies. And we're able to use our network to maximize flexibility, mitigate disruption, and be the dependable supplier. Our unique assortment requires us to be super flexible. In our network, we're moving everything from bags of dog food to nuts and bolts to a Carhartt jacket, home decor, a steel fender for a trailer, live plants, UTVs. And people that tour our facilities, they're always struck by how we make all those things come together for our stores.
And then when we zoom out and start talking about our overall supply chain, they're blown away by how we can act globally and locally simultaneously. As one of the top 30 importers of containerized freight in the United States, we have the ability to blend those international product flows with local manufacturers to give the best variety and best value to our customers, but also be reflective of local needs and demand patterns. So while I have the mic, I just want to take a minute and brag on the supply chain team. A few of my team members are here today from the Hagerstown, Maryland, DC, and I want to make sure I give them the entire team their due because I know there's some watching here today, and there'll be others watching in the future. They are truly the quiet professionals that make hard tasks look easy.
Our company's experienced tremendous growth over the last five years, and they've stepped up to meet that demand. Digital sales have grown by 344%. Our truckload volume has grown by 46%. And this team's added 13 new facilities of different types to make all that happen. They added two new DCs, one import center, and 10 mixing centers. And it's those mixing centers that give us that just-in-time replenishment for our stores that allowed us to move 8.6 billion pounds of CUE product last year. Over the last five years, this team's also made our supply chain faster, and that speed's helped us drive more volume through our network. They've reduced the average mile per load in our transportation network by 20%, and that's cut out cost and time.
Our DC teams have doubled their numbers of team members, cut turnover rates in half, and increased overall DC efficiency by 12%. In 2024, they achieved the highest in-stock percentages that we've had in the last six years, and throughout all the supply chain disruption, this team has kept us in stock but never lost sight of being disciplined with inventory or gotten us into a situation where inventory became a liability, so I just want to say thank you to this very, very talented group. Our supply chain is built for both scale and specialization that Life Out Here requires, but it's going to continue to evolve. With our future store growth, we're looking at opening our 11th distribution center. It's going to be located in the Pacific Northwest, either in late 2026 or sometime in 2027. That really just depends on the overall construction timing.
Today, our stores out west are serviced either by our Arizona DC or our Nebraska DC. So there's a significant opportunity to reduce our length of haul, our lead times, and our freight efficiency for those western stores as we stand up this new DC. The next big unlock for our supply chain is in the final mile. Our unique delivery locations and assortment make this a problem that we at Tractor Supply are best equipped to solve. Our freight mix, our locations, our customers' properties, all those things make it difficult to find carriers that can handle all of our needs today. While others are trying to move into this rural delivery space, this is where we live, this is where we operate, this is where our stores are, and we have the relationships with our customers and where our inventory is positioned.
This year, we're going to send out 5 million final mile shipments. 25% of those are big, bulky, heavy items. And with direct sales, that portion of the mix is only going to grow, and that's where we think we can win. And that belief's based upon several years of testing. As John mentioned, we have about 240 trucks out in the market today. And in those markets, especially for those big and bulky types of deliveries, we get far better service feedback than any other delivery method in the final mile. On average, we see a 10 times lower rate of return for deliveries made by TSC Delivery. We see a 13% higher customer satisfaction score compared to when we leverage outside carriers. And I've had the opportunity to go out and do some deliveries in the market.
When I've done that, I've just seen the proof that our customers value the Power of the Red Vest, not just in our stores, but out on their properties. The deliveries we're doing aren't just dropping a box on somebody's doorstep. We're delivering multiple pallets of animal feed, pallets of shavings, 16-foot fence panels, stall mats, which are heavy and awkward to move around, riding lawnmowers, stock tanks. And when we're doing that, we're having to get past a customer's property gate. We're having to go down a quarter-mile-long gravel driveway. We're dropping products in their tack rooms around their animals, and we're dropping products out on fields where they're working on projects, all things that I saw in a short time of doing deliveries with our team members.
In the markets where we have TSC Delivery, our customers know their driver and have a relationship with that driver just like they do with our team members in our stores. Being a trusted, regular presence on a customer's property, especially around their animals, is a differentiator for delivering legendary service. That's a hallmark of what we've seen in the areas where we have coverage today. With our eyes on direct sales, we know we need to scale this network and integrate it with our end-to-end supply chain. Today, we have nationwide DC coverage where every DC replenishes stores and also serves as a fulfillment center. Our mixing center network covers 85% of our stores, and of those five million final mile shipments that we send out, 90% of them end up within 40 miles of an existing Tractor Supply store.
So we have a really strong foundation to work with as we stitch this all together. Today, we operate a decentralized and independent set of final mile delivery capabilities. We have thousands of suppliers that either send items directly to our DCs, our stores, or our customers' homes. Then we use a variety of third-party small parcel carriers, less-than-truckload carriers, and same-day delivery providers to cover down on that final mile. So our focus is on expanding TSC team member delivery for more of our digital direct sales and in-store delivery business.
For years, Tractor Supply has been the go-to retailer for Life Out Here. Now, we're taking it a step further, using our expertise, robust supply chain, and the latest technological innovations to take our legendary service to final mile.
Our vision activates three types of facilities: our distribution centers, where stock is held before being sent to stores, our mixing centers, where we replenish our most in-demand consumable products, and, of course, our stores, where the relationships with our customers are built and maintained. But at Tractor Supply, we're unique in our ability to begin meeting our customers' needs before the product even hits our store shelves. Our fluid state-of-the-art distribution system is capable of supplying nearly 2,300 stores while at the same time singling out products for our individual customers, making sure they get what they need when they need it. Running low on feed, we'll deliver straight to your barn while you're out for a ride. Friends on the way? We'll drop that fire ring and firewood off in no time. Ready to tackle the lawn with your first zero-turn?
We'll bring it to you and make sure you're ready to use it. At Tractor Supply, we're offering more convenience to more customers, delivering directly to you. Delivering Life Out Here.
So our vision is to use our existing network of stores, DCs, and mixing centers for a highly flexible, but asset-light final mile solution. There are a few different ways that we could enter into the final mile space, but I would say this is very similar to the approach that's been used with some of the auto parts retailers, where they've used their existing network of stores, and it doesn't require a massive new build-out of distribution facilities to drive that business-to-business type capability. So as we develop this network, we're going to set up hub stores where drivers and inventory are consolidated for customer deliveries.
We'll leverage our mixing centers to send bulk quantities of consumable products into those delivery hubs. We'll use the inventory in stores as well as inventory sent from DCs and inject that into the final mile network to fulfill customer orders. And we'll have a variety of trucks and trailers within the delivery regions that are able to support different types of deliveries. In some cases, that could be a pickup truck and a trailer, just like we have out there in the market today. In others, it'll be equipment capable of handling heavier and multiple pallet type deliveries. So this is going to be a multiple-year build-out.
In 2025, our main goals are about setting up the final mile team, selecting and enhancing on the technology for routing and scheduling drivers, activating that mixing center product so we can enable those larger quantity orders of C.U.E for direct sales, and repositioning the trucks we already have in the network to expand our network coverage and do that in lockstep with the direct sales team. In 2026, 2027, our focus is going to really be about scaling our efforts. In the last couple of years of the decade, our goal is going to be about driving volume to store delivery, optimizing those operations, and enhancing the overall customer offerings. By the end of the decade, we plan to take the 15% order volume coverage we have for big and bulky items today and have the ability to cover 90%-95% of those large item orders.
Our final mile delivery solution will not only enhance our operations as they stand today, but obviously, it's a key strategic enabler for other priorities in the business. We forecast about 50% of direct sales volume will get delivered with our final mile network, as those digital sales grow, we'll induct that volume into our network as well, allowing us to better control the flow, order consolidation, and customer experience, because of the nature of the product and the locations that we're delivering to, we don't just see this final mile network as a way to improve our delivery efficiency and quality, but also as a way to extend our promise of legendary service to our customers out on their properties, to wrap up, we view our supply chain as a key competitive advantage, unmatched in farm and ranch retail.
We're continuing to evolve the network to support our future growth, and we're committed to being a leader in farm and ranch when it comes to delivering products when and where our customers want them, and we believe this will be achieved with our final mile delivery solution. So now I'm going to turn it over to Kurt, who's going to walk us through our historical performance and share insights into our future outlook.
Thank you, sir. Thank you, Colin, and thank you, everybody, for spending time this afternoon with us to hear about our exciting strategic plans for the back half of this decade. You know, the teams had a lot of fun bringing rural America to New York City. And I just got to tell you, along with that fun, it's pretty darn cool to be wearing cowboy boots on stage in New York City.
So the teams shared with you their views on our strengths and our compelling opportunities for growth. I'm going to pull all of that together to do a few things. One, I want to be able to emphasize that we are building from a structurally higher base on sales. We can re-accelerate sales and re-accelerate at a profitable way. For today's time, I want to spend my time on four things. One, I'm going to spend a little bit of time looking back at the past five years and break down the drivers of comp sales over the past five years. I think that's helpful to show where we're launching from.
I'm also going to go, if we can go back one slide, I'm also going to go through our long-term targets, and I'm going to be able to walk through the drivers of comp sales and sales to get to those targets and our operating margin. I'm going to then address and reaffirm our capital allocation priorities and then wrap that up with why we believe we can grow profitably and drive strong and durable total shareholder return. Hal mentioned and walked you through some of the strong historical growth. I just want to just re-hit that one more time for Tractor Supply. No doubt, in the last five years, we have had some of the strongest performance in sales and earnings. But when you look at the data over whether it's five years, 10 years, or 20 years, the results are consistent and strong.
This demonstrates the resiliency of this business and the consistency of both the top line and the bottom line. Whether you look at it five, 10, or 20 years, store count growth, sales growth, earnings per share, or total shareholder return, some of the strongest, most consistent in retail. Okay, I said I would spend a little bit of time talking through the last five years' comp sales. I believe this is important because we've had significant growth over the last five years, and we've had this fundamentally structured in structural growth factors. But there are some cyclical portions to it. In the last five years, we've had 46% five-year comp store sales stack. Recognize most of that was in the first three years.
So I'm going to break down and walk you through the bridge on comp sales for the first three years and then transition into the last two years. By the way, in my presentation on this slide and any of the future slides, anything we refer to as 2024 forecast, we've basically assumed the midpoint of the guidance range that I shared on our third-quarter call back in October. So the first three years, 46% comp store sales stack. That was mixed between both transaction growth and ticket growth. Let me start with the transactions. Transaction growth was also a result from growth in new customers as well as additional wallet share of existing customers. Kimberly walked you through some of the strengths that brought consumers into our markets and into our lifestyle over this past three years.
Rural revitalization, mobility of workers, focus on homesteading and life at home certainly drove customers into ex-urban and rural markets. Roughly half of our transaction growth during these three years was new customers. The other half was further engagement and greater share of wallet from our existing customers as they expanded into other categories, or we took market share from a rather fragmented market that we compete in in farm and ranch. The transactional growth has been structural. We have seen continued growth in customers and continued growth in transactions. Let me shift the ticket. I break down ticket primarily in the growth of these three years as basket mix as well as inflation.
In regards to basket mix, one of the most significant contributors to the basket mix, while not the only one, we will acknowledge during these three years of the COVID pandemic, with stimulus and focus of life at home, we certainly had outsized growth in big ticket and discretionary categories. We continue to see customers engaging in our lifestyle, and there certainly were some transitory cyclical benefits to our basket mix during that time. Inflation. I break inflation down into both structural inflation and commodity inflation. The commodity side gets a lot of attention, but the largest portion of our input cost on inflation was really the structural side of it. When you think about our business, all businesses, operating costs significantly inflated during these three years.
Wages, insurance, rent, all other operating costs, there pretty much wasn't much of a variable in operating costs that didn't have inflation during this time, and it drove a significant increase in the input cost. That's been structural. We've really not seen any shifts or changes on that level of inflation. Commodity inflation certainly is a bit of a transitory item. We saw significant inflation, lesser than the structural, in key commodities. As an example, the three largest commodity inputs in our business are corn and other grains, steel, and oil. Corn pre-pandemic was running about $380 a bushel. It peaked at about $800 a bushel in early 2022. Steel saw 65% inflation during this period of time before it began to normalize starting in the back end of 2021, and oil was at $60 a barrel, peaked to $115 a barrel in 2022 in this time frame.
So we saw inflation in those commodities. As we shift out of 2020 and 2022 into 2023 and 2024, we were already beginning to see some of the commodities normalize. But in 2023 and 2024, we actually started to see some of those transitory items normalize. Commodity prices, as I mentioned, started to disinflate. And we've been very transparent over the last two years on this item. Corn is now down to $420 a bushel. Oil is at $70 a barrel compared to $60 pre-pandemic, and steel's actually below pre-pandemic levels. Most of the commodity inflation has disinflated from late 2022 through 2024. And as you've heard us talk about it, we've pretty much cycled through most of that. It's in the input cost. We see ourself really at a more normal floor in this case.
And as Hal mentioned earlier on a macro, we may be one or two quarters away from really cycling a neutrality point on that. Discretionary has really normalized in the past two years. You've heard us talk about big ticket negative comps in 2023 and early 2024. Discretionary spend, where focus has shifted back into services versus goods. We really see in those categories that we've generally hit a more normalized basis from big ticket and discretionary on a per-store basis. The interesting thing is at that point, in these last two years of roughly flattish comps, we've been able to offset that in growth in transactions, growth in new customers, and growth in units. We have seen new customers entering into ex-urban and rural markets. We've seen additional engagement in the lifestyle, and we have certainly taken market share from the competition.
That's driven growth principally in a lot of key categories and been able to offset the pressures on the ticket from discretionary and the deflation. The main objective of this slide is, in our view, over the last five years, we've seen some ebbs and flows on the cyclical items, and those have normalized, and we see ourself today pretty much at a structurally new and higher base that we're launching from. Another way of looking at our opportunity for growth that the team just talked you through is the strong foundation that we're building from that we're adding strategic initiatives. It starts with the enduring market trends. First, we are perfectly located geographically. We are in rural and ex-urban where growth continues to exist.
Competition is most fierce in urban and suburban, and yet we are in the rural and ex-urban markets where the competition is less, and we are the dominant leader in farm and ranch. In this fragmented market today with retailing, as you heard Colin and Seth talk about our opportunity to be the best value in this fragmented market, we are able to bring better convenience, more dependability, great customer service, and the best value to our customers. We are continuing to take market share in this fragmented farm and ranch market. But then we add on to that what is our core strengths of our business. Hal talked about this earlier, and this is our flywheel. During the last five years and during the next five years, we will continue to invest in the core. You just heard Colin talk about the supply chain capacity.
That has positioned us well to be the lowest cost to serve. We're not stopping there. We're going to continue to be able to reduce the mileage between the stores, the distribution center points, and actually become even more efficient on final mile delivery. We're investing in our team. We're investing in customer service. And as Rob mentioned, we're investing in technology. Investing in the core continues to allow us to widen the moat and distance ourself from a less sophisticated competition. When you take the enduring market trends we believe are in our favor, we continue investing in the core. It really then what you're hearing from us today is we are then also doing that, and we are investing from a position of strength on these new Life Out Here 2030 initiatives.
We're continuing to invest on the existing initiatives that still have runway while beginning to scale on new opportunities. That takes us to our long-term targets. As Hal mentioned, we're announcing our long-term targets for the back half of this decade. We believe with the combination of new stores and a strong opportunity to be able to drive comp store sales, we can drive sales at 6.8%, 6-8% growth, comp sales at 3-5%. We do believe we have operating margin expansion in this model. So we are targeting to have operating margin expansion in the 10-10.5%. With shareholder returns, we believe that we have a growth target of 8-11% on earnings per share.
What I want to do now is spend time giving you more detail on the things you've heard today that help pull together the comp sales, the operating margin, and all the contributors to our total shareholder return. I'll start with sales. Sales are simply the combination of the growth in comp sales as well as our new stores. I'll start with comp sales. If I break it down to the most simplistic form, we have macro tailwinds. We assume in this case that not only from a macro GDP and modest inflation, but our category with these enduring market trends should continue to grow in these markets. So we believe we can drive 1-2% comp store growth just from the macro and the category growth, 2-3% from our strategic initiatives.
This slide demonstrates that the beginning part of this back half of the decade is probably heavier on the existing initiatives. You've heard and seen the slides on how we're scaling over time. And as the current initiatives begin to be less of a contributor, the expectation is we are very choiceful and disciplined in how we invest and scale the new initiatives. So there's somewhat of a seamless growth on the new initiatives to be somewhat of a handoff in our comp sales contributors. We are going to continue to open up new stores, and that gives us the opportunity on average of driving 2.5% growth to net sales. Addressing new store sales, our new store growth. Opening strong, consistent, profitable new stores is a hallmark of Tractor Supply. Today, we've got even better customer data than ever with 37 million Neighbor's Club members.
We have a much stronger real estate model and much more sophisticated. That has given us the evidence that there are 200 new specific identified profitable sites for Tractor Supply stores. So we're announcing that we're moving from 3,000 to 3,200 as a target in domestic Tractor Supply stores. Additionally, we're increasing the acceleration of new stores to 100 stores starting in 2026 for each year. That's not uncommon for Tractor Supply. We were opening 70 to 100 stores pre-pandemic. And actually, two years, we opened over 100 stores. We've got the capacity. We've got the muscle and know how to do it. We've been growing back into that. We opened 80 stores this year. We'll open 90 next year and a target of 100 thereafter.
Now, to support that and be able to leverage our strength of our balance sheet, we are going to increase the amount that we're opening under our owned store development program, which we've done recently. This is the most efficient way where Tractor Supply invests our capital, and we partner with the developers, and we have much more visibility and control over the cost. We can use our scale to drive the lowest cost into new stores. And so we'll do that. Now, it does require us to invest some capital. So while we've been using our sale-leaseback of legacy stores, we'll ramp that up slightly, two or four more stores a year to provide the additional capital. So we have the cash flow to invest further into 90 and 100 stores rather than tap into additional capital.
All of that can be done because in our confidence and our track record on new stores, new stores continue to be the best investment that we've got at Tractor Supply. New stores today open up in year one at $4.5 million annual sales. That's 30% higher than pre-pandemic. And we continue to still stay on target at 60%-70% new store productivity compared to a mature store. Asset light, cash flow positive in one year, returns back in two to four years on a new store. We have the confidence that there are still profitable opportunities and a long runway of nearly 1,000 additional stores for Tractor Supply. Hitting on comp sales. First, the existing initiatives update. These initiatives can drive 2%-3% annually in comp sales. You see the progress that we made. Hal shared some of these slides with you.
Our new stores will continue to drive in new store maturation a contribution to comp sales net of cannibalization. Fusion, Garden Center, Neighbor's Club will be the key contributors to this. But also, as Rob mentioned, our digital sales are targeted to be at low double-digit growth annually, contributing to comp sales. All of that combining to a 2%-3% contributor to our comp sales. As we begin to scale and merge, converge into the new initiatives, you've heard about the opportunity today on localization, direct sales, and pet and animal Rx. Those three are the largest top-line sales contributors as we see them for the back half of the decade. The margin enablers and the sales enablers, like final mile that Colin just talked about, not only can drive sales, but really do this much more profitably.
One of the more compelling things is that final mile not only enables direct sales, but it allows for us to be much more competitive on the digital sales, and that one slide in the data point on 10x of fewer returns allows final mile to leverage both of those and be more efficient. We see final mile as a margin enhancer as well. Rob walked you through retail media. Seth talked about exclusive brands. There's no doubt it is a sales driver, but also a margin driver as well. We see great opportunity exclusive brands as the innovation is beginning to open up in many of our categories, and you'll hear more from us on that. Lastly, these new initiatives, there's one other key difference from the first phase of Life Out Here to today, and that is it's much more of an asset-light investment.
Yes, the Fusion and garden centers had to be capital intensive. This is an asset light model that allows us to be much more nimble and flexible. We have a commitment to be choiceful and disciplined on how we scale the cost to be able to manage that both from an operating and top-line side, on operating margin and top-line side to meet our commitments. Speaking of operating margin, there are puts and takes on operating margin over the back half of the year. We are committed to and believe strongly we have opportunities for operating margin expansion. There are some pressure points though in there. Certainly, the growth initiatives. We continue to have still at least half or more than half of the runway left on Fusion garden centers. So we've got growth initiatives that will continue to put some pressure on that.
The new initiatives will begin to scale and have some pressure from those initiatives. As we scale and grow in direct sales, you heard John talk about there's a lot of consumables that these big barns and events will be driving. Consumables run at a slightly lower gross margin on a landed basis. As we drive greater sales in digital on a landed basis, also a bit of a lower direct, I mean, gross margin mix on there. So there's some pressure from that. Transportation costs generally go through a three to five-year cycle. It's almost routine of highs and lows. We've seen the highs during the last five, and we've really renormalized down here recently. We generally anticipate some pressure over the back half of the decade from transportation. But we believe we've got even greater opportunity on the operating margin enhancers. I've hit some of those.
The team has hit those such as retail media exclusive brands, moderating macro pressure. But leveraging our size and scale has been something that we've really built in science and strength over the last five years. And we continue to believe we can win and be able to take cost out of the business, not just in merchandising, but in non-merchandising areas of the business. It's exciting to watch this team leverage our size and scale of a $15 billion-plus retailer versus a $5, $6, or $8 billion-dollar retailer a few years ago. We'll continue to make investments in the distribution center. But as Colin demonstrated, we still see a lot of opportunity to be able to be more productive in distribution, be able to reduce the miles and improve the cost on the rates per mile in transportation.
We are just starting to see some of the benefits from our investments in the supply chain. Lastly, we have significantly seen reduction in depreciation expense growth over the last few years. We are low double-digit growth this year. We will be getting close to in the next year or two where depreciation expense during this period of time will equal the sales growth of the company. Depreciation expense has been one of the biggest deleverage points over the past five years. All of that, we believe, underpins our confidence in growing operating margins to 10%-10.5% over the back half of this decade. That brings me to our capital allocation. Our priorities have not changed on capital allocation. I'll just hit some highlights. We will continue to invest first priority in these capital investments for these growth initiatives.
Over the back half of the decade, we forecast spending $3.5 billion in capital into the business. That's generally in line on a net capital investment with what we're investing today. We've said in the past we hit a point of plateau, and we believe we're there. That's aligned with we believe depreciation expense begins to normalize in line with sales growth. We will commit to return to be consistent returning to shareholders. Dividend target of 40% payout. Between dividends and share repurchases, we anticipate returning to shareholders $6 billion over the back half of the decade. Tuck-in acquisitions. We continue to be opportunistic in our acquisitions. We look for opportunities that are core to our business and profitable. You've seen that with Orscheln acquisition. We're excited to be talking about, like as Rob did, on Allivet.
Allivet's a great opportunity to be able to open up a new channel. I certainly think that's one that is a one plus one equals something greater than two, and excited to be able to see the performance of that and the integration in 2025. That takes me to our goal of total shareholder return. Our strategic plan is centered around the core of driving strong and durable total shareholder return. And this is a great example of power of compounding. When we drive 6%-8% sales growth, operating margin expansion, and strong return to shareholders, we are targeting and believe organically 9%-12% total shareholder return annually with potential upside with investments or other acquisitions. Okay. That pretty much hits a lot of the five-year long-term. Hal mentioned a little bit on 2025.
I recognize we've talked a lot about items we're going to invest in and some of the macro relates to 2025, and we're only a few weeks away from the end of 2024, so I felt it's appropriate for me to try to put a financial lens on the 2025 impacts with both macro and some of the internal investments. From a macro perspective, particularly deflation, we do believe that some of the macro pressures and deflation persist into 2025, albeit at a much more moderate level than 2024 and dissipating by midyear or even earlier than that in 2025, but the core of the business, as I demonstrated, the growth in transactions or unit volume, we believe continues, and so we are expecting to be positive comp sales in 2025, albeit likely below our long-term algorithm as this is a transition year out of some of the macro pressures.
Likely to have positive comp store sales growth in the low single-digit category. We continue to expect gross margin expansion in 2025. That gross margin expansion, we believe, can offset the investments for growth on existing initiatives. But additionally, gross margin expansion enough to be able to subsidize what we see as about a 15 basis point pressure on investment for these new Life Out Here 2030 as we begin to invest and scale in final mile and direct sales and some of the other investments in there. What that means is we would see 2025's operating margin likely centered around 2024's number. Capital spending, as I mentioned, likely to be consistent with 2024. We're excited to be able to be at a point where we're off some of the peak investment cycles of the past few years. Let me just wrap all this up.
Let me first say that I've had the privilege of spending 25 years at Tractor Supply Company. The opportunity that I see today from the strength of the business, our ability and our right to win in our market, and the compelling sales growth opportunities ahead of us are as excited as I've ever seen at Tractor Supply. We've got a great enduring market. We're building from a higher structural base today. We are committed to be able to grow profitably and committed to operating margin expansion. We have a very disciplined and choiceful capital allocation that we're going to be leveraging the strength of our balance sheet, our investment-grade credit rating to be able to support this growth. All of that underpinning and producing our expectation, our goal to drive to you as our investors strong and durable total shareholder return.
With that, I want to thank you for your time this afternoon. I'll turn it back over to Hal.
All right. We're in the home stretch of our presentations. I just want to make a few closing comments and then we're going to transition to Q&A. So today was all about the next five years and our plans to create compelling value for our shareholders and to build a business for the next 85 years. From Kimberly, you heard an update on our growing customer base and our plans to evolve our brand and our Neighbor's Club program to capture more share of wallet from our customers and continue tracking new customers to our brand.
Seth gave you a look under the hood at our merchandising secret sauce and he outlined the opportunity to accelerate our exclusive brands and shared a plan to double down on space productivity through our localization efforts. John provided you an update on our efforts to improve customer service and team member productivity, and he shared a $1 billion-plus opportunity to extend our customer service beyond the four walls of our stores with our direct sales force. From Rob, he updated you on our technology initiatives and reviewed the opportunities to expand our business into Rx with the Allivet acquisition and to accelerate our retail media network, both big opportunities. Colin shared an update on our supply chain efforts as well as discussed the next logical step of extending our supply chain to that final mile out in rural America.
Kurt wrapped it all up by translating the strategy into our financial objectives and updated you on our capital allocation strategy. Tractor Supply has a rich history and track record of success. Our financial performance over the last five years has delivered strong results, and we've expanded our competitive moat. Our Life Out Here 2030 strategy is comprised of a number of compelling initiatives with varying time horizons with the intention of delivering growth each year as we look forward. We remain steadfast in our commitment to drive sustainable growth and long-term value. With a total addressable market of $225 billion, we have significant runway for growth. Tractor Supply has never been stronger, and the next five years are going to be very exciting for us. With that, we'll now transition into Q&A. I invit e our speakers to come back up on stage.
Additionally, I'll note that we have members of our executive team in the audience, and as we're setting the stage for Q&A, we're proud to share a quick video of our work from our foundation, so thank you so much.
Neighbor, helping neighbor. Here in the heart of America, the spirit of community, hard work, and resilience come together to create a vibrant way of life. At Tractor Supply, we call it Life Out Here. Our purpose is to serve those who embrace this unique lifestyle. Making sure our customers have what they need when they need it is more than the products we sell. It's giving back to the communities we call home, where we live, work, and play. We're passionate about this lifestyle that we live and love.
From small acts of kindness to grand gestures, we stand arm in arm with our neighbors, our community partners, our friends, and family. We're educating and empowering the next generation: future farmers, ranchers, animal lovers, veterinarians, and those working in the skilled trades. Partnering with FFA for over 35 years, raising funds for 4-H clubs across the country to give students hands-on experiences. We're preserving our land for future generations, providing grants to sustain small farms and farmers, and joining with others to restore and preserve America's natural beauty: one acre, one tree, and one stream at a time. We're helping care for pets and companion animals by funding animal shelters impacted by natural disasters. We're striving to be good neighbors in the places we call home, keeping farming legacies alive.
Partnering with organizations to lift up those who have sacrificed so much to serve our country with our Hometown Heroes program. We support organizations that give a second chance to people while growing fresh, nutritious fruit and vegetables for the food insecure. And when disaster strikes, we ensure help and hope is there, supplying gift cards for local nonprofits, product donations, volunteers, and funding. And if a child with a critical illness in a rural area has a wish, we do our best to make it come true. At the Tractor Supply Foundation, we are passionately dedicated to making a meaningful difference in these often overlooked communities. The vibrancy of our mission is to invest, preserve, and protect Life Out Here.
All right. So everybody, welcome back to the stage, our management team. And we'll get started with the Q&A.
We have a phenomenal attendance today and want to get to as many questions as possible. So I'll ask that you really keep it to one question. And we've got a lot of time allotted for that. So thank you. We have two mic runners, one on each side. And so maybe as I call on you, if you could state your name and your firm, that'd be great. All right. We'll go here. So Chris has got the mic on this side, and Joseph has the mic on the other. Please state your name and firm.
Sure. Peter Benedict at Baird. Hey, guys. How are you? I'm curious about the system's capabilities today and then maybe what's required to support the localized Fusion effort that you talked about and also the Big Barn initiative and serving those customers. Maybe give us an update there. Thank you. Yeah.
Thanks, Peter, for the question. Why don't we, on system capabilities, maybe Rob, you can talk a little bit about localization and all the work and Seth that we've done on planogramming and on store clustering. And then Colin, you can talk about it because it also has supply chain implications as well in terms of picking locations and replenishment.
Yeah. Great. So a couple of things to support localization over the years is we have been upgrading and implementing new merchandising and space planning tools, specifically with clustering, space optimization, assortment planning, all the above. We put also a lot of focus on data. As you probably have heard through all the presentations related to AI, it's been a big strategic part of how technology is thought about at Tractor Supply. How do we leverage our data and the core infrastructure? So we have clean data.
Clean data with good, stable, scalable systems is going to enable a lot of the things that we need to do around localization. Most of the big investments are already done. Now it's about tweaking, learning, and kind of fueling what we want to do with localization, both in store as well as taking it from a digital perspective related to personalization or geotargeting specifically.
Yeah. Thanks, Rob. Hey, thanks, Peter, for the question. Hey, when we think about localization, just a couple other quick things as well. Number one, as we're building our localization capabilities, we're ensuring that we're building it at scale. Our goal is not to add a significant amount of complexity nor result in anything that would imply a significant amount of inventory investment as a result.
Over the course of the investments that we've made in technology the last couple of years, and as we've gone through Project Fusion specifically, we've recognized that when we go into these markets and we're doing our innovations, that every site location in a market has a little bit unique opportunities to maximize sales. Today, we have planograms that can fit, if you can call it, at our largest size, around 20,000-22,000 sq ft of a store. But most of the time we go into a Fusion store, we're about 15,000-16,000 sq ft. We've been building these models that go in and look at sales, space, demographic, et cetera data that can then come back and then say, what is the optimal floor plan by taking kind of that library of planograms that we have and build the optimal floor plan?
So that's kind of this phase one that we have. And those systems are in place today. And we've been investing in data analytics for the last few years. It's really been driving that. As we've done that, though, some of the outcomes of that is we've also recognized that we have some opportunities to go and create some updated planograms at the same time. I'll give you an example there. Today, most of our stores, as we go into a Project Fusion in the last few years, our bird aisle, if you want to call it that, like wild bird seed, black oil, et cetera, is basically a one-size-fits-all pod no matter where we are in the U.S. Well, it operates very differently or sells per square foot very differently there. So if we're out in West Texas, you might not need two aisles of wild bird seed.
Instead, you could pull that back and invest more in our larger truck and hardware, outdoor rec and wildlife, et cetera. So that's really this kind of this next phase for us when we think about localization, particularly as it relates to Fusion and macro space, is how do we take all the tools that we have today, the data analytics that we have, the planograms that we have, and we go in and look at the Fusion remodels we're going to do, and just basically come in and we have these archetypes that have been created to be able to do it at scale and make sure that we have the appropriate floor plan there.
Yeah. And Peter, I think one thing that localization is going to challenge our supply chain to do is take what I would say is already I've put it up for a best-in-retail flow planning process.
It's going to push us to get even better at that because a lot of it's going to be around how do we keep seasons on longer in certain stores and manage those transitions from season to season to make sure the product is relevant for our customers and not have these kind of more inopportune changeovers of product from season to season so we can best support the customers. So it's really about using those flow paths we already have, our DCs, our mixing centers, our import centers, and managing that timing at a new level that's going to be expected of our supply chain. Then within that, as Seth said, he doesn't really see this as being a fundamental large-scale change at this point with around inventory and SKU count and those kind of things.
We are going to have to adapt, though, within our DCs, how we store product and the number of locations we have, but all within our capabilities to do just as we change over within the systems we already own. And then I think the new Pacific Northwest DC is going to have our first major installation of a Gustafson automation design, which allows us more dense storage, better productivity. But one of the prerequisites for that was it has to be retrofittable back into our network if we want to do that, if we did see an opportunity for that within our existing DCs.
All right. We'll go. Joseph, you want to take one on this side of it?
Great. Thank you. Steve Zaccone from Citi. Thanks for all the information today. Very helpful. I wanted to focus on the direct sales opportunity.
Could you talk a little bit about the competitive environment there? Who do you think you're going to take share from? And the long-term potential of that business, would it be margin-dilutive just because of the mix of the business? And then the last question is just, as you think about growing that business, would you be open to M&A?
John, you want to take that one?
Sure. I'll hit on the competitive environment of it. On the competitive environment, I think you heard Hal talk about that there's 8,000 farm and ranch and co-ops that are out there today. The co-ops out there today are pretty much the ones that are capitalizing on this Big Barn, big bulk. We haven't been able to do it in the past because we didn't have the equipment or the people. We're used more as a convenience type.
They'll come in, as Colin said, we do about $8.6 billion or $8.6 billion pounds of feed and food, but they come to us for convenience Saturday, Sunday when they run out of something. Now we're able to take out three, four, five skids, bring it out there when they need it. What we found is they don't need it next day. They don't need it same day. They need it when they want it there. So we believe that a lot of that's going to be coming from some of those co-ops that are out there.
And Steve, I'll hit the question on the margins. Here's how we view it. A couple of key points. We are opening the door to the most profitable and largest spending customer.
So in that particular case, while from a gross margin of product side of it, the mix might slant to a lesser gross margin rate, we're able to do that leveraging the same distribution points that we have today, the 2,300-plus stores. It's a much more asset-light or expense-light SG&A because while we begin to scale that, we believe that you're able to leverage some particular fixed cost on that. And so I'd say over the long term, while gross margin may have, if you scale that, may have some pressures, we look at it as operating margin either equal or potentially, as it scales to size, accretive to operating margin.
All right. We'll come back over. We'll just bounce back and forth to each side.
Hi. Chris Bottiglieri, BNP Paribas Exane.
My question was, you talked about the initiatives for growth, kind of transitioning from the old initiatives to new initiatives. That should be relatively neutral to same-store sales. But what about op margins? Could there be more of an expansion in the back half of the plan? When I think of things like advertising, my guess, very educated guess, you'll do $25 million in 2026, but then you'll scale up to $150 million by the back half of that. That should be very margin-accretive. Delivery also seems like you'll save a lot on online returns and last-mile delivery. So it seems like the margin expansion seems pretty rich relative to the fixed asset intensity of your current initiatives and then kind of garden center, which I think would probably be dilutive. But anyway, long-winded question.
Yeah. No, appreciate the question.
I'll go back to the points that Kurt and I both made, which is we absolutely expect to increment up on our operating margin through the back half of this decade. I think we've shown over the last two years with basically flattish comps that we've been able to hold our op margin relatively flat in the context of that headwind. If we're in an algo year, so in that 3%-5% comp range, we absolutely expect to leverage from an op margin perspective there. And that's kind of 5%-10 basis points a year, as Kurt was calling out in his presentation. They would kind of walk you up to that 10.5% by the end of the decade. And so that's kind of how we've built our long-term plan and the operating margin expansion embedded within it.
All right. On this side, Joseph.
Hi, everyone. Simeon Gutman, Morgan Stanley. Another way of asking the operating margin question, the business is doing sales per store north of 30% what it was pre-COVID. This margin range was hit at a moment in time pre that. Now you're adding advertising. You're adding higher margin Rx. Are some of these other businesses just naturally more dilutive, or are you just not building in the scaling benefits from them? Last mile, bigger digital business.
Yeah. I'd go back to the other one to your point that I'd start with just saying there's multiple horizons in our initiatives. So we've got the initiatives that we're executing now and have been executing for the last few years that'll carry themselves into 2025, 2026, and 2027. You've got the initiatives that we started towards the back end, 2024 and 2025, that carry really more in like 2027 and 2028.
And then you've got some of these new initiatives. And when we put those all together, there's some goes-ins and goes-outs on the operating margin headwinds and tailwinds, as Kurt called out. We feel very good about the 10%-10.5%. To your point, we were at 10.2% and nearly 10.3% a couple of years ago. And with flat comps fell off basically about a tenth each of those years. And so we see as we get back to our algorithm for comp starting to claw back those couple tenths of operating margin rate and then kind of making our headway way past that. And to your point, we've seen with some other retailers how successful retail media has been. And then on Rx, the opportunity there as well. So there certainly could be upside down the road as those scale.
Both of those, as we know, are kind of earlier days relative to some of the other initiatives that we have now, though.
All right. We'll go to Karen.
Hi. Karen Short, Melius Research. So my question is two-part. Given all your initiatives, it seems like you actually could do a higher comp than what you've provided in the algo. So I wanted some color there. And then there hasn't really been any conversation on ROIC. So wondering how are you thinking about that?
Great. I'll take the higher comp, and Kurt can take the ROIC. Short answer would be we want to be that mid-single-digit comp %, whether that's 4%, 5%, 6%. I think we would acknowledge the last two years of kind of the flattish comps.
And so we just thought it made sense to kind of modestly calibrate our comp long-term target to the 3%-5% range just in the context of that. But as we've talked about before, kind of more broadly, our industry, farm and ranch, has historically run modestly above GDP growth. We should be gaining share each and every year, which should have us growing moderately above that. And so that should put us in that 4%-5% range when you're in a normal economy. If it's a little bit softer, maybe it's in the 3% range. But we certainly feel like we've got a good amount of initiatives stacked over the next five years to drive that outsized comp growth over that entire time frame. Yeah.
Karen, in regards to return on invested capital, I appreciate you bringing that up because we continue to be committed to having a good, strong return on invested capital. Let me just walk through that in the last few years. In the first three years of the past five, we saw a strong 4%, 500 basis point increase on return on invested capital. We said and acknowledged, while the sales and the earnings well outpaced the investment we needed to make, that we were going to invest in the next couple of years for the long term, likely to see us pull back a little bit of a few hundred basis points of that 4% to 500 basis point gain. We did that.
In the last couple of years, certainly to Hal's point with flattish comps, we've given back a little bit of that return on invested capital, still above the ROIC we had pre-pandemic. At this point, as the investments have begun to plateau, as we are on long-term goals, these newer initiatives, we can invest in an asset-light manner, which is why I was emphasizing that. We see the opportunity to sustain and, over this period of time, be able to improve our return on invested capital. And we believe we're at a really good, strong, solid return on invested capital today in our business. But we see the back half of the decade actually improving on return on invested capital. And really, the only bump has been the last two years where we've continued to make investments while the top line had flattish comp sa les. Thanks, Karen.
All right. Thank you. We'll bounce back to this side of the room.
Hey, guys. David Bellinger with Mizuho. Thanks for all the detail today. I want to ask on the mobile app. I think the last check was around 20% of digital revenues. So how does that scale as your digital business potentially doubles? What are the P&L impacts of that too? Can you bypass some marketing spend and drive some more organic sales growth, personalization? And is there anything else you have to do to enable that infrastructure? Is there more of a build-out to come within the app?
Thanks. Great. Rob, do you want to take that one and talk about kind of the mobile app, its roadmap, the scale it has? And Kimberly, maybe you can talk about the benefits of having your top customers really shopping on that channel. Yeah.
So quickly, from a mobile app perspective, we launched, what, 2021? Going into 2022, we had zero. We're 10 million downloads today with a retention rate north of 80%, so our customers stick with our mobile apps. We have seen over the years a movement specifically from desktop to mobile. It's clear that our customer leverages mobile out in their property. They look at it for inventory, for product information, how-to caring for their property as well as their animals. And so we're seeing that growth continue to shift year over year at a higher rate. With that being said, it does go all back to how do you leverage the data real-time to drive that personalized experience and really making in the way of speed, interaction, and what we call about being connected to that customer at all times.
We've taken that philosophy also to our team members in the store, arming them with mobile apps as well. So mobility is a big part of our strategy. You'll continue to see we're expecting that the transition over to the mobile app will continue to grow. We have higher numbers, improved conversion within that traffic or that channel. And ultimately, we see a higher level of engagement.
Yeah. And I would just add to that what Rob had just said, that we talked about personalization and being able to now really leverage our customer data platform as just one huge tool that will really give us a lot more capability cross-channel, but particularly with our highest engaged customers. We know more about them. We can personalize the experience much, much more.
I gave a few specific examples about increasing transactions, those trigger offers when we don't see certain behaviors happening with that shopper that we'd like to prompt and motivate over time. And also, when we think about just retention and how do we make sure we enhance that Neighbor's Club offers and other Neighbor's Club types of rewards specific to that type of customer, given all of the data that we know about what they shop for today and then their propensity for other things in the future.
All right. Go back over to this side.
Scott Ciccarelli, Truist. Hi. Can you guys provide more color on where you are with the rollout of the retail media business? Kind of what's your line of sight on hitting the targets you laid out for us today?
Just based on your research, vendor conversations, et cetera, so we can better understand the ramp of it. Thank you.
Yeah. Rob, I'll maybe I'll do a quick teaser, and then Rob can so we started really getting into the retail media space kind of two, two and a half years ago. Started with some basic banner ads and that sort of thing. Have expanded the placement of banner ads and the sizing of banner ads and those sorts of things much more broadly over the last couple and a half years. Product listing ads have become a much broader component of it as well. We also work closely with our brand partners on things like dedicated emails and spots on the homepage and locations in the emails as well.
So it's kind of coming together in the way you would the retail media that you see at other retailers. And we're kind of two and a half-ish years along that journey. And as it relates to our brand partners, we've talked about it with them now two years in a row at our vendor partnership meeting that we do in July. And there was very strong excitement the first year and increasing excitement in the second year. And it just ties in so well with our Neighbor's Club and all the first-party data that we have. And a next step for us would be to be able to take it into third-party data, augment that third-party data with our first-party data, and then allow our vendors to use that to more intelligently market even off of our site. Yeah.
And just to add to that, over the last couple of years, what we've learned from our partners and our vendors was it's all about the reporting capabilities, making sure that the dollars that they're investing are effective. So we've invested into platforms and digital capabilities specifically related to reporting to make sure we're able to give them the needs. And what we've heard through our vendor partnerships over the last couple of years is that improvement is now showing great value back to how they're taking their marketing dollars and getting a higher rate return. In very simple terms, because the eyeballs of the customers are very targeted when they're coming to Tractor Supply. So we've seen great interest, a lot of energy around it. We feel that we have the core infrastructure in place.
We've hired expertise into this team, and now we're ready to fuel and grow.
Awesome.
Great. All right. Back over here, Chris. Stand up if you don't mind.
Okay. Hi. Kate McShane from Goldman Sachs. Thanks for taking our question. We wanted to ask a few more questions about the direct sales opportunity if we could. Just how are you addressing this before? And was it exclusively through third-party? Can you talk about the labor that's needed? Are you leveraging existing associates? And will they be paid similarly to other team members? And how is the customer paying for the delivery of direct sales?
Yeah. Yeah. Let me jump in. I think first, how were we addressing it beforehand? So during COVID, we saw a need for same-day, next-day delivery. We rolled that out. We used a third party to do that.
We have a great relationship with that third party, but what we also learned during that time is that there was more we could do, that we could start a team member delivery as well, so we rolled out TSC Delivery. We did that. We piloted in some markets, and we wanted to see what the difference was between both. With the third party, they didn't have the equipment enough to take some of the bigger things. Our team members had trucks. We put trucks in there. We put trailers in there. We're able to take one, two, three skids. Think about wood pellets up here in the north where somebody needs three skids of wood pellets. We were able to do that easier than a third party was. We also saw better overall satisfaction scores.
So that is how we were addressing it before, but we saw a ton of need that we weren't fulfilling because we were having to cancel orders and whatnot with the third party. As far as labor, the team will be just like we do in the stores. So there will be hourly for the drivers. We'll have salary for the management portion of it. And then we'll continue to go on that. And then there'll also be bonus programs that they will have that will be different than what the stores are. The bonus programs will be around how they do in their position. And then the only other thing I'll mention is as it relates to payment and compensation on delivery. Right now, we're a little more rudimentary. We just kind of have a flat fee.
And then the store, when they're arranging for delivery, if they need to moderate off of that to accommodate the customer or just given the situation, they're empowered to do so. Colin had this on his slide. It was kind of out there in the 27 timeframe where you start to get into delivery revenue optimization. And you start to say, "Okay. If you want the first truck out in the morning, that'll cost 50 bucks or $100 for that delivery. But if you're okay, a 2:00 P.M. delivery on a Tuesday, and we're already going to be in your neighborhood, then that would be free." And I think several retailers have commented that the upgrade on delivery is reaching 40% and 50% of sales that get delivered to someone's home. And so we see that as a very nutritive revenue stream over time and a profitable revenue stream.
I think what most folks have learned is on the consumer side, it's tough to get compensated for delivery. But on the business side, you can do so when you've got the right route delivery optimization.
Great. Thanks a lot, Max from TD Cowen, Colin. So Kurt, you laid out three margin headwinds in one of the slides. Can you just speak about the rank order? Which one do you see being the biggest and which one the smallest? And then just the cadence of the investment pressure for some of the major investments that you've got. And then just lastly, how are you thinking about the tailwind of the sale leasebacks in the out years?
All right. Max, I think I got those three on the.
Yeah. The three and one? That's it.
On the gross margin, the prioritization on those is the growth investments is certainly going to be of the three headwinds. That's the one that would have the biggest pressure if I were trying to identify where's the pressure. The next two on mix of goods or transportation, I would say would be a distant second on those, and the financial model we've put out for the back half of this decade understands that and plans for that. We've got great margin enhancing opportunities. We will balance and be very choiceful in regards to making sure that we can invest and invest over the right appropriate amount of time to be able to offset the pressures on the growth investments to still be able to modestly improve our operating margin.
So, I think the key is the one that is the most potentially significant is the one that we can manage the most. Exactly. And that's what we'll do. I mean, there's been other questions on operating margin. It's a great opportunity for me to say, as I emphasized with an asset-light model, if we have outsized margin expansion and we feel really strong about the opportunity, it gives the opportunities to scale faster. If we need to make sure that we're refining, investing, and we look at the operating margin, we can pace this carefully and disciplined to ensure that we're hitting on all our commitments. And not only top-line comp sales targets are key for us, but our commitment to be able to sustaining and modestly growing our operating margin.
So that's a bit of a two-way part to answer the gross margin question, but it also kind of just addresses the cadence of the investments over time. Most of those slides that we presented today showed 2025 and 2026, even to an extent 2027, where we pilot, test, begin to scale, and then begin to really benefit and optimize in 2028 and 2029. And so our anticipation is, while it won't work as seamlessly in that, but there's a bit of a handoff as the existing ones begin to decelerate in their contribution. We've scaled these enough to where they're not only top-line, but margin accretive as well. And so that's just going to be the art of how we manage our long-term commitments, long-term targets, and these great compelling growth opportunities. Sale leaseback, I think, was the third question.
We've been selling on existing stores, 10-15 stores a year. We're likely to be on the higher end of that range here in the next few years just to be able to produce the cash flow to support the own development where we've got to basically put out $4-$6 million per store for 8-, 9-, 12-month period of time. And it gives us the ability to do that on a cash-neutral position for capital expenditures. So I'd anticipate with our average, as I said, maybe 2-4 additional legacy store sale-leasebacks year to year over the next few years.
Joseph, you want to go over on that side?
Thank you. Joe Feldman, Telsey Advisory Group. Sorry for the voice.
With regard to the trade areas, you guys talked about earlier in the presentation, there was like 30-40 million people that are not shopping at your stores. And I know you laid out a lot of great initiatives. How do you get at those people? What do you hear from them, why they're not shopping at your store, and where you think the biggest opportunities from all those strategic initiatives are? Thank you.
Yeah. Thanks, Joe, for the question, and I'd really put it in two fronts. First off, one of the reasons we build new stores is to attract new customers. And we can see that in our data when we look at our new customers on the comp store side, and we look at total new customers, and we look at the vast majority of customers that shop a new store are new.
Our cannibalization runs in the single digits as a percent on an annualized basis. And so that's one main way. And then the other way is just continuing to amplify what we're doing inside of our existing store. So it starts with the environment of the store. And with the Fusion remodel upgrades, we see a significant shift in sentiment on a new customer coming into our store. They feel like it's a more contemporary farm and ranch retailer, not kind of an older-ish, uninvested-in-store asset that maybe they're less comfortable in. It feels like a modern retail store, but you're out in rural America. The second is obviously our customer service. And then we take all that data in our Neighbor's Club as well. And then we continue to upgrade our brand, even with the brand awareness of 85%-86%.
There's still a percentage of the communities out there that maybe haven't heard of us or haven't shopped us, or we need to kind of give them a little bit of a bump on trial. So that's why we've kind of got several oars in the water to continue to attract new customers. The great thing is there's still a lot of upside for us on customer base. Thanks, Joe.
Yeah. Is it on? Okay. Thanks. Chuck Grom from Gordon Haskett. Great presentation. I was wondering if we could double-click on garden centers a little bit, looking back and also looking ahead and how you'd grade your execution over the past five years and what you think you can improve on and any additional categories you think you can lean into within the garden centers going forward.
Yeah. Thanks, Chuck, for the question.
I'll hit it from kind of three sides on what we've learned and then talk about moving forward. First off, let's talk about format. We've had now three different iterations of our format where we're consistently lowering the cost and also getting the right format in the right store location. I feel great about that effort. Again, we've gone from high, call it $800,000-$900,000 to put a garden center in, now down to, call it $500,000-$700,000, sometimes even in the $400,000 range, depending on which of the prototypes you're doing. So we basically cut that cost in half on the capital investment side. The second thing I'll talk about is the length of time to implement, so the disruption that it took. We were at, in many cases, 20-25 weeks to build a garden center.
We're now down in the 12- and 13-week timeframe to build a garden center from end to end. So we've kind of cut that in half as well. And then the third thing is the sales upside. I'll hit that both in season and out of season. On the in season, I think we've gotten much better at timing of the right plants in the right place at the right time, working with our growers. I would say maybe in the first year or two, we were a bit like feed and food merchants, merchandising a garden center. I think we've really gotten to a place now where we're legitimate live goods merchants out there hitting the right plants at the right season with the right adjacencies, soils, mulches, other attachments to the product, all cross-merchandised out in our garden centers.
And then the second thing I would say is on the out-of-season side. So if you're in the stores tomorrow, what you'll see in our garden center is a big winter wonderland execution. What you would have seen earlier in the fall this year was a harvest fall execution. So we're getting much better at utilizing that space not only in the core seasons, but also outside of season as well. On our sales results, because I talked about this briefly in my presentation, it's not been, as we've talked about, not been the greatest two springs last two years. And so where, though, we've had good weather and where we've had consistent weather, we've had outstanding results in our garden center performance. And when you look at it over a three-year basis, we continue to see a maturity curve in our garden center performance.
The stores that were built three years ago continue to comp year over year, and you see those core customers coming back each year. So we're still very bullish on it, and we're looking forward to at least a normal spring to really test out those 550-plus garden cente rs that we have next year.
All right. We'll come back over on this side. Are you going to go to Oliver Wintermantel?
Yeah. Oliver Wintermantel at Evercore ISI. Thanks very much for all the details on the comp traffic versus ticket. Just wondering, for next year, on the comp side, you said low single digit positive, second half faster than first. But do you think the comp is going to be positive all year, or could we see a decline to first?
And then how do you think about the comp versus ticket or traffic over next year and then maybe for the long-term plan? Thank you.
Thank you. Yeah. I'd say we're not at the point yet where we're really giving a range estimate on 2025, although obviously Kurt gave a good bit of detail on that today. And we certainly haven't kind of given a kind of point-to-point walk through the quarters yet. But what I would say is we see decreasing tailwinds as we get through the year and actually increasing, I mean, decreasing headwinds as we get through the year and increasing tailwinds as we get through the year. So I would expect just conditions as they are now, if we looked at conditions as they are now, for our comp to sequentially improve through the year. All that said, there's a bunch of goes-ins and goes-outs.
If you look at our first quarter last year, we had a great January with the cold weather. And then it's kind of moderated a good bit in February and March. And then Q2 really didn't have much of a spring. So there's some upside there depending on how that plays out into the year. As it relates to ticket and transactions, I would expect the business to rely more heavily on transactions than ticket, particularly in the first half of the year. And then I think it w ould be more equally balanced in the second half of the year.
All right. We'll go to Steve.
Thank you. Steve Forbes, Guggenheim. Hal or Kim, I wanted to maybe explore the customer segmentation work you did. A lot of obvious effort went into that.
So, curious just some of the learnings as it pertains to how it's informed your perception of the white space opportunity that exists within the existing member base, what offerings maybe are still being desired by the members, and maybe why they're going elsewhere for that particular need, and then how it's sort of informed your approach towards targeting the 30 or 40 million members who currently don't shop with you?
Yeah. Great question, Steve. Thanks.
Yeah. Great question. Thank you, Steve. So I'd say first and foremost, our segmentation study has really helped us to understand not only the current needs of each of those customers, but what I didn't say in my presentation is it's really a nice migration strategy.
If you think about it from somebody going from that Country Dabbler to that Pet Enthusiast, then onto that Backyard Homesteader as they get on more cue, they maybe get more pets, more land, etc., and then all the way up to Big Barn. We really see a lot of market opportunity in those three core segments in between, as well as growing Country Dabbler. So I think between those two things, we've got a lot of really great opportunity in terms of, like I said, C.U.E. for one thing, but we've also designed a lot of our new Neighbor's Club offers to help with some of that migration.
And then I would say lastly, just in terms of targeting and how we're thinking about targeting based on some of those behaviors that each of them have, we're not only understanding necessarily just what they're buying today, but we're really tracking in terms of, I mentioned in the personalization section, what types of content they're engaging with, what offers seem to be working. For example, we just tried some new offers, 20% off your first bag of dog food for customers who are not yet buying pet, trying to get them from that Country Dabbler over to that Pet Enthusiast. And then we're looking at ways we can get into poultry from there. So we're leveraging some of that data that we're understanding or getting from some of those customers to try to figure out how do we migrate them over time.
And then we design offers and customer journeys, like I said, by season, by segment, and by season. All right. We'll come back over here.
Got it. Okay.
Thank you. Bobby Griffin from Raymond James. I want to first click on the real estate strategy, Kurt. Maybe could you unpack what the model showing today that it didn't show a couple of years ago to allow the new store growth or these new demographic areas or more rural locations from competitors going out, maybe something there that's new versus five years ago? And then one quick follow-up on the direct sales effort. Is there a merchandise build-out that comes with that? And is that accomplished through the localization that we talked about with the stores and some of that work?
Thank you. Yeah. You want to handle that?
I'll start with the real estate one, and then you can maybe take after that. Bobby, it's not that much different from what we've seen over the past years where we've said, "Oh, we thought it was 2,500, and then we moved it to 2,800 and 3,000." As we've gotten more customer data, as we've had success and seen the growth in the rural markets, and as we have more sophisticated data that helps us understand in a much more specific geographical location, but then even the demographics, we just have the confidence in that certain markets that either didn't have the confidence or didn't hurdle because we either were limited in our view on what the customer demographic needed to be to be able to say, "That store can hurdle and can produce the revenue." It's really the significant difference. It's some of those dabblers that Kimberly talked about.
It's some of the opportunity of those that have just moved into markets that have exploded over the last couple of years that now hit the radar on that. So it's a combination of that. The second thing, though, I would say is it also helps that we have become much more efficient in opening a new store. So as I talked about this owned new store development process where we have a fixed fee for the developer and we have much more control. Brad and the real estate team are doing an excellent job working even with our indirect procurement team. We have the leverage of our size of our business and our lower cost of capital to be able to invest and be able to identify and structure all the materials, whether it's HVAC, it's steel, etc.
We've been able to produce a stronger process rather than all that being on the backs of a smaller developer. So with a lower cost, it also increases the opportunity for certain sites to hurdle as well.
We'll come back over on this.
And then on the direct sales effort, the two things I would say there is, first off, right now in our stores, if we have a regular everyday customer that purchases a good bit from us and they need a specialty food or a specialty other sort of product, our store managers are empowered now to order that product and have it in the store for that customer on a routine basis. And then they'll just monitor that with a customer and just, "Hey, do we need to order more or less?" And it would work the same way on direct sales.
If there's a large big barn that maybe needs some sort of normally, the way those big barns work when they get to like 40, 50, 60 horses is each of the horse centers will have their own individual feed. It might compile up to, say, eight, 10 different feeds. Seven of those we might stock in the store. One or two of those could be specialty. And if we got kind of a longer-term handshake with that customer and that they were going to keep buying that from us, we'd go order a pallet or two, have it in the back of the store, and then be able to use that as part of the hub. The second thing I'll add is Colin talked a lot about tying into our mixing centers.
That's where our high-volume product runs through so we can shorten lead times, have less safety stock in our stores, and basically be able to run our stores at twice the volume with the same size backroom that we did pre-COVID. The mixing centers will also enable those larger items to be delivered straight to a customer's home. So if we're doing like a half of a truckload or half of a box truck, we can pull that straight out of a mixing center, load that up, never even go to a store, and go straight to a customer's home. So a little bit of both of those. But I don't expect that it's a doubling of our assortment or anything like that to support the big barns and the direct sales opportu nity.
All right. Chris, we'll come back over on your side.
Hi there. Peter Keith with Piper Sandler.
A great presentation today. So I was curious on the localized merchandising. I think you did say you expect a low single digit comp lift if you could confirm that. And then I was curious just on the timing of how that's going to roll out. Is that something where it hits all stores in five years? Can you accelerate it? And it sounds like it needs to match up when the store is a Fusion format. If you could just unpack that a bit for me, it'd be great.
Yeah. Yeah, Peter, thanks for the question. Yeah, you're correct. We're looking at low single digits lift, particularly as we were talking about the macro floor plans relative to Fusion. We're going to start the macro floor plans. We're going to pilot those in the first half of 2025.
And then, with go-forward Fusions and new stores following that, after we do those pilots, the models that we plan to be rolling into those, those localized floor plans would be all on a go-forward basis. We plan to start there. Second would then be there's several other components of localization in the long term. The next piece on that would be, as Colin kind of talked about, is kind of the seasonal timing. I know we've mentioned it a few times, but we know we have the opportunity to continue to get better with our seasonal timing, whether it be in our southernmost stores or our northernmost stores, a way in which we really support those kind of seasonal curves of our business from that perspective and what are those exact products that we need.
Then on the assortment optimization side, over time, we've continued to invest over the course of the last few years, as Rob talked about, like our planogram software, our assortment optimization software. As our merchants do line reviews, we are constantly looking at making sure we're having the right products in the right stores, and we're optimizing that portfolio as we go through that. That's kind of like three major components as it goes through there. We're really focused on targeting Project Fusion first with the macro floor plans because that flywheel is really running. We're doing the 175-200 stores a year. We're looking at getting the highest return on our invested capital. We've got those models built. We're ready to implement those now and make sure that we can kind of maximize that as fast as possible.
All right. We'll go back. Joseph got up over there.
Thanks. John Matuszewski from Jefferies. Great presentation. My question was on private label. Seems like a big opportunity for you guys, a couple hundred basis points over the next couple of years. So can you just talk about where private label penetrates high in the assortment today and what are the opportunities in terms of categories where can you lean in more? Thanks.
Yeah, great question. So as we mentioned in the presentation, our private label penetration today is around 29%. At our peak, we were around 32%. If you go back over the course of the COVID years, we really took a step back and looked at our categories that we thought we had a right to win and play in relative to our customer base. And we really expanded some categories in that window.
If you think about grills, you think about some of the seasonal categories, you think about wildlife and outdoor recreation. Those are ones that we went out more so with just kind of call it branded product at that point. The other categories that we have, we continue to have really strong sales and private label in that window of time. And it's pretty consistent across many of our categories. You can get from apparel to pet. I mean, obviously, we talked our strength in C.U.E. We talked about our strong brands, whether it be in feed, in truck tool and hardware, and seasonal on those as well. But I'll give you a couple examples of where we have the opportunity where we think to continue to expand. If you go up and down the aisles today, we've got product categories where we might have good, better, best strategies.
Historically, you take a category like towing, like hitches, for back of trucks, things of that nature. We own a dominant market share in that space. We do not have private brand in that space today. That's places where we have identified and know that we could find factories to go factory direct. We'll still have leading differentiated premium brands in that assortment, but we know that there's a significant opportunity to take a 12-16-foot planogram and start to go factory direct and go private label and those type programs. Our merchants actually have actively been walking the stores with our sourcing partners and identifying where is the lowest hanging fruit to go and attack those type situations. Another opportunity I'll tell you is like in seasonal and bagged goods. There's a certain brand that dominates in the branded category there.
We know we have an opportunity at the same time. That's a very high market share opportunity there. Let's go develop in our GroundWork brand, secondary options, add a value to compete with some of the other players that are out there at a price and margin structure that we know that will benefit us as we continue to expand in lawn and garden. So there's opportunities across the four walls, but we're very excited about the opportunity ahead across all of our categories in private label.
Come back over here.
Hi, this is Sachin Verma representing Michael Lassar from UBS. I have a two-part question regarding the impact of new initiatives. A, we understand that there's a baseline level of comp required to drive expense leverage. So how did the new initiatives impact the comp and the leverage point?
And B, as you're executing so many new initiatives, what are your thoughts on creating additional risk as well as managing these additional risks? Thank you.
Yeah, I'll take those. Thanks for the question. And we're very excited about our new initiatives and coupling them with the existing initiatives. As Kurt said, we are right now looking for kind of a low single digit comp in 2025. These new initiatives that we're kicking off are asset light, meaning they're mostly expense-based. So we can throttle, and we've got some good flexibility on how to manage and navigate that. We are planning to self-fund those initiatives next year. I think we've shown over the last two years that we have a lot of levers that we're able to pull to manage our P&L in a wide range of environments.
We've got similar plans to do so next year, and those plans would self-fund these new initiatives, and then on the pacing of the new initiatives and how we make sure that we're kind of staying focused and delivering on them all, one of the things that I'm very proud of is how we organize ourselves internally across our new initiatives. And if folks go out and look at our long-term comp, I mean, our short-term incentive program, you'll see that 25% of our bonus each year is based on the performance against our strategic initiatives. So we are all incented, not only to drive 75% of our bonus on net income in the year, so driving our in-year performance, but 25% on our strategic initiatives, and then we use those strategic initiatives that we have goals against, and we measure ourselves throughout the year on that.
So as a group, we get together every single week on Fridays and review our progress on those strategic initiatives, and the owners come in and report out. We have scorecards against those. On a monthly basis, our officer team is getting together and reviewing those and doing the updates. And so we've got captains, we've got process around it, we have goals around it, we have reporting around it, and then also our compensation is all backed up as well. So it's kind of a fully contained ecosystem to ensure that we stay focused on and executing our strategic initiatives. And I think it's really paid itself off over the last five years as we've rolled out new initiatives along the way, completed some, added some others, some that have been the whole time, and we'll use that same process for the back half of the d ecade.
All right. You want to go back over on this other side?
Hi, Seth Basham from Wedbush. One thing we didn't hear too much about today was your big ticket discretionary ancillary sales categories. Can you talk a little bit more about how you've found that program to work over the last few quarters and where you expect to take it going forward and any inventory management risk? Thanks.
I'll take it, so big ticket continues to be strong for us. We commented on that in our Q3 earnings call, and we have the expectations that big ticket will continue to be strong through the balance of this year and into next year. I think we do expect that competition will react some and that our sales growth rates will moderate a bit as we lap on top of last year.
But we are pushing ourselves on innovation for next year just like we did this year to bring new product to market in those big ticket areas that create excitement and energy for our customers. We've got new credit programs, and we've got new values around key promotional periods in the spring to drive that as well. And we certainly expect big ticket to continue to be a source of strength for us, albeit moderating. And I think we're hearing from vendors even in the moment that our big ticket continues to far outperform the industry.
You can go ov er here to Scott.
Hey, Scott Stringer from Wolfe Research. Just a quick question. I thought the commentary on the hub-and-spoke model was interesting. Is there any format or functionality difference between those stores, or is that just how inventory flows to your network? Thanks.
Yeah, so all three of us could probably answer this. I'll just jump in a bit because all of our stores have somewhere between a 2,000 and a 4,000 sq ft back room. And then we've got a subset of those stores that have additional space. About half of our stores are retrofits. And so when we do a retrofit, say, of an old Kmart or Shopko or something like that, usually we'll have some more space in the back, and we know what those stores are. And then, as we've talked about in the past, we've built about 300 feed rooms over the last handful of years as well.
So between our feed rooms, which are somewhere in the kind of 5,000-10,000 sq ft range, and kind of the retrofits where we've got 5,000-10,000 sq ft kind of extra space, we'll use those areas as our hub stores and then overlay that. So then Colin has, "Okay, I know what all those stores are with extra space or where we built the feed rooms." Then he overlays, "Where's the demand? Where's the routes that we need to optimize against? What should be our hub stores based on the available stores? If there's a gap, we'll come back and talk about it. Maybe we need to add a feed room in a particular market or something like that onto the store." But it's a proxy of where we have the space combined with where the demand is.
All right. We've got a couple more questions on this side.
Hi, John Zolidis, Quo Vadis Capital. Thanks for taking my question. I was wondering if you can give us an update on the Orscheln stores. The deal closed well over a year ago. And initially, I believe those stores had much lower sales productivity than the Tractor Supply stores. Have you begun to close the gap there, or are they just in smaller markets and kind of unable to do the same sort of metrics as Tractor Supply? What have you learned from this acquisition, and how would that inform you if you were to go out and try to purchase some additional chains? Thank you.
Rob, do you want to answer that one?
Sure. So we did close the transaction a little bit, almost, what, a year and a half, yeah, about a year and a half ago.
It's been a great learning, so through the actual implementation, we took the opportunity to kind of build a playbook of what a future acquisition would look like for store conversions, customer conversion, product conversion, all the above, and we got some great learnings out of that, and we're applying some of those learnings even to the Allivet acquisition that we're going through right now, even though it's a totally different business model. About a third of their stores were much higher in the way of square footage, but a good chunk of their stores did fit within our footprint, and the goal of that acquisition was to go after a market, especially in the Midwest, and a market that historically we just could never really penetrate because of just the market size or the competitors in that area.
What we've seen over the last year is growth has occurred. Now, we're comping a lot of the store transition from a year ago. So clearance, moving in new merchandise, switching out the brands, et cetera. The customer has responded extremely well. The feedback that we're getting is on Neighbor's Club and the loyalty program. The feedback on the customer service, legendary service, all the great work that the store operations team has done to really take and empower kind of the Tractor Way and the Tractor processes and bringing that forward and driving that legendary service. Then just the scale that Tractor brings and the way of product efficiency, exclusive brands, and then the supply chain infrastructure that Colin and his team has in place, we're able to drive some efficiency. So right out of the gate, we saw a gross margin expansion.
It truly had an impact to last year going into this year. And now it's about how we continue to build upon that, focusing on store growth in the way of same-store sales as well as introducing and just taking new learnings because some of the formats were larger.
I think we've got time for maybe one more question.
Thanks. That's Scott Mushkin from R5 Capital. So I just wanted to get back to the initiative of Big Barn a little bit. And I think we can appreciate and like the fact that it's going to be asset light. I think the flip is trying to understand the mechanics of earning that business.
I think someone asked before, "Are you going to have to roll up some of these?" Or maybe I'm making that statement, "Roll up some of these co-ops and other things to really get at that business?" Because that's a relationship business and just maybe more at the mechanics and how you actually penetrate.
Yeah. Thanks, Scott, for the question. Great to see you today. I'd start with we already serve these customers, but more so in a convenience way than in their full share of wallet. So we do know them, and we do have a relationship with them. And to your point, we've got to earn the right to get a much larger share of their wallet and all the things Colin talked about, going out onto their land and having gate codes and being around their animals and those sorts of things.
The good news, they start with a very positive perception of our ability to do that because they may know the team members we have in the stores. They may have gone to school with them, or they've got their neighbors with them, so there's a strong positive inclination already towards us, and then over the last two, two and a half years, we've been piloting this across several states, and we've earned the right in those areas and in those markets, so we started with virtually no business in those markets as we rolled out the trucks, rolled out sales reps, and we did this kind of more in a bubblegum and bootstrap kind of pilot way across three or four hundred stores.
And over two years, we saw our sales growing on a per-store basis, on a per-truck basis, on a per delivery person basis, earning the share of wallet inside of those customers. And then we've learned a lot along the way around what we need to further earn share of wallet, whether it's on the credit side, whether it's on kind of visibility side, as Colin talked about from a technology perspective, route delivery optimization, and kind of putting a more modern system in place to be able to serve them. But we know we're going to have to earn it one customer at a time, to your point. But we think we've got a couple-year track record of showing that we can do that. And of course, we already serve these customers, and they already know our team.
So anyway, good to have to still keep doing it, but keep taking that share, but feel very good about it.
All right. We'll go slip one more in. So we'll go to Za ch Fadem here.
Hi, Zach Fadem, Wells Fargo. Kurt, can you talk about how much your margins have been constrained by investment last five years versus next five years? And then last one, any quarter-to-date comments?
Zach, we had to get to the last question. Really? Really, I didn't even have to say we weren't going to talk about Q4.
Zach, over the last five years, the yeah.
That's what I get for trying to slip one more in.
Over the last five years, certainly, as I mentioned on depreciation expense during my presentation, that's been the biggest headwind, the biggest source of our investment that we've had to offset with either efficiencies or gross margin expansion over the last few years. In years where we're hitting on long-term algo, we would be seeing 20, 30, 40 basis points, perhaps, of pressure from some of the investments, and our gross margin expansion was more than offsetting that. In years, in the last two years where the comp sales were not at long-term algo, you were seeing even stronger, sometimes twice as much pressure from the investments on our business. We were committed, as you saw from my presentation, which was a part of the reason for doing that, we saw cyclical transitory pressures.
We continue to invest from a position of strength for the long term and weathered through some of that 60 or 80 basis points of pressure from the investments over the last couple of years. And the team did an excellent job of finding offsets to that. And I think to Hal's point earlier, we saw 10-ish basis points of incremental pressure in the last couple of years on operating margin. And so as we begin to plateau on that, one of the opportunities we see over time is that that pressure begins to dissipate a bit. And so on long-term algo, just on the next G&A side, there's much less of a pressure from the investments on the business.
And we've said it a number of times. We've got flexibility and nimbleness in these new initiatives to be able to invest and throttle back and forth on the investment as we see. Our plan is not to give a quarter-to-date update on that. Certainly, no doubt, fourth quarter is like one of those seasons where in our business, we've said, "While we offer up holiday-type goods and things that people can buy for gifts, et cetera, fourth quarter for us is a strong cold-weather-type preparation quarter for that." So we've done an excellent job. The merchants have brought together great offerings for your holiday shopping in that. But at the end of the day, for us, we serve Life Out Here. And in months where it's warm, it puts pressure on our performance. We're here in some nice cold-weather gear.
And so that's great that we've got some cold weather going. We still have several weeks left in the quarter. We've learned, certainly, this team to work with ebbs and flows on there. We're still very confident to be able to produce a solid Q4.
All right. That will wrap up our Q&A today. Thank y'all all for the patience. I do want to say, if we didn't get to your question, please feel free to email me directly or investorrelations@tractorsupply.com. I do want to take a moment to thank the Tractor Supply team for all of their support to pull off an event like this. It's not easy to do. We appreciate your time and attention. A special thank you to Joseph Underwood, Tricia Marcus, Tricia Whittemore, and Marti Skold- Jordan.
Sincerely apprec iate being able to work with that team and the entire rest of the Tractor Supply team.
Thanks, everybody, for your time today. Appreciate it.