Good morning. Welcome to Tractor Supply's 2019 Investment Community Day. I think that video is a great way to get us started this morning. It captures so much of the spirit and brand essence of Tractor Supply to me. For those listening via the webcast, we're glad you could join us as well. For Tractor Supply, one of our goals for this year's Investment Community Day was to allow for more time with management and access across functions. I certainly hope we achieved that with dinner last night. This is our corporate headquarters, but we don't call it a corporate headquarters. This is called the Store Support Center. This is home for us, so thank you for being here. Consistent with prior years, and as you can tell from today's message, we would like to stay on strategic topics. It's not about the quarter for us.
This morning, you'll be hearing from our leadership team, including Hal Lawton, CEO, Steve Barbarick, President and COO, Rob Mills, Chief Technology, Digital Commerce, and Strategy Officer. In addition, we'll host a panel, we're going to try something different, with the leadership team across merchandising, marketing, store operations, and supply chain. Kurt Barton, our CFO, will provide an update on our profit improvement plans and our long-term outlook. Hal will wrap it up before we go into Q&A. I anticipate the timing of our first break will be around 10:20 or so. Our goal is to depart for the store at about 12:15. Today, we'd like to add a new feature to our event. For just the panel, we would ask that you please text your question to 22333 using the keyword Tractor. Once you register, you may text again 22333 with any questions.
If you have any issues, please email investorrelations@tractorsupply.com. Please note that this is only for the panel Q&A. Our final Q&A will be an open mic. I would like to remind everyone that today's presentations made by our executives may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our filings and with the Securities and Exchange Commission. Today's presentation is being recorded and will be available for replay at ir.tractorsupply.com. We are so excited you all are here with us. I hope you find the time with us of value. It's now my pleasure to turn the program over to Hal.
All righty. Good morning, everybody, and thank you for making the trip to Nashville to learn more about Tractor Supply. For those of you at dinner last evening, I hope you enjoyed the venue, even though it was quite loud, and you had a great time. Nashville is not the same town that I moved to a decade ago. In fact, like Nashville, Tractor Supply is not the same company it was a decade ago. We have made tremendous progress elevating our financial performance, the rigor of how we operate, and the capabilities we now have with the new technologies we have in play. I have the privilege today of working with a very seasoned and talented management team that many of you had a chance to meet last evening.
As Mary Winn mentioned, we have a number of our senior management here this morning, and may I ask the senior management team to please stand so they can be recognized. All right. Thank you. In addition, we have two of our board members here this morning, Edna Morris and Denise Jackson. We are very fortunate to have such a talented and deeply experienced board with great insights. Would you both please stand to be recognized? All right. Good. Thank you, ladies. I must tell you, I am very humble but incredibly proud of the progress that this team has made over the last decade building this company, always keeping our focus on the longer term. I'm excited for you to hear from this team regarding our collective plans for continued growth of what we call our One Tractor strategy.
Our commitment to grow the business by being the most dependable supplier of relevant products and services for the rural lifestyle, creating a truly personalized experience by providing speed and convenience for those who live life out here. Today, with approximately $8 billion in sales across 1,800 locations and a robust omni-channel capability, Tractor Supply is leading the farm and ranch retail segment by providing an unmatched assortment of products, services, and information that is targeted for the rural lifestyler. Unlike other retailers, Tractor Supply serves a lifestyle. That's important that you remember that throughout the day. Our stores serve our customers as a one-stop shop for the products, services, and the information they need to live this lifestyle. Our One Tractor strategy is designed to allow us to exceed their ever-evolving expectations, and it positions us for further growth.
Although we are a national chain, we offer product localization, which is vitally important to our customers because it addresses their unique needs in their local community. It's not important that we have 1,800 stores, but that we have one unique store in approximately 1,800 rural small communities, and how we address the needs of our customers on that local level is what sets us apart from other retailers. Our longstanding, deep-rooted culture of mission and values, we believe, is the foundation of our continued success. We refer to these mission and values as our secret sauce, and this differentiates us from many other companies. We hold ourselves accountable for performance and behaviors that align with these mission and values. You'll see those posted all throughout the building today as you come in and as you exit.
This culture plays an important role in our hiring practices and the retention of our team members. Our store managers and their teams have energy and passion for this lifestyle. Since we hire many of our customers to become Tractor Supply team members, who better to serve the lifestyle customer than those who live the lifestyle themselves? Because of this strong culture, our team member engagement scores score well above retail benchmarks. While this is hard to quantify in a financial model, we think it's a unique differentiator in what makes Tractor Supply a great place to work and to invest. We also feel that living our values drives value for our key stakeholders.
Our culture comes alive when we bring nearly 3,500 Tractor Supply team members, that's not including the vendors, that's the Tractor Supply team members, together for our annual sales meeting in February of each year. Let me share with you a short video from this past February's meeting.
Welcome to Nashville. Welcome to the 2019 annual sales meeting. We've put a lot into this meeting. We're going to get a lot of excitement out of this meeting. We're going to make sure you have everything you need when you get back to your stores.
You guys are the reason that we have over 11 million members in our Neighbor's Club program. Big round of applause for that.
600,000 customers came to your stores to pick up an order. That's the value of Buy Online, Pick-up In Store. It drives people into the stores. It just gives them an added layer of convenience.
You know what? We are not the same company we were 80 years ago. We won't be the same company tomorrow that we are today.
We are going to be that dependable supplier. We're going to offer differentiation because we know that differentiation wins. Every day, everything that we do is centered around you and being able to take care of those customers that live the life out here.
Place your customer first above all else. Go the extra mile. Take care of that return. Make sure they're happy when they leave.
We know that when we treat our team members well, they treat our customers well. Those customers, with what they do with us, will treat our shareholders well. It starts with our team members.
Let me just tell you from the heart that it is an absolute honor for me and for this management team to be part of this.
Let's end on a big GURA on the count of three. One
Two, three.
GURA!
Many of you may not know what GURA is. It's greet, uncover, recommend, and ask. It's really a selling technique that came from the field. We use it today as more of a chant, if you want to call it, for the company, but it's very powerful. That video captures the passion and excitement that our team members have for our customers and our company. Our customers are passionate about this lifestyle, and that includes not just their family, but their animals, their land, and the communities that they live. We are their go-to store, their dependable supplier for products and services. That's what they need to live this lifestyle. Whether it's our conveniently located store, which is close to where their properties are, or it's online at tractorsupply.com 24/7, we are available to them.
Serving this Out Here lifestyle, we have a positioning statement that we use, and it's grounded in our commitment to serve our core customers so that we remain relevant to their lifestyle. We serve a unique customer with a distinct set of needs that we know well. Our customers are generally middle-income earners. They generally own their homes, they have animals, and they have some acreage. They are primarily needs-based and they're self-reliant. They do a lot of things themselves, purchasing products very close to the time of use. With our latest research, we have found that the age bracket of our core customers has been very consistent over many years. When millennials shop Tractor Supply, their purchases are very similar to other customers as they have acquired land and animals.
As always with our customer base, this consumption is driven by need for products that most likely only we sell. Millennials are advocates of brands like Tractor Supply because we are genuine and we're authentic. With our Neighbor's Club membership data, we now have robust information regarding our customer shopping trends, and we use that data to manage the customer's entire life cycle. Neighbor's Club members shop our stores three times more frequently than the average customer, and their basket represents about 55% of our sales today. You will hear much more from Steve later in this presentation on the consumer insights we are now leveraging across our business today. Our customers also value stewardship, not only of their own land, but in their communities. They applaud Tractor Supply for our commitment to stewardship programs that support the Out Here lifestyle.
As you can see here, our efforts are being recognized. Last year, we announced that we are taking an additional step by setting a goal to reduce carbon emissions from our facilities by 25%. We are continually looking for ways to minimize our impact on the environment. We know that our customers, team members, shareholders, and our stakeholders care deeply about what companies are doing for their communities, for their team members, and what we're doing for the planet itself. At Tractor Supply, we continue to be a trusted partner in sustainability. Over 80 years ago, Tractor Supply started as a mail order offering tractor supply parts to America's families. We're a catalog company. That's how we got started.
I doubt that when our company was founded in 1938, anyone could have imagined that 80 plus years later, we'd be operating nearly 1,800 stores in 49 states. We're still growing. Customer expectations of retailers have changed dramatically since the time this company was started, Tractor Supply's ability to evolve with our customer has been key to our success. Our focus on our customers, our customers first, our team members, and technology investments to support our One Tractor strategy are allowing us to successfully bridge the digital space and the physical space by creating a seamless shopping experience for our customers. As we continue to evolve and execute our anytime, anywhere, any way, One Tractor strategy, we are focused on four strategic goals grounded with two fundamental strengths.
Today, we will share important information regarding how we plan to continue to drive profitable growth, offer relevant products and services, build a higher level of unique customer engagement, and how we will enhance our core and foundational capabilities. We believe these four strategic goals will position us for continued market share growth while generating greater value for our shareholders. Our long-term success is driven by being differentiated from our competition. Here's how we define that. Legendary customer service. Going beyond just the products we sell, it's how we help our customers address their daily needs to solve the problems they bring to us when we interact with them. We empower our team members to do whatever it takes to take care of the customer. We have a sign in every one of our stores that says just that.
Knowledgeable team members who are lifestylers themselves form strong relationships with our customers, that keeps them returning to shop at Tractor Supply. We intentionally price with transparency for both online and in-store to stay competitive on price for our customers. Never forget that the location of our stores, being close to where our customers live, combined with our enhanced in-store and online capabilities, make us the most convenient shopping destination for them. Our product mix in the physical store and online is accentuated by our exclusive brands, which provide high quality, superior value for our customers. We complement our exclusive brands with many national and regional brands, this combination ensures our product offerings are not only relevant, but they're competitive, and again, they're localized. That's important to this consumer base.
Today, we have a very sophisticated supply chain that supports our stores and our ability to fulfill e-commerce orders from both our store and DC network. We continue to take an offensive approach to widen the gap between ourselves and our competition. This is how we build our strategic advantage and widen the moat around our business. Now let's talk a little bit about the numbers. Tractor Supply has continued to deliver strong record results, we have an exciting future ahead of us. As we are in just year two of our journey to achieve our long-term targets, we are doing what we said we would do. As we target sales in excess of $8 billion in 2019, we are confident we have room to grow further.
One of our core competencies is our real estate model and our ability to open new stores while growing the entire market for Tractor Supply. Kurt will share more insights later in his presentation regarding the strength of our real estate portfolio and the opportunities ahead. At the same time, we have been successful in driving 43 out of 44 consecutive quarters of positive traffic growth. I believe this is attributable to the relevance of our products to those who live the Out Here lifestyle. Our earnings per share have increased year after year, as well as our average store sales volumes. As we've grown, we have continued to generate a significant amount of free cash flow. Our strong financial performance has allowed us to increase our cash return to shareholders through the combination of dividends and share repurchases.
Just last week, our board of directors approved an increase in our total capital return for shareholders. With the strength of our financial results as a backdrop, we believe we are well positioned to continue winning in the current retail environment with significant opportunities still to grow. Today, we view our customer base as healthy and stable. We strive to be locally relevant for our customers, putting them first with a customer-centric approach. Given our size and scale, we are able to invest in capabilities and technology that others in our segment may not. As you'll hear later from Rob, our capabilities have grown significantly and will continue to grow. We are able to leverage our physical assets, including new store growth, while growing our omni-channel capabilities through our One Tractor strategy, again, designed to serve our customers anytime, anywhere, in any way that they choose.
Let's take a moment now and turn to Petsense. The Petsense opportunity, I believe, is a highly complementary business to Tractor Supply. We share similar values and a culture that is aligned around customer service and knowledgeable team members. While Petsense also has a rural store base, they serve a different customer than Tractor Supply. Our research tells us that there's less than a 10% crossover in customer base between the two formats. Petsense, it's a full-service specialty store offering a differentiated mix of products not always available at Tractor Supply, with the addition of grooming, adoption services, and pet training. Petsense is a distributor-driven model, different from Tractor Supply, which is a DC direct-to-store model. That enables Petsense to tailor their individual store assortments so that they can meet the unique needs of their customers in that market, going back again to that localization component.
Growing Petsense will allow us to increase our share of pet within the rural marketplace. Petsense customers tend to purchase more premium to super premium products, whereas Tractor Supply customers do purchase some premium, but also some basic and grocery-type product, more mid-tier products. As we expand the Petsense store base, we will leverage Tractor Supply's scale for purchasing, for site selection expertise, and utilize a shared service model for back office functions so we can operate more efficiently. With the new system's capability, Petsense merchants can now make more informed decisions using better analytics, which in turn will improve their performance. The Petsense roadmap is simply this: We used a very methodical and deliberate approach to develop the long-term strategy and the integration of the Petsense business.
Our first year was focused on learnings through both team member and shopper insights, which allowed us to develop our overall business strategy, including some changes in the marketing. In 2018, we began the process to rebuild our new store real estate model by leveraging the TSC analytics and site selection process, including the closure of some underperforming stores. As an example, with our new real estate methodology, first-year sales in 2018 stores increased by 15%-20% from their historical averages. Our goal moving forward is for mature stores in the Petsense chain to average about $1 million in annual sales. We also started our integration strategy, began refining our product mix, and took significant steps to infuse the team at Petsense with talent from Tractor Supply. These proven TSC processes and the people are now in place at Petsense.
We anticipate improved performance over time with significant operating profit margin growth. This year, we will complete the integration and will operate both companies on a common platform. The Petsense team will be relocated to Nashville over the summer, and the shared service model will be fully operational. Let me give you a few insights into what Petsense looks like now and what it's moving to. Based on that current consumer research that we did, we've established a new look and feel for the Petsense stores. Developing a new interior look, new color palette, signage, flow, and so on and so forth. It's been pretty exciting work for this team, something they've never undertaken. The new layout, as you'll see here, offers a softer, warmer color palette with photos of our customers enjoying activities with their pets.
Through that research, we understood that we have a primarily female customer at Petsense. This store plays much softer to her needs and likes. In addition to upgrading fixtures and new adjacencies, a key strategic differentiator in the highlighting in these stores is live animal product with a focus on child's first pet. This creates in-store theater no different than what we do with our Chick Days within the Tractor Supply operation. Overall, we have about 10 stores that are in the new format today, and we are very pleased with the early results, the customer's response, and the increased sales with these new formats. With our new model that we have now back-tested against existing Petsense stores, we have confidence to open 10-15 stores in 2019. Our target for Petsense openings in 2020 will increase modestly, 20-25.
With the solid new store economics, increased organizational capabilities, and an identified pipeline of more new stores, we believe there's an opportunity to double our Petsense new store openings, targeting 40-50 new stores in the coming years. Let me wrap up by talking about how fortunate we are to have such a highly experienced and seasoned management team here at Tractor Supply. In total, this team has more than 253 years of retail experience, on average, a decade of experience just here at Tractor Supply. In addition to being functional experts, this team understands our customer, the lifestyle we serve, and more importantly, they are great stewards of this strong culture we have here at Tractor.
As a former baseball player, my experience taught me that it's not the team with the best individual players that win ballgames, but rather it's the collective efforts of the team in total that you put on that field. That's the team that wins championships, and that's what we're about at Tractor Supply. I'm very thankful today to work with such a talented team that I know can successfully lead Tractor Supply into the future. With that, I'll now turn the presentation over to Steve. Thank you.
All right. Well, thank you, Hal, and good morning, everyone. I'm excited to share with you the priorities and initiatives that are going to support our One Tractor strategy. Our vision is to grow our business by being the most dependable supplier of relevant products and services for the rural lifestyle, creating personalized experiences and providing convenience for life out here anytime, any way, and anywhere our customer chooses. Our team is energized and passionate around this vision to better serve our customers. We believe it is not about what we sell, but rather who we serve. That is the difference between being a transactional retailer and what we do, which is relationship-based retailing. When we first developed our One Tractor strategy, it was important for us to always be grounded in our customers' needs while leveraging the many strengths of Tractor Supply.
Our mindset is to continue to evolve with our customer, bringing together the physical and digital assets to create a seamless shopping experience. Our customers have an emotional connection to our brand. It is our responsibility to be there for them as they live the lifestyle they choose. I tend to think of our four key priorities in the following order. The first is offering relevant products and services, building customer-centric engagement, enhancing our core and foundational capabilities, and finally, driving profitable growth. Each priority is supported by a multitude of initiatives. The foundation of our strategy is built on operational efficiency, and it's anchored by our highly engaged workforce. Starting first with offering relevant products and services. There are three components to driving relevant products and services. We have an opportunity to continue to gain market share by becoming more important to our existing customer.
At Tractor Supply, our merchants are authorities in their categories. They are the customers' advocates for the best products, brands, and value. Our customers have come to rely on us for the products they need to support their lifestyle. They expect a convenient in-store experience, and they value the services that we can provide. It all starts with the right products, which can be defined in five different areas. Let's begin with consumables. Consumables are a staple for our customers and play an important role in driving repeat traffic. In addition, our merchants are tasked with constantly finding new products that will drive incremental sales. We have a structured test program which we use to ensure we're bringing quality new products to the market that are differentiated, or as we refer to them, as being tractorized.
We understand the importance of merchandising to the local needs of the market, as you heard Hal say. Lastly, our website allows us to offer an even wider range of products and brands that are relevant to the lifestyle of our customers. For many years, our consumable strategy has been successful in driving top-line sales and repeat traffic into our stores. As a company, we are committed to being a dependable supplier of basic maintenance needs, and nothing is more important than supporting our consumable businesses. We are focused on three key areas for future growth. The first, we're going to expand our consumable assortments, which we've been doing. Second, we will optimize the depth of inventory to enhance our in-stock position.
Lastly, we will use science-based pricing tools to manage market share gains while growing gross margin rates. Yes, you can do both. Categories such as animal feed, grass seed, lubricants, pet food, heating fuel, and others continue to be opportunities to gain market share in these consumable businesses. New and differentiated products resonate with our customer base. These products can also help to drive ticket. As a company, we have a philosophy of test and learn. We believe in failing early and cheaply. This calculated risk-taking approach has allowed us to quickly learn and liquidate or scale new products to more stores. We carry the leading and differentiated brands that resonate with our customers. Examples of these leading brands include Carhartt, Purina, Cub Cadet, Scotts, Bad Boy Mowers, and Liberty Safes. These are all great brands our customers have come to trust.
Customers come to Tractor Supply not for the latest fashions in apparel, but rather for functional basics and workwear-related products. In our pet business, we continue to experience growth in differentiated brands such as Loyall, Pro Plan, and Science Diet. Our customers have shown an interest, and we continue to gain share by expanding product lines that are on trend. For example, products that are organic or support more sustainable practices are areas where we continue to see future opportunities. We're also able to use our website to get a read on customer interest. There have been numerous examples where we've added products to stores based on search volume and customer behavior. Over my 20 years at Tractor, I've come to appreciate our customers don't care that we're a chain of 1,800 stores. What they care about is the Tractor Supply store in their local community.
It is imperative that we merchandise our store with the products, brands, and pricing our customers expect. Our merchants travel across the country getting feedback directly from our customers and our store teams. They work closely with our vendors to optimize our assortments based on geography and needs by store. Approximately 85% of our assortment will work within a standard store, but it's the 15% of that product mix that truly makes us local and differentiated. This site-level merchandising philosophy is in a constant state of refinement and is one more important point of differentiation. Getting seasonal products to our stores timely is also critical. The exhibit on the upper right of the screen is a map showing by color our flow of spring goods to stores. This analytics-driven approach has allowed us to capitalize on early seasonal business while optimizing our inventory investments in the north.
Examples of localization would be in product categories such as livestock feed and forage products. We continue to refine our live goods assortment and tailor our product mix geographically with an emphasis on vegetable and fruit-bearing plants. The oil markets or energy markets have an updated assortment of fire-resistant apparel and select commercial products found only in these stores. Importantly, every store in the chain has its own specific assortment of animal feed that is species-driven. Yes, some select stores even carry kangaroo and monkey feed. We are in the process of implementing an updated assortment planning tool which will allow us to continue to refine our product mix. This new tool will help us drive the right products to the right locations, leveraging the science of retail. As a national chain, we have the ability to build out exclusive brands that are relevant to the lifestyle of our customers.
Exclusive brands allow us to drive customer loyalty, ensure quality standards, and generate higher gross margins than the branded product. While we are always carrying national brands, our exclusive brands augment our assortments, offering choice and a value proposition to the consumer. Product extensions, new packaging enhancements, and targeted marketing allow us to stay relevant and grow market share. Exclusive brands today represent approximately 30% of our sales and have gross margins that are about 400 to 500 basis points higher than the national brands. Each of these brands are great examples of how our merchant team, product development, marketing, and our suppliers work in concert to drive brand growth. While the products may have great specifications and are value-priced, it's our store team members that truly make the difference. Their ability to have confidence in these brands and recommend it is why our exclusive brands have become so meaningful.
This is one of the many advantages of being a relationship-based retail company. Our customers trust the recommendations of our team members because they too use the products. To build on our portfolio of exclusive brands, we'll be launching a new workwear line called Ridgecut this year. As a matter of fact, we have the product here in the room and the fixtures as well. We recognize that we have an opportunity to close the gap in our assortment in this growing workwear category. The brand standards we compare the Ridgecut brand to include Duluth Trading, Filson, and Carhartt. Our customers told us that they wanted a workwear line that is durable, comfortable, and functional, and that is the essence of Ridgecut.
The Ridgecut product line is designed to offer exceptional quality and durability at a great value for our customers that's between 20% and 30% less than the retail of the national brands. We are very excited about the launch of this brand. Our One Tractor strategy is centered around being there for our customers anytime, anywhere, and any way. Having a broad assortment online gives them the opportunity to purchase products, brands, and sizes they wouldn't typically find in a TSC store. Today, our website has approximately 100,000 SKUs available to research and to be purchased. To put that into perspective, a typical TSC store may have 15,000 to 20,000 SKUs. Online assortments are selected based on the products that are meaningful to our customer and their lifestyle.
We're not trying to be all things to all people. When purchasing products, they can buy online, pick up in store, buy online, ship to store, or have the product shipped directly to the location of their choice. More than 70% of our e-commerce orders are picked up at our stores. Online assortments allow us to use customer analytics to understand what is being researched and purchased. This data, along with other analytics, allows us to geographically place products in stores based on what we are experiencing online. Now, turning to the in-store experience. Our customers are passionate about visiting their local Tractor Supply store. They're always evolving and transforming our in-store experience. The use of our drive aisle provides a stage for what we call Tractor Retail Theater.
We use our center courts to highlight seasonally appropriate categories, whether it's Chick Days, Stock Your Shop, spring gardening, or Summer Out Here, you will find unique products that are relevant to the lifestyle of our customer. I always enjoy being in stores and the opportunity to interact with customers and our team members. This excitement is elevated during Chick Days, given the in-store theater that this event creates. Our center courts, end caps, and unique merchandising fixtures allow us to trial new products. These in and out special buys give us a read on customer interest and may eventually find their way into our everyday assortments. Event merchandising allows for that treasure hunt experience, which is meant to surprise and delight our customers. We are also capitalizing on technology across the store to capture sales and to make our team members more efficient and knowledgeable.
We have the ability to use technology to drive incremental sales through what we call the Stockyard Kiosks. This allows access to a long tail of products right there in our stores. The Stockyard is a proven tool for driving comparable store sales by either saving the sale or capturing a sale when it is not a product that we offer in the store. As a matter of fact, two-thirds of the product that is sold through the Stockyard are products that are not sold in store. Stockyard Kiosks are being rolled out across the entire chain this year. Additionally, we are empowering our team members with selling tools that help drive their product knowledge and improve their selling skills. Lastly, we're rolling out our mobile point-of-sale technology across the chain. You will hear more from Rob about technology advancements shortly.
Now, let's move on to the final aspect of offering relevant products and services. Services are a way for Tractor Supply to be more meaningful to our customers who are passionate about their animals. In an effort to support these customers in a bigger way, we developed a strategic partnership with a third party to offer mobile vet clinics in our stores. As a result, we are now able to offer this service to over 80% of our store locations. These mobile clinics are a convenient and affordable way for our customers to take care of their pets. This past year, more than 500,000 pets took advantage of this service. Not only does this service support our existing customers, but about 15% of these customers were new to file. Based on the success of our pet vet clinics, we've started placing self-wash pet stations in many of our stores.
Like the pet vet service, many of the customers that use the pet wash are also new to file. We will continue to add self-serve washes to new stores and to existing stores that have the space, and by the end of the year, we anticipate having 300 stores that have this feature. Not only do customers use the self-wash for their dogs, but I've heard stories about customers bringing in alpacas, goats, pigs, and yes, even chickens to get hosed down. You don't get any more lifestyle centric than that. In addition to pet services, we also continue to support our customers with a variety of services, which include trailer rental and delivery services. Roadie, a crowdsourcing delivery, is now an option for our customers in about 400 of our stores. Now, let's move on to customer-centric engagement.
Our journey to achieve deeper personalization is powered by our Neighbor's Club program. Our loyalty program allows us to know our customers better, recognize them, and tailor our messages to each of them individually. We also know that relationships with our customers differentiates us to create trust and loyalty. From our team members having one-on-one relationships with each customer, to the millions of social media conversations, to our community programs, each of these efforts build on one another to enhance our connection and relationship with our customers. It's one thing for me to tell you about our customers, and it's another for you to hear directly from them.
We're Pete and Julie Landesberg. Welcome to our farm.
We're happy to have you join us here at our little place of paradise.
We have quite a menagerie here. Outside of the house, we have five horses, a pig, two emus, four goats. What am I forgetting? Chickens. A couple chickens. A duck. We have a duck, yeah. We have a donkey and a mini horse. I think that's everybody. Yeah. Always something going on. We get up quite early. If I'm not at work, going to work, I'm up typically around 6:00 A.M. After getting the animals in the house taken care of, I come outside, I get the horses fed, the rest of the animals fed. After they've eaten, it's time to start saddling up, working them. When we're done with that, it's usually time to clean stalls. You have another hour and a half. While I'm doing that, he's doing chores.
Yeah, there's always something that needs to get done. We'll do it leisurely, and it's a labor of love, the work that we do out here.
To me, it's a very relaxing way to live, even though it seems like a lot of work.
It's nice walking into a Tractor Supply, because you're always going to be welcomed with a smile. We'll arrive together, then we tend to split up, and she's going through the animal departments, and I'll go.
The clothes.
yeah, the clothes.
The clothes.
I'll just look through hardware and whatnot. We'll eventually meet up at the cashier.
Yeah.
I like the feeling I get when I walk into Tractor Supply. It's not your typical box store. I'm just surprised they have such a variety of items at the store. If we need a gate or some fencing, or if I need some tools or just certain supplies for fixing things around here, Tractor Supply will have it, so we'll go there and get it. We're very fortunate to have found this property, and we love it here. Tractor Supply is a part of our lives because we depend on Tractor Supply to help keep our place up and running.
My name is Jeannie Reyes. I live on three beautiful acres in the country. I have six horses and seven dogs, three kids, and a wonderful husband. I was probably about seven years old when we got our first horse. Back then, it was basically just me loving horses, having a passion for them, and riding and going out on trail rides. I just was so in love with horses that it has stayed with me all my life. If that animal is going to perform for you actually got to take good care of them. When you take care of a horse, and you go out and it performs, and it wins you a buckle, I mean, you are on cloud nine. When we need to go get our feed, we can go to Tractor Supply. They have quite the variety.
If you need even a bridle, or a saddle pad, halters, they have it there. As far as feed, that's once a week. Dog food is probably once a month. I love going to Tractor Supply because when you go in there, you do know your people, your associates that are working there. You can ask them for something, and if they're not sure, they're going to find what you need. That's one thing I really like. I will go out of my way to go there because of that. Because I feel if they don't have it, you probably don't need it.
Hi, we're the Daigle. Welcome to our house, and welcome to our family. We really love our dogs. They are definitely part of our family. I would say some people might say we're dog crazy.
I would say we're dog crazy.
We probably treat them more like human babies than animal babies.
One, our older, is named Beau. He's about 10 years old. At this point in his life, he's a little more laid back and relaxed. We are having a baby here soon, so we wanted to get another dog before all that chaos started. We adopted Miley, who is now a 10-month-old. She's very much more energetic than the older one. Our dogs eat premium dog food, and it's always hard to find a good price. Tractor Supply Co. not only having the best price, but being convenient and friendly is definitely a plus for us.
We have quite a few things for our dogs. We have a dog teepee tent that Beau really loves. The dog bowl that we got at Tractor Supply, it has different dividers and compartments so that it makes the dogs slow down when they eat, but also helps with their digestion, which we really appreciate. They are heavy chewers, so we get a lot of chew toys and treats. We're training our youngest right now, Miley, and she goes through a lot of treats at training.
It means a lot to us that Tractor Supply Co.'s dog-friendly. There aren't many places that we can take our pets. Seeing different stores, like Tractor Supply, allow that to occur, it really means a lot to us. Everyone in the store is knowledgeable. You feel like they're a neighbor almost, more than an employee. Going out there and interacting with them, and them helping you out, is always a nice feeling. You feel like they're more family than anything else.
Hey, my name's Dave Lawrence. This is my little ranchette, and this three acres, it takes a fair amount of effort. Just keeping it clean, keeping the fence up, keeping the property mowed, keeping the fence line looking good for the neighbors. A typical weekend for me is mowing the lawn, doing the edging, fixing fence lines. There's always either weeds, or fire ants, or something like that. You're going to treat your lawn. You have that aspect also. Tractor Supply makes having this land, being able to manage it, because you can't hire somebody for every job, because if you want a job done right, the old adage, you do it yourself.
They're almost in direct alignment with what I need. When I go into Tractor Supply, the people there really know their stuff. They know what they're talking about. Just go there with a problem, and if you have a problem, they have a solution. You do that work yourself. You buy the item from Tractor Supply, they explain it to me, I get it, I explain it to my kids. Now my kids have that knowledge, and I really feel lucky to be able to raise my kids in this type of environment. It's our world. This is where we live. We wake up every day and go to bed every night here, and we love it, and Tractor Supply is a big part of it.
We depend on Tractor Supply to help keep our place up and running.
The Tractor Supply store that I go to, I know Josh, the manager, and I met him early on, and he's a main reason why I go there.
You feel like they're a neighbor almost, more than an employee.
Just go there with a problem. If you have a problem, they have a solution.
They're always very friendly and always very welcome and willing to help. They're knowledgeable, and they know about the particular needs that we have.
I love going to Tractor Supply because I feel if they don't have it, you probably don't need it.
What I love about that video is these folks, they're not paid actors, they were very quick to want to be on camera to share their story. I think that's really part and parcel of this community, this lifestyle that we serve. I can't tell you how many times I've gotten questions about who these folks are, I've been trying to answer to you all who they are. When you hear it from them, it really comes to life, and that is the epitome of the lifestyle that we serve. As a lifestyle retailer, our purpose is really to help them and help the millions of customers just like them to live life on their terms. As I mentioned earlier, our Neighbor's Club program plays an important and instrumental role in connecting with our customers on a more personal level.
Our membership continues to grow as we have just recently crossed over 12 million members. Our Neighbor's Club members are extremely important as they now represent between 50%-55% of our sales. These customers visit more often and have a higher spend than our average customer. In addition, this program allows us to understand our customers better by capturing a more complete understanding of who they are. Our loyalty program is a transformational asset to Tractor Supply that will pay dividends for years to come. With the customer data we are collecting and analyzing, we are able to personalize our communications. This creates greater relevance, engagement, and loyalty. For instance, communication can be customized to welcome a new customer to the program, engage a lapsed customer, or offer products or services to an existing customer.
Lastly, it's using AI-enabled tools to scale all these efforts to speak directly to each customer individually. A great example of our personalization efforts is our ongoing program targeted to our pet customers. Our messaging has been focused on driving repeat purchases, expanding share of wallet across our store, or upselling the customer to premium products. Early results of the personalized messaging are encouraging. We experienced increased open rates, click rates, and overall more engagement. In addition, after a recent campaign, we compared the test versus the control groups, the data reflected a sales increase of between 4%-6% per customer during the campaign. Within customer-centric engagement, our goal is to replicate the face-to-face relationships that our team members have with our customers across all channels. Our team members' relationship with our customers make us unique as a retailer.
Our team members are the CEOs of our customers, they are empowered to take care of them and their needs. We hire our customers, they understand what it takes to live life out here. It is our belief that our team members are our brand. They are Tractor Supply. They have the knowledge and experience necessary to help our customers be successful. While our team members are not salespeople, we give them tools that help empower them to serve our customers better. One such tool is what we call GURA, Greet, Uncover, Recommend, Ask, as Hal mentioned earlier. This tool has helped our team members drive sales and more importantly, helps our customers get what they need. When our team members apply all four aspects of GURA, we see a 19% improvement in sales.
Relationships matter in small towns, and it's our team members' connection with our customer that differentiates us. Our customers think of our team members as their friends, their neighbors, and part of their family. We have many ways we let our customers know we are there to support them live life out here. Our social media channels are another way we have conversations with our customers. It is where we share their stories and lives with those that have a similar affinity for the lifestyle. Engagement in county and state fairs is another way that we demonstrate our support for local communities. Our mobile fair tour creates a fun, exciting, and free family event for our customers and potential new customers.
It is another way we physically extend the Tractor Supply brand into the community, creating millions of positive connections with our customers. Our stores are also empowered to create their own marketing experiences based on their local needs from 18 different themed community marketing toolkits. These events have been developed based on what we know about our customers. From pet health and adoption, to animal swaps, to car shows and tractor pulls. Earlier, you heard from our customers. Now let's see our customers in action on social media. When we welcome pets into the store, we weren't expecting a camel to arrive. This is all customer-created content, which is really exciting too, and they're really spreading the message about the lifestyle to those folks that live that same passion for life out here.
Our video also highlights community, if you noticed, animals and family, and that's all very important to our customers. The last aspect of customer-centric engagement is all about supporting the lifestyle. As I mentioned, community and family are at the foundation of what our customers value. Our support and sponsorship of 4-H and FFA are cornerstones of our value system. Together with our customers, we raised nearly $3 million last year for use in local communities. These funds allow the 4-H, the FFA youth to go to local camps, attend leadership experiences, and receive grants to support local store programs. These young people are our future customers, and they are our future team members. Our customers are also patriotic, and they're passionate around supporting the military. It is woven into their value system, and we can appreciate that and support them.
We want to continue to be a part of all of our customers' lives by demonstrating how we are there for them and what they value. The third component of our One Tractor strategy is enhancing our core and foundational capabilities. With that in mind, I'd like to spend some time focused on our supply chain. Our supply chain has been built to serve as a competitive advantage. It is uniquely designed to optimize sales, minimize risk, and support a diverse assortment in stores and our direct-to-customer business. More than ever before, a great customer experience depends on great supply chain capabilities. As customers' expectations evolve, our supply chain must continue to keep pace with the ever-changing environment.
To ensure we have the right product in the right place at the right time and at the right cost, we're building out new capabilities that will optimize our assortments and space utilization. We're investing in distribution capacity and developing new ways to leverage our distribution centers to meet the needs of our customers. We are synchronizing product flow to reduce lead times, respond to customer demand, and drive profit improvement. In terms of the right product, we are deploying advanced analytics to drive inventory productivity and deliver maximum profitability. To be more seasonally and locally relevant across each store, we are deploying a new assortment planning tool this fall. With this new capability, we will use machine learning to put our data to work. Uncovering sales and substitution patterns, modeling the impact of promotions and seasonality, and creating assortments that drive inventory productivity.
By applying these advanced analytics, we can make more informed decisions about the number of unique store assortments to offer, improve loyalty by being in stock, and drive profit improvement through reduced overstocks and clearance liability. Over the last several years, we've enhanced our operational flexibility. We've opened two import centers, added mixing centers, and earlier this year, we opened our largest and most automated distribution center in Frankfort, New York. Each of these distribution assets perform distinct roles that allow us to efficiently and effectively place inventory in the right places at the right time. Our distribution centers are strategically located to reduce stem miles between our vendors and our stores. They provide responsive replenishment for everyday products while also enabling our stores to effectively transition from season to season.
Each distribution center also ships directly to customers' homes, creating a network that quickly delivers both parcel orders and large bulky items. Our import centers support our seasonal merchandise. They allow us the flexibility to allocate seasonal product based on recent weather trends or sales trends. Our mixing centers have improved in-stocks and reduced backroom inventory by providing just-in-time replenishment for bulk and pallet load products. Continued investment in our supply chain capabilities will ensure that we have the capacity to grow our store count, support comp sales, and deliver on our digital fulfillment growth. As Kurt will share later, supply chain efficiency is a key component in our profit improvement efforts. Our approach isn't about improving a single area of the operations. Our long-term continuous improvement strategy is to optimize the supply chain from end to end. To reduce stem miles and freight costs, we're leveraging our national scale.
We are working with our vendor base to improve and adapt their manufacturing networks to match our DC and store growth, all while integrating new suppliers. Upstream in our supply chain, we are aggressively reducing cycle time by improving our planning processes, fine-tuning our planning systems, and collaborating with strategic suppliers to provide real-time demand visibility. Downstream, we're deploying more advanced automation within our Frankfort, New York distribution center and invested in upgrading our warehouse management system. I'm excited about the investments we're making in our supply chain as we advance our One Tractor strategy. Everything you've heard comes together to support the final component of our One Tractor strategy, and that is profitable growth. At Tractor Supply, we are a sales-driven organization. Our emphasis is on comparable sales, new store growth across both Tractor Supply and PetSense, as well as growing our online business.
These are all key drivers for continued profitable growth. I've said many times our customers don't care that we have nearly 1,800 stores in 49 states with sales of approximately $8 billion. What matters to them is the one Tractor Supply store in their local community that helps them take care of their families, their animals, and their property. Our stores are a gathering place for the community. This is what differentiates us and makes us a unique shopping experience. We continue to believe that we have significant opportunities for new store growth, as you will hear from Kurt shortly. Our stores are the foundation of our growth. They are a significant asset, along with our 30,000 team members who come to work every day passionate to help their neighbors. In an effort to continue to drive profitable growth, we've invested in numerous initiatives that will support our customer.
It starts with building a differentiated product assortment coupled with services our customers need. In addition, other initiatives such as Neighbor's Club, Buy Online, Pick-up In Store, Stockyard, e-commerce, and the Tractor Supply credit card are all opportunities to drive incremental sales and strengthen loyalty with our customers. These initiatives and others are all in a different state of maturity, which gives us confidence that we are continuing to evolve with our customers and their expectations. At Tractor Supply, we believe that many existing initiatives, along with the test and learn approach, will drive long-term consistent results. In summary, we've made great progress in a short time building out our One Tractor strategy. The strategy provides a framework for us to build out our initiatives in support of our customer, our business, and their needs. What is it about the model and the strategy that's so compelling?
First, we serve a lifestyle. The Tractor Supply brand represents this lifestyle to those customers, and few brands today can make that claim. The product that we carry is a point of differentiation for us. It drives loyalty and ongoing traffic to our stores as customers continue to depend more and more on us. We know our customers and the lifestyle they choose. Our investment in our loyalty program will allow us to connect in a way that we've not been able to do so before. We hire our customers, which is another point of differentiation, and we recognize the benefits of neighbors helping neighbors in the small towns that we serve. We build relationships. Our supply chain investments and investments in technology continue to separate us from our competition.
You see, Tractor Supply is a special place that serves a special customer, and we are very well positioned to grow market share in the future. I'd like to now turn the stage over to Rob Mills, who's going to talk about enabling our growth. Rob.
Well, thank you, Steve, and good morning, everyone. I really enjoyed last night's event. It was great to meet up with some former previous relationships and also start building some new ones. Definitely enjoyed the conversations, and thank you for your time. Today, Greg and Steve have given you an in-depth overview of how we are advancing our One Tractor strategy. I'm excited to share about the progress we've made and the capabilities we're delivering today and how we plan to leverage these capabilities to enable future growth. As you have seen and experienced as industry followers, as leaders, retail continues to change at a rapid pace. Seems like every day we wake up to a new announcement. Customer expectations change almost daily, driven by convenience and experiences.
Over the past 20 years, the world has evolved from the retailer being in control of that experience, shifting to the customer always being in charge. Think about how easy you can compare prices, locate products, and find information about the things you need or want on a day-to-day basis. We can continue to see capabilities evolve. As we move into the coming years, the customer will expect Tractor Supply to anticipate and remind them of their needs. Expectations around fulfillment will continue to grow, making product available on the customer terms, in store, delivered to their homes, drop locations, or even other methods we have not even thought of. As Greg mentioned earlier, Tractor Supply has evolved our capabilities as retail has evolved. Just a short 10 years ago, our decision-making was based upon more art than science.
We had many manual processes, inconsistent experiences between the online and web store experience, and constraints to get the products to the store in a timely manner. As an 81-year-old retailer that was built for brick-and-mortar stores, this journey has required a significant change for the organization. Yes, technology has played a big part of this change, but it's also how we think about our business, embracing and initiating change, a core component of Tractor Supply mission and values. We've made great progress in a number of key foundational areas, such as automating key processes, like our ability to understand pricing landscape real time. We have approached and moved from traditional marketing to digital and social interactions with our customers, as Steve shown you earlier. We are capturing robust customer data, allowing us to drive business insights and put more science and rigor around our decision-making.
Let us take a quick look how these changes are driving our business. In 2017, we introduced the One Tractor strategy. A big part of this strategy was to bring together the in-store and online experience, driving anytime, anywhere, anyway vision. The capabilities we've introduced online and in our stores have driven profitable growth across all channels. Many capabilities are those that the customers have come to expect when interacting with a retailer on the web, such as easy payment options, simple checkout, and content that provides expertise and advice around the products and services we sell. Our Buy Online, Pick-up In Store implementation has been embraced by our customers, representing 50% of our online sales. This demonstrates that our customers have a need for products immediately, and they want knowledgeable advice and interactions from our store team members.
We will continue to invest and expand capabilities that support this convenience and drive traffic to our stores while capturing sales and driving profitability as we grow our business. The capabilities we've introduced have provided growth and profitability for Tractor Supply. Conversion continues to increase with significant opportunity for continued improvement. Our average online order is three to four times of an in-store transaction. Buy Online, Pick-up In Store continues to grow, increasing 80% year-over-year. As I mentioned, the BOPIS customer is key to our strategy, making the fulfillment more cost-effective and efficient, and driving additional purchases when the items are picked up in the store. In addition to the capabilities that we are driving in the omni-channel performance, we have proven our ability to scale our technology to meet increasing demands year-over-year. Our 27th consecutive quarters of strong double-digit growth and volume has demonstrated this.
We've accomplished this ability scale by building agile and business teams, allowing us to drive these core foundational components that are required to meet the customer expectation of a fast, always online experience. Steve mentioned earlier that Tractor Supply is a test and learn company. It is a part of our culture. It is embedded in everything that we do, from new products to new processes, to new capabilities, and yes, even technology. Over the past few years, we've talked about several key initiatives that we've been testing online as well as in store. As we've matured these capabilities, 2019 becomes the year of rollout. Based upon these test and learn activities, strong metrics, and the success criteria that we have built around them, we are moving forward with the full rollout of team member mobility, Stockyard, and labor scheduling this year.
Team member mobility was originally introduced to provide our team members with the ability to complete a transaction anywhere within the store or the side lot. Our data shows a direct impact when the team member assists the customer using the mobile device, resulting in increased footfall and customer satisfaction scores, which directly correlates to increased sales. In addition to completing transactions, we have focused on ensuring that the team member mobility device has the tools that help our team members to be more efficient and productive throughout the day while performing their tasks, such as processing Buy Online, Pick-up In Store orders and store orders, inventory and freight, and additional product information near real time to expand their product knowledge. As you recall, and we discussed the rolling out of these capabilities to our stores in Q1 earnings call.
Based upon the success I've mentioned, we have decided to expand the rollout to all stores in advance of the holiday season. As Steve mentioned, our Stockyard kiosk opens up the products to the customers in the store, driving incremental sales and allowing us to optimize the in-store experience. And last year, we rolled out task management to our stores, driving efficiency and compliance. This year, we are rolling out labor management, driving additional efficiencies around their work tasks, such as meeting peak traffic times, delivering and processing freight, and other key periods. This is an example where we have taken manual time-consuming tasks and automated them. Prior to introducing labor management, our store managers would spend hours per week manually building schedules. Today, most of you will be visiting our Grassland Tractor Supply store in Franklin.
Among many new capabilities we are testing in the store, you'll see our self-checkout lane. This was introduced in 2017 and has been refined over the past couple of years. We are seeing success in helping reduce checkout times during peak hours, which translate to approximately about 3% improvement in our customer satisfaction scores. We will be continuing to expand the test of self-checkout this year, adding an additional 75 stores to our highest volume stores. We've talked a lot about a number of capabilities that are driving our business today, there are many more that support our One Tractor strategy. When we introduced One Tractor in 2017, we shared a roadmap with you, outlining what we needed to accomplish to drive our business forward. Today, you can see the progress we've made and how we've delivered on what we shared.
While we have completed many of these initiatives, there is a lot of ongoing work to meet the goal of a seamless anytime, anywhere, any way experience. Future capabilities we will invest in in the coming years. Many of these initiatives address ever-changing customer expectations or introduce new capabilities while others might be more foundational in nature, opening up ability to continue to grow our business in a profitable and efficient manner. The capabilities I've shared have driven a shift in our capital allocation that relates to IT spend over the past several years. IT spend and capital has increased to support the build-out and deployment of these capabilities. You can see in 2018 and moving forward, our technology spend has plateaued, settling in about $80 million-$90 million run rate and approximately 30% of our total capital allocation.
As we continue and have grown our capital investments technology and capabilities, we have taken steps to keep our operating expenses flat, focusing on efficiencies in such areas such as data center operations, telecommunications, and introducing automation within IT to reduce manual labor and increase utilization. As we enter 2020, you'll see a shift in these capabilities we invest in. I spoke to you earlier about our journey over the last 10 years. Today, we have the capabilities that customers expect and we're on par with the rest of retail. Now we can begin to accelerate and drive new capabilities, introducing a level of innovation and improving that customer experience and convenience. At the same time, continuing to drive disruption in the retail, farm, and ranch category. Let us talk about how we will continue with our journey, introducing a few future capabilities that will continue to drive our growth.
In order to meet the changing customer expectations I spoke about earlier, retailers will need to continue to introduce new capabilities fast and efficient, both customer facing and internally, which will drive efficiencies and cost reduction in our business. Our capabilities framework for future growth really covers four primary areas that will enable the growth of Tractor Supply. First, anticipating the customer needs at all times. Second, automation through artificial intelligence. Third, improving that customer experience across all channels. Lastly, continue to evolve our fulfillment capabilities. Let us take a quick look how we're going to bring these capabilities to life. First, customers have a growing expectations that retailers know when they have needs and what those needs are. Today, I will briefly touch on our approach to anticipating these needs.
We will need to continue to expand our ability to collect, analyze, and understand our data more efficiently and fast. It goes beyond the traditional customer product and location data that many retailers have relied on for several years. Today, data is available from many sources. By carefully choosing and focusing on the right data sets and putting the tools in place to drive insights, we can build upon the understanding of the customer and anticipate their needs. The tools and ability to drive insights will help us move towards becoming the data-driven organization that Steve mentioned earlier. Imagine you're shopping on tractorsupply.com, looking at supplements for your horse. You drop a few items in your online shopping cart, you decide to wait until later to make your purchase. The next day, you stop by your local Tractor Supply store to pick up some feed for your baby chicks.
A team member greets you by name as you enter the store. They assist you with your feed, they ask you about the supplements you placed in the cart the day before. You proceed to explain the problem you're trying to solve for with your horse. The team member advises that you picked the right item and offers helpful advice about it. You purchase your feed, supplements, you're on your way. This level of personalization across all channels will build upon the relationships we currently have with our customers and enhancing the differentiation that sets us apart from other retailers. I mentioned earlier that we'll be rolling out labor management tools to our stores this year. As we augment the data to these tools, we will be able to drive schedules changes near real time based upon weather, local events, and other seasonal inputs.
Last night, many of you were asking me questions about artificial intelligence and kind of what's our vision, how do we think about it. I want to show you a little bit of a framework here. Artificial intelligence and automation will be enabler of many of our initiatives and capabilities. It will drive efficiency and cost savings that will allow us to invest in areas of the business and continue to grow. It will enable us to improve that customer experience by improving the speed of decision-making and removing the opportunity for human error. We are approaching this through three primary areas of focus. Here's our framework. First, process automation. Looking at repeatable tasks that can be automated. Areas of the business such as finance, merchandising, accounts payable, even IT, are just a few that lend themselves to this type of efficiency and technology.
With a focus in this area, based on industry benchmark, we believe we can reduce current activities by as much as 30% in specific areas, removing costs and driving profitability. The second part of our framework is machine learning. Placing intelligent tools on top of our data, we can begin to optimize decision-making in the areas such as merchandising and supply chain. We have been using machine learning type of technologies for several years to drive inventory replenishment. The shift, though, is significant. Today, legacy tools look at historical data and trends. By augmenting these tools to look forward, taking additional data points into consideration, we can become more effective at ensuring inventory is where it needs to be at the right time at all times. For example, there's an up-and-coming county fair. We can anticipate inventory needs based upon the animals owned, climate conditions, or other regional data points.
We are beginning this journey by implementing assortment planning tools to improve the scale and growth of localization of that inventory, and floor planning tools to optimize placement of the inventory within the store. Taking today what are manual human processes and automating them, leveraging science over art. The third area of automation is cognitive artificial intelligence. Right, I know this is starting to sound like an IT presentation. It really is about all the technologies we interact with on a daily basis, through chatbots online to voice recognition systems and other methods. Our opportunity here is to drive efficiency by leveraging this technology to serve up data and knowledge to our customers in a scalable and a cost-effective manner. Providing quick and efficient answers to customer inquiries through chatbots and automation, things like order status, replacement parts, or even how-to questions.
This will allow us to free up team members' time for value-added questions about their animals and their properties. All this comes together through our prototyping innovation process we call the Hatchery. We're pretty proud of this. It's where our technology and business teams come together to test and learn and measure new technologies and capabilities. The third item in our framework is the customer experience. We've made tremendous progress in this area over the past few years. The customer expectations continue to evolve. Our focus here will be twofold. One, innovating to drive convenience. We will test and learn new ways to make the shopping experience engaging and convenient for our customers at all time, improving our ability to perform GURA by putting information at the fingertips of the customers and team members. Think about getting your riding lawnmower ready for the first spring cut.
You find that one of the belts has worn and needs replacing. Using augmented reality through a TSC mobile app, you can hold your phone right over the mower. All the details for that mower, including how-to, replacement parts, and also the replacement belt that I mentioned earlier, are available at your fingertips, allowing for ratings and reviews of the products. This capability can be used by our customers as well as our team members to learn more about the products and make the ordering process more easy. We can also integrate our Neighbor's Club loyalty program, informing the customers of any special promotions, rewards, cross-sell, up-sell opportunities. The second focus is bringing the store experience to our customer wherever they are. Greg described our customers and the lifestyle they live today. Meeting those needs and expectation anytime, anywhere, any way is a key part of our strategy.
We will be introducing a mobile app which will create an interaction point to leverage the advanced analytics I referred to earlier, driving deep personal conversations with the customers, anticipating their needs, and suggesting solutions for questions or problems they have on their property. Customers will be able to interact with team members, our robust product knowledge, and the tools they need while on their property, in their barn, or at their home. Our goal is to extend the in-store experience our customers have come to expect wherever they are. The fourth area of focus is evolving our fulfillment capabilities. Steve mentioned earlier we've made a lot of progress in our DC network and how we're delivering products to our customers. Customer expectations today that our retailers fulfill products on their terms. They want it at a specific location in a specific time frame.
To meet this expectation, we must invest in ways to cost-effectively meet the needs of the customer, at the same time protecting our margin. Steve mentioned a number of key activities we are testing and learning with, from BOPIS lockers to improving our allocation process. We also have the goal of driving innovation and broader thinking in the space, challenging ourselves to look at new, innovative methods to get the goods to the customer. For example, what if we connected our customers where near one another, creating a network of neighbors, then added the ability for them to opt in to things like equipment sharing, or I'll pick up your BOPIS order when heading to town for one another. Embedding this type of unrestrained, creative thinking into our culture will fuel new ideas and solutions for our customers over time.
All of these capabilities, initiatives, and plans support our One Tractor strategy, continuing to drive an omni-channel experience that revolves around the store and our customers' lifestyle. The channels we support through any device, capabilities for convenience such as buy online, pick-up in store, our knowledgeable team members, and the ability to continue to build relationships by personally speaking to our customers at an individual level. Let us take a quick look how some of these capabilities I mentioned earlier might play out for our customers, as well as Tractor in the future.
Do you think you're going to be able to fix the tractor today?
I hope so. Hey, TSC, what's the daily update?
Good morning, Chris. It's going to be partly cloudy today with storms rolling in late this afternoon. Be sure to get all the animals in before dark. It looks like Scout's 4health dog food might be running low. Would you like to add a bag to your order scheduled for delivery later today?
Yes, please.
Great. I've added a bag. Your order should be there by 3:00 P.M. Thanks, Chris.
How does it always know before we do?
I don't know, but I'm sure Scout appreciates it.
Hey, how are those new chicks you bought?
They're not new anymore. They're almost 12 weeks.
Well, I recommend you keep them on that starter feed you've been buying until about 18 weeks or so. Can I order you another bag?
I'm sure we could use another one.
All right. Let's get one ordered for you, and you can pick it up in the store when you're there next.
Oh, great.
It looks like it'll be there in about 30 minutes.
Thanks.
How does it look?
The latch got beat up pretty bad in the storm last night, but I ordered another one, so you can pick it up when you pick up the chicken feed.
Great.
Here you go. Would you like any help out with that?
No, I'm good, thank you.
Okay, great. Thanks. Come again soon. Hi, Mandy.
Oh, hey.
You here to pick up your online order?
I am, but first I've got to get Scout into the pet wash.
Oh, okay. Well, as soon as you're done, let us know, and we'll help you pick up your stuff from the lockers.
Awesome. Thanks.
You bet.
Come on, girl. Let's see if we can find you some treats. 4health dog treats?
Okay. Let me just get these treats out of your online order, then I can help you get these loaded up.
Thanks, Jessica. I think we've got it.
Okay. No problem. We're always here to help. If you want, next time, you can scan your phone right here and pick up your order whenever it's ready.
Oh, awesome. Thanks.
You're welcome.
It was a lot of fun making that video. I don't think Scout really enjoyed the storm that hit the night before, but he definitely enjoyed his wash and his treats that he got the next day. As you saw in the video, we are continuing to evolve our capabilities, focusing on the use of data to drive increased convenience for our customers and generate an exciting store experience. We've made strong progress on the omni-channel front, continuing to grow year-over-year across all of our key performance indicators.
I've shared with you how the One Tractor investments are maturing, rolling out to our stores, as well as online, to support our customers, both driving sales and productivity throughout our organization. We have a strong framework in place for the future set to drive capabilities that will fuel our growth, at the same time introducing efficiencies to make us more productive and go faster. Last, we'll continue to drive the One Tractor experience, introducing capabilities that bring the in-store and online experience closer together, resulting in a deeper and closer relationship with our customers. Through today's discussion, I really enjoyed sharing a little bit about our future, where we're making investments, and the capabilities that you'll see introduced. I hope you see how these capabilities we're pursuing focuses on not just growing the sales, but also improving our productivity. With that, thanks for your time this morning.
I'll turn the stage back over to Mary Winn.
Great. We're running right on time. We're up for a break. If I could ask you to please plan to be back in here at about 10:35. Thank you all very much. All right. Everybody, if we can get back started now with our panel. I'd ask everybody if they could please join us back. Great. I am honored to be on the stage with four of our senior vice presidents from Tractor Supply, and I thought maybe we would, before we jump into the questions, which we had a robust list of questions, some of which I may save for the open mic because they may apply more to Rob, Steve, Kurt, or Greg. But maybe Seth, if you could start us out with some introductions and kind of go through retail experience and what your responsibilities are at Tractor.
Absolutely. Good morning, everyone. It was nice to meet several of you last night. For those that I didn't have the opportunity to meet, my name is Seth Estep. I've been at Tractor a little over 13 years. I'm responsible for all the merchandising functions here at Tractor Supply. Again, my group, as Steve mentioned earlier, really responsible for product selection, pricing, sourcing, exclusive brand building, and the visual presentation components here at Tractor.
Hi. John Ordus. I get the opportunity to lead our operations and loss prevention teams. I've been in the farm store business for a little over 24 years, been with Tractor Supply 21 of those.
Great.
Good morning. Christi Korzekwa, I've been with Tractor Supply for seven years. I lead all of our marketing initiatives. Before that, I was with The Home Depot for eight years, leading media and marketing initiatives. Prior to that, I was the global media director for American Airlines.
Good morning. My name's Colin Yankee. I have the privilege of leading our supply chain. Been with Tractor Supply for about three and a half years. Prior to that, I started my retail career actually at Target Corporation and then Neiman Marcus, and had the honor of serving as an officer in the United States Army. My team is responsible for inventory management, transportation, and distribution centers, and we're all about trying to get the right product, right place, right time, at the best cost.
That's great. Thank you all very much. Maybe for each one of you, how do you all work together between the various functions? For example, Seth, balancing new products versus DC capacity, store labor, marketing.
I'd say in today's retail, speed's a must, collaboration, communication is a part of who we are at Tractor, I would just say our teams work really closely together. We work fast, once we select items, we have a lot of processes in place that go through it, make sure that how do we get through the supply chain, what's the pricing model, can we execute it at store, how do we leverage our marketing vehicles and tools? I would just say it comes down to communication, collaboration.
I would echo what Seth said. Our job is to help support the stores, right? We drive the business in and support our stores. What I appreciate about all the people up here is that they make sure that we don't do things twice inside of a store, that we get it to the store the right time the first time, that the store team members are busy taking care of customers, not doing tasks. We work very well together. We travel stores a lot together. We spend a lot of time. We look at what we can do better and how we can do it better.
Yeah. I would agree with everything John and Seth are saying. There are two things that I think really galvanize us together as a group of leaders, and that's first and foremost for myself and for the team, it's thinking about the customer first. That's why Tractor exists, is to help our customer. We're always thinking about that first. Seth started talking about the values, teamwork, collaboration, communication, respect, and regardless of how challenging the initiative is or the issue is, we're always coming to the table with positive intent, that this is about serving our customer and how best we can do that.
Yeah, I'll piggyback off what Seth said. Here at the Store Support Center, it's really around planning and process. How do we execute well to make the store successful? Because of the nature of our assortment, it's really difficult to execute that well and crisply and make sure that we're planning far enough ahead and really have great plans in place for that. Because it all comes down to the moment of truth of, for me, that one trailer going to the back room of that one store. For John's team, doesn't matter if I'm 97% right. It matters for that individual local store. We try to keep that focus.
That's great. Colin, there were a couple of questions that came in, I want to make sure we clarify. The question we got was, "Did Steve say all DCs can fulfill small partial direct-to-consumer orders to customers' homes? I was under the impression only a handful of DCs had this capacity.
Yeah, in the last year, we've expanded fulfillment to all of our distribution centers. Each of our distribution centers services both stores and direct-to-customer business. That's really powerful. It's powerful because of shared team, shared technology and systems, and shared inventory. We don't have to replicate those capabilities to service that direct customer business, and that's both for small package, and also for those large items. If you were on our website this morning, you'd see kayaks and chicken coops and grills and riding lawnmowers, and all those things move through that same network as well. We service those from all the DCs. There are three DCs, Frankfort, New York, Franklin, Kentucky, and Casa Grande, Arizona, that provide a lot more automation, and orders may come out of those sites, but it all depends on the logic of how that order flows for us.
That's great. Another clarifying question as well: How is Ridgecut positioned differently from C.E. Schmidt and apparel? Seth, I think that one probably falls to you.
Yeah, I'll take that. Yeah, obviously we're excited about the launch of Ridgecut. What I would tell you when you think about the positioning of Ridgecut, it's workwear its function. It's really building an exclusive brand versus, I would say, C.E. Schmidt historically was originally more of a private label type focus. You'll see a little bit more premium offering. We've actually had a lot of our customers field test the products to make sure it really lives up to the standards that they're looking for. Whether it be moisture control, the tough material, things of that nature, it's about a premium positioning in a product. It'll be tighter than I would say C.E. Schmidt has been historically, and it's all about giving our customer really a premium brand offering that set of value that you can only find at Tractor.
That's great. Thank you. Christi, the growth of Neighbor's Club has been highly successful. What are some of the factors that you believe have contributed to its success? In true investment community style, there's a part 2 to that question.
Okay. Fantastic. Yes, the Neighbor's Club program is incredibly exciting. It's very exciting to work with it. It's exciting to watch it grow. I would say that its secret sauce or why it's growing so quickly is twofold. One is absolutely our customers. They have such an affinity for Tractor Supply as a brand, for the stores, for the team members. They really want to advance that relationship with Tractor Supply, and being a part of a loyalty program is what they want. They even asked for it before we launched the loyalty program. It's our customers, and then John's team, his team members are really helping us grow that program each and every day in the store by encouraging sign-ups.
Those are some of the reasons it's growing, and we have an immense responsibility, we feel, at the Store Support Center to ensure that loyalty program has a lot of growth in value and in enhancements that the customer sees and is relevant to them.
Second part of that, Christi, is how has the customer information had an impact on marketing plans, and maybe even a specific example you could share?
Certainly. As you can imagine, it's really heaven or a candy store for a marketer to have this kind of customer information available to us now. We have a more complete picture of our customer that is, as Steve mentioned, powered by the Neighbor's Club program. With that customer information, we're able to really have a great deal of confidence and know them better than we've ever known them before. Understanding that customer that well, we can look at every single aspect of our marketing across the board, inclusive of Neighbor's Club, but every other channel, and say, "Are we doing this the best way possible? Are we optimizing? Are we as efficient as we can? Are we being relevant?
Are we using the right channels for this customer?" Neighbor's Club and the information we have about the customer is changing everything that we're doing in marketing. It's a really exciting time for us as a team because everything is changing.
That's great. John, got one for you now. You have the largest group of Tractor Supply team members reporting to you, north of probably 25,000 team members. The investment community hears a lot about culture from Greg and Steve. In your view, how would you describe the culture at Tractor Supply, and what makes it so unique?
Yeah, good question. Our culture, in my mind, is about our people, right? It's about our team members and the customer, and that relationship that comes between the two of them. You think about GURA, you think about High Five, you think about empowerment. This all goes into the culture of the company. I'll give you an example. My first day with the company, first day, I'm walking around the store, a customer walks in. I said, "What are you looking for today?" He says, "I need some vet wrap." I said, "Well, we probably have that, but I'm not sure what it is." I go over there, and I ask another team member where it is. They point me over there.
I walk over there, the customer takes it out of the wrap, takes my arm, and wraps my arm and shows me exactly how the vet wrap works on a horse. You never forget that experience, you create that relationship right there. That's the cool culture. Like the culture you saw this morning in the video there. That to me is why we do what we do.
Oh, that's great. Seth, maybe you can clarify on this one, or Christi, I'll let you to jump in because it's another one that's clarifying. Somebody flipped ahead on the slides before Kurt gets to his presentation. The decision to move to a 5% discount on Neighbor's Club. Prior strategy was not to have this be a discount program. Why the change? Yeah.
I can hop in.
Tag team.
Steal all your thunder here, Kurt. It's coming up. What I would tell you is that it's not a discount program, and it will not continue to be a discount program. Today, we actually offer a little bit over a 3% rebate back if you use your PL, private label credit card and you're a Neighbor's Club member. It's not the most easy thing to clarify if you're a team member, things of that nature. We are moving that to 5%, and it's a reward program back for future use based off tiers. Kurt will get into that. It's not an instant 5% discount.
Right.
Think of it as a reward program for PLCC members that are also Neighbor's Club, or PLCC holders that are Neighbor's Club members, versus an instant discount like you'd see at some of the other retailers that are out there.
That's great.
The only thing I'll just add to that is the experience in the store is going to be so much easier for us. I mean, being able to save 5% back will be a lot easier for us to sell off that card and also get more applications. We're excited about it.
That's great. Colin, could you speak to your mixing center strategy and how many today, where can this go over the next three to five years, and how do the economics work on improved margins there?
Sure. We have five mixing centers today. We started this concept a few years ago in Texas and expanded to the Southeast, Georgia, and just opened one in North Carolina last month. We have a facility in Lakewood, Washington, which is kind of a hybrid. Performs mixing center duties, services local stores, and our Hawaii stores. Depends on who you're asking, five or six. The concept of a mixing center really is it takes product that currently goes direct to store, and it's big, bulky palette consumable product that would clog up the back room of a store because it's a weekly delivery. It converts it to these cross docks that allow for just-in-time replenishment, and it's dynamic based upon sales. We're taking the sales every single day, and it can be routed for that particular region of 80-85 stores.
What we see is it cuts the backroom inventory for these products by about half, and it drives up the in-stocks. We're using the information, because it is very real-time, to funnel that back to our manufacturers, and they get manufacturing efficiencies based upon that demand sensing that Rob alluded to. Over the long run, we see we could add up to 20 more of these mixing centers in a variety of different models and geographies. We take it just chunk by chunk. We're working on the southeast now, we'll start to turn our eyes towards the northeast and continue it over time.
That's great. Thank you. Seth, I think this one probably falls to you as well. Steve mentioned PetVet clinics.
Yeah.
Are these permanent or periodic offerings, how are the economics shared with that? What happens once customers come in store for the PetVet clinic? What do we see there?
We've had a partnership with PetVet clinics for years. We're now well over 1,000 locations that we've rolled out with in-store PetVet clinics. These are mobile for the most part. Basically, there's no impact to store labor, so it's great. There is a small commission-based type structure, but for us, it's about what Steve alluded to. Last year, we got over 500,000 pets that came through these clinics and are in our store base. We're looking at how do we continue to accelerate and grow that. Getting pets in the store. Once we get them in the store, we also have cross-marketing opportunities. How do we get them in our exclusive brands? How do we get them into other categories within the store at the same time?
We really look at it as a phenomenal opportunity to service our customers' needs at a value that they're willing to expect, and then get that footstep in our stores today. Anything else, Kristi?
Yeah. The only add-on to that, Seth, would be the new customer acquisition component of these services for pet customers. It's really helping us drive those new customers into the store.
Yep.
That's great. John, this one goes to you. In 2018, TSC had unit growth as a component of ticket growth. Greg and Steve have attributed this in part to a program you and your team started calling High Five. Would you please share with us some of the highlights in how your team has engaged with the program?
Sure. I love High Five, and what I love about it is the team members started it. It was a way for us to drive more ticket inside the store. I guess the best way I can do it for you is paint you a picture. I'm in Paintsville, Kentucky, and Nikki, the team member there, is over there working with a customer on a Husqvarna chainsaw. I'm listening over in the other aisle, and Nikki sells the chainsaw, offers them a file guide, a bar and chain combo, oil for the chainsaw, bar and chain oil, and then got the service plan with it. You see Nikki come over to our store manager, store manager and Nikki High Five it. It's offering five other items that you're going to need to complete that project.
It's about recognition, it's about recommending, it's about that experience for that customer. Most of all, it's about completing the project for that customer. The field loves it. It's more of something that we use to pump people up and to celebrate, and it's working very well.
I know I get every once in a while some of the pictures of it that's happening all across. I know Steve gets a lot of them, Kristi.
Yeah.
Ford does too. I mean, it's fun to see-
Hundreds of them
for sure.
Yeah.
Yeah. Hey, Seth, in regards to Revionics, Tractor has a long history with Revionics. Where are the opportunities, whether can you kind of force rank some of the priorities there?
Yeah. Yeah, we've obviously had a long history with Revionics. I would tell you, when I think about our pricing tools today, I would say they're as important as they've ever been. Obviously, the environment that we're in right now, obviously, that we've all been dealing with the tariff environment that we've spoken to, and also with the MAP environment. With key brands that have been launching call it MAP pricing, how do you now take items up and down the aisle that are less elastic? You're going to be priced right every day, first and foremost, to drive market share on key consumables. How do you use pricing tools to then help offset any cost pressures that might occur? We have increased our price zones over the last several years.
We now have a competitive price intelligence tool that as of last year, we have well over 10,000 SKUs that we track in a competitive price intelligence tool that is feeding Revionics at this point that also helps come up with those price recommendations in that engine. We continue to evolve how we can add science and price better to first and foremost drive share through there. Also, look to hit some of our goals. Third, I would say, continue to make us better from a promotional planning and utilizing the tools in Christi's world.
That's great. Thank you. Kristi, for you, customers have been evolving and continue to change their media consumption habits at a faster and faster rate.
How is Tractor Supply evolving to address this?
Absolutely, our customer is evolving, and I think you saw just a vision of it in Rob's video with regard to what we see their expectation being. Our customer is consuming news, information, entertainment very much so in the digital space, and we've seen that rise exponentially in just the last few years, and it's changing faster and faster. Everything we're doing is to be convenient from a marketing perspective to our customer. We certainly want to support those things that they're passionate about, but let's do it in the digital space. You saw the videos from Steve relative to how passionate they are in the social media space. Leveraging the social media space much more, either that's through user-generated content or customer-generated content, or stories and content that we put in the social space.
We see that they research online before they buy online, pick up in store. In the search engines and how they're searching and finding out information about products. Our customer is very digitally savvy, and we're wanting to be where they are so we can be convenient for them and where they want us to be for them. Yes, we are always evolving our marketing channels, and you'll continue to see that happen as we migrate more and more into the digital space.
Thank you. Colin, another popular line of questions deals with one-day shipping for retail to consumers, what would its impact be to Tractor Supply, how we view it?
Sure. When we look at it, we're not just looking at one particular service offering. It's about choices for the customer. Whether that's buy online, pick up in store, buy online, ship to store, deliver from store, market delivery, or have it delivered from a DC to their home. For us, you heard alluded to in the previous commentary, about half of the time our customers are choosing buy online, pick up in store. In that regard, via that mode, customers are getting same-day or next-day fulfillment of those particular needs, and they're choosing that. For those orders that they're choosing not to do buy online, pick up in store, that expanded fulfillment across all of our DC network has really helped close the distance.
I say that because our DCs are located close to our stores, and our stores are located close to our customers. We're able to reach about 85% of our order base in two days. We'll continue to look at that and offer those choices and balance that cost versus service benefit just by offering the customer different choices.
Yeah. When it comes to buy online, pick up in store, maybe John or Seth, this is a question for y'all. You know the answer to how fast those orders get picked up.
Yeah. They get picked up within 30 minutes. That customer, once they place the order, we're going to get it done and be within 30 minutes of-
It's ready in 30 minutes.
Went from two hours to one hour to 30 minutes.
It's ready in 30 minutes, yet the vast majority of those actually ultimately get picked up by the customer within 24 hours, I believe.
That is typically that same day.
Yes, same day.
Yeah. Sometimes they do it from the parking lot as they're coming in.
That's great. John, this one's for you. With the natural turnover at the store level, Steve and Greg both mentioned GURA. How does this get sustained over time?
For us, hire for attitude is the first thing we do. That's the price of admission. When we're hiring somebody, we're bringing them on, we want to make sure they have the right attitude. From there, we can teach them about GURA. We can teach them about High Five. We can teach them what we expect, how you greet that customer when you come in. Uncover and recommend is the two most important parts of the GURA, so that you know exactly why they're there and you know exactly what to give them. What do we do? We talk about it a lot. We teach it a lot. They go through training on it. We make sure and we track those scores inside each one of those stores as well. We help them.
If there's a store falling, we'll be able to help that store. We have our HR team and the operations team that will help do that.
That's great. I am watching the clock, I think our 20 minutes is up. With that, we'll turn it over to Kurt Barton now. Thank you all.
Thank you.
Colin, Christi, John, and Seth. Thank you.
All right. Thanks, Mary Winn. Am I live? All right. Thanks, Mary Winn. Let me just thank each of you for coming to Nashville. I also want to say that I enjoyed our conversation last night, enjoyed the environment. We prepare for this type of a meeting. As you can imagine, Steve and Hal and Rob and I anticipate the tough questions this group brings to us. I thought I'd throw out to you know what the number 1 question I got from this group last night was? "Who the heck is George Jones, and why does he get a museum?" Well, I hope you enjoyed it last night. My goal is to illustrate from everything you've heard from the other presenters today on how all that comes together to drive profit improvement and shareholder returns over time.
First, I just want to stop and just look at our strong track record of performance. As Hal mentioned, positive traffic count, 43 out of 44 quarters, and over $3 billion returned to our shareholders over the last 10 years. Strong, impressive track record. These results are in direct correlation to what the team is focused on. Our store operations, our merchandising, our forecast and planning, and our supply chain teams all working very hard to drive these type of results. This morning, I want to focus on a few other key drivers of success for Tractor Supply. I'll start with talking about the strength of our real estate portfolio and our new store performance. I'll spend some time talking about the Tractor Supply private label credit card and what we've learned in that program.
I'll transition to our operating margin expansion, which does include our profit improvement plan. I'll wrap it up with our shareholder return principles and our long-term financial targets. First, transitioning to our real estate portfolio and our investment for new stores. We have a good, relatively young fleet of stores. Over 50% of our stores are less than 10 years old. Of those stores that are older than 10 years, over 50% of those have been remodeled or refurbished in the last 10 years. We have a pretty consistent fleet of stores, on average 15,500 sq ft of selling space. Approximately 60% of our stores are prototype or built to suit, and the other 40% of the stores are retrofit or second-use retail. Both of those formats perform well for us and drive good, solid results.
This consistent group of stores and a young fleet is a core strength for us. In regards to the initial investment, our initial investment as we define as the inventory net of accounts payable, as well as the fixtures and then any building improvements, approximately $900,000 of investment for a prototype store, retrofit about $1.5 million, and for our Petsense store is about $200,000-$400,000 for that store as well. As far as Petsense, as Greg mentioned, we're now leveraging the Tractor Supply real estate model, which is a return-focused model. As he said, we're pleased with the first class of stores that have come out of this model, as they are having a meaningful improvement in year one sales of that first class compared to the performance of stores prior to acquisition.
We also believe that there's good, strong runway for growth for Petsense stores across the markets. These slides help show the generation of new store sales for Tractor Supply stores, which are averaging over $3 million per store over the last few years. That amount is relatively consistent. They're also performing in our projected internal rate of returns that we forecast above our hurdle rates and well above our weighted average cost of capital. A few other quick points to just give out. These are consistent sales, as you can see from the slide on the left year-over-year, as well as beating the pro forma sales forecast as represented by the red line. They're generally profitable in year one, and they're beating pro forma return metrics, as you've seen in the slide to the right.
This next chart illustrates the sales growth of a typical new store. As you see from this red line represented on the slide, that the comp sales growth rate of a new store is higher than the typical comp store average, which represents a typical new store maturation curve. Additionally, the mature stores are also comp positive, that continues to cause the average comp store sales for Tractor Supply to increase. That creates a gap, a continued widening of the gap of the average comp store sales per year for Tractor Supply versus a new store. Let me now show an example of how our real estate team's strategy is to grow a market with both new stores as well as growing the existing stores.
What you see from this chart here is an example of the greater Atlanta market, you can see in 2015 that we had 13 stores in 2015 represented by the white and red icon locations. Those 13 stores generated about $78 million of sales. Our optimized market study told us that we had opportunity for about nine additional locations in this area of future fill-in growth for stores. This next slide represents the same market in 2018. As you can see from this, our store count in 2018, we added an additional five of those nine locations. We grew the market from $78 million-$98 million, an incremental $20 million. We continue to estimate that this particular market has approximately an opportunity of $115 million in sales as we're able to capture additional sales from existing stores and these four additional markets.
There's a new store contribution, of course, from these additional stores, but that's also offset by a modest level of cannibalization, as you can imagine, from the locations of some of these new stores as we fill in the market. The impact of cannibalization on these type of stores is offset by new store maturation, and the general benefit is the benefit from new store maturation is greater than the level of cannibalization impact. We typically see that the impacted stores are able to continue to pick up their sales growth in the future. Our real estate model, we have a very disciplined, robust real estate model, and we have a long track record of successfully opening Tractor Supply stores. Our modeling has multiple data points that allows us to use the demographics to continually open successfully new stores. We're confident in the long runway.
Our recent analysis, where we revalidated the goal with Intalytics, who is our site selection partner, gave us continued confidence of our goal of 2,500 stores. With compelling returns, we continue to open highly new stores, and we're excited about the future runway of Tractor Supply's growth. Let me transition to what we've learned from the relaunch of the private label credit card since last March. First, the Tractor Supply credit card program supports our One Tractor strategy by driving sales, building loyalty, and reducing our tender expense. We gained traction last year in this program, principally in three ways. By first making sure we were offering an enhanced value proposition. Two, and very importantly, cultivating a selling culture in our stores by providing tools and training on the program. Then third, simplifying the process for our customers and our team members' execution.
To illustrate how the credit card program helps drive sales and to give you some of our early results. What we've seen is when we engage customers into the credit card program, several favorable factors have shown in the last year. Our ticket improves, the number of visits improve, our overall spend is increasing over 30% on these customers as we compared the post 12 months versus the pre 12 months prior to using the credit card. A few other insights that we've seen with the program. Our credit card customers are more likely to add on items such as our Power Plus extended warranty program. On average, they visit our store two additional times per year. Of course, we've seen with our credit card holders a stronger correlation with big-ticket sales.
While the TSC card holders are still a small part of our business, we're very excited about these early results. Let me also share with you an example of how the credit card has been helping with big-ticket sales. As you see from this slide, our riding lawnmower sales grew nicely last year. Also what's important is the percentage of those sales on the TSC credit card. You'll see that not only did the sales grow nicely, but indicated by the red section on that bar, that we increased the percentage of sales of our riding lawnmowers from 27% in 2017 to 35% of the sales in 2018. This is a great example of how the card is resonating with our customer and how it's a competitive offering on big-ticket sales.
As pleased as we are with what we've accomplished to date, we know we have a lot more to do, which is why we're going to continue to invest in the program. We've decided to reinforce and take advantage of the strength of our Neighbor's Club program. The intention of that is to make the loyalty proposition more competitive, easier to communicate, as John indicated when he was on the panel, and more rewarding. We're very excited to announce that with the TSC credit card, our Neighbor's Club members are now able to get 5% reward when using the TSC credit card. What that is, that allows our TSC card holders in the next coming months to be able to earn $5 for every $100 they spend on the card. That compares to $5 for every $150 under the existing program today.
This offer is simple, it's relevant, and we believe it's competitive. We know that this will help expand the relevance of the program beyond just big ticket, beyond just initial purchase, but also to the four corners of our store and allow us to be able to encourage further repeat visits and use of the card. Through the use or the growth of the card in the program, and lower tender expense, we anticipate that this new value proposition that we're offering is also favorable to our operating profit. You can watch for this change in late 2019. Our third objective with the private label credit card program is to help control our tender expense. We are pleased with what we've seen so far with increased repeat visits and use of the card beyond the initial purchase.
What's also important is what we found is most of our subsequent transactions by our cardholders are on the standard financing. Standard financing on our private label credit card is lower than the typical interchange fee for credit card or debit card. By growing this program, we'll be able to shift the curve on tender expense, which is something that for us and most retailing is somewhat of an uncontrollable and rising cost. With that, we are also targeting that our credit card tender mix is anticipated to reach 10% within the next three to five years. We're excited about the opportunity and the growth that we have in this card. Let me now transition to our operating margin expansion opportunities. I'm going to talk about both gross margin initiatives as well as our opportunity to capture profit improvement.
While there are a lot of macro cost pressures into our business, we believe our efforts in both gross margin as well as our profit improvement plans allows us to offset that by giving a rigorous examination of our business to reduce costs that'll allow us to redeploy back into the business or fund for future growth, or even improve our operating profit and ultimately our return on invested capital. Let me start with our gross margin expansion opportunities. We have a consistent philosophy that focuses our merchandising, our forecasting and planning, and our pricing teams on the right initiatives that help grow gross margin. These are the items that we've been sharing with you over the past four years. First, let me start with exclusive brands. Exclusive brands not only help increase or drive sales and customer loyalty, but exclusive brands also help improve our gross margin.
Our exclusive brand products often deliver a higher landed product margin than our national brands. Like Steve mentioned earlier, with the launch of our Ridgecut program, it continues to show our ability to expand the penetration of our exclusive brands. We believe that we still have continued opportunity to grow our exclusive brands in the future. In regards to inventory management, we've continued to evolve on inventory management. As Steve mentioned, we're going to continue to invest in inventory management in areas like assortment planning and data analytics, which those items will continue to help drive sales.
Not only driving sales, but as Steve mentioned, we also have the ability to help reduce the risk of clearance and markdowns, helping generate and improve our gross margin. Additionally, with inventory management, we'll leverage that system to be able to improve our level of inventory in the stores, and the inventory management system will us to keep focused on the level of inventory in our system and, well, in addition to the level of inventory, also with a targeted focus on our payment terms, we have an opportunity to really improve our working capital. Leveraging those two, we anticipate increasing our inventory turns and also increasing our financed inventory rates. With strategic sourcing.
Our strategic sourcing team continues to mature. They highlight our ability to adapt to changing market conditions, where we are able to continue to find the right quality product at the best landed cost, whether that be with a domestic source or a direct import. Lastly, with price management, we've got a dedicated pricing team. As you heard Seth talk about it just earlier, that dedicated pricing team continues to learn from and utilize our price optimization system to be able to leverage that system and the science within that system to be able to grow market share where appropriate, but also grow margins where possible. As he mentioned, just last year, we increased our price zones, and that gives us the ability to be more nimble and flexible across our various locations.
All in, these four items, we believe, continue to show that we have potential to grow gross margin. Let me talk a little bit about our profit improvement plan. We are very focused on operating efficiencies at Tractor Supply. One of our core values is to accept change, embrace change, and even initiate change with the goal of doing everything better, faster, and cheaper. We have a dedicated team to our formal profit improvement plan. They are focused on partnering with all of the rest of the functional areas, and you heard number of examples from Steve and Rob and others of how we're partnering together to drive profit improvement. Greater than 50% of our controllable spend is in 3 areas: our store labor, transportation, and our distribution center labor. In that number is also some level of indirect procurement or indirect spend as well.
With everything that we do at Tractor Supply, we have a customer-focused approach. That's the same thing that we've done fundamentally as part of our foundation for our formal profit improvement plan, keeping the customer first. That's why, as you see on the screen, that we're leveraging as the core strategies of profit improvement, things like process re-engineering, performance management, strategic sourcing, and leveraging automation. Those are the things that we believe will allow us to drive long-term sustainable profit improvement, but also allowing us not to impact the great customer service experience that we've got. It's also important to note that our profit improvement plan is not a cost-cutting measurement, but yet it's a long-term sustainable effort to drive productivity culture. Let me share some insights on each one of these four areas as part of our profit improvement plan.
First, in regards to store productivity, we focus on 3 aspects. First, re-engineering process in task-oriented areas, such as receiving or recovery in our stores. As you heard Rob speak to earlier, implementation of things like task management and scheduling allows us to ensure we've got compliance and consistency of those new, reduced, re-engineered processes across all of our stores. It gives us the opportunity to take those cost savings, redeploy those cost savings into hours towards customer engagement and selling. In regards to the timeframe, we began redesigning, we did a lot of the redesign and implementation of tools, systems, and processes in 2018. We did a test pilot of 20 stores that was successful. We're now currently testing this new process with those tools and systems in 150 stores.
With the anticipation of the successful test, we would begin rolling this out in the mid to late third quarter to the rest of the chain, that rollout process likely would take six to nine months. On transportation. Our transportation focus is principally on aspects that we can control, that's important, certainly in light of times where transportation costs on the macro are rising. Our efficiency focus is going to be driven through a few things. First, we've been identifying domestic sourcing locations, additional domestic sourcing locations, particularly with queue items, to allow us to find those locations that are closer to destination and ultimately reduce our stem miles. Secondly, with a partnership with Ryder, we are using their networks and systems and optimizing our lanes. We're optimizing both our inbound and outbound lanes to be able to mitigate against existing carrier driver and equipment constraints.
Also leveraging Ryder's strong networks, their systems, and their benchmarks to utilize their partnerships to renegotiate with our carriers and ultimately drive improved carrier costs. The last thing the team's focused on is maximizing our trailer capacity. We're focused on SKUs that historically have had weights and sizing constraints and challenges for us. We're partnering with our vendors and our supply chain group, to be able to resolve some of those challenges, ultimately with a very measured focus of improving the average inventory value per load. Just like in a few of the other areas, we began our efforts in 2018. This is a multi-phased approach. We'll continue working on the different phases to completion throughout 2019. With transportation, we anticipate beginning to see some of those benefits here soon and be able to see some benefits in 2019, principally in the back half of this year.
As far as distribution center, our emphasis on productivity is principally on distribution center labor. It's really with two strategies. Much like with stores, it starts with product flow engineering and then also a performance culture. In regards to product flow engineering, we are going through the various processes and steps to analyze and find where are there extra steps and how do we re-engineer processes to improve that. It also is with partnership with an investment in a warehouse slotting tool, and that slotting tool will allow us to optimize our DC space, reduce steps, and touches by our DC team members. Also secondly, by utilizing and implementing engineered labor standards very specific to each of our distribution centers, will allow us to actually ensure that we're utilizing a lot of that labor savings that came through the process re-engineering.
It's an important combination of both of those items. Then along with that, when you combine that with the performance metrics in our distribution centers, we believe that will ultimately drive productivity in our distribution centers. Where are we at with the timeframe on that? We began the efforts of evaluation in 2018, and in 2019, in this case, we're just now in the process of going through the process re-engineering and the engineered labor standards in one distribution center. We anticipate implementing and measuring and monitoring the results of one distribution center this year. With the anticipated favorable results from this pilot, we would then expect to roll this out to the rest of the distribution centers methodically over the next two years. As far as indirect procurement, as you can see from this slide, we see many savings opportunities.
In 2018, we laid the foundation and began building a dedicated team. Today, that dedicated team is in place. We have expert category specialists that support the key functional areas, and the team is already beginning to make an impact, and we anticipate that they'll be able to continue making some impact this year, but even growing in greater expectations of opportunities beyond 2019. As you can see, we're still in an early stage in many of these initiatives, but we're making great progress and we're on track. We're excited about the future value capture, and we expect to see benefit going forward, even some benefit in the second half of 2018. We believe our formal profit improvement plan provides great opportunity for us.
Opportunity to offset cost pressures in retail, invest further into the business, and ultimately bring savings to the bottom line, all contributing to our operating margin targets. Let me now transition to our shareholder return principles. You've heard from the other presenters today about a lot of our key drivers. These key drivers we anticipate being able to provide us a solid operating profit, which then would give a strong level of free cash flow. With disciplined investments back into the business, continue to produce strong return on invested capital, and we do anticipate improving return on invested capital over time. With consistently returning cash to our shareholders, and then a combination of strong operating profit growth and share repurchases, we target low double-digit earnings per share and a good, healthy total shareholder return annually. Let's now look at how we execute that strategy.
Our first priority on capital allocation is to reinvest capital back into the business. We're also targeting to maintain a dividend payout ratio at 30%, and we have a goal to be consistently buying back shares, and our target is to buy back shares at about 2.5%-3.5% of our outstanding shares being removed out of the market annually. As Hal mentioned, our board just recently supports that with an authorization of an additional $1.5 million of authorization to the program. We would anticipate to maintain a modest leverage ratio to support this capital allocation, and that is supported by a real strong balance sheet, and we've got good, efficient capital returns, and we'll continue to have a commitment to enhancing our shareholder returns.
As far as reinvesting back into the business, over the past four years, we've invested over $1 billion back into the business to fund future growth. We would anticipate continuing to invest back in the business, targeting on average about $250 million-$300 million of capital invested back into the business over the next few years. Now, that number also factors in an additional distribution center in the next few years. So that number could make the year-over-year a little bit choppy, but still anticipating averaging within that range. Our capital expenditure, as you've seen from this graph, is balanced. It's balanced across our new stores and investments in our existing stores, information technology, as Rob mentioned and highlighted, as well as our supply chain. All these investments, we believe, are working well together to continue to drive a strong return on invested capital.
Now just transitioning and wrapping up with our long-term financial targets. We're in year two of our four-year long-term financial goals. We're doing what we said we would do, and we're on track with our program to date. We are targeting net sales in the range of 7%-9% growth annually, albeit at the low end of that range. This is fueled by our solid new store growth plans, as well as us targeting a comp sales growth of 3%+ annually, which does include the comp sales from an online contribution in that number. As Rob showed, we've had good history of solid double-digit comps on online. We're making great progress on our profit improvement plan and our gross margin initiatives. We're controlling what we can control.
All together, those support our overall long-term financial target of growing earnings per share growth in the low double-digit range. As you see from this chart, we've invested in numerous initiatives that support our customer needs and drive sales. Our stores continue to be the foundation of our growth, but additionally, with investing in our core competencies of new, unique, and differentiated products, as well as initiatives that Steve mentioned on Neighbor's Club and our discussion on private label credit card investments, and drivers for sales that Rob mentioned on buy online, pickup in stores, and Stockyard, all contributing to the overall drivers of our comp sales. That gives us the confidence that we've made the right investments and have the right investments in place to drive our targeted goal of 3%+ comp sales over the next few years.
As far as our operating profit margin goals, we're making great progress, as I mentioned, on our initiatives to drive operating margin targets. Last year, we stated that in 2018, it would be a trough year for our operating margins, and that 2019, our operating margins would stabilize to slightly improve, with a goal of driving 10 to 50 basis points of improvement in our operating margin by 2021. We believe through our sales growth, our very aggressive profit improvement plan that's driving a strong productivity culture, and the fact that our investments are plateauing, we believe we're on track to be able to hit our long-term targets.
We've got so many exciting things to support the future growth of Tractor Supply, particularly the things I just mentioned, like our real estate portfolio, what we've learned thus far with our investments and the exciting and encouraging growth in our TSC credit card program, as well as our profit improvement plans. We've got a strong track record of returning our cash to shareholders through dividends and share repurchases, and we're focused on the long term. We're doing what we said we would do. We're committed to returning value to our shareholders, and we believe we have the ability to achieve our top line, our operating profit, and our return on invested capital targets. With that, I am thrilled to be part of the future of Tractor Supply. Thank you for your time this morning.
I'm now going to turn it back over to Hal to wrap us up.
All right. All right, everybody. Everybody stand up for about 10 seconds. Literally, stand up, take a breather for a minute. We're almost to the end. Almost to the end. We know how hard this is. Trust me, our sales meetings, when we're presenting to 3,500 of them in a big room, it's tough on everybody sitting there for how many hours they sit, I don't know, but it's tough. All right, everybody got to take a breather? All right.
18.
Let's talk a little bit about what we heard today. I made a little list of a few things.
Yes, same here.
You're reading more and you're hearing more about culture as an advantage for companies that have a strong culture, and those who don't, it being a disadvantage. We happen to have a very strong culture. That's number one. We have a value-creating model. It's unique. It's different. 12 years ago when I got here, Steve, Kurt, some others, Edna, who's here, taught me a little bit about what this company was. I had to learn this customer, and I'm still learning about this customer, but this model works. It works for many reasons. It's needs-based. We set out in a particular part of the market where many other retailers don't go and won't go. You have to understand these individual localized needs to be successful. We have a healthy customer base. They're still spending money with us.
They did all the way through the last recession as well. One Tractor strategy. Put some really exciting things going on there. What we said we were going to do the last three years, we've done. Rob just set the platform for many more things we're going to be doing as we go now three to four to five years ahead. Strong track record of solid results, and they continue to accelerate. It's not by happenstance. It's by how this thing's designed and how the strategy was put together, and it's a longer-term strategy. It's not for the short term. Yes, we had to make some investments, and some of you probably had a little heartburn when we were making some of those a few years ago, but now they're starting to pay dividends. Cash flow, important thing for any company to generate, and return to shareholders.
Another thing, very important for us between dividend and share buyback. The board was very willing and anxious to say, "Hey, listen, $1.5 billion, it's a good number. We need to have that as part of our playbook as we go forward." Kurt said we're doing what we said we were going to do, and that is very true. We don't overpromise and under-deliver. If anything, we kind of underpromise and over-deliver on many things because we feel that's a better strategy. We brought a number of new things to you today, and I'll give you a little quick of a rundown. Ridgecut. If you haven't seen the product hanging on the two racks, you ought to look at it. It is the next evolution. Moving from C.E. Schmidt, moving to Ridgecut as a brand. We're very proud of that.
I said to Steve last night, talking about Ridgecut, and I was talking to Seth as well, I said, "One of the goals when I came here was to take C.E. Schmidt and try to build it into a program that was high quality, really durable work wear product at 20%-30% below retail." Well, I failed. I couldn't get it done, but they did. They've got it. They've produced it, and it's a wonderful product. Mobile app. Yes, we will have one shortly. We had to have a reason to have a mobile app. Just to have one doesn't mean anything. It has to do something, has to help the customer, and help our team members as well. Mobile POS, pushing it to the entire chain. It's a necessary component so we can support the labor management and the task management tools that we have.
While you're at the store this afternoon, I'm sure John will talk a little bit about the Tractor Way and some of the things that we're doing to run our stores differently. PLCC, we're not adding more discount. We're just making it more competitive and a better option by going to the $5 for every 100. Stockyard, huge win. Stockyard took a little time. We had to get that long tail built out, but now that we have it, Stockyard will be in all of our stores by the end of the year. It is generating, as Steve said, substantial sales in every store that's using it. We're still expanding stores, 80-100 in TSC, 10-15, accelerating more with Petsense as time goes. Neighbor's Club and using artificial intelligence.
This is some really out there stuff, and I'm not going to tell you I'm the expert. Christi and Mike Cooper, Steve, Seth, all of them are much more, I would say, schooled on what this can do and how it can work. Rob and the team have done a great job. It is the future. It is how we're going to have to use information and apply those learnings and that information to how we can take better care of our customers, address their needs, and even anticipate their needs, as you saw in that little video. I'm going to leave it with this. We said we were going to do certain things, and we did it. We're telling you today there's more things that we're going to be doing, and we're going to do that as well. We will execute.
One thing this group is good at is execution. This is a great, strong management team who knows where true north is at. They know the goal. They know where we need to head. As I said before in my earlier comments, being an old baseball player, I played against a lot of teams that had great individual players, but as a team, they were terrible. This is a great team with some very accomplished individual players, but they play well together, and that's what's driving the results. With that, Mary, we want to have our Q&A?
Yes, please.
Okay.
Sounds great. Good deal.
I'm going to take my spot over here at the corner.
All right. Mary and Rachel have the mic.
What's up?
Q&A. Got a lot of hands up here.
Let me move in closer.
Rachel, you want to start right there by you? Please state your name and affiliation for those joining on the webcast.
You want that?
No.
Just pass that down.
Hi. I don't think that mic's on yet.
Thank you. Okay.
Yeah.
Try it again.
Hi, it's Michael Lasser from UBS.
Hi.
Hal, you did a nice job of laying out who your customer is. One factor that's still a bit uncertain is how fast is this market growing, and what have you assumed about that over the next few years, particularly with the uncertainty of the potential for a protracted trade war and recognizing that you don't serve commercial farmers, but that is a driving force of those communities that will be impacted by some of these trade disputes. How have you considered that as you've guided the 3% plus comp growth for the next few years?
Michael, this is how we look at it. There's always going to be something that's going to be affecting our business, good and bad. The trade scenario, whether it is affecting the price of that production farmer who is less than 10% of our mix, how it affects that community, we've seen that before. We've seen that through the recession. I think what you're really asking me is, demographically, can you continue to grow your base of customers knowing that over the last 30 years, there's been some migration from rural into suburban into urban? The answer is yes. Here's why, and I made a few notes of this. The average rate of increase is slower in the rural environment, but it's still increasing. It's just not at the pace of people that were moving into suburbia and into urban.
On the versus to that, the other side, suburbia is creeping into rural. You can see it here, just in Nashville, right outside. We're getting a bit of a transferal of customers both ways, to be honest. Population density, even though it may be moving a little bit more, let's say, on the macro, not the micro. We use a lot of micro statistics. Most of what you're going to see are going to be macro statistics. May say there's still some movement towards suburban and urban. That doesn't mean we still can't grow our business. There is a base of customers out there who need what we sell, and this is about a share of market. Remember, it's not about a small town, it's about the market that we serve. We may serve that small town and maybe several small cities around it.
The backdrop that you're talking about for population growth probably is more of a plus for us when I think about it, because as suburbia creeps, and it is. In years past, Steve and Kurt can tell you this, we used to have this philosophy, "Oh my, we have to have our stores in the rural environment or we can't do business." Well, suburbia's caught a lot of those stores over time, and they still do business, but they do business in different categories at different levels. I think we've faced this for many years. The farm channel in general is healthy. There's a consumer base there that is available to us. For us, it's about a share of gain. Even though possibly, if you look at the micro statistics, it's fairly stable. Macro would say there's some movement back.
I think it works both ways as suburbia catches rural.
All right. Maybe, Valera, you want to start over here? We'll work our way. Here. Yes.
Sorry. Can't have the mic. It's Brian Daigle from Oppenheimer. I have a couple questions.
Yeah.
First off, there was a lot of talk early in the presentation about the local market effort, and the question I have there is: Is this new, or is there an extra push happening now that's making Tractor Supply even better at serving the local communities with? Is that a function of some of the better technology? The second question I had. Let's ask that one first, then I'll follow up.
Okay.
Yeah, I'll respond to that. I would say the answer is yes, I think technology is part of the game changer for us. We're able to look at the analytics, we're able to look at the data, and we're able to make more science-based decisions than we ever have. In addition to that, we still continue to do the market surveys and studies. I could give you multitude of examples of where we've put local products into different regions supported by our nimble supply chain, and we've seen incremental growth, and it truly has been incremental. Whether they be brand, sizes, you name it. I think we're better today than we've ever been, but I would tell you that there's still a long ways to go.
All right. I will see if Brian had a follow-up there since I'm holding onto the mic pretty tight.
The second question I had, with regard to Neighbor's Club, I forget the exact slide, you showed essentially the better performance of your Neighbor's Club's customers versus your non-Neighbor's Club. The question I have is: Is that a function of your best customers signing up for the loyalty program, or are you actually getting a better performance out of those customers once they sign up for the program?
Again, the answer to that question is yes. There's two components to that. One, we do have the higher quality customers that signed up originally because they want to be part of the program, right? Most likely, if you've got a loyalty program that you've signed up for today, it's because you have an interest in that organization or that retailer, for example. In addition to that, now that we've had the program for a couple of years, we actually see a higher percent of traffic coming in in those customers that have been part of that program for 12 months. It's that extra traffic there that's giving us an additional lift, and it's all going back to the personalization efforts that we have in communicating with them on a more regular basis.
Whether it's something new, whether it's something exciting for them, whether it's something more relevant for them, or if it's even something like I talked about with the pet example, we're seeing some incremental sales and traffic from those customers. It's a combination of the two.
Steve, we've got great retention rates on the program as well.
Yeah, over 90% retention rates of the customers that have signed up for one year. It just goes to show you the loyalty to the brand that these customers have that have signed up.
Great. All right. [Valera], you want to go to there?
Hi. Scott Mushkin over at Wolfe Research. I had actually two questions, I wondered if you guys could size the impact of all the initiatives on your comp. I mean, obviously there's a lot going on.
Which initiatives you expect to have the greatest impact to drive comp store sales. I had a follow-up.
Scott, let me start with that question. I think it's a really great question. I've been with the company a long time, one of my favorite sayings was that there's never a silver bullet at Tractor Supply Company to grow to our size. It's a multitude of initiatives, you saw a lot of them laid out here. They all play a different role, some of them, they're not mutually exclusive, some of them play together in concert to drive the overall comp store sales line. If you ask me to prioritize a couple of them, I will tell you that I feel very excited about where we're at with the Neighbor's Club.
One of the things that Christi was talking about wasn't just our ability to talk to the 12 million members we have to get them in more often and gain more share of their wallet, even though they're the key customers that are core to us. It's our ability to change that digital spend.
to something that is now acquiring new customers. We had a pool of money years ago, it was used for traditional marketing, circulars, direct mail. We were canvassing a lot of folks. At that time, that money wasn't as well spent probably as it could've been, that was the way people went to market. Now that we've got this database of our existing customers, we can change our marketing spend by reducing the number of circulars in traditional marketing, reallocate those marketing dollars now for new acquisition, while still communicating in a very cheap and effective manner through email to the existing customers we have. That right there, I think, is what's so transformational about Neighbor's Club.
In addition, when you layer in all the other initiatives that Hal talked about, Kurt talked about, the technology changes we're making to make us better, it's an exciting time here at Tractor Supply Company.
Okay. Rachel, you want to come down front and we can work our way back here?
You had a follow-up.
Okay. Come over here.
Go ahead.
Thank you.
Thanks. Simeon Gutman, Morgan Stanley. I have a two-part question. The first is on margin. About a couple of years ago, it's a classic reinvest versus letting it flow question. You said before this investment period, the margin would get back to somewhere in the 9%-10% range. You're presenting that case. How do you think about that now if sales grow faster? Is maintaining a certain margin rate make sense given the pressure points in retail, or do you let the margins seep up, which was probably the older financial model? Kurt, you presented this base case for profitable growth. What are some of the visible risks, wages, freight? How do you frame those risks to your financial forecast?
Sure. I'll take both of those. I would agree with, I think, what your statement is in that question, in that our focus right now is the latter approach to that. While with strength in comp sales, we have ability today to have better flow through to the bottom line.
That's the way to look at it.
The way we look at it is that with strength in the business, we're going to make sure that we manage that operating margin, but also make sure that we are continuing to fund for future growth, continue to push Tractor Supply forward, make sure we're gaining market share. We'll make sure that funding for future growth, gaining market share, is all part of our decisions of where our operating margin lands, which is why we keep a reasonable range of 9% or 9.4%. In regards to what might be some of the headwinds, how do we see that? We've seen a number of those cost pressures in retail, and we've been able in the last few years to not only address investments in the business, but some of those cost pressures. I think you've hit on what are the most significant ones for us.
We've got a great cost structure. Management team is rigorously looking at it. I would just point to our profit improvement plan initiatives allows us to be more efficient in these very specific key cost areas to allow us to be able to have a good visibility to what we believe the cost is going to be over the next few years.
That's good. All right. Rachel, you want to move right there?
Hi, thanks. Chuck Grom from Gordon Haskett. On the labor management tool that you guys are implementing, just wondering if you could maybe frame out the opportunity for you. Maybe compare an old store to a new store just to size up the opportunity. Kurt, just a clarification question on the sales guide. You said 7%-9%, you said albeit at the low end. I just wanted to make sure that we're understanding the clarification there.
Yeah. We're continuing our long-term target of 7%-9% growth. We're also recognizing, as you look at the projection of new store growth that Hal and I outlined between Tractor Supply and Petsense. Opening 80 stores today on $8 billion of sales is 3%+ growth rate at that point. At $7 billion, that was 3.5% or more. When you factor in an 80 stores plus the ramp on Petsense, we're acknowledging that between new stores and the comp sales, that you're likely right there at the bottom end of that range. As we've said, over time, we have the opportunity to be 80-100 with Tractor Supply, and Hal outlined the growth rate up to 40-50 in Petsense.
That at that point allows us to be able to get within that range, for the next few years, likely to be at the low end of that range.
Chuck, the second question you had, was that regarding distribution centers or stores?
Yeah, stores.
Okay.
In stores. Really what we're talking about with this tool is giving our store managers more science to be able to schedule team members around when customers come in and index the highest. I would tell you that the benefit won't be hours cut. They will be redistribution of hours to better serve. That would be, I think, in our best benefit in doing it that way. I don't see a significant necessarily savings to the bottom line, but I do see a redistribution of hours so that we can give better service to those customers when they come in.
The anticipation is we'll drive higher sales.
Yeah.
A good way, Chuck Grom, of wrapping all of that up. I walked through the store productivity initiatives in there. As we roll out the process re-engineering, this is like a package to the stores. When they get on the program, the processes are re-engineered. They're then utilizing the labor scheduling, the task management, other tools. As we roll out that to the stores, with the rollout becomes the benefit from that, all of which allows us to redeploy into selling.
All right. Great. Valaire, we'll take one from your side of the room.
Yeah. Hi. Oliver Wintermantel from Evercore ISI. This is probably more for Kurt. For each point of comp, what should we expect the operating margin leverage to be today, and how would that compare to maybe three to five years ago?
Sure. I'd just say two things in there. To my earlier point, we're going to manage wisely how we reinvest for the future. When you speak to operating margin, of course, that can have variations with the gross margin rate. I would just tell you that today, in the next few years, with what we've done with investing in the business in the past few years and those investments plateauing and a lot of the fixed costs that have impacted the business in the past at a higher rate, it gives us a better chance or a better opportunity to flow through. We don't want to go ahead and predict on a basis point how much growth over that, because we're going to wisely make sure that we continue to aggressively gain market share and give Tractor Supply the right funding for future growth.
Great. Rachel, you want to go on your side now and bounce over here?
Oh, hey, guys. Peter Benedict at Baird. My question's on Neighbor's Club and the data that you're getting from that. How is that helping maybe inform the direction of where you're going to go with merchandising, maybe adjacent categories? Are you learning anything about that? Also in terms of the customer base, you said you're bringing in new customers. Are there other, let's call it business-related customers, that you're starting to see? I'm just trying to understand where Tractor Supply can go the next several years from a categories perspective, but also maybe some different customers you might target.
Sure. Let me start that question off with how we're using the data relative to merchandising. When you can get a 360 view of that customer, whether it be online, whether it be in store, how often they come in. If they only buy one select product type but don't opt to shop around the store, and we have their email address, it's a powerful tool. It's a tool that allows us to cross-sell, to upsell, to get them to the other side of the store. It's amazing how many customers that we find that only go to one half of our store. They go in and they go out, but they don't make it around. The tool itself is allowing us now to really send that personalized communication about things that we think they may have an interest in.
That's where you get into the artificial intelligence, some of the machine learning that would suggest that if a customer buys this, they are highly likely to engage in this category over here. We're starting to use that technology now to get them around the store. While at the same time providing that feedback back to Seth and his team to better understand maybe there's an opportunity or a gap in our assortment that we need to fill out. That's happened on several different occasions. In terms of new customers to the fold. This is probably, for me, a really exciting area because our focus is around the core, and we believe if you focus on the core, others want to be part of the party.
You don't want to dilute the brand that's taken us 81 years to grow by trying to chase customers that aren't that relevant to the lifestyle. However, there are a lot of customers out there that have an interest in the lifestyle, but they don't want to walk through a Tractor Supply Company store for the first time because they don't know what scary thing is on the other side of that door when they walk into the building. Their first exposure is through the website. You can do that at home. You can do that through a lot of the marketing that we're doing and branding on Facebook so that they can walk their way into our site sideways.
It's the work that Rob and his team are doing to really exploit that lifestyle on the homepage and tell these folks that have an interest but have never come in just what all the lifestyle's about and the fact that we're more than just selling livestock feed to customers. If you look at the number of folks that are coming into our site, the number of folks that are clicking on store locator, it's very exciting because we believe this is probably the next real frontier for us to bring new people into the tent while still maintaining the core of our customer base that is so critically important to us.
Great. Before we go much further, we had a clarifying question that came in that we didn't get to because I saved it for you, Rob, and it was really around the mobile POS. Is this a change from the 700 store plan outlined on the Q1 call? Maybe you could give an update on that just to clarify, Rob, if you would.
Yeah. Originally, as we planned our mobile rollout strategy, we thought it would be over a two-year period. Because of the successes that we've seen, the positive feedback from our team members as well as our customers, increased satisfaction, and just the tools to make their job more productive, which aligns beautifully what John and Kurt was referencing around the store productivity. We've decided to move forward before the holiday season. Those monies are built into that $80 million to $90 million run rate that I mentioned. We planned for some contingencies in the way if we wanted to grow and go a little quicker. Stockyard was always planned.
That's great. Thank you very much. Rachel, you want to take a question on that side over here? He's got one.
There it goes.
Great. Thanks. Liz Suzuki, Bank of America. A couple questions on customer service. One of the services that other retailers have had some success with is these drive-in parking areas where you can have your order brought out to you. Is that something that you've explored at all? Second is, Rob, you had mentioned that when a customer enters a store, an associate would be able to greet them by name and see if they had product that was left in their cart. How do you navigate the balance between customer service and what could be perceived as invasion of privacy? How have your customers talked to you in surveys or any kind of focus groups that you've done?
Great. I'll start off and then other folks could add to it. In regards to curbside, we are testing in a handful of our stores. One of the things that Steve referenced, I talked a little bit about it, is we're trying different fulfillment options, anywhere from deliver from store to delivering from different DCs to Buy Online, Pick-up in Store is a key part of our strategy, but also the ability for curbside pickup. It's in a low percentage right now. Adoption rate really varies based upon the type of product or the location of the store. Going back to our test and learn philosophy and how much it's a part of our culture, we're leveraging metrics to really drive where we deploy it and where it makes sense.
Longer term, I see that we'll have some expansion, but maybe with a different twist to it. When it comes to talking about privacy and crossing that line, the video that you saw as well as looking at greeting the customer by name. One of the powers and what you've heard about Tractor throughout today was the differentiation of the relationship with that customer. You walk into our store, it's not uncommon for the team members to know our customers very well as vice versa, what's going on their property, with their family members, with their animals. What we want to do is to make it an ease for that team member to really understand what's their shopping experience or their needs as they're entering the store. Our initial thinking right now is they'll have the ability to opt in for those type of services.
For a reference, I showed on the slide, BOPIS 3.0, and think about that as a collection of new capabilities that just enhance our Buy Online, Pick-up In Store program. It is key to the strategy that we have in place because we know our customers love coming to the store. They want that expertise. They like the theater. They want that interaction. How do we allow them to opt in and tell us, "Hey, I'm on my way. I'll be there in 10 minutes." Geo-track that they're within a mile of the store. It's going to be a combination of the customer saying it's okay, as well as us using different data tools, AI, et cetera, to drive that interaction.
Great. Thank you. Valera will come down front. Kind of start and we'll try to work back as much as we can.
Hi, it's Peter Keith, Piper Sandler. Just wanted to talk a little bit on the competitive environment. We know you guys operate in a very unique niche. My conversations with investors, there's a lot of concern around branded pet food and the home delivery aspect of that. I think you guys have a plan in place, but I was wondering if you could articulate how you defend against what some view as an impending competitive threat over time.
That's a good question. There's a lot of changing dynamics right now in that industry and has been for some time. One of the things I can say at Tractor Supply is that we've always been very focused as an organization on differentiation. When I first joined the company, I was told by our CEO, Joe Scarlett, "Look, for us to be successful, we don't want to play in the same sandbox as The Home Depot or a Lowe's. We need to build out products that are differentiated to give customers a reason to come to us." I would say that you could take that same philosophy and apply that to a lot of our pet food line today.
Years ago, we saw the value in developing exclusive brands, we've been very vocal about the fact that a big portion of our portfolio of pet today resides in the brands such as 4health, Untamed, and Retriever. 70% of the brands that we carry in our store today will not be found in grocery or mass. In addition, you heard us talk a lot about services and how we're bringing new customers in relative to the wellness of PetVet clinics that are mobile, or it may be the self-pet washes where our customers see great value. The way we're operating today is we've got pricing tools that let us know what's happening out there. We've got a pretty solid program around how we're going to build out our portfolio of branded product that is differentiated. While we offer today subscription, we don't push it.
It's a test and learn for Tractor Supply Company. We're trying to understand more about our customer and what they want from us. While it's a very small percentage of our total e-commerce sales, it's really giving us more insight now into what our customer's doing relative to their engagement and interest in delivery. There's a variety of things we've got going on right now. We're still in a very good place. We've got a very good portfolio of grocery to premium to branded to exclusive brands, and we're going to continue to build out where we can differentiate and where we can win.
Great. Maybe we can have time for one more question. Valera, I'll go over there to you. We've hit the top of the hour, and we've got a tight time schedule, I want to keep us on time. Brad, if you'll bring us home.
Thank you. Brad Thomas with KeyBanc. A lot of exciting things that you have going on here. I guess I'll tie it back to the technology spend and margins. Again, clearly a lot of energy you have on the fire. Feels like a nice ROI you're getting on a lot of these investments. Could you just speak a little bit more to that confidence that you have that we're going to be seeing plateauing investments, particularly given the competitive landscape-
New stars
the move of large retailers to go to next day delivery.
Sure
et cetera. Thank you.
Yeah. Going back to my slide, I showed over the last two or three years where our capital has somewhat plateaued, pretty much stayed within that $80 million to $90 million range. The first few years, a lot of our focus was bringing us up on par, investing in systems that were under-invested in over the last few years. Also driving efficiency with our OpEx and just within IT, how we became more efficient, smarter with our vendor management, our cost structure. We're in a good spot here. We feel confident with our systems. We have best in class or strong partnerships with other providers. We think smart about where we're building versus buying, et cetera. As I referenced, we still believe that's the right number. There's amount of change that an organization could take on.
There's a lot of learnings around with our customer base. Also in many cases, we don't want to be the leader, but a fast follower is great. In certain areas, we might want to be the leader. We talk about where do we want to make those investments, et cetera. What you'll see going into 2020, our capital focus will shift more into the level of innovation and how do we drive enhanced capabilities around that customer experience. You'll see us put more emphasis on automation to drive profitability that we could invest back into the business. We have a defined governance model. We have a good plan in place of how we allocate.
I'll just leave with the note of one of the things that I think makes Tractor very unique and working from other companies even that I've seen here at Tractor, is as a leadership team, we're engaged about the priorities. We will talk about the priorities, and if an opportunity exists that we want to accelerate, like mobile point of sale, we'll have those discussions. If something's not quite working and we're still figuring out, we'll pull back and we'll think about those investments. We're very careful to think about the balance, but there's a high degree, at least for right now, that we're confident that we're plateauing at the technology rate that we're in.
All right. Thank you all very much. Let's go wrap up our formal presentations and Q&A session. I do want to say a special thank you to Mary Ann, McKenzie, and Lindsay for all their efforts to help pull this off today. Thank you all. I'd also like to thank the store operations team, the marketing team, and the merchants all for their help with the product demos and the upcoming store tour. That will conclude our formal