No. 2 February 2007

When retailers get really big and sales begin to level, they go off into new directions or they eventually disappear or even become irrelevant. Wal-Mart discovered groceries. Home Depot created HD Supply by buying up industrial distributors who sell to industrial and commercial builders. Today, HD Supply is a $12-billion business - 13 percent of Home Depot's total revenue - and this past third quarter, was 90 percent of Home Depot's growth. Apparently, even when you disdain doing business with distributors, it's okay to become one. Oh, the irony of it all...

Wonder if Home Depot noticed that the margins for HD Supply are just a "bit lower" than for its retail business? The shareholders certainly have.

Have you noticed an item in our industry that's becoming disposable? Good for you! You are paying attention! So how do you feel about it? Probably like I do - all kinds of mixed emotions. Just like the low-costs, disposable razor, low-cost lawn mowers, trimmers and even chain saws are making it economically logical for consumers to throw them away when they're "used up" rather than pay to have them serviced and restored to a "like-new" condition. What is the effect of this trend on our industry? We can be assured of fewer parts sales and fewer service opportunities. And more and more low-cost products will continue to be sold, and the cycle will continue. So, if we agree on these conclusions about the increasing availability of disposable equipment, what should you and I be doing differently in our businesses in response, if anything? Tell me what your think.

The U.S. unemployment rate for December 2006 remained unchanged at 4.5 percent. In 2006, payroll employment increased by 1.8 million, or an average of 153,000 per month. Meanwhile, service jobs kept increasing, while the number of manufacturing jobs continued to trend down. No surprises here.

Speaking of Home Depot, its innovation center in Atlanta still has lawn equipment in it. Thus, you could surmise that Home Depot's future still includes selling outdoor power equipment. But what about service?

Today, Home Depot's equipment sales have created enough service business for both Altaquip and independent service centers. There was speculation at one time that Home Depot might include OPE service in its in-store tool rental sections. But I wouldn't bet on that happening. Why not? My opinion is that whenever a mass merchant rationalized other reasons for having in-store service and put it in place, it discovered that at the end of the day those reasons were simply not as compelling and important as revenue and profit derived from its real business - retailing.

Big or small, multiple-store retailers have a huge impact on our industry, our country and our lives. I think that it's important to know what they're doing, how they're doing it, and how they are changing their business models, because I believe that it will most certainly affect our businesses and our lives sooner than later. And we can learn a lot from them, both good and bad.

If you are the only person left in North America who still hasn't read "The World is Flat - A Brief History of the Twenty-First Century" by Thomas L. Friedman and you want to understand why it seems like any business news we read or discuss has global implication, read this book - as soon as you finish Jim Collins' two books mentioned last month. This book is a great read and deserves your attention because today, the world is truly "connected" and "flat." And we are all affected whether we want to be or not.

Friedman also writes a foreign affairs column for The New York Times, and it is a weekly must read if you want a clear understanding and logical solutions for what's going on around us in the world. You can find his columns on the Internet.

No. 1 January 2007

I think it's service school season again. I know it always precedes and follows Christmas, and generally lasts at least 11 months, or so it seems. Know the difference between teaching and learning? Teaching is conveying information. Learning requires some kind of engagement of the students while they are receiving the information - understanding it, if you will. Some teachers think, "If I taught you this, then you must have learned it." But that never works. Teach students to understand, not merely to pass a test, and the proof will always be if they can teach it back. That being said, thank goodness this industry is blessed with some terrific trainers and teachers who really care about whether you understand what they're teaching.

Here are a couple of facts that you might not know about your customers from the book "Satisfaction - How Every Great Company Listens to the Voices of its Customers" by Denove and Power:
(1) Customers who run into problems but whose problems are handled swiftly and politely actually wind up being more loyal than customers who never encounter a problem.
(2) Exceeding your customers' expectations matters much more than performing at a consistently high or even an extremely high level.

2006 has to be the most unusual year that I've ever seen in the OPE (Outdoor Power Equipment) industry. But wait a minute, sow was 1996. And come to think of it, so was 1992 and 1987 and 2003 and 1984 and 1971 and ...

Jim Collins wrote two of the best business books of all time, "Good to Great" and "Built to Last." If you haven't read both of them, stop what you're doing and read them NOW! They are that good and quite readable. And both will forever change how you think about and run your business.

"People are not your most important asset. The right people are." -- Jim Collins, "Good to Great"

Tecumseh finally released its third-quarter financials. The company has been having a rough time in all three of its business segments: compressor products for HVAC, electrical components, and especially in its engine and power train products. Tecumseh brought in AlixPartners in August 2005 to help turn around the engine division. Now, with the guidance of AlixPartners and with the hard work of Tecumseh management and employees, it appears that the engine division is now stabilized and better days lie ahead in 2007. It's still not getting any easier for most engine manufacturers. Lack of hurricanes in 2006 depressed generator sales, and lack of snow and customer aggressive inventory management policies this winter has depressed snowthrower sales. One important sign for Tecumseh in 2007 will be how much snowthrower engine market share it can retain against other domestic and import engine manufacturers' renewed interest in that engine category. We know many good people at Tecumseh, and we wish them much success as they continue their journey into better times.

Recently, I've been thinking about LESCO and the effects it felt when it eliminated and later reinstated its direct sales force. Not only did direct sales decline, as LESCO expected, when it eliminated its sales force, but same-store sales declined too, which was unexpected. LESCO very quickly re-established its direct sales force. How important are the relationships between your direct sales force and your customers? What would the impact be on your business if you eliminated your direct sales force and the relationships it had with your customers. LESCO discovered the hard way that it was a whole lot more important than it thought.