A Conversation With Michael DiMino

This has already been a busy year for LESCO, the $500-million distributor that sells more lawn care supplies to professionals than any other company in the industry.

When Bill Foley parted with the company after nine years as president, Michael DiMino took over. DiMino has only been with the company since December, but that hasn’t stopped him from developing ideas about what changes the company needs to make. He spent a couple of hours on a June afternoon walking through a LESCO service center with Lawn & Landscape Editor Bob West talking about LESCO’s future.

L&L: What are your thoughts about the lawn and landscape industry thus far?

MD: I’ve seen a lot of hardworking people and customers who need to get their clients taken care of, so they depend on us. We have to be in the business of being there for them at the right time with the right stuff, and I think that in the past we haven’t been as good at that as we can be. When they come in the drive-thru they want to be able to pick it up and be on their way. If we tell them, ‘Gee, we have it, but we don’t have it this minute,’ that’s not as convenient. Also, is our product selection right? We’re getting better at that, and this year has been good for us so far. We had one of our biggest months ever in April because the right product was available at the right time.

Our convenience is big. That’s what I’ve learned. We’re necessary. We’re part of the supply chain, and if we don’t do a good job, it’s not good for them.
But I have found that, for the most part, LESCO is pretty straightforward. I think the business has been reported as complex, but I don’t think it’s all that complex. I think we’re a service and distribution business, and we’ve got a lot of products and logistics that makes it complex, but that’s what technology is for. Technology keeps you organized and lets you see the information that you need to make decisions.

But our depth and breadth of experience both at our headquarters and in the field is excellent. It’s their knowledge and the directness that I get from them, and it doesn’t vary, so I guess there are some basics to what we do. Every once in awhile we run into problems, like the clopyralid situation where we know we’re going to have to do something as that product may become more difficult to acquire and use in our formulations, so what are we going to do? We’ve had conversations about that, and we’ve got ideas and directions. So it doesn’t appear to me that there are questions that stump us right now. With the experience in the business, we can get a solution.

L&L: Do you see LESCO as a service business in that respect?

MD: Yes, very much so. What we are in the manufacturing side is someone who adds value through process, and that gives us a competitive advantage of vertical integration, which allows us to control our direction through product selection and development, but service is important as well.

The convenience of this concept – the 227 stores or the 77 Stores-on-Wheels – is really one of the main reasons why the customers buy from us. We’re there. We’re close by. They don’t have to stock a lot of stuff. And we’re close enough that stopping by to pick up stuff before taking care of their customers is part of their day.

But if the product isn’t here or our employees aren’t as knowledgeable as they should be, then we give up something. That expertise for the experts is a big part of what we do. It’s huge.

L&L: What made LESCO so successful?

MD: The founding fathers – Jim FitzGibbons and Bob Burkhardt – definitely had a customer-centric focus. We need to polish our service so that not only are we providing expertise, such as how to control the insects, diseases and weeds, but we’re also providing service for these customers with things they don’t want to do or can’t afford to do. Those two founders were all about service – getting things to the customer, reacting quickly, having a sense of urgency. Those are the things that LESCO is doing very well and is in a position to do far better than anyone else.

L&L: What are the biggest challenges facing the distribution side of the industry today?

MD: The issue ties to service and logistics. Unfortunately, this is not easy product to move because it’s heavy – 50-pound bags, on skids, a ton at a time. So you don’t want to move it several times. One of our key challenges is to get more of our working inventory into the stores as quickly or as timely as possible to solve that surge issue.

Also, it’s about planning for the inventory so we have the right stock-keeping unit on the shelf at the right time, and we need to do a better job at that. We have all kinds of factors: weather, sales, different areas of the country move things differently. So we’ve invested in a piece of software called GAINS that has 34 different algorithms that help keep track of the rate of sale of each stock-keeping unit at every location. That helps us predict the future better. That’s what we’re using to bring the product to these locations before they ask for it.

One of the issues with these stores is that they can sell out of a critical item faster than we can restock them. That’s one reason for what I’ve termed our new hub-and-spoke strategy. The centers would be the spokes, and the hub enables us to resupply all centers within one day’s drive.

L&L: You keep coming back to your concerns about not serving customers well enough. How do you think your customers perceive LESCO?

MD: I’ve been told by many of our employees that we beat ourselves up a little bit. I know from talking to our customers that they have very high marks for us and our people. Our relationships are excellent. Customers trust the value of the information they receive and the quality of the product. We have an excellent relationship with them based on 40 years of being here.

But, for instance, our hub-and-spoke plan could improve our service so that when the customer needs something it’s available the first time instead of having to wait a day and coming back. Our point-of-sale system at all of our centers could be refined to provide more information about the customer’s account, letting them interact more with what money they owe us or their programs since we try to prescribe what products theyshould use. That way we could make the transaction smoother and a little faster while also making it a little less costly for us and the customer.

We want to go real time, acknowledge that sale, relieve the inventory, charge the customer instantaneously. That will give us better transactions, and the customer will benefit. They want to know, ‘What did I buy last time?’ Right now, answering that is a little more painful than it will be next year when our new systems or enhanced versions roll out.

We’re also going to roll out some Internet capabilities for our customers so they can look at their programs, their recent purchases, products they might want to purchase, and even call them forward so that the products are ready and staged. That way, if the order is placed at 11 at night we’ve got everything ready the next morning when he pulls in. We might also put a kiosk here in the stores where they can help themselves and get information about different products, analyses, product recommendations and so forth. We need to use that sort of technology better because we have all of the information but we don’t use it as readily as we could.

When we’re done with that, we’ll have leapfrogged the competition, especially the regional players who don’t have the financial commitment to these systems to be able to give the customer that sort of feedback.

L&L:  Obviously, a big part of LESCO is the 227 stores, and that was a key feature of Bill Foley’s plan. What do you see as the strengths and weaknesses of that approach?

MD: For whatever reasons, we focused a lot on manufacturing and invested a lot in manufacturing, and the rationale was right because it was to help control the quality to the customer. And I think we’ve done that because we’ve got good products with consistent quality. But there was a lot of investment in manufacturing and not store growth.

I know there have been a lot of numbers thrown out in terms of how many stores we should have, but we should definitely be adding stores. When you look at some of our very successful areas, like Florida, where we have stores every 7 to 10 miles and a total of 48 stores in the state, we are definitely doing much better from a sales growth standpoint. And that’s because the stores are conveniently located.

Now, there are so many places in the United States where we could be adding stores. And adding stores is the way we’ll continue to grow and provide more service to customers instead of overemphasizing the manufacturing investment.
What’s the exact number of stores we’ll have? I don’t think we know, but we look at these models where we’ve been successful and density has really helped, and we want to keep doing that along with the hubs.

The hubs, remember, will be superstores – buildings between 75,000 and 100,000 square feet, with a store in them  –  compared to our stores now, which are 5,000 to 7,500 square feet.

But getting back to adding stores, different areas offer different challenges. California is an area where we don’t have a lot of stores, but it’s a different area. There’s obviously less grass than on the East Coast and fewer traditional lawn care settings. We’d also have to be more involved in irrigation, pest control and other types of materials that help contractors do their job. But I think we’re experts at that. It’s just a matter of doing the research, identifying the right stuff and carrying it.

L&L:  That begs the question, what’s the future of Commercial Turf Products (CTP)?

MD: Obviously, we need to continue to source, make and sell power equipment. We do a tremendous job on our spreaders and application equipment, which is really one of the crown jewels of LESCO. Anyone who is serious about applying fertilizer has a LESCO spreader because of its accuracy, quality and overall reliability.

Joint ventures are always difficult because you’ve got two partners and you’re trying to manage a variety of interests and situations. We’re investigating all of our assets and associations in terms of return on invested capital, and if we see that the relationship doesn’t make sense in that perspective, then it’s my job to make sure that we improve that relationship. But the equipment works well and it sells well, and we need to continue to support that.

L&L:  When you look at the dollar volume represented by power equipment sales and service, does LESCO have more of a future in power equipment than what we’ve seen traditionally?

MD:  I don’t have a good answer to that relative to data or a study because we haven’t done that yet. But I do believe that there are many ways for us to carry equipment. We provide a service and convenience in that the operator can see the equipment we have on a daily basis. Maybe we should have other vendors’ equipment in here that we could represent and let them service it. So there are a lot of opportunities with equipment. We’ve been very successful with our relationship with Kawasaki, for example. Should we carry other people’s equipment as well? Possibly.

L&L:  Looking at what is happening with the slipping number of power equipment dealers, is there a fit for LESCO as a servicing dealer with all of its locations?

L&L:  Believe me, I’ve been approached by numerous “iron” people to have some of our soft goods show up on their side, which have led to some interesting conversations. So part of the strategy is to have real product depth on each side because that’s what the customer wants. The customer wants to walk in and see what’s new, what’s different.

L&L:  The number of LESCO service centers has slid back somewhat in recent years. Do more stores need to close?

MD:  We have developed our best practices now, and this wasn’t a big focus before. Now we’ve got a much more operational and return-on-invested-capital strategy. The concept is that we studied the profit-and-loss statements for all of the stores, and what we found is that certain mixes of product lead to real profitability. There are certain ratios of personnel-to-sales we want to hit, and inventory turns. So the better the local manager is, the better the return is on the store – and that hasn’t been a focus. We’ve made that a focus.
There’s a very small number of stores where we need to focus on those attributes. We need to force management disciplines to get everyone striding in the right direction.

In addition, we’re going to add a vast number of outside sales professionals. So, instead of the person waking up in the morning, coming to work at the service center and waiting for the customer to come here, we’ll have a group of people assigned to three or four stores and they’ll go talk to the customer at their place of business, and I think that’s going to have a huge impact on our ability to grow. They will be responsible for driving footsteps into the stores.

L&L:  How has the feedback been from the investment community?

MD:  We’re happy that the stock has come back from the $6 range to the $11.50 range. We think that our story is resonating well with our shareholders, our employees and our customers because they’re hearing us focus on the values that are important – increased shareholder value, increased customer service, etc.

I like explaining the plan to investors, and they seem to think that the hub-and-spoke model is going to work. We also talk a lot in those presentations that salespeople need to sell and servicepeople need to service. We may have muddied that up a little bit in that salespeople are servicing and vice versa. We need to clear that up to get more growth with salespeople selling instead of receiving product, doing inventory or other things that aren’t part of the sales process.

L&L: Where is the same-store sales growth going to come from?

MD:  Our numbers show that lawn care is growing as an industry and that we keep getting share, so both of those lines are parallel and growing. Lawn care as it relates to golf is definitely growing this year, and we haven’t added any stores since 1997. So we’re definitely showing that by focusing on management issues and by having more discipline towards roles, we can get the organic growth by having the right product, having it on the shelf at the right time, being able to handle the surges when the weather is right.

So the things we’ve already done with the new software and the focus on salespeople selling and service people servicing has helped us to grow same-store sales close to our target range of 5 to 6 percent.

L&L: When will you add new stores?

MD:  We’re looking at next year. We want to get hub and spoke in place first. Our first hub store will be here in Cleveland because it’s in our backyard, it’s an existing building we’re retrofitting, and then we have to tie the stores into the hub. Right now, this store doesn’t have any real relationship with that store.
That area will tie into a zone vice president, who will be responsible for the sales of lawn care and golf for both the hub and the spokes in a particular area, and that’s a job that didn’t exist before. That person in each of our five zones is the person who will go after the regional competitors to make us more competitive in those regions.

L&L:  How are you learning about the lawn and landscape industry?

MD:  First of all, I’ve traveled a lot and spent a lot of time with customers. But I really learn from our employees, who are a wealth of knowledge. We have something we call workout sessions, and a workout session is the only time I’ll allow non-data discussions because I like to make decisions with data.
For a workout session we pick a topic, such as the need for our product line to grow in certain directions, everyone gets together and everyone has an opinion. There are no bad ideas, and we sit there for a couple of hours kicking around all sort of ideas.

Believe me, the quality of those discussions is unbelievable. The quality of the knowledge in a room at LESCO, whether it’s about product, customers or service, is amazing. We have these meetings after hours and we get some pizza, and we come out of those meetings with some nuggets of ideas. We assign people to go get more data to back up theories. I’ve learned a lot in those sessions, and we’ve had one almost every week because it’s also a team building operation.

L&L: What’s your vision for this company five years from now?

MD:  I think that we can easily grow well beyond the rate that we’ve been growing. I see a number out there, I don’t know if I want to say it, but there’s no reason we can’t penetrate twice our size. I really believe that. We need to add density and fill in the store locations. Having the hubs will accentuate our service, and I think it will be very hard not to do business with LESCO. It will be painful not to do business with LESCO because we’ll have the convenience, we’ll have the service and we’ll have the product priced at the right points.

We’ve got a quality brand and quality products, so I really see us being a larger provider to our professional brand and, hopefully, also using the service centers for other products. If you let your mind run free for a little bit, there’s a variety of professionals that this location, this setting and this convenience is good for. You could range a variety of products that aren’t in the green industry but that our employees could easily represent on the professional side – everything from janitorial supplies to other issues.

Again, that word professional is very important. I want to continue that brand and see LESCO continue being successful as the professional’s choice for lawn care, landscape, golf, pest control and maybe other types of professionals.

The author is Editor of Lawn & Landscape magazine and can be reached via email at bwest@lawnandlandscape.com.