New LESCO Leaders Talk About Changes

CLEVELAND, OHIO – Bill Foley had grand plans for LESCO, and the truth is that he led the company to a powerful position as the leading supplier of landscape products and supplies with nearly 230 locations to go along with its 77 Stores-on-Wheels serving the golf course market. Since Foley joined the company as its president in 1993, sales more than tripled.

In the end, however, those grand plans may have ultimately led to Foley’s resignation from the company, which came Wednesday evening after the company’s board of directors approached him to discuss management changes. In addition to a vision that included 600 service centers around the country by 2002, Foley also saw tremendous potential in the idea of vertical integration so that LESCO built or produced many of the products it sold. In some cases, like the popular Novex fertilizer LESCO introduced for the golf course market, this plan succeeded. In others, such as LESCO’s joint venture with MTD Products to manufacture commercial mowers, the plan failed.

Ultimately, it wasn’t the caliber of the products that concerned LESCO’s board of directors, but it was what these deals meant for the company’s vision and strategic direction that apparently bothered the board, not to mention the sagging stock price. Michael DiMino, who was promoted to president and chief executive officer to replace Foley, told The Cleveland Plain Dealer that the company needs to maintain its focus on marketing and distribution instead of manufacturing in the future.

“The basics there are that it’s important for us to do an excellent job servicing our customers at the service centers as well as the Stores-on-Wheels,” related DiMino on a conference call with investors and the media Friday morning. “When Jim FitzGibbon and Bob Burkhardt began the company, the focused on all of the transactions to make sure the customer had an excellent experience. We may have veered a little bit from that.”

DiMino was also clear about the fact that the company had management challenges. “We had some financial issues that I think just simply relate to discipline,” he remarked. “We need to refresh our thinking and our strategic direction and our capital spending and overall expense control based on making sure the customer has an excellent experience with LESCO.
“I’m a detail person and I like seeing the numbers,” he continued. “If you ask anyone in this organization, you’ll know that we’re looking at things and measuring things that haven’t been measured before, which is excellent. We’re looking at them on a day-to-day basis so that as soon as the train gets a little bit out of track we know it.”

If DiMino successfully implements his vision for the company, lawn care and landscape professionals should benefit, as well as the firm’s shareholders. “We think that when we improve store operations and sales personnel’s ability to sell and service and present agronomic expertise instead of babysitting orders and chasing down things that just aren’t efficient for them, that we’ll begin to release the value that’s inherent in the model,” he predicted.

When asked by an investor about how the company’s profitability would be impacted if LESCO no longer made its own products, DiMino’s response illustrated his questions about Foley’s vertical integration strategy. “There are other ways to be profitably supplying the marketplace with both fertilizer and equipment product lines without manufacturing,” he observed. “The fertilizer side is profitable – it’s one of our meat-and-potatoes areas. On the equipment side with our joint venture (with MTD), it could be more profitable but the whole strategic decision on equipment is a tough one. But both of those could be sourced from other folks and sell them through our distribution network.”

Whether Foley’s strategies were right or wrong, the company’s sagging stock price and losses in 2001 ultimately sealed his fate. The stock has fallen from a high of $25 a share in late 1997 to a low of $6.10 a share last December. Investors seem pleased by these management changes, however, driving shares up 15 percent the morning after the announcement. 

“As everyone knows, our company’s financial performance and stock performance have not been acceptable over last couple of years,” added Marty Erbaugh, the former Barefoot Grass and Davey Tree employee who took Foley’s position as chairman of the board. “As a response, the board of directors, including Bill Foley, began a national search to fill new position of president and COO. We filled that position in December with the hiring of Michael DiMino.

“Michael has been a very quick study and quickly learned the business,” continued Erbaugh. “The board was particularly impressed with Michael’s ideas relative to organic sales growth and expense and capital disciplines. The board continued to discuss the executive leadership of the company and agreed on Wed that additional changes were necessary. We met with Bill Foley, and Bill decided to resign. The board unanimously decided to promote Michael to the position of CEO. Michael now has full authority over the operational and strategic decision making functions of the company.  The entire board is confident in Michael’s ability to return LESCO to the growth and profitability that our company can and should be achieving.”

DiMino declined to discuss specific financial projections for the company, but he said that information will be shared during a meeting with investors on Tuesday in New York. (Information about participating in the meeting via conference call or online simulcast will be available at LESCO’s Web site.)

DiMino did shed some light on how he thinks LESCO needs to approach its extensive distribution network, however. “We’ve got serious issues relative to the distribution channel and the way it was set up,” he acknowledged, adding that he recently hired a logistics veteran from The Gap to oversee distribution. “We do a lot of things from almost a make-to-order basis and we stockpile product at our factories or manufacturing sites instead of moving it out on a build plan and getting it out into the marketplace – that’s going to be one of the key attributes of our moving forward plan.”

Despite the challenges the company has had, DiMino is confident that LESCO maintains a key role in landscape contractor’s businesses. “Our people are still heavily relied upon by the landscape operator for their agronomic knowledge,” he related. “Also, based on the way we set up customers relative to giving them credit, we put a lot of folks in business and help keep them in business. Our relationship with our customers is excellent, but in today’s day and age of technology things need to move quicker through our entire supply chain. We have tremendous systems but they’re not fully implemented and turned on, and we need to look at that so the customer’s experience is relatively flawless. That’s where we’re going with this.”

In addition, DiMino expects LESCO to add new service centers, although he won’t say how many or when they’ll be added. “We’ve now started studying what type of market demographics are needed for the stores to be successful,” he explained. “When you look at that, there are areas in the United States where we should have more stores, so the count will go up.

“There’s also a tremendous amount of same-store sales to be increased, and we have yet to unlock that aspect of the model, so we’re going to look at that and that’s what we’re going to drive on for the remainder of this year and into next year,” he added. “And then we’ll start applying our strategic vision as to where the new stores need to go.”

Interestingly, the addition of new stores may be accompanied by what DiMino referred to as “superstores.” “We’re looking at something that we’re calling a superstore, which is the combination of large store along with a distribution capacity in market,” he related. “What this will do is allow us to be more of a competitor with the regional players because we’ll have more space in a specific market and thus do some of the things that the smaller, regional players do and they might be able to do in a way that we can’t because we’ve got longer distances to travel. Now we’ll shorten those distances and we’ll put things in market.”

The author is Editor of Lawn & Landscape magazine.