LESCO Unveils Growth Plans

A Closer Look at LESCO

For more information about recent happenings at LESCO, check the following links: Breaking News: A New Day at LESCO - 05-14-02 A Conversation With Michael Dimino - 07-15-02 LESCO Changes for the Future - 11-04-02

Last year was probably a year most LESCO employees hope to never relive. The CEO was ousted, and most of the senior management team was turned over. Profits were hard to come by. Dozens of new employees were hired. Rumors about the company’s future swirled.

Well, the new man in charge, Michael DiMino, spent 2002 studying the company he took over nearly a year ago along with the industry it served. Now, he and his team have their plan for the future, which he introduced to investors during a conference call on Feb. 25.

The heart of the plan calls for a return to expansion mode with as many as two dozen new service centers opening in 2003, some as soon as April. And he doesn’t want to see the new store openings stop any time soon.

“In order to maximize the long-term value inherent in the LESCO model, we have to open additional service centers,” DiMino maintained, noting that the company’s analysis illustrates that the market can support more than 500 new stores to go along with the 227 LESCO currently operates. “We should always have a group of stores entering their third year of operation. In the third year, stores become profitable and defray the costs of additional new stores. Unfortunately, LESCO has not opened new stores since 1998, and for the next two years we will have to pay for store openings through the sacrifice of short-term earnings.”

The first new service center opened in Haverill, Mass., on April 2, and DiMino confirmed that LESCO has already signed 17 leases for new locations that will open this year, although he would not identify any additional locations at this point.

“It’s no secret we can grow in the South and West,” he observed. “Plus, there are plenty of opportunities for us to get more market share in cities and states that we’re already in. So, make no mistake about it that we’ve got a multi-dimensional strategy where we have to go in and dominate certain markets by adding stores and achieving saturation and we also have to go in places we don’t exist.”

DiMino said the key is the company’s willingness to invest in this growth plan, which he called a “conservative” plan. “We do have to invest in ourselves to grow,” DiMino explained. “We have a lot of information that indicates that the marketplace is ready for us to add stores, both from the customers’ perspective as well as the net numbers. It’s there for us to grow, and we’re going to do that this year.”

Some of the specific numbers DiMino referred to are:

The size of the lawn care supply market – LESCO now estimates this at $6.4 billion, compared to earlier estimates of $4 billion. Of this, LESCO has about 5.9 percent market share with a product mix DiMino doesn’t expect to change.

26 million users of lawn care services – This is a number LESCO expects to grow based on its profile of the customers of its customers.

“Our customers’ customer base is aging,” noted DiMino, adding that the number of people over the age of 50 in the United States should double between now and 2014. “We think we have serious opportunity from the Baby Boomer situation – 50 percent of our customers’ revenue comes from customers who are over 50 years old with an income over $50,000 and a busy lifestyle.”

“More than 50 million households will become prime [lawn care] customers between now and the next seven to eight years,” DiMino predicted. “It’s important that we position our store additions now, and we need to start ramping up these additions now so we can capture the effect of these Baby Boomers as they start to convert to having their lawn done.”

The company has already made some changes to help drive its growth, such as breaking the country into five geographic zones (Northeast, Southeast, Transition, Mid-Central and West) with a leader in each. “This structure gives us the ability to compete as a national company but with a local presence, which is important because there are a lot of local companies, or ankle biters, as we like to call them, trying to compete with us in these markets,” DiMino added.

In addition, the company restructured its sales force, adding more than 60 direct sales representatives. “We have more feet on the street calling on customers,” he pointed out.

DiMino emphasized the point to investors that this plan has a long-term focus, not a short-term one, given the fact that new stores don’t generally become profitable until their third year. “New stores is where the investment in LESCO needs to be,” he affirmed. “We’re not going to be shy about doing it and we’re not going to worry about the short-term impact. We’re in this for the long-term and we need to make sure that we establish ourselves as the people that can acquire the market share by having the places for the customers to do transactions with us.”

The new service centers are expected to push the company’s growth from the 4 to 6 percent range to 6 to 8 percent annually, which is consistent with LESCO’s growth projections for the industry. “This is an expected annual growth market of 6 to 8 percent, and there aren’t too many industries that can say they’re growing at that rate,” DiMino maintained. “We also have good demographics in housing starts, so the past and future information we have indicates a very strong opportunity for lawn care.”

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