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Understanding your customer because you are your customer has helped Northern Tool and Equipment grow from a small shop with a catalog to an online retail giant with more than 75 retail locations in 14 states. “A lot of us who were here at the beginning were our customer,” President Chuck Albrecht points out. Like founder, chairman and owner Don Kotula, Albrecht says he came from a farm and blue-collar background and had relatives and friends who made things in garages with power tools.

In the beginning – Albrecht joined the company in 1983 after its founding in 1981 – Albrecht admits learning on the curve. 

“We had an innate lack of understanding that the stuff we were doing we shouldn’t have done, but we didn’t know any better, and therefore it worked,” he remarks. An intuitive understanding of who their customers are helps Northern Tool and Equipment’s managers select the next location for their rapidly expanding online, catalog and retail empire.

“It’s art and science,” Albrecht explains.

The science is laying customer data over the United States and finding target markets based on their populations and prevalence of commercial customers and industries such as agriculture. Even traits among the population – such as being a hunter and owning a pickup truck, home and garage – can give managers an idea of where to expand the business.

“You look at where our distribution centers are and what areas we need to fill out first,” Albrecht notes. “The art of it is you drive the area and get a feel for it. Is this our kind of customer? Is this a good area for us? Does this make sense?” 

Northern Tool is negotiating to establish a third distribution center in the Dallas area to join the other ones in Savage, Minn., near the company’s headquarters in Burnsville, Minn., and the 700,000-square-foot warehouse in Fort Mill, S.C., near Charlotte. Usually, the distribution centers follow the stores. Currently, Northern Tool has 14 stores in Texas.

“Our view has always been that it’s cheaper to test the waters with some stores – then you can get out if it really doesn’t work in that area,” Albrecht maintains. “It’s easier to get out of smaller retail leases over time and just pay for the transportation rather than go in with a big distribution center. Then you’re bringing in a lot of inventory and a lot of bigger expense, and it is tougher to get out of. We’ve always tried to be very conservative in those ways.”

Online Vs. Retail

Catalog and e-commerce sales are not always an indicator of where a good retail location would be. “The catalog/e-commerce customer is not always the same as the retail customer, but that is starting to come closer together,” Albrecht declares. One reason is the difference in inventory – Northern Tool can have up to 30,000 products in its online inventory but approximately 8,000 in its stores.

Albrecht expects the company’s retail sales – which he estimates is currently 45 percent of its total sales – eventually to overtake catalog and online sales as the number of retail locations continues to expand. “We’re opening up a store an average of every other month,” he says. “We’ve figured a few things out, and our catalog and ecommerce is still growing by leaps and bounds. We’ve got quite a creative team that does a great job, and we’ve found ways to keep that going.”

Northern Tool has found catalog, online and retail to be complementary. “The catalog came first – it supports online,” Albrecht notes. “We mail in excess of 50 million pieces a year, from master catalogs to flyers and so forth, and that is where a lot of interest starts. A lot of buyers from companies have the catalog on their desk, and they see that and they go to the Internet and check it out and order online. Or if they have a specific question, they call our contact center and get the information they need.”

The company has a call center in Minneapolis and another in northern Minnesota. “There’s tons of special training in that, and that’s actually been the backbone of how the company started was through those phone centers,” Albrecht points out. He agrees that use of smart phones and the Internet to comparison shop can drag down margins.

“The customer will come in with our website or a competitor’s with something that they print out, and if it’s a like item, we will match that price,” he says. “It’s a reality and it’s out there, and smart phones or smart people – I don’t think that’s going to stop.” An advantage of its brick-and-mortar locations for online shoppers is to allow pickup of Internet orders shipped to the stores for free.

Custom Products

Northern Tool has a division that manufactures or assembles log splitters, agricultural sprayers, hubs and spindles, pressure washers, generators and water pumps. “It gives us differentiation,” Albrecht notes. “The advantage we’ve got is that with a private label of our own, we can put in it unique features that create more value for the customer and give you more margin.

“We are a company that excels in taking care of customers that have got problems that have been created by the weather, from hurricanes to snowstorms to ice storms to floods,” he adds. “A lot of our product is very helpful to customers in those situations.”

Albrecht started in telemarketing sales in 1983. “We had a small shop and a counter,” he remembers. “We probably had 2,000 square feet of just some products sitting on a shelf and had a 32-page catalog. We’d answer the phone, and if someone came in the door, we’d try to wait on them between phone calls.”

Albrecht progressed through the ranks of Northern Tool from telemarketing sales to branch operations manager, director of operations, executive vice president and finally president in 1996. He cites owner Kotula as one of his mentors along with fellow employees. His leadership philosophy is to instill in employees the entrepreneurial attitude that founder Kotula exemplifies.

“We provide a lot of autonomy to people to run their departments in their areas without a lot of really looking over everybody’s shoulder all the time,” Albrecht emphasizes. “Certainly, we define expectations of what we want to get done, and let people go and run their departments. That’s a great thing about this company – it was built with an entrepreneur’s attitude. We give a lot of latitude on creativeness, and so far it’s worked pretty well.”