Evolution of a Landmark

Nov. 1, 2001
The Victor L. Phillips Co.'s corporate headquarters and Kansas City, Mo., branch is nestled into an industrial area between I-35 and I-435 on the Missouri

The Victor L. Phillips Co.'s corporate headquarters and Kansas City, Mo., branch is nestled into an industrial area between I-35 and I-435 on the Missouri side of the state line. It becomes obvious as soon as you exit the freeway that this part of town is earmarked for industry. Glance in any direction and you'll likely be staring up at a big rig that could easily run over a small compact car.

Add to the ambiance an old rail yard beyond the back fence and the fumes from an asphalt roofing contractor next door and you've set the scene for a landmark construction equipment dealer that has always managed to incorporate rental into its business.

The Victor L. Phillips Co. has been a constant figure in the Kansas City, Mo., landscape and the equipment rental market since its namesake Victor L. Phillips started the company there as a construction equipment dealership in 1911. Since that time, the ownership of the company has changed hands several times, most recently in 1978 when Jim Foreman, previously VLP sales manager, arranged ownership.

“He had the foresight I think, even back in those years, to understand the implications and the profit that could be earned from doing more equipment rentals,” says rental manager Steve Stone.

In fact, even Victor Phillips saw the value of rental agreements. At least one rental agreement Stone found dates back to 1911, evidence that the rental concept has been functioning in The Victor L. Phillips Co. for 90 years.

Early on, rental business was done more out of necessity than anything else, Stone explained. It provided a logical way to get equipment to contractors who either didn't want to buy it, or couldn't afford to. Today the industry's outlook on the rental market is evolving yet again. And so, too, is the outlook of VLP.

The pride of ownership among contractors is diminishing, according to Stone. Maintenance and ownership costs are very expensive and rising each year. As equipment becomes more and more sophisticated, contractors are choosing to rent more often than buy. This is one of the trends leading equipment manufacturers to become more directly involved in rental.

“If they don't get the equipment out to the people who are using it, they won't get anything sold,” Stone says.

Contractors are questioning why they should carry the cost of ownership when there are reputable dealers that can provide equipment maintenance free, Stone explains.

“They want a hole in the ground,” he says. “They don't necessarily want to own a piece of equipment to dig the hole in the ground. When they have work to do that's what they need to do, not necessarily be involved in equipment ownership issues.”

In response to these shifting attitudes, VLP is now working more closely than ever with its suppliers to improve its rental business. “We embraced it well before the trend really started heading that way,” says Stone. “The whole market is changing tremendously and I'd like to think that we're able to change with that market to be able to respond to it.”

Many companies such as Caterpillar, Deere and Komatsu are now opening their own rental operations in large markets such as Kansas City. Similarly, VLP's suppliers are aiming to help dealerships improve their rental business. Case, for example, is providing more knowledge to dealers in the form of software and models, which show them how to better measure their performance.

Ingersoll Rand and Volvo, two more of VLP's equipment suppliers have also taken steps to encourage dealerships to embrace the rental market. VLP has, for a long time, embraced rental and with the help of additional resources from its suppliers continues to grow that segment of its business.

“I feel like we had the foresight to go ahead and do that years before Case really started discussing it. We've always been there,” Stone explains.

“We haven't changed our course,” adds Foreman.

Though VLP was actively involved with rental prior to these manufacturer initiatives, the company has now learned how to better gauge its market performance. The manufacturers have seen benefits from promoting rental business because more of their equipment is released into the channel of sales.

The foundation

The 90-year-old company boasts five full-service branches — Wichita, Topeka and Garden City in Kansas, and the Joplin and Kansas City branches in Missouri. The company also shares a branch with Rex Spencer in Belton, Mo.

The Rex Spencer business began as a very small farm equipment dealer, which The Victor L. Phillips Co. acquired in 1982. Today it is part of the VLP Holding Co. and offers most of the same equipment lines as VLP, as well as JCB products.

About five years ago, the company recognized the number of growth opportunities in western Kansas and decided to open the Garden City branch. “It gave us an opportunity to have a presence in western Kansas,” Stone said. “Having five locations in one central geographic area allows us to bring inventory in whenever we need it, usually in a day's notice or less.”

In fact, sharing equipment among branches is very common and provides better utilization of the rental fleet and better service to customers. “For example, the corn harvest is now going on in western Kansas and they need loaders out there,” Foreman says. “We have loaders from our Kansas City inventory out there working that corn harvest.”

VLP employs a total of 120 people. The corporate headquarters and the Kansas City branch employ 55 to 60 people, Rex Spencer employs 15 people and the remaining number make up the staff at the other four VLP branch locations.

Each branch has its own separate management team in place. Stone's role is a little different than other branch management leaders because he not only serves as rental manager at the Kansas City location, but he is also charged with helping the management teams in the other four locations continually improve their rental performance.

Additionally, each branch is set up as its own profit center with its own sales force. There is not a separate sales staff for the sales vs. rental business. The reason Stone gives is simple — the ultimate goal of any transaction at VLP is the sale of that piece of equipment.

“We're trying to keep our focus mainly on the equipment side of the business,” Stone says. “The rental side is very important for us and we understand that it is just a way of increasing our sales of the equipment. Our focus is still very much to sell the equipment. That's what our No. 1 drive and ambition is. We'd like to think that when we're renting a piece of equipment we're selling just a small piece of that equipment as we go along.”

VLP's customer base is composed of a wide spectrum of general contractors. And though the company enjoys doing business with large, well-established contractors, it also welcomes business from small construction companies trying to get started. Homeowners, however, are referred elsewhere. VLP prefers to work specifically with well-trained professionals.

Rental philosophy

VLP averages between 25 and 30 rentals a day during seasonal months and considers the youthful age of its fleet an enormous competitive advantage over regional competitors. While many rental firms are going through a period of aging their fleet, VLP strives to maintain an up-to-date inventory of equipment.

Stone's philosophy is that a newer piece of equipment will demonstrate to the customer how a fresh machine performs. New equipment also requires less maintenance from VLP, resulting in more profitability. The hope is that if a customer is satisfied with the performance of a piece of rental equipment, then that rental might lead to a sale in the future — possibly for that very machine.

Stone uses a pyramid analogy to illustrate the positive residual effects from a one-day rental. In short, the more rentals contracted, the more sales, and more sales results in more parts and service business.

Dealerships that were not previously involved in the rental market are realizing that there are many benefits to be reaped from that segment. Companies that are new to the market are realizing that rental will help them stay in business.

“If we're not renting, we're not going to be surviving,” Stone quips. “Every transaction at VLP is a sale.”

“We look at the rental as one means of providing our sales force with competitively priced, high quality, used equipment and our sales people all know that they have to rent to meet that objective,” says Foreman. “Rental activity has complimented what we were already doing. We've developed a lot of new customers through it and broadened our customer base.”

Working with customers and taking care of their business needs is one of the reasons Stone enjoys his job as rental manager with VLP. “You need to be able to respond quick to customers inquiries and questions,” he says. “I think we have the framework to do that within this company. We're large enough to be able to respond and we have manufacturers that help us do that when the need arises.”

At your service

VLP takes great pride in the maintenance of its fleet. Service personnel must be highly skilled technicians who are able to work with the most sophisticated machinery. Mechanics have access to factory training schools and manufacturers workshops.

“We spend an awful lot of money and time in training our mechanics to be able to maintain the machines we do rent,” Stone says.

In fact, the parts and service resources at VLP are so complete that many of the larger rental companies in the area also use its facilities to maintain their equipment. Plus, service is available 24/7, Stone notes.

The Victor L. Phillips Co. also offers its customers a customized maintenance program designed to meet the specific needs of each individual customer. Once a maintenance program is established, on site inspections are scheduled to help the customer minimize downtime and maximize equipment efficiency.

Available services include: performance of the maintenance checklist as prescribed by the manufacturer of the unit; periodic maintenance, including lubricants, filters and fluids; a performance, maintenance and operation discussion with the operator and sales personnel; ongoing education for those involved in the operation or maintenance of the unit; and a written report on the condition of the unit, operation and maintenance practices.

The benefits of the maintenance program are extensive. Customers who choose to take advantage of the program can improve the reliability of their equipment, help avoid major failures and unexpected downtimes, lower their operating costs and increase the resale value of the machine.

A challenge?

To meet the demand generated by VLP's regional market, the company recently began to broaden its inventory to include a variety of new types of equipment. Although these niche markets don't necessarily lend themselves to a normal rental atmosphere, VLP recognized the need of this equipment from the local contractors.

For example, the business now offers CEC rock crushing equipment, including crushing plants, screening plants and conveyors in its inventory to meet the needs of quarries on both sides of the state line. Additionally, the company added a road construction segment about six years ago. Overall, Stone says, the penetration into these new markets has been a huge success. In fact, VLP recently created a paving and material handling management position, filled by Dave Ferson, to handle that area of the business. Ferson previously served as Kansas City sales manager.

Although VLP is beginning to experience heightened competition in its market, the company is not cowering to the challenge. Though the rental market is broadening, so, too, is the market of opportunity. The 90-year-old player in the Midwest rental game is not intimidated. “The whole market is changing and it's a perfect time to be in the business,” Stone says.