By Jack Keough
There was a time-and seemingly not too long ago-when many other executives in the distribution business believed that Grainger, the broad-line industrial distributor was mistakenly investing their funds in e-commerce initiatives. In fact, I can remember a CEO of a major distribution company telling me, “Grainger would be better off just throwing their money into the ocean.”
Well, over the years Grainger has proved those so called experts wrong as the company’s e-commerce sales continue to soar.
During a recent webcast presentation to financial analysts, Grainger said that from Jan. 1 through October of this year, the giant MRO/electrical distributor had recorded $2.2 billion in sales from e-commerce, which comprises about 31% of the company’s $8.1 billion in sales. That is up from 25% two years ago and company forecasts indicate the percentage could climb to well more than half of company sales within the next three years. Its October daily e-commerce sales for this year surged 17%.
E-commerce is now the company’s most profitable channel, growing two times faster than the rest of the company’s businesses.
There is little doubt that Grainger executives took the arrows in early adoption of e-commerce but now are reaping the benefits of a long-term strategy that has allowed the company to continue its role as a leader in the distribution business.
But e-commerce is only one leg of a multi-channel strategy for the company’s growth, said Grainger U.S. President Court Carruthers during his portion of the presentation.
For example, Grainger is continuing to rapidly expand its sales staff. Just two years ago, Grainger had 2,000 sellers; by the end of next year that number will be 2,500 and will grow to 4,000 in the future. Sales force expansion this year is on track to contribute more than 1% in incremental revenue gain.
Its KeepStock inventory management solutions system that allows customers to manage their own inventory or turn over that process to Grainger is growing extremely fast and will account for more than $300 million in incremental revenue this year. And just recently the company introduced its mobile platform allowing customers to research, buy and track shipments through their mobile phones or tablets.
Grainger, headquartered in Lake Forest, Ill., is a truly global company. During his part of the presentation, James Ryan, chairman, president and CEO of Grainger, pegged the overall global market for MRO products at $575 million as of December 2011.
The company has successfully expanded in Mexico through some partnerships and has a tremendous presence in Canada through Acklands/Grainger.
But now it is looking to South America, Europe and other countries for growth. Company executives told analysts that it intends for Grainger to become the number one distributor in Brazil—a country which is expected to grow substantially in the years ahead. To establish a solid presence there, Grainger has acquired 100% of the shares of AnFreixo, S.A. a large distributor of MRO supplies in Brazil.
Grainger estimates that the MRO potential sales in Brazil are $21 billion with the company presently having less than 1% of the business. The company forecasts that Brazil’s GDP growth will be 4.4%.
In Mexico, the MRO potential market is $10 billion with Grainger recording less than 1% of the market with GDP growth estimated at 4%, well above MRO potential growth in the United States.
So the company recognizes with that growth, as well as in Europe, there is plenty of opportunity.
“Grainger is well positioned to meet the needs of businesses and institutions as they look to manage the MRO products used to maintain their facilities. We continue to see significant potential to gain share in the global MRO market. We have a strong, deliberate strategy and are managing the business for the long-term, generating solid returns for our shareholders and running a healthy business regardless of the economic conditions,” Ryan told analysts.
Meanwhile he added that businesses are proceeding cautiously in making capital investments and they see industrial distributor sales slowing.
“What I hear from customers, what I hear from suppliers, what I hear from other CEOs that are running businesses is a real hesitation to step out and make big capital investments, to step out and take on big projects because of the ambiguity of what’s going on in the economy,” he said.
As part of the meeting, Grainger provided the following outlook for sales and earnings in 2012 and 2013:
- For the 2012 fourth quarter, the company is forecasting sales to increase 7-9% and expects earnings per share of $2.55 to $2.75.
- For the full year 2012, the company reiterated its sales growth forecast of 11-12%, and narrowed its earnings per share guidance to a new range of $10.55 to $10.75, excluding the reserve adjustment related to the expected settlement with the Department of Justice announced on October 16.This replaces the company’s previous earnings per share guidance of $10.50 to $10.80 issued on July 18.