By Jack Keough
In light of the continuing industrial downturn, Grainger, one of the largest industrial and electrical distributors in the country, says it will eliminate 200 management staff at its corporate headquarters and close an unspecified number of branches.
The management restructuring will save $25 million annually, while the branch closings will save some $5 million in direct operating costs in 2016 and lead to additional savings in 2017. There will also be cash savings as it relates to inventory and physical assets. Some management positions will be moved offshore.
A finalized plan as to branch closings will be made by the end of the year.
Company officials pointed out that 15 years ago more than half of Grainger’s business came from branches, while today that is less than 10 percent. In the past several years Grainger has closed some 100 branches.
But Grainger also noted that it was successful in retaining more sales volume than it had expected after those closings.
Grainger emphasized that it is still committed to its remaining branches that help support its customer-centric mission by having inventory on hand locally while having staff on hand that can answer technical questions.
The decisions come after Jim Ryan, chairman, CEO and president of Grainger, told analysts that the company does not expect business conditions to improve in 2016.
Ryan warned of a “tough industrial economy” in 2016, mentioning short-term changes in the behavior of customers and a “competitive landscape that continues to evolve.”
He also said Grainger has experience in dealing with changes in slow economic environments. “We know how to run our business in a down economic cycle,” he said.
Ryan noted that Grainger is in an excellent position to take market share from smaller competitors who may cut back on inventory. He also said that Grainger’s position as a leader in e-commerce makes it easier for customers to do business with them in an effortless manner.
Although the company has a strong presence with large customers, Grainger will attempt to further penetrate medium size and smaller accounts.
Ryan pointed out that the MRO market in the U.S. is “large, highly fragmented and offers tremendous opportunity for growth.”
He emphasized that the company is optimistic about its strategy to expand its business operations in the U.S. and overseas.
In order to get closer to their customers and deliver products faster and more efficiently, for example, Grainger is in the midst of building a massive 1.3 million square-foot Northeast distribution center in Bordentown Township, NJ. Scheduled to open next year, the distribution center reportedly will become the largest warehouse in the state.
The new distribution center will allow Grainger to deliver more products next day to its customers in the Northeast.
Grainger is also encouraged about its recent acquisition of a large U.K.-based distributor. Two months ago, Grainger purchased the Cromwell Group, a company with an established supply chain that has more than 35,000 industrial and manufacturing customers worldwide.
The company acquired Cromwell, the largest independent distributor in the UK, for $482 million in cash on September 1. Cromwell posted sales for the fiscal year that ended in August of about $440 million.
Cromwell, Grainger executives said, has a diverse customer base, a strong multi-channel presence, a growing vending business, and a broad base of more than 80,000 products.
Grainger, a leader in e-commerce, says it intends on growing sales for Cromwell by expanding its online presence, which today only accounts for about 5 percent of its sales. Grainger’s on line sales account for nearly 40 percent of its revenues and it expects that number to reach 50 percent. It has invested heavily in its e-commerce platform and search engine capabilities.
Grainger will re-launch Cromwell’s website in the first quarter of 2016. The company is already receiving additional traffic on its existing website with limited digital marketing.
“We are very confident that Cromwell’s supply chain will provide accelerated growth and scale for Grainger’s online MRO model in the UK and Germany,” said D.G. Macpherson, chief operating officer for Grainger.
Grainger also announced that its October sales declined 1 percent compared to the same period last year, with organic sales down 2 percent.
The overall 1 percent decline included 4 percentage points from the Cromwell Group, and a 3-point negative impact from currency headwinds. Excluding those two factors, the organic sales decline was driven by a 1-point decline in price and a 1-point decline in lower sales of safety products.
Grainger expects its fourth quarter sales to come in flat to 3 percent lower, compared with its previous view for a decline of 3 percent to a slight increase of 0.5 percent. The company affirmed its 2015 guidance for sales between an increase of 0.5 percent and a decrease of 0.5 percent and per-share profit of $11.60 to $11.80.
Grainger has also been affected by weak oil and gas prices and lower commodity prices in Canada.
Its Canadian business, Acklands-Grainger, has a leading market position but is being affected not only by the oil and gas business, but also weakness in the construction, commercial, transportation and heavy manufacturing sectors.
Sales in Canada for the third quarter declined 23 percent in U.S. dollars. The company says it will be making substantial investments that will lead to its capturing sales from a more diverse customer base and increase business in some of Canada’s largest metropolitan areas.
The company will also examine and right size its branch operations in Canada and capitalize on its investments to improve productivity.
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