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Top 20 Stories of 2014: #7 Grainger Focuses on Their Own E-Commerce Strategy, Not on Amazon

Every weekday in December, tED magazine is counting down the Top 20 Stories of 2014. Below, the #7 story of 2014, originally posted on June 4, 2014.

By Jack Keough

If there is one distributor who can take AmazonSupply.com  head on, experts say,  it is Grainger,  the MRO industry giant whose e-commerce sales now comprise a third of its more than $9 billion in sales.

Although Grainger has turned down requests for comments about Amazon, Chairman, CEO and President Jim Ryan told Bloomberg.com he wasn’t overly concerned about the e-retailer entering the distribution marketplace.

“There are a number of large companies in this industry that have a catalog shipped directly to customers out of regional distribution centers — with no sales force, no branches. That’s very similar to Amazon and the many other Internet-based business models,” he said. “We’ve been competing with that model for years.”

There’s room for competitors, Ryan told Bloomberg. The $118 billion U.S. market for industrial supplies still is divided among hundreds of small distributors, providing opportunities for larger ones to grow faster, Ryan said. Grainger, the biggest, has only 6 percent of the market, up from 4.6 percent in 2008.

“It’s highly fragmented and possible to grow for many years as the industry consolidates,” he said. “We’re still very much on the front end of the consolidation.”

Despite requests, Grainger did not make any of its e-commerce executives available for an interview to elaborate about its plans.

When Grainger first began its foray into e-commerce in the mid 1990s, it was greeted with skepticism by many competitors who believed the Illinois-based company was biting off more than it could chew financially and its  customer service would suffer.

They were wrong. Grainger is now the envy of many of its competitors as it assumes an e-commerce leadership role in the distribution marketplace. The company is not only focused on growth in North America but overseas as well.

For example, five years ago Grainger bought a 53 percent interest in MonotaRO Ltd., a Japanese company that offers more than 5 million products to help customers operate and maintain their facilities. MonotaRO serves more than one million customers with a focus on small and mid-sized organizations across a full range of customers. More than 80 percent of its transactions are done online. With more than $57 billion in MRO potential in Japan, Grainger is focused on growing its presence through the single-channel business model it operates.

Ryan said the MonotaRO model has worked so well that Grainger will expand the model elsewhere, including the U.S.

The online model is targeted directly at smaller customers who require fewer services.

“These customers often combine their business and personal shopping,” Ryan said at the company’s annual shareholder meeting earlier this year. “We are seeing great success with the business in Japan and U.S. and plan to extend this model to other geographies.”

And Grainger continues to be innovative and technology driven to extend their brand through a series of new applications while still promoting its brand through traditional channels such as radio advertising.

In the past several months, Grainger has rolled out a new web platform as well as a Spanish language website, an IPad application and a mobile phone app that is reportedly growing rapidly. In addition, last year Grainger hired more than 300 employees in its IT and e-commerce sections, this coming on top of 100 more positions filled in 2012.

During the past year, the company launched a new feature for its iPhone app, LiveChat with Photo. This addition allows customers to send a photo of a product to a Grainger customer service representative during a live chat.

Grainger iPhone app users can engage a customer service representative in a real-time chat and attach one or more product photos to the conversation. Using the photos helps the customer service rep locate the product and provide the customer with a direct link to the product, which then can be used to check availability and make a purchase. Finally, a chat history is available, eliminating the need for the customer to take notes during the chat.

In addition to LiveChat with Photo, Grainger’s mobile app allows customers to search for products using bar code scanning, voice-activated searching or browsing. Customers can use real-time product availability based on current location to learn when a product will ship or if it is available for pickup at a nearby Grainger branch.

But Grainger’s philosophy is to let customers find them rather than the other way around because of its brand recognition.

Paul Miller explained this strategy last year during a presentation at the B2B Multichannel conference in Phoenix and as reported by the Internet Retailer, a magazine and web site focused on e-commerce. “We don’t really go after customers online,” vice president of e-commerce Paul Miller told conference attendees. “If we’re doing our job right, they should be finding us.”

Grainger, Internet Retailer said, regularly bids on around six million keywords on Google to advertise its 1.2 million products. “If they can’t find us or can’t get to our site, all the rest of the equation falls off,” Miller says. “We make sure to ask where the customer is when they start their journey and try to be relevant in that search. You can’t underestimate the importance of those first parts of the journey.”

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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