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
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
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
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
- 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.
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