From $2B to $10B: MSC Industrial Supply's Roadmap

In MSC Industrial Direct’s January earnings call on its fiscal first quarter 2012 results, COO and President Erik Gershwind provided an overview of the metalworking and MRO distributor’s growth history and growth plans. The distributor set a goal early on to become a national supplier – after starting as a regional distributor selling metalworking supplies to machine shops in the Northeast. MSC (NYSE: MSM) reported sales of $2 billion for its fiscal 2011 ended Aug. 27, 2011, and is No. 12 on MDM’s list of the Top 40 Industrial Distributors.

“So, what's next? How do we now go from $2 billion to $10 billion over the years to come?” Gershwind asked. “We will follow the same measured approach that we followed in the past.”

(Early last year, Gershwind and current CEO David Sandler also spoke with MDM about its growth plans. Read that interview with MSC.)

The first step, Gershwind said, is to focus in on deeper product line penetration. “This means selling not only the unplanned spot buys that have been company's bread and butter, but the broader set of needs that our customers have, and we decided to start in the lowest risk place there was, metalworking. That was the easy choice to get started. … it provides us with a large runway of profitable growth right in our sweet spot.”

Using its experience in metalworking as a guide, MSC has begun to move across other lines including safety, fasteners, hand and power tools, material handling and more. “You've heard us refer on recent calls to these product lines as closely related adjacencies. That's because they are consumed on the plant floor in metalworking environments, and oftentimes, they are purchased by the same buyers who are buying metalworking supplies,” Gershwind said.

The next step? Moving into new end-markets.

“Since our current penetration levels even within durable manufacturing are low, we'll begin this journey by inching out into those durable and nondurable manufacturing environments, where we're underpenetrated. This allows our sales force to call on environments that are familiar to them, as they are all within the four walls of a manufacturing plant. We've begun to lay the foundation in these newer segments through our National Accounts Program, but we will get the true penetration in the years to come,” he said.

After that – non-manufacturing environments, including government, where the distributor has already begun an effort. And then MSC has plans to move outside of the U.S.

“The tactics have and will continue to change, from direct mail to web, from product transactions to technology solutions and so on, but the vision remains the same. My job in succeeding David (Sandler) just as David has been before me is to serve as a steward for our mission statement, our vision and our culture,” said Gershwind, who is poised to take over the CEO position sometime in 2013. “Embedded in our culture is the understanding that the MSC team of today stands on the shoulders of those who came before us. It's both the tremendous opportunity and responsibility, one that I don't take lightly.”

Read the full transcript of the company's first quarter 2012 call at Morningstar.com.