Labor Rules Lead to Fastenal Closures - Modern Distribution Management

Labor Rules Lead to Fastenal Closures

Onsite signings on pace to more than double 2015 signings.
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When the new year began for Fastenal, the distributor announced plans to relaunch its aggressive store opening strategy. But with the announced new labor rules redefining exempt employees, Fastenal changed course.

"In our smaller stores, we don’t always compensate above that $48,000 level, because we have folks that are building a business and we are a sales-minded organization," said Dan Florness, president and CEO, in an investor call to discuss third-quarter results. "… Stores under $75,000 a month are marginally profitable, and this damages that."

Fastenal closed 65 stores in the third quarter and has another 32 stores queued for closure in the fourth quarter.

The company doesn't expect the closures to significantly impact sales going forward. Most of the locations have another store reasonably nearby, Florness said. "And as you know from previous conversations, the vast majority of our revenue is business-to-business, with most of it going out our back door" to customer sites.

The bigger impact was on "our thought process as we have gone through this year because of the changing landscape, the reality we live in," he said.

Fastenal is on target to open 35 to 40 new stores by year end in other markets – far lower than anticipated at the beginning of the year but "a good number for us in 2016."

Vending – another target for aggressive expansion at the start of 2016 – has also fallen short of expectations, according to Florness. "Right now our run rate is about a 19,000 run rate versus the 16,000 the last couple of years. This is OK; it's not great."

And sales through vending have weakened, tightening the growth spread between vending and non-vending customers.

"One thing that jumped out for us where we had vending machines that were negative … is the number of employees in the database right now versus a year ago had dropped," Florness said. "The number of employees had dropped about 10 percent."

And when employee count at customers drops that much, that's reflected in their purchases, he said.

On a more positive note, Fastenal's focus on expanding its onsite service has put the company on pace to more than double signings in 2015. "We still have work to do, but I am impressed with the fact that we have signed 133 year-to-date," Florness said. In 2015, it reported 80 – a record year at the time.

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