Behind One Distributor’s Record 3Q, Future Growth Plans

In the latest MDM interview, Barry Litwin, CEO of Systemax — the publicly traded parent of Global Industrial and other businesses — discussed the company’s 3Q performance, what’s driving growth in 2020 and the “permanency” of pandemic-related products.
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Fresh off a record third quarter for both revenue and earnings — driven in part by sales of pandemic-related products — Systemax Inc. has no intention of slowing down, even when the coronavirus finally does.

Systemax is the Port Washington, New York-based, publicly traded parent of such businesses as Global Industrial, No. 24 on MDM’s Top 40 Industrial & Construction Market Leaders list for 2020 with annual revenues of $900 million. The industrial distributor recently launched yet another initiative to help its customers navigate a worsening pandemic.

Global Industrial on Nov. 18 published its “Ready. Set. Vaccinate” guide to “help health care facilities, pharmacies, doctor’s offices and more be prepared to administer COVID-19 vaccines when approved by the U.S. Food and Drug Administration or Health Canada,” the company said last week. This move follows other programs in the last few quarters, like the R3 program that aimed to help customers “restore the facility, return to work and rebound the business” in response to COVID-19.

Barry Litwin

All these initiatives are part of Systemax’s Accelerating the Customer Experience (ACE) strategy, which the company launched in early 2019, said Systemax CEO Barry Litwin, pictured right, in a recent interview. At the heart of ACE: A new focus on digital capabilities coupled with a deep commitment to meeting customer demands in all the ways — shopping, purchasing, requesting service — they might interact with the company.

Throw in a huge increase in demand for personal protective equipment (PPE) and it’s no wonder that Systemax is firing on all cylinders.

“We’ve continued along that ACE path, continued to build the business for providing the right customer experience each and every day,” Litwin said. “Through the pandemic, we followed the strategy and continued to drive it forward but made some adjustments along the way. Seeing our shift and our pivot toward creating a best-in-class pandemic product line really helped us from April all the way through the current month. We’ve continued to ride that wave and leveraged a lot of the new customers that have come to us by selling them other products outside of just pandemic, including the broader MRO assortment.”

MDM last checked in with Litwin in June for an episode of MDM Live, when he discussed some of these topics. Earlier this month, MDM wanted to see how things have been going for the company ever since, including what drove a stellar third quarter during which Systemax posted sales growth of 17.1% while its profit nearly doubled to $24.1 million.

Here’s an edited version of our conversation with Litwin in which we discuss the company’s 3Q performance, its customer-centric strategy, and the role that pandemic-related products played in 2020 and could play moving forward.

MDM: When you started the ACE initiative in 2019, was there something you saw in terms of shifting customer demands?

Litwin: We felt initially that it was important to create the right foundation for a strong digital business for the future, and that comes from creating the right experience. That includes making sure that you can fulfill products on time, that you can ship products quickly with high quality, making sure that you have all the digital capabilities to make it easy for customers to do business, and at the same time figuring out how to automate and digitize the operations and customer service experience. The best customer service is no customer service. That really comes down to the tools and capabilities that we’ve built into the business to reduce friction in both the buying and servicing process, whether it be text-based order tracking, transaction capabilities built into our chat system, being able to achieve customer-promised date, and building the business around achieving the date that a customer sees on the website that they’re going to get their product. Those have all been areas that we’ve really focused on as part of ACE, and our customer satisfaction levels continue to improve in the business along the way.

MDM: You set a record with your 3Q financial results. Is that record attainable if you hadn’t taken those steps beginning in 2019? Was that a direct top- and bottom-line result of the moves that you guys began making almost two years ago?

Litwin: I think the third-quarter results are directly related to our strategy. It’s one thing to put a strategy on paper, it’s another thing to execute it. We were able to shift to a more flexible, digitally based organization. We inspect every initiative that we have underway, and I think that helps make sure we can drive transition without this fear of change overtaking what we know is the right approach to the market. The other aspect is talent. As much as we’ve had great legacy talent, there were a lot of skill sets that needed to be at the business, particularly to strengthen our digital IQ. We went out and upgraded our talent. For a lot of functions in critical growth roles, we recruited people coming from industries where they’ve already had to go through that transition. They knew what “good” looked like. When they took on the different projects, they were able to look beyond just industrial distribution and think about the customer and what the right experience is.

MDM: Pandemic-related product sales helped drive revenue growth in 3Q. How do you see demand for these products evolving in 2021 and beyond?

Litwin: We’ve created permanency within the pandemic category. We started talking about this very early on in the process. It all started with PPE products, whether it was masks and hand sanitizers, areas like that. But I don’t think many companies today are going to want to go through the experience of again having to find PPE. I think we’re going to start these some regulations put in place by OSHA [Occupational Safety and Health Administration] and other organizations around minimum requirements that companies are going to have to maintain in a pandemic, much like what we saw in terms of fire protection. And that’s going to lead to other types of products like dividers and partitions and even the whole design of office environments today, which I think are going to be built on social distancing. No one’s going to want to go back and have to reinvent their environment. They know it’s going to happen again, at some point. Whether it’s as large as what’s happening with coronavirus or smaller, it’s going to create opportunities for not just products but also consulting on the right workspace. So we do see a permanence from the category even though you may see some softening in terms of the high consumable products. We think we’ve established a leadership position here and we’ll continue to continue to grow it and let it morph over time.

MDM: Since you don’t provide guidance, can you speak generally about what the environment looks like for 4Q and into 2021?

Litwin: We’re cautiously bullish on the market. We don’t know what’s necessarily going to happen with the pandemic and where it goes. Depending on what happens in the market, we’ve got contingencies to be able to attack the market where we need to, and I feel like we’ve got the right thinking in terms of our business going forward for multiple quarters. We’ve done a lot of thinking internally around it, and while we don’t share a lot of that guidance going out, I can tell you we feel confident about where we’re at right now.

MDM: Did the second quarter and third quarter of this year provide a blueprint for the company moving forward in case of another pandemic or perhaps some other economic disruption?

Litwin: No doubt. We’re not standing still. We’re playing for growth and our future. And that’s what ACE is all about. When it comes to the first part of next year, the vaccine is going to be a watershed moment for the entire industry and the entire economy. If we didn’t have our strategy in place, we would probably be struggling to figure out the changes that are happening in the market. But I think we’ve got a really good north star for the business.

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