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Grainger: AmazonSupply Just Another Online Competitor

Americas Group President: Online competition is 'incredibly competitive,' but it's more than just Amazon.
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Amazon continues to be mum on how its B2B business, AmazonSupply.com, is performing, and the platform remains top of mind for many distributors. But according to Court Carruthers, senior vice president & group president, Americas for Grainger, Amazon is simply "representative" of one of "a number" of players in a very competitive space.

Carruthers addressed the Amazon challenge after his presentation at the Morgan Stanley investor conference earlier this week.

"Amazon is certainly someone we take very seriously," he said, "but they're also not someone we see turning up a great deal in our existing customers today."

Part of that may be attributed to Grainger's customer base, Carruthers said. About three-quarters of Grainger's U.S. business is with large customers. Those customers expect a multichannel experience and rely on highly customized pricing – areas where the online-only environment sometimes falls short.

Emergency purchases – those items a buyer just can't wait for, Carruthers said – also make up a significant portion of Grainger's sales. If you buy these items online, you have to wait for them to be delivered. Grainger's branch network allows items to be picked up in-store immediately.

Where AmazonSupply and other online competitors are a threat is with small and mid-sized customers, Carruthers said. And even there, Grainger is holding its own. The company acquired a majority stake in MonotaRO Co. Ltd, a Japanese online distributor, in 2009 and launched Zoro Tools in 2011 based on that platform.

"We've struggled to grow at the small customer level of the market," Carruthers said. "Zoro makes us compelling to that segment of the market." And Zoro benefits from being able to take advantage of Grainger's national network.

Grainger's online sales are expected to be nearly 40 percent of total U.S. revenues in 2014. "We've been very successful in that market against a broad array of competitors," he said. Grainger's e-commerce customers tend to be more profitable than other customers, and the base is growing faster than any other customer segment.

While margins are slightly lower from online sales, the return on invested capital is "incredibly high." There is more price competition in that space, Carruthers said, but with lower capital investments, ROIC is commonly in the 40 to 50 percent range.

Read more about e-commerce in distribution in the MDM Special Report: The 2014 State of E-Commerce in Distribution.

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