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Grainger’s Take on Amazon & the Latest on the Distributor’s Growth Drivers

Multichannel model keeps Grainger competitive with customers of all sizes, Grainger CFO says during presentation.
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Grainger’s (NYSE: GWW) multichannel model gives it an edge over competitors like AmazonSupply.com, according to Ron Jadin, senior vice president and CFO, responding to a question on Amazon (NASDAQ: AMZN) after his presentation at the Raymond James Institutional Investors Conference earlier this month. Amazon launched AmazonSupply.com with more than 500,000 products targeted at business, industrial, scientific and commercial customers in April 2012.

“Ninety-five percent of our business is with the large and medium customers,” Jadin said. “We think the greatest threat with an Amazon or anyone like them is with our small customers.”

He said that small customers – on average five employees in a company – behave more like consumers. “Amazon has a great consumer model,” he said. “We think our medium and large customers value our services we offer and having a sales rep call on them. There’s more complexity in what they need. We think our model is relevant there.”

From the pricing perspective, he said Grainger’s pricing for medium and large customers is competitive. “We don’t see a pricing threat [from Amazon] there,” he said.

Grainger’s focus on e-commerce and new approaches to reaching smaller customers make the distributor increasingly competitive on that end of the size spectrum, Jadin said.

In addition to the investments made in its traditional e-commerce platform at grainger.com and in mobile, investments in e-commerce-only businesses MonotaRO in Japan and Zoro Tools in the U.S. are targeted at small customers, and while they remain a small portion of Grainger’s overall sales, growth is proving strong. Zoro, whose sales Jadin described as in the “low $10s of millions,” had more than 500 percent sales growth in the U.S. in 2012 year-over-year. MonotaRO, with sales in the $300 million to $400 million range, saw growth of more than 25 percent.

Grainger will continue investing in the growth drivers that have driven its rapid growth over the past five years; Grainger reported $9 billion in sales in 2012.

Product expansion is one of those drivers. Grainger’s 2013 U.S. catalog includes 570,000 in-stock products, which is six times that in 2005. In total, more than 900,000 products are available on grainger.com.

The distributor will continue to capitalize on its e-commerce investments, another growth driver, with plans to grow those sales to up to 50 percent of total Grainger sales by 2015. (Read more in Grainger: 'We're Not Close to Being Done' with E-Commerce.') In 2012, e-commerce made up about 30 percent of total sales and grew at twice the rate of the rest of the business, Jadin said. Mobile is also fast becoming an important part of Grainger’s multichannel model, growing more than 50 percent quarter-over-quarter for the past three quarters; Grainger's mobile app was announced in August 2012. (Read more about Grainger's initiatives in mobile in Grainger Goes Mobile: What It Means.)

Nearly all of Grainger’s customers use multiple channels to do business with the distributor, Jadin said, including grainger.com, sales force, mobile, branches and inventory services, or KeepStock.

KeepStock accounted for $300 million in incremental 2012 revenue, he said. The distributor plans to continue adding vending machines to supplement its VMI and CMI services “where it makes sense,” Jadin said. He said Grainger added about 1,000 vending machines in the past year, and probably will add twice that in 2013. In comparison, Fastenal aims to have 30,000 new vending machines under contract by the end of 2013.

In its sales guidance, Grainger reported expectations of overall sales growth of 3 percent to 9 percent in 2013, which includes the effect of acquisitions. About 2 percent to 8 percent is expected in organic growth.

Jadin’s presentation is available through the start of April at the Grainger website.

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