There was a time years ago when some MRO distributors questioned W.W. Grainger’s decision to heavily invest in technology and e-commerce solutions. Specifically, I remember one executive at a large distribution firm laughingly telling me that he intended to capture market share because of Grainger’s expensive investments.
Well, no one is laughing now.
Grainger’s latest fourth-quarter earnings report shows how this Chicago-based company is using technology, automation and its supply chain advantages to its full competitive benefit. The day before Grainger released its earnings report, its stock jumped 28 points. After the release, the stock soared an additional 50 more points.
There was a reason for the stock to jump so sharply. Grainger reported record yearly earnings and sales of $16.5 billion for fiscal year 2023. It also forecasted its revenue this year to be between $17.2 billion and $17.7 billion, with daily organic constant currency sales growth between 4% and 7%.
D.G. Macpherson, chairman and CEO of Grainger, told analysts of the success Grainger has made with its supply chain advantages.
“We’ve made great progress to return service back to near normal levels following the unprecedented global supply chain disruption that our industry experienced over the last few years,” he said. “We continue to hear that Grainger's product availability and our next-day order complete shipping capabilities greatly set us apart from our competitors, allowing us to show up well and win with customers.”
Bricks and Mortar in Support
Macpherson also noted the tremendous amount of new square footage that Grainger is adding to its network that includes the following:
- Three new bulk warehouses, including a 525,000-square-foot facility in Pineville, North Carolina, scheduled to open later this year.
- A 535,000-square-foot distribution center currently under construction in Gresham, Oregon, which is on track to open in 2025.
- A new 1.2 million-square-foot distribution center near Houston.
The company says that Greater Houston is an ideal location because it's geographically close to current and potential customers, and it sits in the second fastest-growing metropolitan area in the United States.
The Texas Distribution Center is expected to house more than 250,000 industrial supply items, and the company anticipates the new facility will employ approximately 400 team members within a year of opening in 2026.
“With the addition of these facilities, we're adding 3.5 million square feet to our supply chain network in total, representing more than a 35% increase from where we began in 2023. These latest investments will only strengthen our promise to customers who count on us to provide next-day complete orders to keep their operations running and people safe,” said Macpherson.
E-commerce Investments Continue to Pay Off
Sales at Grainger’s online Endless Assortment business unit — which Zoro.com and Japan-based MonotaRo.com comprise — grew 6% in the fourth quarter to over $700 million. Macpherson said he expects Endless Assortment sales to increase by double-digit percentages over the next year.
The Endless Assortment business — which offers online sales without the full-service approach Grainger provides through its High-Touch Solutions via sales teams and Grainger.com — nonetheless expanded its presence last year with large as well as small and mid-sized customers, Digital Commerce 360 pointed out.
Macpherson added that Zoro was also updating its product assortment to improve what Grainger says had been an “unfavorable product mix” that led to a drop in Q4 gross profit margins.
The Grainger High-Touch Solutions model has undergone a digital transformation over the past several years, as well, with strategic investments in infrastructure, talent and the development of custom capabilities to support its customers.
“We have built key technology infrastructure capabilities focused on two main domains that affect customer experience: knowing our products better than anyone else and knowing our customers better than anyone else,” he said. “These endeavors include the development of homegrown software assets around product information management, or PIM, and Customer Information Management or CIM, which allow us to store, codify and scale our data assets.”
Sales Support, Organic Growth
And Macpherson noted that Grainger has added about 200 salespeople over the past 18 months.
“It takes anywhere from 18 to 24 months for these new team members to ramp to a profitable level. But with the results we've seen so far, we are on the right path and expect this initiative to contribute to outgrowth over the next few years."
Macpherson said that in the U.S., Grainger is forecasting the total MRO market growth for the year to be largely flat with a range of down 0.5% to plus-1.5%.
He reiterated that Grainger continues to be an organic growth company, rather than through mergers or acquisitions, but still continues to “look at a wide range of opportunities in areas that we think are really important to the success of our business.”
Grainger will set its 2024 dividend in the second quarter, but expects to increase it, as it has for 52 consecutive years. The company forecasts consistent annual dividend increases in the high single digits to low double-digit percentage range every year.
All of this proves that Grainger has taken the right path in becoming one of the top distributors in the country.
Jack Keough is president of Keough Business Communications and the former editor of Industrial Distribution. You can reach him at [email protected].
