W.W. Grainger Inc. reported only a slim 2% increase in second quarter total net sales, but nonetheless hit its target of increasing sales to both mid-sized and large companies, executives said today.
Helping to drive up sales volumes in both groups was a new pricing strategy the distributor of industrial supplies kicked off earlier this year, when it cut web prices on some 400,000 SKUs, or about “25% to 30%” of its total SKU count, CEO D.G. Macpherson said today on a conference call with stock analysts, which is recorded on Grainger’s website.
The pricing strategy, which Grainger noted deflated prices overall by about 4%, helped to increase total sales volume by 5%, Macpherson said. Most of the increased volume came from new or expanded contracts with mid-sized companies, plus an increase in off-contract “spot” buys by larger companies, he added. He noted that the reduced prices didn’t affect on-contract purchasing by large customers, who already benefit from discounts on high-volume contracts.
When asked during the conference call how Grainger will be able to grow sales volume without further price cuts, Macpherson noted that the pricing strategy was still in an early phase. And he asserted that Grainger will expand the strategy to all of its SKUs in August, but had no intention of becoming a low-price leader.
The lower prices will coincide with stepped-up digital marketing, producing an expected increase in returns on paid search and other forms of advertising, executives said.
In the meantime, Grainger has been getting a positive response regarding the new pricing in recent meetings with customers, Macpherson said. “They’re pretty excited about not having to come to us for SKU-level negotiations,” he said.
Grainger executives didn’t comment on the percentage of total sales conducted online in the quarter, including on its flagship Grainger.com, and a spokesman didn’t immediately return a request for details on e-commerce sales. But Grainger did cite strong growth at its off-price U.S.-based Zoro.com and Japan-based MonotaRO.com e-commerce sites, which combined recorded a 23% increase in Q2 sales year over year.
In the first quarter, Grainger said e-commerce grew 15% year over year and accounted for about 51% of total sales, or about 60% when including sales through its internet-connected KeepStock vending machines that it places at customer locations.
Macpherson, responding today to a question about whether Zoro was taking sales away from Grainger.com, said most of Zoro’s sales were to small businesses that Grainger.com did not already have as customers. “There’s a little bit of cannibalizing, but it’s very small,” he said. “When we visit our large customers, Zoro doesn’t come up.”
For the second quarter ended June 30, Grainger reported:
- Net sales of $2.615 billion, up 2% from $2.564 billion a year earlier;
- Gross profit of $1.039956 billion, slightly down from $1.040059 billion;
- Net earnings of $97.921 million, down 43.3% from $172.676 million. Grainger attributed the drop in earnings largely to restructuring costs related to such efforts as the closing of 59 of 144 branches in Canada and the winding down of operations in Colombia. Without the restructuring costs, it said net earnings decreased 10%.
For the six months ended June 30, it reported:
- Net sales of $5.156 billion, up 1.7% from $5.070 billion a year earlier;
- Gross profit of $2.059 billion, down 1.2% from $2.085 billion;
- Net earnings of $272.665 million, down 24.1% from $359.389 million.
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