The multibillion-dollar distributor of industrial supplies is improving Zoro’s website features and expanding its number of available SKUs, while expecting little if any cannibalization of mid-size customer accounts from Grainger.com, CEO D.G. Macpherson said Thursday.

Industrial products distributor W.W. Grainger Inc. grew sales 8% year over year in 2018, but realized much sharper growth in its online-only businesses of Zoro.com and Japan-based MonotaRO.com, CEO D.G. Macpherson said today.

I would say on almost every dimension we are different from Amazon Business.
D.G. Macpherson, CEO
W.W. Grainger Inc.

D.G. Macpherson, CEO, W.W. Grainger

“Our single-channel businesses, mainly MonotaRO and Zoro, continue to drive profitable growth,” he said on a conference call with stock analysts. He noted that they grew 23% on a daily basis, compared with 7% on a daily basis for total sales.

Grainger is investing in Zoro—which caters to smaller businesses than the larger customers that tend to use Grainger.com—to further develop its staff, expand its number of available SKUs, improve its website features, and expand its web analytics and digital marketing. In effect, Grainger will help Zoro follow in MonotaRO’s growth curve, Macpherson said.

MonotaRO has “20 million items on their website, and we are making investments in Zoro to be able to expand our offering [on Zoro.com] dramatically over the next several years,” he said on the conference call, according to a transcript from Seeking Alpha. He added that he expects Zoro’s improvement projects to be completed by the end of this year, and that Zoro will “remain profitable through the transition.”

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“Zoro continues to grow very strongly,” he continued. He added that Zoro currently has several million SKUs but will eventually expand to more than 10 million. Zoro operates internationally, with dedicated e-commerce sites in the United Kingdom and Germany as well as in the United States. It also maintains an online shop on the Zoro section of eBay Canada.

As it expands its available inventory and improves its website, Zoro is also expected to increase its number of mid-sized companies in its customer base, Macpherson said. But Grainger doesn’t expect it to cannibalize many mid-size company accounts from Grainger.com, which caters more to larger customers seeking its selection of industrial and maintenance, repair and operations (MRO) products and services, he said.

Grainger has also been working to increase its overall market share of mid-size companies for industrial supplies—now at about 2%, but down from prior share figures—both by “reengaging some” customers and acquiring new ones, Macpherson said. “I would say the new-customer acquisition has been very solid over the last quarter, and we expect that to continue,” he said, adding: “Most of that is acquiring new customers digitally, and then … building a relationship with those customers.”

Some new mid-size customers acquired through digital marketing will remain digital customers, he said, while others switch to personal offline relationships with Grainger account reps, “where there will be someone on the phone who talks with them on a consistent basis.”

Grainger doesn’t break out sales for its individual e-commerce sites. The company also didn’t break out total e-commerce sales as a percentage of total revenue. But it has said that 56% of its 2017 total revenue came in through its e-commerce channels, including websites, its KeepStock vending inventory service and e-procurement systems. At that rate, its 2018 e-commerce sales would come in at about $6.27 billion, with its 2018 total sales up 8% year over year to $11.2 billion. Macpherson last year said he expected e-commerce to eventually account for 80% of Grainger’s total sales.

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Macpherson also said that Grainger has settled into its new lower market-based pricing policy that it launched a year ago, and that the company doesn’t plan further price reductions. “When I speak with customers and team members, I am hearing that price is no longer the primary part of the conversation, and the focus is squarely on how we can add value and help our customers solve problems,” he said.

When asked on the conference call how he felt Grainger compared with Amazon Business, the B2B portal on Amazon.com/business, Macpherson said Grainger differentiates from it by focusing in greater depth on offering industrial products and related services.

“We develop personal relationships with customers. We provide services with customers. We provide on-site services with customers,” he said, adding that Grainger offers customers the opportunity to work with sales reps and a fulfillment system designed to “make sure that we get complete orders to customers next day.”

“I would say on almost every dimension we are different,” he added.

In Canada, where Grainger operates AcklandsGrainger.com, the company said it had completed its turnaround efforts, which produced $45 million in savings and resulted in a profitable fourth quarter.

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For the fourth quarter ended Dec. 31, 2018, Grainger reported:

● Net sales of $2.76 billion, up 4.9% from $2.63 billion a year earlier;

● Gross profit of $1.066 billion, up 4.3% from $1.022 billion, resulting in a gross profit margin of 39.2% (accounting for a new revenue recognition standard), unchanged from the prior year;

● Net earnings of $209 million, up 38.4% from $151 million.

For the full year ended Dec. 31, 2018, Grainger reported:

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● Net sales of $11.22 billion, up 7.6% from $10.43 billion the prior year;

● Gross profit of $4.35 billion, up 6.1% from $4.10, resulting in a gross profit margin of 39.0%;

● Net earnings of $782 million, up 33.4% from $586 million.

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