Industrial products distributor MSC Industrial Supply will continue to invest in ecommerce as an important sales channel even though digital sales aren’t growing as fast as in the past, CEO Erik Gershwind said today.

MSC Industrial Supply Co., a multibillion-dollar distributor of metalworking and other industrial products, reported a slight drop in total net sales to $824 million for the first quarter of its 2020 fiscal year. But unlike in years past, ecommerce sales didn’t provide quite the boost in revenue.

We will continue to invest in ecommerce, for sure. Customers want to buy electronically.
Erik Gershwind, CEO
MSC Industrial Supply Co.

Ecommerce sales inched up barely in the quarter, which ended Nov. 30, but remained virtually flat at $499.9 million, compared with $499.8 million a year-earlier quarter.

By comparison, in the first fiscal quarter of 2019, ecommerce sales increased 8.7% over the first fiscal quarter of 2018. As a percentage of total net sales, ecommerce in recent quarters has hovered around 60% after steadily increasing in recent years.

But ecommerce continues to be an important channel for technology investment, CEO Erik Gershwind said on a first-quarter conference call with investment analysts. MSC defines ecommerce as sales through its flagship MSCDirect.com ecommerce site, internet-connected vending machines, vendor-managed inventory systems, electronic data interchange, and other electronic portals.

Investing in ecommerce

“We will continue to invest in ecommerce, for sure,” he said. “Customers want to buy electronically.” Indeed, even though ecommerce didn’t grow as sharply in the first fiscal quarter as it has in the past, it still inched up as total sales dipped, accounting for 60.6% of total sales, up slightly from 60.1% a year earlier.

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But Gershwind noted that he’s less concerned now about increasing ecommerce as a percent of total sales as MSC focuses more on providing vendor-managed inventory and other services as a “mission-critical partner” to manufacturers in its customer base. This will reposition MSC from being a “spot-buy-only supplier to a mission-critical partner to manufacturers” in its customer base, he said.

Spot-buy refers to customers’ purchases of products as they need them, typically in small quantities, with orders often placed late in the day for shipment the following morning. That can add to higher operating costs compared with vendor-managed inventory systems, where customers plan ahead for orders that are typically shipped in bulk, Gershwind said. He added that MSC expects the shift to more vendor-managed inventory will improve its gross profit margin, which has declined of late.

Extending the supply chain to customers’ factory floors

Still, focusing more on vendor-managed inventory includes one of MSC’s strongest areas of ecommerce—sales through its internet-connected vending machines placed at customer locations.

“We are expanding our supply chain onto our customers’ plant floors through inventory management solutions, primarily vending and vendor managed inventory,” Gershwind said. “Since the start of fiscal 2013, revenues to customers with [inventory management] solutions are up 1,800 basis points (18%) and approaching half of total sales.” A basis point is equal to 0.01%.

He added that MSC expects to see continued growth in vendor-managed inventory, which tends to produce higher customer-retention rates and increase customer lifetime value.

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MSC’s formal corporate name is MSC Industrial Direct Co. Inc., but it generally goes by MSC Industrial Supply Co., the name of its primary division.

For the fiscal first quarter ended Nov. 30, MSC reported:

  • A 1% year-over-year drop in total net sales to $823.6 million;
  • An 11.8% drop in net income to $65.4 million;
  • Gross profit of $347.2 million, resulting in a gross profit margin of 42.2%, down from 43.0%.

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