Grainger Confirms Industrial Market

 It’s earning season and with it the comes the opportunity to see how manufacturers and a few distributors are doing … or, in many cases, to confirm what many may already know … that the electrical industry, for many, has been slowing since June.

First up is Grainger.

• According to its 2015 Fact Book, electrical represents 6% of Grainger’s sales, lighting is another 5%, motors and power tools are 2% each .  While it isn’t necessarily a direct competitor, they are a significant player in the industrial marker as well as in the institutional segment (healthcare, government, education).  Their biggest value propositions are the ability to aggregate purchases (electrical, jan san, safety, industrial supplies and much more) and their ability to focus on process savings (integration into procurement systems, storeroom management, and more.)
• And distributors are envious of their margin … down to 41.9%. This is down 110 bps (or from 43%) but remember that Grainger sells to many different audiences, has private label products and sells on value vs being price driven – a different pricing model.)
• So, what are they saying…
  • Performance impacted by oil & gas, strong US dollar, China’s economic slowdown, ISM purchasing managers index down to 50.2 (indicates economy no longer in expansion mode), the Canadian dollar being down 21%- and Grainger’s Canadian business is down 23.4% due to the Canadian dollar, copper and the Canadian oil & gas market – copper being down 22%, cold roll steel down 25% and crude being down 60%.  In other words, commodities are down and that has impacted the industrial market.
  • Grainger announced the closing of 26 locations in the US and reduced its US workforce by 170 people. And they expect more in the coming quarter and next year.  Given that Grainger is doing this, it would not be surprising to see other industrially-oriented, and public, distributors and manufacturers do the same, especially since few see commodities significantly improving over the next 6-9 months.
  • At the same time, they are investing in salespeople … essentially either trading non-revenue roles for revenue roles or investing in geographic areas where there is growth and reducing in non-growth areas.
  • They are going after “medium” sized customers, which could generate more competition for electrical distributors.
  • Overall the company, organically, was down 1%.  All of the pluses and minuses due to acquisitions, foreign exchanges and more resulted in a -1%.
  • Interesting that one of their reasons for a reduction in margin is lower supplier rebates as these are tied to volume.  Something that distributors may want to keep track of for themselves (and product mix can affect this.)
  • The U.S. accounts for 78% of Grainger sales … and were flat for the quarter and a -2% in September.
    • Commercial, light manufacturing, retail and government were up low singe digits.
    • Contractor was down low single digits
    • Heavy manufacturing was down mid-single digits
    • Natural resources (oil, gas, mining) down high teens.
  • Canada represents 8% of sales.

And it was interesting that there was no mention of eCommerce in what we saw.

So, while we don’t know what Grainger’s electrical business is doing, we do know that “misery likes company” so, for distributors in industrial markets, here’s confirmation that the industrial market is in a decline and that the outlook, unfortunately, doesn’t look too robust.

How are you finding Grainger as a competitor in your market? Is their value proposition too difficult to compete against or, with companies seeking cost savings, are you able to leverage your electrical expertise and reduced costs (just by comparing gross margins) to gain some business?

Manufacturers, what is your performance re Grainger (and please respond anonymously).