Different Models Part 2: Grainger 2020 Q2

Grainger’s 2020 Q2 differed significantly from Rexel. It’s lessons focus on diversification, sourcing flexibility as a sales tool, focusing on serving selected markets in a crisis.

From it’s Q2 earnings call and presentation with a focus on what could be important to electrical distributors and electrical manufacturers:

• Sales to essential businesses (healthcare, government, and others deemed “essential”) were strong. Sales to non-essential bottomed in April and have been sequentially improving, but not at pre-pandemic levels. (it’s interesting how they are thinking about their business in segments, beyond company size)
  • By Segment:
    • Retail up high 30%
    • Wholesale down mid single digit
    • Commercial down mid-20%
    • Transportation down low double digits
    • Contractor down low double digits
    • Government up high teens
    • Healthcare up high 40%
    • Light manufacturing down low single digits
    • Heavy manufacturing down low 20%
    • Natural resources down mid 20%
    • (these provide some benchmarks for distributors to consider in considering their customer segments)
• <3% of staff on furlough (Rexel, globally, had 16%)
• Overall sales down 1.8%, but …
  • MRO market down 14-15%
  • Sales of non-pandemic related products down “mid-teens” (says growth comes from PPE products and highlights challenges in the MRO market … primarily industrial as well as educational institutions.)
    • Pandemic related sales up about 70% in the quarter!
  • US
    • Up about 1% for the quarter, 4% through the first half
• Investing in a new PIM to support digitalization initiatives; have upgraded marketing capabilities and internal talent as see these as longer-term differentiators.
• Customers that have an “embedded solution” such as KeepStock or EDI Pro account for almost 60% of revenue (and are account retention and penetration tools. This is a reflection of being “tight” with the customer and is a different definition of a “salesperson.”)
• Sourced high demand products from non-traditional suppliers which resulted in increased freight costs and handling costs, which decreased margins as didn’t invoice for all incremental expense.
• Zoro sales increased in June by almost 10% and July growing faster. (Remember, Zoro is online only. We’ve also heard of some electrical / lighting suppliers expanding their sales channel by uploading and syndicating content to Zoro to participate in this “marketplace”.)
  • Now have 4.4 million SKUs online
  • Expect continued product adds to represent 50% of sales growth (reinforces that distributors should continuously add items to their webstore … and perhaps offer some products only through this channel to drive sales.)
• Early July showing sales up mid-single digits
• Feel has gained share.
• Expect to see elevated levels of PPE usage from “traditional” customers for foreseeable future, which was defined as “at least the next 1 ½ years and probably beyond”. (hence a growth product category and one that distributors should review for individual account usage / penetration so they can be a “one-stop shop”)
• Have acquired more new medium sized customers than have ever had because of Grainger’s access to inventory. Expect to remain “inventory heavy” for remainder of 2020 and into 2021.

So, some Grainger takeaways …

• Being embedded / connected with the customer
• Quantity counts on websites
• Digital engagement / marketing and marketing talent / strength as a competitive force
• Sourcing as a sales tool
• Focusing on customer segmentation can drive performance.

A tale of two models … and execution.