Grainger Fact Book

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Facts and Financials about W.W. Grainger

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Grainger Fact Book

  1. 1. Beyond the Box 2 012 FACT BOOK
  2. 2. About the CompanyW.W. Grainger, Inc., with 2011 sales of $ 8.1 billion, is North America’s leading broad-line supplier ofmaintenance, repair and operating (MRO) products, with an expanding global presence.Grainger is a business-to-business distributor of products used to maintain, repair or operate a facility.Millions of customers worldwide rely on Grainger for pumps, motors, hand tools, janitorial supplies and muchmore. These customers represent a broad collection of industries including healthcare, manufacturing,government and hospitality. They place orders for Grainger products at local branches, online, via fax or overthe phone. More than 3,500 manufacturers supply Grainger with approximately one million products thatare either stocked in Grainger’s distribution centers, available online or available through sourcing. Theseindustrial products are shipped either directly to customers or to Grainger branches for local availability.For more information on Grainger, visit www.grainger.com/investor.ContentsBeyond the Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A Great Company to Work For . . . . . . . . . . . . . . . . . . . . . 23Fast Facts: Beyond the Numbers . . . . . . . . . . . . . . . . . . . 2 Building Strong Supplier Relationships . . . . . . . . . . . . . . . 24Delivering Shareholder Value Beyond Expectations . . . . 4 Consolidated Statements of Earnings . . . . . . . . . . . . . . . 25Leveraging Scale with the Foundation . . . . . . . . . . . . . . . 6 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . 26Investing for Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 27Gaining Share in the United States . . . . . . . . . . . . . . . . . . 10 Historical Financial Summary . . . . . . . . . . . . . . . . . . . . . . . 28Gaining Share in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Executive and Operating Management . . . . . . . . . . . . . . 30Gaining Share in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Accelerating Growth in Asia . . . . . . . . . . . . . . . . . . . . . . . . 16 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Accelerating Growth in Latin America . . . . . . . . . . . . . . . . 18 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Going Above and Beyond for Communities . . . . . . . . . . . 20 Company Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Forward-Looking StatementsThe 2012 Fact Book contains statements that are not historical in nature but concern future results and business plans, strategies and objectives, andother matters that may be deemed to be “forward-looking statements” under federal securities laws. Grainger cannot guarantee that any forward-lookingstatement will be realized, although Grainger does believe that its assumptions underlying its forward-looking statements are reasonable. Achievement offuture results is subject to risks and uncertainties which could cause Grainger’s results to differ materially from those which are presented.The forward-looking statements should be read in conjunction with the company’s most recent annual report and Form 10-K as well as other reports filedwith the Securities and Exchange Commission containing a discussion of the company’s business and of the various factors that may affect it. Cautionshould be taken not to place undue reliance on Grainger’s forward-looking statements and Grainger undertakes no obligation to publicly update theforward-looking statements, whether as a result of new information, future events or otherwise.
  3. 3. Beyond the BoxFrom Hawaii (pictured here) to Hong Kong,millions of customers rely on Graingerfor their MRO needs.W hen Bill Grainger delivered a motor to his first customer 85 years ago, he knew there was more inside that box than just a product; it was a promise. It was his family’s name, reputation and everything they stood for: service, reliability and expertise.Today, Grainger continues to deliver on that promise, but the world looks considerably different than it did in 1927. Many forces,including globalization, technology and increased competition, are forcing businesses and institutions to think and act differentlyand ultimately, do more with less. In response, Grainger is playing a vital role in helping customers drive out unnecessary cost,reduce inventory and be more sustainable in order to compete in a dynamic world. At the same time, companies like Grainger arebeing held accountable not only for industry-leading customer service, but also for positively influencing local communities andcommitting to high standards of ethics and governance. To compete globally and continue to meet customers’ evolving needs,Grainger has to do more than just ship products; it has to go beyond the box.But going beyond the box involves more than customers. Grainger’s stewardship extends to a series of key stakeholders by providing:CUSTOMERS WITH: SUPPLIERS WITH: COMMUNITIES WITH:• The broadest product selection in • Access to a world-class supply chain • Millions of dollars to local charitable the industry and distribution network causes through team member contributions• Multiple channels that make it easier • Access to approximately two million active and a matching gifts program for them to cost-effectively manage businesses and institutions worldwide • More than 1,400 trained volunteers their maintenance, repair and operating for disaster relief and emergency TEAM MEMBERS WITH: (MRO) supply needs preparedness and response • An award-winning culture• Exceptional service in person, over • Hundreds of scholarships to trade school • Opportunities to learn and grow the phone or online students and veterans pursuing careers • Exceptional benefits in the skilled labor force• A variety of product-related services• Sustainable solutions, products and SHAREHOLDERS WITH: services for their MRO supply needs • Strong, steady financial performance • Consistent, top-quartile returns • 40 consecutive years of dividend growth W.W. GRAINGER, INC. AND SUBSIDIARIES 1
  4. 4. Fast Facts: Beyond the Numbers 38% 21,446 40 years total shareholder team (TOTAL COMPANY, AS OF 12/31/11) return in 2011 of consecutive members dividend increases Grainger’s performance goes beyond the numbers. It’s an extension of the company’s global brand that is focused on service and stewardship – to shareholders, customers, team members, communities and suppliers. Take a look. 711 branches $8.1billion in sales in 2011 1 million shares repurchased in 2011 (approximately 2011 Sales 20% Commercial 1 percent of shares 16% Heavy Manufacturing outstanding) by Customer 15% Government Category 12% Contractor 10% Other (TOTAL COMPANY) 9% Light Manufacturing 7% Retail/Wholesale 6% Natural Resources 5% Reseller $9.07 28 15th largest 2011 earnings per distribution e-retailer in the share (diluted) centers 16% U.S. and Canada 2011 Sales Safety and Security 11% Material Handling by Product Line 10% Metalworking (TOTAL COMPANY) 9% Cleaning and Maintenance 8% Pumps, Plumbing and Test Equipment 8% Hand Tools 7% HVAC 7% Electrical 6% Lighting Grainger’s common stock 4% Specialty Brands is listed on the New York 4% Other 3% Power Tools and Chicago stock 3% Fluid Power 2% Motors exchanges under the 2% Power Transmission ® trading symbol Grainger’s Minooka, Ill., distribution center is home 2011 Awards • No.1, America’s Most Admired Company, Diversified to the largest LEED Commercial Interiors Platinum facility in the world. GWW Wholesalers — Fortune • No. 100 on the Fortune 100 Best Companies to Work For® list • No. 2 among large companies on the Chicago Tribune’s In 2011, Grainger Top Workplaces list outperformed the S&P 500 by • Named one of the Best Places to Work in Information Technology — ComputerWorld • Platinum Level – Canada’s 10 Most Admired Corporate 36% and the Dow Jones CulturesTM Award Industrial Average • Ranked No. 8 in HR Executive Magazine’s Most Admired (DJIA) by for HR list 30% 1,000,000+ PRODUCTS AVAILABLE2 W.W. GRAINGER, INC. AND SUBSIDIARIES
  5. 5. United States Europe Global Trend: MRO* market size: > $114 billion (Belgium, Czech Republic, France, GLOBALIZATION Hungary, The Netherlands, Poland, Market share: < 6 percent Portugal, Romania, Slovakia, From Tokyo to Toronto, when a Next-day delivery: United Kingdom) factory’s main assembly line shuts 98 percent of customers As known as: Fabory Group† down due to a faulty part, time is of Branches: 368 the essence. Grainger customers MRO* market size: > $175 billion want fast, effective service regardless Distribution centers: 15 Market share: < 1 percent of where they operate. In response, Websites: Branches: 137 Grainger has invested in Latin www.grainger.com2 MILLION www.imperialinc.com www.supplylink.com Distribution centers: 2 Website: America, Asia and now Europe, finding ways to leverage the www.experiencedone.com www.fabory.com (Multilingual) company’s existing supply chain andACTIVE CUSTOMERS Customers served in 2011: Customers served in 2011: purchasing power for the benefit ofIN 157 COUNTRIES Approximately 1.6 million customers, More than 100,000 in the local and multinational customers. who primarily represent industrial, machine building, automotive and Using multiple channels, Grainger’s commercial and government metalworking industries. customers are able to solve their maintenance departments. † ALTHOUGH FABORY GROUP IS HEADQUARTERED IN EUROPE, IT ALSO HAS unique issues quickly and in the LIMITED OPERATIONS IN NORTH AMERICA language that is most suitable AND ASIA. for their workforce. Canada Latin America Global Trend: Asia (Colombia, Costa Rica, Dominican SUPPLIER CONSOLIDATION (China, India, Japan) MRO* market size: > $13 billion Republic, Mexico, Panama, Puerto Over the last several years, Doing business as: Grainger China, Market share: < 8 percent Rico,** Trinidad) Grainger Industrial Supply India Next-day delivery: businesses worldwide have been MRO* market size: > $35 billion Private Limited, MonotaRO Co., Ltd. 95 percent of customers forced to cut budgets, reduce Market share: < 1 percent MRO* market size: > $200 billion Branches: 172 overhead and increase productivity. Branches: 33 In order to do more with less, they’ve Market share: < 1 percent Distribution centers: 6 Distribution centers: 2 relied on suppliers to help identify Branches: 1 Website: Websites: opportunities to take cost out while Distribution centers: 3 www.acklandsgrainger.com www.grainger.com.co gaining efficiency. Grainger’s value (English and French) Regional warehouses: 18 www.grainger.com.mx proposition has never been more Customers served in 2011: www.grainger.com Websites: More than 41,000 businesses relevant. By helping businesses www.grainger.com.cn Customers served in 2011: across the globe examine their and institutions, which primarily www.graingerindia.com More than 45,000 customers, represent the mining, oil and gas, MRO spend, Grainger has assisted www.monotaro.com primarily in the hospitality, forestry, construction, manufacturing many customers in dramatically Customers served in 2011: manufacturing, and oil and and other commercial industries. More than 350,000 customers, gas industries. consolidating their MRO suppliers, **ALTHOUGH PUERTO RICO IS A U.S. TERRITORY, saving them both time and money. primarily in the manufacturing, THE COMPANY MANAGES ITS BUSINESS THERE contractor and automotive AS A PART OF LATIN AMERICA. aftermarket industries, the majority in Japan.* Maintenance, repair and operating supplies W.W. GRAINGER, INC. AND SUBSIDIARIES 3
  6. 6. Delivering Shareholder LONG-TERM VIEW Company Initiatives for 2012 and Beyond Value Beyond Expectations • Help customers manage MRO inventory. • Make it even easier for customers to do business with Grainger, anywhere at any time. Grainger is focused on delivering shareholder value that goes above and beyond other industrial distributors. • Add locally relevant products to drive growth. • Improve customer coverage. • Improve eCommerce capability to drive rapid growth. F or Grainger shareholders, growth was a key theme in 2011. Not only did shares of GWW reach new all-time highs several times over the course of twelve months, the stock outperformed the S&P 500 by 36 percent and the • Expand the capacity of the global logistics network globally. • Continue to extend Grainger’s reach in targeted international markets. • Leverage Grainger’s systems and scale to better serve DJIA by 30 percent. customers and improve cost. GWW performance versus S&P 500 and DJIA • Continue to foster a culture of continuous improvement PERIOD GWW S&P 500 DJIA across the business. 1 year 36 percent 0 6 percent 5 years 168 percent -11 percent -2 percent Financial Targets (2014 – 2016) 10 years 290 percent 10 percent 22 percent Organic Sales Growth 7 –11 percent So what is the key to Grainger’s success? Grainger’s relentless Operating Margin focus on the customer, coupled with its financial strength, has 15 –17 percent enabled the company to invest in growth initiatives such as product line expansion, sales force expansion, global supply chain enhancements, eCommerce, MRO-related services and international expansion over the last several years. This in turn helped the company gain market share at a time when the majority Grainger’s ability to gain market share, coupled with effective of competitors worldwide were pulling back on growth investments. product cost management below the rate of inflation, growing private label brands and leveraging operating expenses, will enable Emerging Stronger Than Ever Grainger to continue to deliver top-quartile shareholder returns. GWW U.S. Organic Sales Growth (Real) U.S. Industrial Production Grainger shareholders have historically seen approximately 12 Coincident 1-year recovery two-thirds of cash from operations returned to them through 8 share repurchase and dividends, while one-third has been Percent, Y-O-Y change 4 reinvested in the business for future growth. In 2011, the 0 company’s management team reiterated their intent to grow (4) the dividend at a faster rate than earnings growth over the (8) next three to five years. 3 years lagging recovery (12) Cash Generation/Deployment (2007–2011) (15) 1 year lagging recession Dollars in millions 1995 1999 2003 2007 2011 Cash from Operations Uses of Cash Grainger’s U.S. performance improved versus U.S. Industrial Production (IP) in the $6,000 most recent global recession. SOURCE: FEDERAL RESERVE BOARD AND COMPANY INFORMATION. Investing in the foundation of the business has led to Grainger’s Share Repurchases improved execution and enhanced financial performance. Over 4,000 67 percent returned to the past four years, Grainger has demonstrated how it is best shareholders positioned to gain share before, during and after a recession. In contrast, Grainger’s growth during the 2001 recession was soft Dividends 2,000 and lagged the economy as it launched into the recovery phase. Acquisitions However, Grainger’s execution during the 2008 – 2009 downturn Capital and 2010 – 2011 recovery enabled the company to return to Expenditures pre-recession performance faster than the overall economy.4 W.W. GRAINGER, INC. AND SUBSIDIARIES
  7. 7. MRO Market Opportunity Sales Operating MarginDollars in billions (USD) Dollars in billions Percent 6.4 6.9 6.2 7.2 8.1 10.5 11.4 10.7 12.0 13.0 Europe > $175B North Asia > $160B North America > $140B Latin America > $35B South Asia Middle East > $40B and Africa > $25B 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Earnings per Share – Diluted Return on Invested Capital Worldwide Market Dollars Percent > $575B 4.91 5.97 5.62 6.93 9.07 28.5 29.8 24.9 29.8 31.9 Generating cash isn’t the only way the company is creating value. Grainger’s global sourcing capability is a perfect example of how the company is improving its financial performance through gross margin expansion. Approximately 25 percent of sales of products listed in the U.S. catalog are higher margin private label products. Roughly half of these 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 sales involve products sourced by Grainger from lower cost Global Sourcing — External Sales Working Capital countries and carry margins typically 50 percent higher than Percent of Total Company Sales Dollars in billions the company’s average gross profit margin. 7.3 8.2 8.8 9.4 9.9 .97 1.38 1.35 1.37 1.31 Grainger’s Global Sourcing (GGS) arm spans approximately 300 manufacturers in 24 countries worldwide and is a significant contributor to gross margin expansion. Customers continue to look to Grainger for quality products at a variety of price points. The company is aggressively growing its direct sourcing business and diversifying its supplier base into new geographies in Latin America and Asia, as well as partners in the U.S. (See page 7 for more detail on GGS.) 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Another way Grainger is expanding margins is through operating expense leverage. The company has harvested the results of investments over the last few years, lowering operating expenses as a percentage of sales (with the exception of 2011, when Grainger made multiple investments in the company’s five growth drivers – see pages 8–9). While delivering some of the best working capital management in the industry, Grainger has also made steady progress increasing cash flow from operations. The combination of improved margins and strong inventory and receivables management has enabled the company to generate significant cash flow. In 2012, the company will continue to invest aggressively in sales force expansion, eCommerce and supply chain enhancements to continue to drive growth. Grainger added more than 1,300 new jobs in 2011 in the sales force, distribution centers and support function areas. Investors have historically viewed Grainger as a strong, steady and reliable investment, due to the dependable nature of its returns. However, given the company’s focus on aggressive market share gains and global expansion, investors are taking Grainger’s relentless focus on the customer, coupled with its financial strength, has a fresh look at Grainger as a growth opportunity. enabled the company to invest in growth initiatives including global supply chain enhancements, like the new 850,000 square-foot distribution center pictured here, in Patterson, Calif. W.W. GRAINGER, INC. AND SUBSIDIARIES 5
  8. 8. Leveraging Scale with the Foundation Grainger’s success is built on a foundation of scale advantage and superior supply chain execution. These components enable the company to do more than just deliver product – these foundational elements allow Grainger to go beyond the box to provide the best possible customer service at the lowest total cost. The company is continuing to take actions to make sure its foundation provides a powerful platform for profitable growth and a competitive advantage that others cannot easily replicate. G rainger’s foundation allows it to provide the right products, at the right time, from the right place, for all of its customers. Below is a look at some of the company’s foundational advantages. Product Breadth and Availability – Having the right products available to meet customer needs is central to Grainger’s foundation. The company continues to aggressively expand • The company is preparing to relocate its central stocking DC its product line to capture even more of its customers’ MRO in the Chicago area to a new facility in Minooka, Ill. The move spend. For example, in the United States the company’s product will increase storage capacity and allow Grainger to deliver more line has more than quadrupled over the past five years and in products next-day to customers in the Midwest. Mexico it has doubled. By leveraging its efficient inventory • In January 2012, the company relocated its DC in Saskatoon, management and deployment practices, Grainger is able to maintain product availability and inventory turns while Saskatchewan, to a new, larger facility that will house nearly continually adding new products. 50,000 products to meet the needs of this province’s expanding customer base. Distribution Center Network – Grainger is making investments in its logistics network to put more products Purchasing Leverage – Grainger works closely with its closer to its customers than the competition. This includes suppliers on product costs as well as service enhancements the recent reconfiguration of the Distribution Centers (DCs) such as shorter lead times and cycle time improvements. As in Greenville, S.C., and Monterrey, Mexico, to improve both Grainger aggregates more of its product purchases across service and efficiency. The company is also investing in more the globe, it is realizing even greater scale advantages. The capacity to meet future growth needs. acquisition of Fabory Group in Europe is a perfect example; Grainger is leveraging Fabory Group’s fastener purchasing • In late 2011, the company expertise to create synergies that benefit the entire company. In began shipping from its 2011, the company conducted more than 20 global line reviews new DC southeast of San to drive improved cost and service for all of its businesses. Francisco. This 820,000 square-foot facility will stock Information Technology – Grainger’s IT platform underpins up to 350,000 items and the company’s foundation, providing real-time information and provide improved next-day tools for all of the company’s businesses. Grainger plans to service to customers on the migrate all of its businesses in the Americas to a single SAP West Coast of the United platform based on the company’s current U.S. installation. These States. The new DC will also lower transportation costs changes will be phased in over the next several years and will and improve service by serving as a regional hub for globally allow the company to further leverage its scale while improving sourced products. operating efficiency for its growing international businesses.6 W.W. GRAINGER, INC. AND SUBSIDIARIES
  9. 9. North American Distribution Network Continuous Improvement (CI) Culture Edmonton For Grainger, execution matters. A hallmark of Grainger’s operations ouve Vancouver kato Saskatoon is its focus on engaging team members closest to the work in p Winnipeg continuous improvement efforts. In the Distribution Centers, this mout o Dartmouth approach has resulted in substantially improved inbound and ond Richmond Hill outbound cycle times and dramatically improved space utilization Janesville Cleveland Robbinsville within existing buildings. The company’s continuous improvementSan Francisco Chicago approach also emphasizes cross-functional participation and (Relocating in 2012) developing standard work processes to drive results. Kansas City Los Angeles Greenville Dallas Memphis Continuous improvement learnings and best practices are Jacksonville consistently shared across all of Grainger’s businesses, resulting in service and productivity improvements. For example, by Monterrey leveraging a small team of network and space planning experts, the company is able to ensure all of its businesses have access KEY to the best thinking in areas such as product management, Mexico City Super Regional DC inventory planning, transportation, and DC operations. Regional DC Moving in the Right Direction (defect rate) (minutes) ($ per line) ($ per team member) Order defects Outbound cycle time Packaging costs Productivity8.5 million 250+ ~61,000 Number of square Number of U.S. Number of Grainger feet of distribution leaders trained in Global Sourcing space Grainger CI problem solving products offered has worldwide in 2011 2007 2011 2007 2011 2007 2011 2007 2011 Grainger Global Sourcing As Grainger continues to drive profitable growth, adding more private label products is a key priority. These products – which include the Dayton,® Condor,® Westward,® LumaPro® and Tough Guy® brands – offer customers high-quality, low- cost products and typically carry higher gross profit margins. The engine behind much of the company’s private label offer is Grainger Global Sourcing (GGS), which works with 300 suppliers in 24 countries to provide Grainger’s businesses access to high-quality products. To reduce cycle time and ensure quality, GGS continues to build product engineering and inspection capabilities closer to its Asian supplier base. At the same time, GGS continually evaluates its supply network to minimize risk and ensure access to low-cost products throughout the world. In 2011, GGS introduced a low-cost tool line for Mexico under a new brand, Contender,® and provided a new entry level Dayton® motor program for India. Both illustrate how the company consistently identifies new opportunities to leverage GGS purchasing scale and capabilities to provide locally relevant products. Grainger’s foundation allows it to provide the right products, at the right time, from the right place, for all of its customers. W.W. GRAINGER, INC. AND SUBSIDIARIES 7
  10. 10. Investing for Growth [2] eCommerce Technology continues to change the way customers want to purchase and manage their MRO supplies. Grainger customers want: • A best-in-class online experience • Easy online search and real-time availability Grainger’s strategy goes beyond execution. It employs vision, • Access to Grainger through their existing desktop and creativity and a willingness to invest in future growth so the mobile systems company can deliver service that surpasses customers’ • Consistent experience across channels expectations, while outpacing traditional and nontraditional • Personalization and customization competitors. In order to allocate the right resources to initiatives that drive the greatest return, Grainger continually eCommerce is a powerful eCommerce Revenue Percentage of total company sales listens to customers’ needs while scanning the competitive element of Grainger’s 15 27 40–50 landscape. The result: aggressive investments in the five multichannel strategy, core growth drivers listed below that have yielded impressive growing at twice the rate of returns over the last several years. other U.S. channels. It is the most profitable arm of the business, creating a huge opportunity for sales and earnings growth. Grainger has [1] Product Line Expansion been a pioneer in business- 2005 2011 2015E In 2006, Grainger began a multiyear product line expansion to-business eCommerce, (PLE) program to broaden its offering worldwide. Prior to this, launching the Grainger.com® website in 1995. Today, more than the company didn’t have the extensive breadth of products 27 percent of the company’s annual revenue is generated that customers were looking for. So Grainger embarked on through electronic channels, representing $2.2 billion in sales an aggressive program to add new product lines and extend in 2011. Based on Internet sales revenue, Grainger ranked 15th existing lines both in the United States and internationally. in the U.S. and Canada on the Top 100 e-retailers of 2011. ® (SOURCE: INTERNET RETAILER’S TOP 500 GUIDE ) A broad product line and greater availability are In 2012, Grainger’s U.S. websites will continue to be enhanced to competitive advantages and a provide a fresh, new customer experience. An improved search high priority for Grainger. Fast engine will improve search results and quickly guide customers moving products are stocked to the right solution. Customers can expect new capabilities on closest to the customer in Grainger.com® that will offer more targeted search functionality local branches, while new or and a more personalized online experience. These enhancements less commonly used products are stocked in distribution centers will continue to expand the gap between Grainger and the (DCs) and shipped directly to the customer. competition, both traditional and web-based distributors. Today, Grainger offers more than one million products through [3] Inventory Management multiple channels. Both the website and the catalogs include Grainger has 85 years of inventory management experience product sourced by Grainger from lower-cost countries. The and is now making this expertise available to customers. company plans to add thousands of new SKUs over the next few In addition to consulting ® years as PLE has been key to driving share growth worldwide. with facility managers and KeepStock Accounts – U.S. On average, product line expansion has delivered 200 – 300 purchasing departments 14,000 45,000 basis points in incremental sales each year. on how to take cost out of their business, Grainger also Product Line Expansion — SKUs in U.S. catalog Thousands offers a suite of inventory 82 115 139 183 233 307 354 413 500 management services. This suite of solutions, called the KeepStock® service, allows customers to manage their 2011 2015E own MRO inventory or have Grainger manage it for them. Grainger team members can fill customer bins or vending machines, provide on-site customer service or run on-site 2005 2006 2007 2008 2009 2010 2011 2012 2015E branches at customer locations. Customer managed options,8 W.W. GRAINGER, INC. AND SUBSIDIARIES
  11. 11. such as vending, labeling and scanning, are also provided throughthe KeepStock® service. By utilizing the KeepStock® service,customers can free up working capital and manpower to address 21 27%core business needs. Countries where Grainger Total company sales has brick and mortar operations from eCommerceGrainger now accounts for KeepStock® services based on thenumber of customer locations, versus number of customers, asmany customers have multiple sites with multiple installations.Today, a KeepStock® service is present at more than 34,100 specific product categories most relevant to the local market, such asGrainger customer locations in the United States, Canada, tools and safety. With this size of facility, Grainger can enter marketsMexico, China, Puerto Rico and Panama, and the company at a lower cost and grow revenue over time. Grainger’s 2011 entryexpects the number to grow at a rate of more than 20 percent into the Dominican Republic is an example of this approach.annually. Product sales to customers using inventory management JOINT VENTURE/ACQUISITIONsolutions grow an average of two to three times faster because Acquisitions help Grainger enhance growth in new and existingGrainger is embedded into the customer’s daily operations. markets and enable the company to accelerate entry and gain[4] International Expansion local market knowledge when entering new markets. In countriesThe global MRO marketplace holds approximately $575 billion where it already has a presence, Grainger is focused on acquisitionin opportunity. There is plenty of room for Grainger to leverage targets that help build out a product line or service, capture a nicheits purchasing scale and expand in these emerging markets. customer segment or extend its geographic reach.For multinational customers, finding reliable MRO products in In countries where it doesn’t already have a presence, Graingerfar-off regions of the world can be difficult and expensive. is targeting acquisitions or joint ventures to enter markets thatCustomer demand, combined with fast growth in emerging are complex but highly attractive. For example, in Europe,markets and increasing opportunity from small and medium- Grainger acquired Fabory Group to further penetrate the Centralsized local customers, has served as a catalyst for Grainger’s and Eastern European markets and leverage the company’sinternational strategy. fastener expertise.As Grainger expands globally, it is focused on Latin America Market Entry Continuumand Asia. Opportunities outside these regions will be pursued Investment scaled to market based on attractivenessif they present a strong, strategic fit, as was the case with theFabory Group acquisition in Europe in August 2011. The Joint Venture Acquisition Market attractivenessemerging market opportunities in Central and Eastern Europe, Start-up: Small Branchcombined with the opportunity for purchasing synergies, madeFabory Group an ideal candidate for acquisition (see page 14 Authorized Resellerfor more on Fabory Group). High-growth markets like Asia, Trading DeskLatin America, and Central and Eastern Europe provide the right Local Sellercombination of size, competitive landscape, business and Level of Investmentpolitical risk and supply chain leverage. [5] Sales Force ExpansionEXPORT Complementing product line expansion is sales force expansionGrainger’s export business started in 1984 and today serves and the launch of the Territory Sales Representative (TSR)customers worldwide through a combination of a local, dedicated program. While many competitors cut back on customer-facingsales force and its reseller program, including authorized resources during the recession, Grainger continued to addresellers in countries such as Guam, Singapore and Qatar. sales representatives, hiring more than 500 TSRs in the UnitedThe export business serves a range of customers from the U.S. States since 2009. The TSR program is designed to prospectmilitary to large multinational companies to local businesses. for new customers and grow existing small to medium-sizedTRADING DESK customers. TSRs are located in more than 30 markets includingThe trading desk is a new, small-market concept where Grainger Los Angeles, Calif.; Dallas, Texas; and Washington, D.C. Beyondhandles the product needs of local customers, including duties the United States, Grainger added approximately 200 salesand freight, in local currency. Grainger opened its first trading representatives in Canada, Latin America, Asia and Europedesk in Trinidad in 2010 to serve the oil and gas, manufacturing in 2011. Increasingly, Grainger’s sales representatives areand tourism segments. becoming subject matter experts in areas such as manufacturing and healthcare to gain greater customer intimacy and provideSTART-UP: SMALL BRANCH the best solution possible. This vertical segment approach isIn markets with midsize MRO potential, Grainger’s strategy includes built off of Grainger’s past success deploying a dedicatedestablishing a local presence through a smaller branch and carrying government sales force. W.W. GRAINGER, INC. AND SUBSIDIARIES 9
  12. 12. Gaining Share in the United States Grainger is the leading distributor of MRO products in North America and the largest MRO supplier in the United States. For 85 years, the company has delivered products, services and solutions that drive cost savings, efficiency and productivity above and beyond customers’ expectations. In the United States, this ranges from inventory management solutions and safety products to eCommerce and a variety of options in between. e Commerce is just one way Grainger is gaining share in the United States. As customers migrate to purchasing even more online, their consumer website experiences and expectations transfer to the B2B • Real-Time Product Availability (RTA) – RTA answers commonly asked customer questions, such as: Do you have it? How do I know? When can I get it? Where can I get it? Customers now have visibility into real-time shipping information and local arena. Grainger is improving its best-in-class website and has branch product pickup availability so that they can make an made significant enhancements to the user experience, informed purchase. Imagine a contractor in need of a part – both online and mobile, to make it faster, easier and more quickly! They log on and know exactly which branch to visit personal, including: for the product. • Customer-Focused Design – 2011 put the customer in • New Platform – Grainger’s new platform provides a fresh look focus on Grainger.com.® Comprehensive product information, and improved functionality to Grainger.com.® In 2011, Grainger detailed photos and easy-to-access account management began a staged migration of its U.S. customers to the new site. tools on every page are just a few of the enhancements that The new platform makes it easier to implement enhancements to make the site more intuitive for customers. It’s easier than ever the site. Grainger can execute changes in minutes, which makes to buy on Grainger.com.® it easy for the company to respond quickly to customer needs. • Click to Call/Chat – The new “Click to Call/Chat” feature • Grainger.com® Mobile – Order Fulfillment Migration layers the great service provided to customers on the phone Grainger’s new mobile website, As a percent of total U.S. sales and in the branches into Grainger.com.® If a customer has a launched in December 2011, is Picked up Shipped 100% question when shopping on the site – about products, technical accessible from ANY smartphone. specifications, or account information – a knowledgeable Customers now have access to 75 representative is just a click away. Customers can chat an optimized Grainger.com® no instantly online or enter a phone number for immediate dial matter the location: job site, 50 back for a live conversation. truck, plant floor, garage or maintenance shop. Using the 25 new mobile website, customers can log into their accounts, view 1985 2000 2010 To optimize its footprint and reallocate resources to higher pricing, confirm local product availability, approve pending orders, growth opportunities, Grainger closed 35 branches in the and check out – with the product ready for pickup at a Grainger United States in 2011. The company has also invested more in branch or shipped directly to their office or job site. Grainger.com® and inventory management services, hired more Time and technology, combined with a need for more efficiency sales representatives, and retrained team members for new and productivity, have shifted the ways in which customers want to roles in customer service, KeepStock® services and eCommerce. do business with Grainger. Customers want to spend more time in During this change, both customer satisfaction levels and team their facilities and less time out of the office. They want suppliers member engagement survey results increased. to bring the products to them. So they are ordering online, Despite this shift, Grainger branches will remain a crucial part installing an inventory management solution, or having products of Grainger’s go-to-market strategy as customers continue to delivered directly to their site. As a result, Grainger’s local footprint demand same-day service for their just-in-time and emergency is evolving to become more relevant to customers’ needs while MRO needs. ensuring the greatest return on investment for the company.10 W.W. GRAINGER, INC. AND SUBSIDIARIES
  13. 13. 2011 Sales by Customer Category — United States 22% Commercial 17% Government 17% Heavy Manufacturing 12% Contractor 10% Light Manufacturing 7% Other 7% Retail 5% Reseller 3% Natural Resources 2011 Sales by Product Line — United States 13% Safety and Security 13% Material Handling 10% Pumps, Plumbing and Test Equipment 9% Cleaning and Maintenance 9% HVAC 8% Electrical 7% Lighting 7% Metalworking KEY 7% Hand Tools 5% Specialty Brands Branch 4% Fluid Power Distribution Center 3% Motors (As of 12/31/11) 3% Power Tools 2% Power TransmissionInnovationInnovation continues to play a key role in Grainger’s success. Dozens of ideas, ranging from customer-facing mobile applications toshowroom design to customer inventory management solutions, have moved through the company’s innovation pipeline over the lastseveral years. The innovation team takes ideas from hypothesis to launch in a four-step development process that first prototypes theidea with customers and then rigorously tests the idea’s operational and financial validity.Here’s a recent example: A large property management firm wanted to apply the same inventory management approach used in its toolcribs to the vans its technicians drive every day. Thus, the idea of KeepStock Mobile® was born. Working with the customer, the Graingerteam developed a mobile application that allows a maintenance technician to simply scan shelf labels inside their van with their smartphone.A replenishment order is then automatically sent to Grainger. The idea has since been scaled across all major mobile device platformsand adopted by many customers as a fast and easy method for reordering frequently used items.Sales Force ExpansionMRO is a relationship business and Grainger has continued to “Marc told me he was unhappy with the level of customer servicestrengthen and deepen its customer ties through the addition of from his current MRO supplier. They were never available whensales representatives such as account managers and territory sales he needed them. Marc was looking for a supplier that would comerepresentatives (TSRs). Grainger’s territory sales representative on-site and be available when called upon. I proceeded to explainprogram is one example of how an idea successfully moved my role as a TSR. After a month of showing him how Grainger canthrough the innovation pipeline. The program looked very different take time and money out of his procurement process, he was soldin pilot stage and has morphed to include a new hiring profile on Grainger. He now looks to me not only for day-to-day needsand new geographic territories, among other changes. These but as his first resourcerefinements have helped decrease the payback period, making to help solve problems.”TSRs cash flow positive in approximately 20 months. Will has had tremendous success, growing theToday, more than 500 TSRs are serving small and medium-sized relationship with Sumtercustomers in more than 30 markets across the U.S., and they are Coatings 94 percent inhaving great success. Take Sumter Coatings, for instance, a mid-size one year.business in Sumter, S.C., focused on providing its customers withpremium industrial coatings for steel, iron, propane, sinks, tubs and TSRs serve small and medium-more. Maintenance Director Marc Molyneau had been working with sized customers in more thananother supplier when TSR Will Eckhardt came calling on his facility. 30 markets across the U.S. W.W. GRAINGER, INC. AND SUBSIDIARIES 11
  14. 14. Gaining Share in Canada Going beyond the box extends across borders as well. Acklands—Grainger has been serving the MRO needs of Canadian customers for more than 120 years and is the largest industrial and safety distributor in the country. The company is focused on gaining share and accelerating profitable growth. W hile eCommerce and sales force expansion are also at play in this established market, Acklands—Grainger has gained a strong foothold and customer following through its KeepStockSM inventory management service. For more than 20 years, the Canadian team has been providing customers with a suite of inventory a local branch), the customer has realized cost savings and management solutions, ranging from on-site branches to vending reduced consumption. machines. In fact, Canada’s best-in-class inventory management Over the last five years, the Acklands – Grainger catalog program provided the foundation for the KeepStock® service in offering has more than doubled, from 41,000 to 110,000 SKUs. the United States. Sales of private label brands, which represent a lower-cost, One such example is higher-margin product offering, continue to grow from C$51 million Acklands–Grainger’s in 2007 to C$95 million in 2011 with plenty of room for growth. KeepStockSM service for These products provide additional price points for the cost- one of the largest mining and conscious customer and have been very successful in the metal companies in the world. Canadian market. The growth of the Condor® safety line is one Acklands–Grainger has such example. Acklands—Grainger grew Condor® revenues been working with this large more than 60 percent to more than C$10 million in 2011 and customer to provide their safety, will continue to leverage the brand through collaboration with industrial and material handling Grainger Global Sourcing. products for many years. The The business in Canada has also taken an aggressive stance customer mines for alloys, on acquisitions to grow and gain share. Over the last two years, coal, copper, nickel and zinc Grainger has acquired five companies in Canada, including: thousands of meters below the earth’s surface, and finding a way to stay on top of their just-in- • K&D Pratt, Industrial Division, to expand in Atlantic Canada; time MRO needs has been critical to the business’ success. • Ranson Industrial and Safety Supplies, Inc., to expand the To meet the customer’s unique needs, Acklands–Grainger has safety offering; implemented the following inventory management solutions: • Solus Sécurité, Inc., to expand the safety product and • Dedicated, branded vehicles that deliver original equipment services offering; manufacturer (OEM) materials from surface level to underground • Woseley Industrial Products (Amalgamated) Inc., to further • A fully staffed mobile maintenance warehouse 7,500 feet penetrate the Nova Scotia and New Brunswick markets; underground • Fercomat, to further serve Quebec’s natural resource • Automated dispensing machines installed at the surface, 4,600- customer base. foot level, and 7,500-foot level to provide real-time access to high In 2011, the successful integration of these acquisitions contributed volume safety supplies, hand tools and other industrial equipment 3 percentage points to the top line. The Acklands–Grainger team Through the use of automated dispensing solutions and is also continuously reviewing an active pipeline of new targets projects such as the off-site Personal Protection Equipment that could help the company expand its geographic coverage, (PPE) Program (where miners pick up their safety supplies at customer segments and product and services offering.12 W.W. GRAINGER, INC. AND SUBSIDIARIES
  15. 15. 2011 Sales by Customer Category — Canada 31% Agriculture and Mining 17% Contractor 9% Transportation 9% Retail/Wholesale 8% Heavy Manufacturing 8% Commercial 7% Government 7% Other 4% Light Manufacturing 2011 Sales by Product Line — Canada 35% Safety and Security 17% Metalworking 15% Material Handling 15% Hand Tools 8% Cleaning and Maintenance 5% Power Tools 3% Electrical Key 1% Fluid Power 1% HVAC Branch Distribution Center (As of 12/31/11) Over the last five years, the Acklands – Grainger catalog offering has more than doubled, from 41,000 to 110,000 SKUs Acklands—Grainger grew Condor® revenues more than 60 percentAcklands–Grainger has more than 170 branches across Canada. to more than C$10 million in 2011 Local Presence The Canadian team is focused on opening small branches in select markets to take advantage of growth opportunities and expand its local presence, as well as serve 8% 20+ the natural resource market. For example, in 2011 the company opened locations in Acklands–Grainger’s Number of years market share in Acklands–Grainger Petawawa, ON, to support the local Canadian Forces base there and Smithers, BC, to the Canadian MRO has been serving space, making this customers with serve the mining and forestry sectors. Acklands–Grainger plans to open 4–5 small- business the leading inventory management format branches annually in order to meet these customers’ growing MRO needs. MRO distributor in services the country W.W. GRAINGER, INC. AND SUBSIDIARIES 13
  16. 16. Gaining Share in Europe Now Grainger is delivering service and results beyond its traditional geographies. I n August 2011, Grainger announced its acquisition of Fabory Group, a Europe-based fastener distributor. This business is enabling Grainger to accelerate its growth in both mature (Western Europe) and emerging (Central and Eastern Europe) markets, while gaining more scale and relevance in fastener purchasing and distribution. With an MRO market size of $175 billion and a fastener market size of $1.9 billion, there is much potential in this area of the world. Central and Eastern Europe in particular pose an attractive growth opportunity. Throughout Europe, Fabory Group is known as the Masters in Fasteners.® Since 1947, Fabory Group has been serving small businesses, MRO professionals, original equipment manufacturers and technical wholesalers across Europe. Over the last several stainless steel fasteners. European legislation regarding steel decades, Fabory Group has expanded its geographic reach construction has also been a catalyst for the addition of structural through limited operations in North America and Asia and bolting products in 2012. With the global footprint and scale of now operates more than 130 locations in 15 countries, with Grainger, Fabory Group is also planning to add private label headquarters in the Netherlands. brands such as Condor.® In fact, prior to the acquisition, Fabory Group was a reseller of Grainger’s private label brand Westward.® Fabory Group’s products and services range from standard and specialized fasteners to tools and industrial supplies. The As a part of Grainger, Fabory Group has seen increased company’s product mix is weighted differently than Grainger’s, purchasing leverage with suppliers and is able to buy more with more than 65 percent of sales from higher margin fasteners, effectively than ever before. Another reason Fabory Group has producing gross profit margins in excess of 50 percent. been so successful is its vendor managed inventory (VMI) Fabory Group’s highly trained workforce and A2LA (American program. Since it was developed more than 20 years ago, Association for Laboratory Accreditation) accredited laboratories Fabory Group’s VMI systems have helped thousands of provide technical support, logistics solutions, inventory customers manage their inventory. Today, more than 2,500 management and much more. Customers have access to customers use Fabory Group’s VMI systems, and 75 percent more than 80,000 products in Fabory Group’s offering through of Fabory Group’s 250 OEM customers are on VMI. a variety of channels, including its 130+ shops, more than Value added services like VMI make Fabory Group a partner, 250 sales representatives, and a multilingual website. giving the company the added advantage of close and Fabory Group is expanding its shop presence over the next continuous interaction with its customers. In return, customers several years, focusing on high-growth emerging markets such are able to benefit from the ongoing developments by Fabory as Romania, Hungary and Poland in Central and Eastern Europe. Group’s supply chain specialists, like the recent introduction The combination of services, high-quality products and know- of its Optical Bin service. how make it easy and convenient for customers to get what Fabory Group’s Optical Bin system makes use of special they need, when they need it. shelving racks that contain sensors for each bin location. Each Similar to other Grainger markets across the globe, Fabory sensor monitors whether a space on the shelf is filled or not Group is focused on product line expansion as an additional and determines if the stock level is sufficient or requires driver of growth. In 2011, Fabory group added several new attention. This information is sent to a customer-specific Optical product categories: woodscrews, hole saws, anchoring products, Bin website, showing the real-time status of each individual hose clamps (from private label brand MaxxFast®), and additional location in each rack and on each shelf.14 W.W. GRAINGER, INC. AND SUBSIDIARIES
  17. 17. 2011 Sales by Customer Category — Europe 35% Heavy Manufacturing 22% Other 18% Light Manufacturing 13% Retail 12% Contractor POLAND UNITED KINGDOM NETHERLANDS BELGIUM CZECH SLOVAKIA REPUBLIC 2011 Sales by Product Category — Europe FRANCE HUNGARY 84% Metalworking ROMANIA 6% Other 5% Hand Tools 5% Power Tools PORTUGAL KEY Branch Distribution Center (As of 12/31/11)Stork Technical Services relies on Fabory GroupStork Technical Services (STS) is a worldwide knowledge-based organization whichensures that companies in the chemical, oil and gas, and energy industries as well as otherproduction sectors can operate successfully without interruption. STS services vary frominstallation, maintenance, consultancy and technical management to highly specializedactivities such as the production of turbo components or the overhaul of gearboxes.High Quality Standards“Our focus is serving the chemical, oil and gas, and energy sectors. If a customer’s installationstops, the effects are enormous,” says Christel Rosbag, Advisor, Marketing & Communication Fabory Group’s Optical Bin system makes use of specialfor STS. “Therefore, our people must be able to use the best possible materials. We need a shelving racks that contain sensors for each bin location.fastener supplier that can meet our high quality standards – a supplier who can deliver ourorders promptly, regardless of the location where we are working.”Perfect Logistical Performance“I view Fabory Group more as a partner than as a supplier,” states Rob Hogeveen, SeniorContract Manager at STS. “Their logistical performance is perfect. We can even call them 89,000 3.10.47on the weekend if we need some stud bolts urgently. Fabory Group suits us perfectly. Date J.M. Borstlap Number of products and his sons wentThey are reliable, they think along with us and deliver quality.” in stock at into business as Fabory Group Borstlap & Sons, selling fasteners andAttention to Detail MRO productsRien van IJzendoorn, responsible forpurchasing at STS, is happy to order withFabory. “Fabory Group has an eye for detail,”he explains. “We use a lot of metal end studs.Many suppliers deliver them full of the razorsharp metal chips that result from theproduction process. Fabory Group washes 2,500 137 Number of Fabory branches andthese metal end studs first. This may seem Group customers whotrivial, but for the people who work with Rien van IJzendoorn, Rob Hogeveen and Christel utilize the Vendor Managed Inventory 2 distribution centersthem this is extremely important.” Rosbag of STS. program (VMI) W.W. GRAINGER, INC. AND SUBSIDIARIES 15

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