Web strategies impact stock prices
By Jeffrey Germanotta -- Industrial Distribution, 3/1/2000
Since the beginning of the year, several publicly traded industrial distributors experienced stock price appreciation driven, in part, by stronger sales growth trends and greater recognition of their emerging e-commerce strategies.Fastenal, MSC Industrial Direct, and W.W. Grainger, for example, have seen their stock prices rise 2.2 percent, 1.4 percent, and 6.7 percent, respectively.
An improved sales performance is believed to be a function of several factors.
First, gradual improvement in the U.S. industrial economy, triggered by improvements in the global economy; second, a modest amount of incremental fourth quarter sales as insurance against Y2K concerns; third, information technology upgrades -- which distracted sales personnel from their primary goal of servicing customers -- have diminished; and fourth, commodity price deflation is abating.
Brand recognition, breadth and depth of product and service offerings, and strong fulfillment capabilities also have given rise to greater demand for leading industrial distributors to become strategic partners with many emerging B2B e-markets and exchanges. Wall Street is growing in its understanding that leading distributors with digitized product catalogs, hosting their own Web sites, and partnering with e-commerce leaders (e.g. Ariba, Commerce One, Datastream, PSDI, and ProcureNet), are in a position to gain market share as an increasing proportion of B2B commerce is conducted over the Internet.
The turning point in investor psychology appears to have taken place this past holiday season, as many B2C e-tailers failed to manage the flow of products to the consumer. The resulting backlash forced the investment community to rethink the importance of fulfillment.
This new enthusiasm for fulfillment services --along with emerging partnerships between industrial distribution leaders and e-commerce platforms -- heightens the prospects for improving valuations among distributors with effective e-commerce programs.
Jeffrey Germanotta is senior vice president of equity research at R.W. Baird & Co., Milwaukee, Wis. He can be reached at (414) 765-3572 or e-mailed at jgermanotta@ rwbaird.com.
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