Success in the new economy

By Jeffrey Germanotta -- Industrial Distribution, 5/1/2000

As the market continues to fuss over the prospects of new economy stocks versus old economy stocks, W.W. Grainger lately has been in the sweet spot. Shares of Grainger increased 31 percent to $49.48 from March 8 to April 7. The reason: Grainger has assembled a compelling "click and mortar" business model. Investors, sensing that fulfillment and brand equity still have a role in the new economy, have noted that Grainger offers both qualities-plus impressive e-commerce functionality. To date, Grainger boasts a $250 million revenue run-rate for Grainger.com, and a $50 million revenue run-rate for FindMRO.com.

To be sure, Grainger has made an enormous bet on B2B e-commerce. This year, Grainger expects to spend $110 to $120 million on Internet-related technology enhancements and marketing initiatives. Meanwhile, Grainger recently launched its latest e-commerce venue, TotalMRO.com, a vendor-neutral e-marketplace positioned to link multiple manufacturers and distributors to increasingly popular trading communities created by leading enterprise software vendors, such as Ariba. TotalMRO.com employs technology from BEA Systems, Requisite Technologies, and webMethods.

Meanwhile, Grainger is busy developing its partnerships with leading enterprise software vendors, such as Ariba, Commerce One, Oracle, SAP, Intelisys, and PSDI. As an early adopter of Web-based procurement, Grainger is viewed as an excellent supplier with which to partner-often earning Grainger the right to acquire equity stakes in newly formed public companies. In fact, Grainger recently reported that its $25 million investment in various B2B companies during 1999 was worth $155 million at the end of 1999-an astounding $130 million unrealized gain. While unrealized gains come and go in volatile markets, the underlying message of the investments is clear. Often, the "clicks" need the "bricks" as much as the "bricks" need the "clicks."

Jeffrey Germanotta is senior vice president of equity research at R.W. Baird & Co., Milwaukee, Wis. He can be reached at (414) 765-3672 or e-mailed at jgermanotta@rwbaird.com.