Still a pioneer

W.W. Grainger makes another stride in the industry's e-business race with the recent upgrade of Grainger.com

By -- Industrial Distribution, 11/1/2000

Lake forest, Ill.-Five years after establishing itself as a pioneer in the online business-to-business world, W.W. Grainger continues to build on its "first-mover" advantage.

The industry's largest distributorship hasn't rested since its first Web site launched in 1995, investing $120 million dollars in Internet initiatives this year alone. To date, Grainger has five Web sites that offer everything from catalog shopping to online auctions.

Earlier this fall, the firm made yet another stride in the e-business race with an upgrade and re-design of its flagship site, Grainger.com. It is the first major re-design of the site since 1995 and the improvements come amid a healthy skepticism in the investment community over just how much Grainger is spending on its overall e-commerce plan.

The enhancements to Grainger.com are aimed at increasing customer satisfaction. While Grainger executives believe that being a first mover in the Internet economy is important, they also know that attracting and keeping both old and new customers will be the keys to long-term success. Grainger logged $142 million in online sales through the end of September, and expects that figure to rise to nearly $400 million by the end of the year. Grainger.com will play a key part in that growth.

Steve Braun, Grainger.com's vice president, marketing, said the new site is designed to keep Grainger on the cutting edge of customer service. Faster order processing, customer-driven content, personal shopping lists, and enhanced graphics are just a few of the added features. The prime goal, said Braun, is to make Grainger.com more user friendly and "much more personal."

"Grainger has a commitment to being a significant first user of technology," said Braun, adding that, "[We're] going to continue to push that envelope, to address customers' needs online."

Industry analysts agree that Grainger must continue to push the envelope in order to maintain its leadership position. But they also admit the firm has its work cut out for it. Grainger finished 1999 with a four percent increase in sales and a 24 percent decrease in earnings. Sales for the first six months of this year were up nine percent compared to the same period last year. Earnings for the first six months of 2000, however, were down nine percent compared to the same period a year earlier. At press time in early October, Grainger's stock was trading at a five-year low.

Patrick Parr, an analyst with ING Barings in New York, said Grainger is making all the right moves when it comes to the Internet. At the same time, Parr said the firm will have to endure the ups and downs that come with moving a brick-and-mortar company to a point-and-click world.

Like many other business-to-business and Internet companies, Grainger got caught up in last year's online hype, when investors were paying a premium for stock in companies with the slightest potential for online success. Since then, B-to-B and Internet stocks have come down drastically, and many firms are stuck trying to balance those results against the hefty investments needed to move their businesses online.

"They have to do what they are doing," said Parr, referring to Grainger's online strategy. He added that, "it's a very painful process to endure, period-but especially while having to report results in a public domain."

Holden Lewis, an analyst with CIBC World Markets, agrees, though he's concerned by the amount Grainger is investing in the Internet and e-commerce. He points out that Grainger is spending considerably more on online ventures than competitors like MSC Industrial Direct and Hughes Supply, for example.

"They're smart to be investing in it," Lewis said. "But a prudent investor might wonder what exactly they are getting for this investment."

For its part, Grainger is staying the course and believes its latest move will mean continued growth in online sales. Braun said growth to date comes from a combination of moving existing customers online and attracting new customers via the Web. Among the new customers Grainger.com is able to reach are small and mid-sized firms who may not have been located near a Grainger branch or didn't have contact with a company sales rep, said Braun. Other new customers include businesses that have grown out of the Internet economy.

"The significant presence we have," Braun explained, "allows us to reach more customers than through the branch or via outside sales."

But all three activities are important, according to Braun, who noted that Grainger's triple-threat is its online capabilities combined with 370-plus nationwide branches and an outside sales force. The combination allows the customer to do business with Grainger in a variety of ways, and Grainger.com has incorporated that philosophy into the site upgrade. For example, a "will call" option allows customers to order online and then pick up the products at the branch of their choice.

Matt Covey, a chief engineer with property management firm CB Richard Ellis, lists the "will call" option as one of the prime enhancements to Grainger.com. Covey manages properties for CB Richard Ellis in Lincoln, Nebr., and has been ordering his MRO supplies from Grainger.com for three years. Covey does about 90 percent of his ordering online because he says it's simpler and more efficient than ordering over the phone. He buys everything from lighting to tools to plumbing supplies from Grainger.com.

"I'm pretty satisfied with how it's working," Covey said of the new Grainger.com. "They've made it quicker, simpler, their search engine is faster-and it's more comprehensive than the old site."

Other key advantages from Covey's perspective are the personal shopping lists, which speed the re-ordering process, and the quick follow-up he gets if he has questions about an order. He says a Grainger rep will respond to his e-mail questions within two hours. What's more, Covey said the ease of doing business online has caused him to order more from Grainger in the past three years.

And that's what will really make a difference going forward, according to industry analysts who say the philosophy behind online business has changed in the last year. Where once the push was to gain marketshare, now there is more pressure to prove that your business model will actually turn a profit, according to Parr.

"E-commerce for e-commerce's sake no longer attracts a crowd ... you've got to translate e-commerce into results," said Parr, adding that, "It's easy to move your existing business from a catalog sale or branch-based sale to an Internet sale. You really want to see incremental sales coming through the Internet-and it's not clear how much of that we've seen so far."