Conditions in the industrial distribution market continue to be lackluster without a clear positive catalyst in sight. Eventually, the Fed's rate reduction of 250 basis points should have a positive impact on the economy, but economic indicators remain weak, as does industry growth. During this time, some industrial distributors have taken the opportunity to reduce costs and position themselves for the future.

Some initiatives reduce near-term costs, while others are investments for future growth. This month, we review the branch and personnel actions taken by several of the large public industrial distributors that we follow.

How industrial distributors are adjusting their branches during the current slowdown is perhaps the most divergent factor, ranging from aggressive store openings to significant store closings. At the one extreme, Fastenal has aggressively opened 84 branches — a 9.4 percent increase from year-end — in less than six months. Grainger plans on adding a few stores this year, but the net total may be close to a wash. MSC Industrial is also not motivated to open new branches in the near term.

At the other extreme are companies like WESCO and Hughes Supply who have closed or sold branches. WESCO closed 14 locations and Hughes simply sold its pool and spa division, eliminating some 40 branches, by our estimates.

While it seems that all companies are closely watching corporate headcount, most are also focused on upgrading and supporting the ranks of the salesforce. MSC has been most aggressive in adding salespeople — nearly 100 since year-end. Most of these are experienced, productive salespeople, which means they should be less of a drag on near-term results as inexperienced people would be. Similarly, Fastenal has been reallocating salespeople from less productive branches into new branches. Hughes has had a hiring freeze on since April and WESCO announced significant headcount reductions.

Whether companies are opening or closing branches, adding or reducing headcount, they all have one common goal — to position themselves to "springboard" out of the downturn. So far, we're encouraged by the actions taken and believe most of the companies mentioned above will emerge as leaner and more competitive entities.