Fastenal Co. checks in at No. 11 on this year's Big 50, with $1.81 billion in sales. That's no small achievement, but consider this: If we ranked the top distributors by their brick-and-mortar presence, this distributor of fasteners, tools and related MRO supplies would jump to the No. 2 spot. With more than 2,000 stores throughout North America, Fastenal is second only to top-ranked Wolseley plc, which has 5,000 locations around the world.

Increasing its market presence is at the heart of Fastenal's mission, as senior vice president and CFO Dan Florness explained during a financial markets conference earlier this year.

“In our mind, it's all about the stores,” he told attendees at the BB&T Capital Markets Manufacturing & Materials Conference, held in New York March 21-22.

Fastenal has opened hundreds of stores each year for the last several years and plans to open between 260 and 360 this year. Most will be in the United States, but the company's goal is to have a network of 3,500 stores throughout North America by 2011.

Fastenal continues to expand at a fast clip despite the slower economy, which has taken a toll on its OEM business. Following a trend that began last October, Fastenal's first-quarter earnings report revealed weaker-than-expected sales growth in January and February, though business improved in March. Overall, Fastenal's sales grew 13.3 percent in the first quarter and earnings were up 12.9 percent compared to 2006.

Fastenal's CEO Will Oberton says he's concerned about the economy, but adds there's still opportunity for industrial distributors.

“We believe that there still is plenty of business out there, but we just may have to work a little harder to find it,” Oberton says.

To that end, Fastenal is focused on improving operations and customer service. A new freight model aims to save costs by better utilizing the Fastenal trucking network; its “CSP II” program seeks to improve service by arming stores with more products and personnel; and its China-based global sourcing initiative continues to grow. Oberton talked about these and other issues in our expanded Big 50 interview in March.

Industrial Distribution: Following a slowdown in some of your markets late last year how is 2007 shaping up? What are your economic concerns, and where are the bright spots in the economy?

Will Oberton: Our major concern is that we believe the manufacturing economy is slower. The commercial construction industry is moving along better than our OEM business. …The MRO business is OK, the construction business is good, and the OEM business is slower. So the macro concern is the general economy in North America.

We believe that there still is plenty of business out there, but we just may have to work a little harder to find it. … [The slowdown was felt] more so on the larger production accounts, but it was felt throughout our systems.

ID: Can you talk about Fastenal's ongoing customer service project, or CSP II? What's the goal of the project and how will it impact operations?

Oberton: The goal of the project, the overall CSP project, is to become a better service provider. CSP II is just an extension of that. We're adding a broader range of products, because we want to be the best local distributor in every market we serve. We're not there today—in many markets we are, but we're not there everywhere. … We thrive on the challenge and [making] the changes needed to be the best at what we do.

ID: Fastenal is adding new stores at a rate of 13 percent to 18 percent a year, and you've said you plan to continue that growth. How many stores do you think the company can support in North America, and are you targeting any particular geographic markets?

Oberton:: What we publicly state is that North America can support 3,500 stores. The majority of them would be in the United States. We don't have any particular geographic focus … we're opening throughout North America.

The most difficult thing in opening these stores is developing the people we need to run them. But by spreading it out and opening across the entire country, it's not a huge burden in one geographic area.

ID: What about expansion overseas? What is the status of Fastenal's operation in China?

Oberton:: We'll continue to expand overseas at a very consistent rate. Our Chinese operation is mainly a purchasing office. … We feel it is very important to provide quality products to our customers, and it's difficult to do that using trading companies. …We know customers demand good value, and I believe the only way to provide that is by having a lot of feet on the street and doing a tremendous amount of checking. We have a fully certified lab for testing in Taiwan, and we're opening one in the Shanghai area—again, to assure quality to our customers. They all want price, but they don't want to accept poor quality.

So, the opportunities are great for us there. We have a handful of [employees] from our U.S. operations that work there … and we've been hiring, recruiting, training and training. And it's going to pay off. It already is paying off, but it will [pay off] even more so in the future because we'll be able to provide customers with the quality products they need at the price [they want].

ID: Are you looking to any other countries for growth—either in sourcing products or in servicing customers?

Oberton:: We're looking around at this point, but there's no focus [on any particularly markets].

ID: What are you doing to attract and retain talent at a time when so many distributors are struggling with the issue?

Oberton:: [Recruiting and retaining employees] is hard work, there's no question. …But I believe there are always many, many people looking for great opportunities. So, if we sell what we have as a great opportunity, we should be able to continue to find the high-quality people we need. The biggest thing we offer is the opportunity to grow in our organization. … But it's always hard work; [potential employees are] not just falling all over our doorstep to get in. Once we have them, we spend a lot of time and money training them.

ID: Fastenal hires a lot of part-time workers, particularly college students in the company's local markets. How has that helped?

Oberton:: We've been doing that for a long, long time, so it's not anything new, but we're pushing it harder [today]. A lot of the work in our stores can be done by smart, motivated people. … If we can hire that person, pay them a good wage on a part-time basis while they're in school, then when they graduate, they'll say, 'Is this something I can see myself doing for the next 10, 15, 20 years?' At the same time, we can say, 'Is this someone I want to make a long-term investment in?' Essentially, it's like having a [multi-year] interview … A lot of our best employees started as part-time people a long time ago. ...And personally, what I love about it is the energy of these college students. Work is just another part of life for them—they bring a spark to our business that you don't see in all businesses.

ID: What is your view of the Internet and its role in distribution? How important is a good Web strategy to your business?

Oberton:: I think a good Web strategy is very important. But I look at it differently, and I'm not sure if I look at it correctly. Really, for us, a good Web strategy is the ability for our existing customers to easily access data or information on products, place orders and collect or receive information. As an ability to go out and attract new customers, [the Internet] has not been as successful for us. It's really about creating a better supply chain tool; that's really what we have focused on. We have to take a slightly different approach to it because we have all the brick and mortar out there. … But it is very important.

ID: Fastenal's annual Industrial and Construction Expo has become a big industry event since its inception five years ago. Why do you think it's been so successful?

Oberton:: It's a big investment in time and money, but whenever you can get your customers to give you their undivided attention for a few days, that's a big win. The reason it's been successful is that the people internally who organize it for us do a fantastic job, our suppliers do a fantastic job, and our people in the field do a great job of selling it. …If you take a good idea and then put a lot of energy behind it, it will be a success. …And we continue to get great feedback from our customers that attend.

ID: Fastenal has evolved from being strictly a fastener company to more of a general-line distributor by increasingly adding products. What new products is the company considering? What percentage of your sales is from products other than fasteners?

Oberton:: Fasteners are about 54 percent of our sales. We're continuing to look at expanding all of our products—our fasteners, as well. It really comes from customer demand. We have a customer base that's broad enough … to provide feedback when there's something that's lacking in our product line. If you have enough feet on the street and enough customers out there, there are very few things [you won't] hear about. …Our goal is to continue to look at the opportunities out there.

On the other hand, our real goal is to become very good at all the products we have. I believe we're a really good fastener company. And we're good at the rest, but not nearly as good as we are at fasteners.

ID: How does the growth of major chains such as HD Supply and W.W. Grainger impact Fastenal? How do you continue to grow in an increasingly competitive market?

Oberton:: The majority of industrial distribution is still done by small companies … HD Supply, Grainger, MSC, Fastenal and many others are really taking share from the smaller distributors. We're taking a little bit from each other, but generally it's a consolidating market.

Although it's continually getting more competitive, there's still a tremendous amount of business out there … At this point there's still a lot of opportunity.