Chicago—W.W. Grainger's closing of its Material Logic Internet business just three months after forming it demonstrates the ongoing dot-com reality check within the industry.

Grainger said in late April it was shuttering TotalMRO.com, which it formed to aggregate catalogs from suppliers and other distributors, and MROverstocks.com, an online bidding site for discontinued and surplus products. Its online sourcing vehicle for hard-to find-products, FindMRO.com, will be incorporated into Grainger's flagship site, Grainger.com.

The $5 billion distributor consolidated the three digital businesses into a new entity called Material Logic last winter and began shopping it to other distributors and investors, hoping they would buy ownership shares. Few distributors apparently saw the value — or enough customer demand for those services yet — nor had the cash to invest, industry analysts said.

Grainger also said it would divest its 40 percent ownership stake in Works.com, an online purchasing service for office supplies and equipment, and end its investment in Requisite Technology. Grainger said it would record a $38 million after-tax charge for the moves — $24 million of which is related to closing Material Logic — which included laying off 178 employees.

Chairman and CEO Richard Keyser told shareholders that "though the solution was sound, the timing for investment and customer adoption was ahead of the market. Economic and market conditions made it tough to find funding partners."

Several observers said Grainger simply had no choice and was wise to cut its losses.

Stephen Jacobs, a senior analyst at USBancorp Piper Jaffray, said "shutting them down and moving things over to Grainger.com, one of the best in its class, removed the drag on earnings."

Sales through the Material Logic sites only reached $17 million in the first quarter. Last winter Keyser projected losses for that business would be $40 to $50 million this year. Internet sales at the three units totaled $56 million in 2000, but losses reached $28 million. FindMRO, however, is nearing profitability and has gained customer acceptance, according to analysts at CIBC World Markets.

Meanwhile, Grainger.com contributed $19 million to the bottom line last year, as revenues increased more than 150 percent to $267 million. Sales through Grainger.com are expected to exceed $400 million this year and generate perhaps $50 million in profits, Keyser said, although first quarter sales were less than expected at $75 million.

"One of the things we've been worried about is whether they could ever get an adequate return on this investment," Jacobs said of Material Logic. "They've spent well above $200 million in their total e-commerce. Grainger.com has definitely been an e-commerce home run for them. But they've been very guarded on what's happened to the others."

Holden Lewis, an analyst at CIBC World Markets, said there was no sign that either TotalMRO or MROverstocks would ever become profitable. He credited Grainger with acting quickly, saying it was similar to construction distributor Hughes Supply's closing of its bestroute.com site earlier this year.