
As the world inevitably grows more and more online, there’s little doubt that industrial distributors will continue to increasingly embrace e-commerce — if for no other reason than to keep up.
But in an evolving industrial environment, perhaps it’s also not surprising that e-commerce might not be dictating the terms of how distributors operate as much as other factors.
Industrial Distribution’s 2024 Survey of E-Commerce Operations – an annual poll of ID readers and subscribers conducted in October – comes amid sluggishness in many manufacturing segments and, in turn, a softer demand environment for the companies that serve them.
In past years, residual, pent-up demand from the pandemic era allowed distributors to pass along – and benefit from – increases in price, but in a recalibrating industrial landscape, things aren’t that simple. Although most respondents to ID’s survey say that economic conditions aren’t changing their approaches to e-commerce, a significant share also said that their online sales haven’t exactly lit the world on fire, either.
But the current climate also doesn’t appear to be hindering optimism about e-commerce sales heading into 2025, an indicator that the move online isn’t slowing down any time soon, and a possible reflection on the overall health of distribution – despite some hiccups – heading into the new year.
Finding and Reaching More Customers
iStock.com/semaj29
Once again, ID’s e-commerce survey showed that distributors, by and large, have incorporated an online operation into their overall strategy.
Among the respondents to this year’s survey, more than three-quarters indicated that their companies have an e-commerce platform.
Their principal reasons for pursuing an e-commerce strategy varied widely, with the exception of one: nearly 90% pointed to an “ability to reach customers” as one of the biggest factors.
The next most-identified reasons, meanwhile, could be considered strategies to reach more customers: nearly six in 10 respondents deployed e-commerce operations in order to broaden their geographic footprint or to diversify their customer base.
Other considerations were selected by fewer than half of respondents, including cost savings (46%), convenience (42%) and obtaining better business data (29%).
Very few respondents, however – less than 10% – identified addressing pricing variability as a factor.
A More Difficult Year
For the vast majority of participants in this year’s poll, e-commerce tends to play either a minimal role in their company’s overall sales or a dramatic one.
When asked to break down the impact of sales from e-commerce on overall operations, the largest share – just more than half of respondents – said that online sales accounted for less than 5% of overall revenue. The no. 2 response, by far, however, was on the other end of the spectrum: more than 30% said that 35% or more of revenue was tied to e-commerce. Just more than 10% put the share at between 5% and 9%, while the remaining 7% landed in the large gap between 10% and 34% of overall revenue.
iStock.com/marco paciello
Across that spectrum, meanwhile, a majority indicated that e-commerce sales were something of a disappointment this year in a tough environment for distribution revenue overall. Just more than 62% said that sales made via e-commerce were flat or down compared to last year, compared to 38% that saw an increase.
Still, a majority of participants – 55% – said that current economic conditions were not altering how those distributors approached e-commerce, and a strong majority – nearly 80% – added that e-commerce was not altering their company’s overall pricing strategy. Individual respondents mentioned pushes by their companies to invest more in e-commerce and to try to drive down costs — the latter a particularly critical factor in a tricky economic environment with the easy ability to compare and contrast prices online.
“Online purchasing is a lot more competitive,” one survey participant wrote. “Customers not only want speedy delivery; they also want the cheapest price.”
E-commerce is allowing distributors to bolster their portfolios – nearly 60% of respondents said that their companies had added products – and it generally hasn’t affected companies’ sales personnel. Although the shift to e-commerce had sparked reasonable questions about sales reps’ role in the world of online B2B shopping, more than 70% of participants said that it had no impact on sales staffing. Of those whose sales roster did change, more respondents reduced staff than added staff, but that, again, could be a reflection of a tougher economic climate.
Optimism Persists
Despite the uneven e-commerce numbers and broader stagnation throughout the industrial sector, respondents to this year’s Survey of E-Commerce Operations overwhelmingly remained optimistic about their prospects next year.
More than 80% expected to see e-commerce-related revenue grow as a share of overall sales next year, compared to less than one in five that anticipate it will remain flat or decline. It’s not necessarily as simple, however, as a recovery from a sluggish or down year.
Fastenal, the Minnesota-based fastener and industrial supply giant, routinely outlines its online initiatives as part of its regular financial disclosures, and noted a more than 25% increase sales across its “eBusiness” operations on a daily average basis in its latest fiscal quarter — enough to account for more than 30% of total revenue.
Fastenal Distribution Centre, Kitchener, Ontario, Oct. 2023.iStock.com/JHVEPhoto
Fastenal CEO Daniel Florness, however, noted in the company’s most recent earnings call that the details of that increase reflect a “good news, bad news” dichotomy. The bulk of the year-over-year increase stemmed from Fastenal’s “e-procurement” operations, which enable Fastenal’s supply chain customers to identify their needs through “integrated transactions” — particularly an “electronic data interchange.”
What the company calls its “e-commerce” business reflects the transactional sales on its website, where average daily e-commerce sales were up by a more modest 6.6% compared to the third quarter of last year. Florness told analysts that those patterns led the company to reorganize its online operations under an “umbrella” known as “Fastenal Managed Inventory Digital Solutions.”
“When we really study how customers use our web, it’s a very fastener-centered proposition — and we’re trying to get that better and better aligned to the business,” Florness said during the call.
Florness said that more than 60% of Fastenal’s sales went through the company’s digital footprint in the latest quarter.
The IT challenge
Participants in the 2024 Survey of E-Commerce Operations responded with a variety of answers when quizzed about the biggest challenges facing their companies’ e-commerce initiatives — and the biggest hurdles to integrating them into their operations overall.
The most popular answer, identified by more than half of respondents, singled out complications in making sure web traffic gets to the company’s e-commerce portal. Other concerns cited by respondents included properly relaying a value proposition in an online setting (46%), an evolving sales environment (28%), maintaining an seamless omnichannel experience (28%), price transparency (29%) and cost (21%).
Nearly half of participants – amounting to the second-largest share among the responses – identified issues with setting up an e-commerce operation or integrating its IT systems. Those headaches can translate into serious problems for a distributor’s overall operations — even for major industry players, as showcased in a high-profile episode from earlier this year.
MSC Industrial Supply, the Long Island-based metalworking and MRO giant, in mid-June issued a warning that the sales totals from its most recent quarter would be “softer than expected,” and revised its outlook to forecast a drop in full-year revenue.
Company officials cited multiple factors – including broader weakness in heavy manufacturing – but particularly pointed to issues with its “web price realignment.”
MSC had lined up a series of initiatives designed to bolster online ordering by its core customers. The company conducted a pilot test of upgrades before fully rolling them out, but that initial test did not identify problems in the complex pricing and discounting systems.
Subsequent delays in the website upgrades and its search function threw off MSC’s timetable, as well as its marketing efforts, which translated into poorer-than-anticipated performance among those core customers.
“As a result,” Erik Gershwind, the company’s chief executive, said on a June call with analysts, “we experienced some surprises.”
MSC Industrial Supply office, Houston, April 2021.iStock.com/Brett_Hondow
The issue led to the departure of the company’s first-ever chief digital information officer, but Gershwind told analysts at the time that the company was implementing corrective actions and “beginning to see improvements.”
Although MSC posted another year-over-year decline in quarterly sales to wrap up the fiscal year in October, Gershwind said that the company had made “solid progress” on the web enhancements.
He told analysts on a subsequent earnings call that upgrades to the company’s search algorithm had been implemented and its web pricing realignment completed, and that MSC’s site should be able to support “an enhanced marketing effort” in the second quarter of new current fiscal year.
Gershwind said that better performance among MSC’s core customers should follow “as benefits from pricing, e-commerce, marketing and enhancements in sales coverage filled over the balance of the fiscal year.”