Grainger Shedding 200 Management Jobs, Talks Branch Closings & New Northeast DC

Grainger provided a state-of-the-company in its annual analyst presentation on Nov. 12, which included discussion on a number of cost-reduction efforts and an update on its 1.3 million square foot distribution center in New Jersey.

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Grainger – No. 3 on Industrial Distribution's 2015 Big 50 List – hosted its annual analyst meeting at its Lake Forest, Illinois headquarters on Nov. 12, where its executives gave a state-of-the-company presentation and outlined its plans for the near future.

Grainger chief operating officer DG Macpherson discussed several cost reduction initiatives, as well as gave an update on the company's massive new distribution center currently under construction in New Jersey.

The financial savings talk was highlighted by the removal of 200 management and professional roles, while Macpherson also alluded to the closure of more branches.

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He said the downsizing is part of its efforts to gain "broader spans of control" and bring it closer to the customer, adding that some management roles will be moved offshore.

Macpherson says the reduction will provide $25 million in annual savings, calling the move a "both a cost and agility benefit."

He also noted that while walk-in-store traffic was half of Grainger's business 15 years ago, that proportion is down to 10 percent today. Macpherson went on to say that while in the past several years it has closed an estimated 100 branches due to operating earnings, it was able to retain more sales volume and positive earnings than expected.

MacphersonIn a plan to be finalized by the end of the year, Macpherson says Grainger will complete a market-by-market assessment of an optimal branch network, aimed to "maintain a customer-centric and incremental economic perspective."

The branch overhaul is expected to save Grainger around $5 million in 2016, with additional benefits in 2017. There will also be some cash benefit from physical assets and inventory.

"We've learned a great deal about customer behavior and preferences," Macpherson stated. "We will only take actions where we create economic value and can serve customers effectively. ... Branches will remain an integral part of the Grainger offer to serve specific purchasing locations."

As another cost reduction effort, Grainger also discussed better optimization in its product procurement, which it says should produce savings of $15-20 million per year, including $20 million through year end 2015 and an expected $8-16 million in 2016. The company says initial pilot tests have been "very attractive."

A look inside Grainger's under-construction new 1.3 million square foot distribution center in Bordentown Township, New Jersey. Grainger provided the photos in its analyst presentation on Nov. 12.Super-Sized Distribution Center

Prior to sharing the cost-savings measures, Macpherson briefly discussed Grainger's new Northeast Distribution Center (NEDC), being built in Bordentown Township, New Jersey.

The 1.3 million square foot NEDC more than doubles the space of Grainger's existing facility there, giving it space for 350,000+ SKUs of inventory and features a goods-to-person automated system that will enable next-day delivery in the region. 

At its opening in 2016, the new DC is said to become the largest warehouse in New Jersey. When it first announced plans for the new DC in June 2014, Grainger said the facility will employ more than 400 people.

Canada

Grainger's presentation went on to discuss the state of its business in Canada, where "significant macroeconomic challenges" led to a year-over-year sales decline of 25 percent compared to October 2014. Grainger said its current business is "skewed to natural resources and large customers," has low penetration in Canada's largest metro areas, and has "huge investments in future infrastructure and growth."

As part of addressing its Canada issues, Grainger says it will ensure an "effortless customer experience" by

  • Initiating direct-to-customer shipping
  • Implenting hub branches
  • Improving product availability
  • Reducing order cycle fill time

Grainger also said it will reduce the cost of its Canada business by right-sizing its branch network.

Market Outlook

RyanGoing hand-in-hand with many large MRO distributors reporting flat or declining sales and profits in their fiscal third quarter, Grainger chairman, CEO and president Jim Ryan began the presentation stating that today is a "tough industrial economy," and that he expects more of the same in 2016, leading to short-term changes in customer behavior. But as a show of confidence, Ryan also said, "We know how to run our business in a down economic cycle."

Grainger's presentation coincided with it reporting its October sales performance, which included a 1 percent decline year-over-year, with organic sales down 2 percent.

In reporting its 2015 third quarter financials on Oct. 16, the company said it eliminated 170 field positions in the U.S., and cut 100 jobs and four branches in Canada since the start of June. It also added more than 100 sales reps in Q3 and had added 300 by the end of September.

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