455 Knightsbridge Pkwy.
The company has been successful since its founding in 1927. This success has been due in large part to a philosophy of management that will continue to guide us in the future: To be the leader in the distribution of maintenance, repair, and operating supplies and related information to commercial, industrial, contractor, and institutional customers.
W.W. Grainger, Inc. is the largest distributor of maintenance, repair, and operating supplies to the commercial, industrial, contractor, and institutional markets in North America. As of 1998, the company had increased sales and earnings nearly every year since 1927. It has accomplished its steady growth not primarily through diversification but by expansion of its core business in terms of geographic scope and volume of its product line. Privately held until March 1967, the company finances most growth internally. The company has traditionally served small industrial contractors and institutions but expanded in the 1980s and 1990s to serve specialty markets for general industrial, replacement parts, and safety and sanitary products, and to supply large corporations with multiple locations.
In the late 1920s, William W. Grainger--motor designer, salesman, and electrical engineer--sought to tap a segment of the market for wholesale electrical equipment sales. He set up an office in Chicago in 1927 and incorporated his business one year later. The company sold goods primarily through MotorBook, an eight-page catalog, which would become the backbone of the company's name recognition. It contained electrical motors that Grainger himself, his sister Margaret, and two employees would ship. In 1991 Grainger published two editions of its general catalog--the successor to MotorBook--offering more than 35,000 items. The catalog also included extensive technical and application data.
The market for electric motors was so expansive in the late 1920s and 1930s that many companies developed with it. In 1926 two of the ten largest U.S. corporations were electrical companies. City utilities made the switch from direct current (DC) to alternating current (AC) for nearly every apparatus driven by electricity. Manufacturers moved away from uniform, DC-driven assembly lines and toward separate work stations, each with individually driven AC motors. This development created a vast market, and distributors like Grainger could reach segments untapped by volume-minded manufacturers.
Grainger established its first branch in Philadelphia in 1933. Atlanta, Dallas, and San Francisco branches opened in 1934. Sales in 1932 fell below the previous year's, to $163,000--the first of only four years where sales would not increase. In 1937 Grainger had 16 branches and sales of more than $1 million.
The complexity of the industry allowed Grainger to decentralize marketing efforts and strengthen its regional presence by adding an outside sales force in 1939, but the company limited it to one sales representative for every branch for the first ten years. Branches opened around the country at a brisk pace, with 24 operating by 1942.
Yet Grainger did not expand solely through the number of outlets. In 1937 it began merchandising selected products under the Dayton trademark, Grainger's first private label. In order to stimulate summer business, a line of air circulators and ventilating fans was designed, assembled, and offered for sale by the company in 1938. Assembly operations continued to be performed by the company until it got out of manufacturing in the 1980s.
Grainger acted as a distributor of electric motors for government use during World War II. With its normal market disrupted, Grainger offered furniture, toys, and watches through MotorBook for a brief period. Grainger continued expansion during the war as sales grew from 1941's $2.6 million to $7.8 million in 1948, and earnings increased almost tenfold to $240,000 in 1948.
Post-World War II Growth
The rapid growth continued immediately after the war. Sales more than doubled from 1948 to 1952, calling for organizational adjustments. A single sales representative could no longer serve an entire branch, and in 1948 Grainger expanded the sales force for the first time. The postwar transition also required renewed efficiency, and in 1949 Grainger had a branch office built to its own specifications for the first time. Most new branches since have also been built specifically for Grainger.
Beginning in 1953 the company created a regional warehousing system that replenished branch stock and filled larger orders. Called regional distribution centers, they were eventually located in Chicago; Atlanta; Oakland, California; Ft. Worth, Texas; Memphis, Tennessee; and Cranford, New Jersey. This system operated until the mid-1970s.
As alternating current became standard in the United States, Grainger's market changed. No longer processing large orders, the company intensified its focus on the secondary market that existed throughout the country--small manufacturers, servicers, and dealers who purchased with high frequency but low volume. Grainger could anticipate the needs of this market and purchase from manufacturers in high volume. Grainger's distribution system, warehousing, and accounting allowed manufacturers to produce at low cost for Grainger's customers. These customers were otherwise difficult for manufacturers to reach.
Most of the increases in sales volume after World War II were due to large-scale geographic expansion. This expansion continued through the 1950s and 1960s at a consistent pace. By 1967 Grainger operated 92 branches. Branches built after 1949 were automated to keep administrative and personnel costs low. In 1962 sales were $43.5 million. In 1966 sales nearly doubled to $80.2 million. Automation helped build the company's reputation as a reliable supplier and brought in accounts with bigger clients. Average branch sales grew from $596,000 in 1962 to more than $2.1 million in 1974.
In 1966 Grainger acquired those shares of Dayton Electric Manufacturing Company that it did not already own. Also in the 1960s, Grainger acquired a producer of home accessories, which was divested in the 1970s. In 1967 the company went public.
In 1969 the company purchased Doerr Electric Corporation, a manufacturer of electric motors, and three Doerr affiliates. Two thirds of Doerr's sales volume was already to Grainger. In 1972 Grainger acquired McMillan Manufacturing, another maker of electric motors. By 1974--seven years since the company had gone public--sales had more than tripled.
Continued Expansion in the 1970s and 1980s
Brands exclusive to Grainger--Dayton, Teel, Demco, Dem-Kote, and Speedaire&mdashcounted for about 65 percent of the company's 1975 sales. As Grainger's branches became larger, the need for a centralized stock diminished. The company eliminated the regional distribution centers by the mid-1970s. It discontinued its McMillan Manufacturing operations in 1975.
Grainger's prominence allowed it to count on sales increases due to population growth. In addition, the replacement market for small motors exceeded that of the repair market. Slimmed-down operations and reduced long-term debt, however, poised the company for more aggressive growth through the 1980s.
Unlike the 1960s, the company saw no need to diversify during the 1980s, recognizing that the electrical industry itself could provide enough opportunity for growth. The transition from electromechanical equipment to electronics provided long-term growth during boom and bust periods--comparable to the motor market upgrades of the 1920s and 1930s. Growth in domestic business activity led to broad-scale upgrades and system replacements--resulting in increased orders for Grainger and more disposable cash for its own expansion. In 1986 the company sold Doerr to Emerson Electric Company for $24.3 million.
A study showed that while Grainger sold products in every county in the United States, it held less than a two percent share of a $70 billion to $90 billion industry. The study also indicated that most Grainger customers had fewer than 100 employees and valued immediacy over breadth of product line or price. In response, Grainger accelerated its decades-old expansion rate of six branches a year. It opened more than 100 new branches between 1987 and 1989, trying to bring a branch to within 20 minutes of every customer.
Investment in computer automation allowed Grainger to resurrect its centrally managed regional distribution centers. In 1983 the company opened a heavily automated distribution center in Kansas City, Missouri, and in 1989 opened a third such operation in Greenville County, South Carolina.
During the 1980s Grainger returned to its origins, trying to reach larger institutional customers. Although essentially the same business since its inception, Grainger expanded the scope of its services. Starting in 1986, through acquisition and internal development, the company began building specialty distribution businesses that were intended to complement the market position held by Grainger. These businesses included replacement parts, general industrial products, safety products, and sanitary supplies. Parts distribution continued to expand under the Parts Company of America (PCA) name. PCA provided parts service for more than 550 equipment manufacturers and offered 80,000 parts.
Acquisitions and Reorganization in the 1990s
General industrial distribution expanded in the late 1980s and early 1990s through a series of acquisitions. In 1989 Grainger purchased Vonnegut Industrial Products. The following year, the company acquired Bossert Industrial Supply, Inc. Bossert, positioned in the Midwestern market, provided manufacturing and repair operations products, cutting tools and abrasives, and other supplies used in manufacturing processes. Also in 1990, the company entered into the safety-products distribution business through the acquisition of Allied Safety, Inc. The new safety products line included such items as respiratory systems, protective clothing, and other equipment used by individuals in the workplace and in environmental clean-up operations. Grainger added to the line in 1992 by purchasing Lab Safety Supply.
JANI-SERV Supply was created in 1990 to service the sanitary supply market. It offered more than 1,200 items, representing a full range of sanitary products. The subsidiary was expanded in 1991 with the purchase of Ball Industries, Inc., a distributor of sanitary and janitorial supplies based in California.
In 1993 Grainger began a three-year reorganization of the company and its subsidiaries with the goal of streamlining its sales force and eliminating redundant inventories. Grainger began by dismantling JANI-SERV Supply 1993 and incorporating its product line into its core business. The following year it began the same process with Allied Safety, the company's safety products subsidiary, and Bossert, finishing the integration in 1995. In addition to this streamlining, Grainger opened zone distribution centers in Dallas and Atlanta in 1994.
Costs related to the reorganization and upgrades to information systems contributed to lower gross margins in the mid-1990s. A more important factor in these lower margins was Grainger's decision to lower prices on some products to attract new customers and expand existing accounts. As part of the company's effort to return to national accounts and larger industrial customers, the strategic pricing helped expand Grainger's customer base. Although the stock price fell in response to the lower margins, this effect was temporary.
Leadership of the company left the hands of a Grainger for the first time when David Grainger, son of the founder, retired as chief executive officer in 1995. He remained as chair of the board and was succeeded as CEO by Richard Keyser. In another change from the status quo, the company moved its headquarters to Lincolnshire, Illinois, the same year.
In the late 1990s, Grainger established operations outside the United States for the first time. In 1996 the company opened a branch in Monterrey, Mexico. The same year, Grainger purchased a division of Acklands, Ltd., a Canadian manufacturer of industrial safety and automotive aftermarket products.
The company made great strides in adding large national accounts in the mid- and late 1990s. In 1996 it signed supply agreements with several large companies, including Lockheed Martin, Procter & Gamble, and American Airlines. In 1998 it announced a materials management outsourcing agreement with Compaq Computer Corporation. With the addition of new accounts and new products, sales at Grainger almost quadrupled in a decade, growing from $1.3 billion in 1987 to $4.1 billion in 1997.
Principal Subsidiaries: Lab Safety Supply, Inc.
Principal Divisions: Grainger; Parts Company of America.