W.W. Grainger, Inc.

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W.W. Grainger, Inc.

5500 West Howard Street
Skokie, Illinois 60077
U.S.A.
(708) 982-9000
Fax: (708) 982-3489

Public Company
Incorporated: 1928
Employees: 8,649
Sales: $1.93 billion
Stock Exchanges: New York Midwest

W.W. Grainger, Inc., once the largest distributor of electrical equipment in the United States, is a nationwide distributor of equipment, components, and supplies to the commercial, industrial, contractor, and institutional markets. The company has increased sales and earnings nearly every year since 1927. It has accomplished steady growth, not 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 traditionally has served small industrial contractors and institutions but has expanded to serve specialty markets for general industrial, replacement parts, safety and sanitary products, and as a supplier to 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 Motor-Book, 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 includes 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.

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 also have 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 since the end of World War II have been due to large-scale geographic expansion. 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 were 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.

Brands exclusive to Grainger—Dayton, Teel, Demco, Dem-Kote, and Speedaire—accounted for about 65% 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 2% 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 has expanded the scope of its services. Starting in 1986, through acquisition and internal development, the company began building specialty distribution businesses that are intended to complement the market position held by Grainger. These businesses include replacement parts, general industrial products, safety products, and sanitary supplies. Parts distribution continues to expand under the Parts Company of America (PCA) name. PCA provides parts service for more than 550 equipment manufacturers and offers 80,000 parts. General industrial distribution has developed through a series of acquisitions under the name of Bossert Industrial Supply, Inc. Bossert, positioned in the Midwest market, provides manufacturing and repair operations products, cutting tools and abrasives, and other supplies used in manufacturing processes.

In 1990, through acquisitions combined under Allied Safety, Inc., the company entered into the safety-products distribution business. Safety products include such items as respiratory systems, protective clothing, and other equipment used by individuals in the workplace and in environmental clean-up operations. JANI-SERV Supply was created in 1990 to service the sanitary supply market. JANI-SERV offers more than 1,200 items, representing a full range of sanitary products.