In our distributor series in collaboration with Modern Distribution Management we covered the “big” changes a leading distributor – MSC Industrial has been making to continue their journey from a “spot buy” distributor to a “Mission Critical” distributor.
In Part 2 and Part 3 of the series we dove deep in MSC’s digital programs and mission critical initiatives.
How MSC’s Digital Programs are Evolving – Modern Distribution Management
If you are an MDM Premium Paid Subscriber you can access the full story from the MDM platform by using the link above. P.S. If you are not a subscriber getting one for your company is easy and economical. If you do not have a subscription, I thought I would share a few highlights below for our Industrial Supply Trends Readers.
The key takeaways from the MSC Industrial Series – Parts 2 and 3
MSC’s journey from a catalog, spot-buy distributor to what the company calls a “mission critical partner” has been fascinating to observe in recent years.
As I was writing this analysis, I started with one simple premise: Why is MSC evolving and where is it going?
At the Stephens Annual Investment Conference on Nov. 20, 2024, MSC shared this:
“It’s one thing when your customers are ordering out of a one-foot-high Big Book — they are likely to keep picking your product over and over again. Now, when you are going online, you can see our products and you can price it versus competitive products. It really changes the whole dynamic.”
That quote, in my opinion, answers a lot of the “why” question for MSC’s recent evolution.
So, what are the core foundational elements for MSC as it continues to move from a spot buy distributor to a mission critical distributor for its end customers? When you look at their annual reports and performance over the past 10 years some storylines appear
Sales slow and steady sales growth – MSC Industrial is primarily an organic growth distributor and when they acquire a company, they are smaller bolt-on acquisitions. (MSC Sales in 2015 of $2.887 Billion and in 2024 sales of $3.820 Billion)
The overall number of MSC Associates consistently follows the sales growth (2014 approximately 6,500 and in 2024 approximately 7,400 associates)
MSC has primarily a “next day” inventory model filling orders from their five customer fulfillment centers, nine regional inventory centers, and 42 warehouses (40 in North America).
MSC has a large breadth of SKUs with over 2.4 million Active selling SKUs to serve their customers. MSC has more than doubled the active selling SKUs over the past decade, but the sales per SKU value have declined during the same time. Sales per SKU in 2015 were $289 annually and in 2024 they are $159 per active selling SKU. MSC is not alone in adding more breadth to their offerings as a distributor and if other public companies shared their SKU count I would expect you would see a similar sales per SKU decline.
In my opinion- The breadth and sales per SKUs comparison is a likely key factor driving MSC’s key strategic objective to continue to evolve from a formerly spot buy distributor to a mission-critical partner.
One of the key differences between MSC and other comparable distributors is that MSC is not historically a branch-based distributor with thousands of local branches to serve end customers like Grainger and Fastenal for example. That distinction is important as MSC has just over 40 locations nationwide, including five Central Distribution Centers.
So, what are the core foundational elements for MSC as it continues to move from a spot buy distributor to a mission critical distributor for its end customers?
MSC recently shared some key statistics that are important to understand as it continues to evolve its model:
- About 70% of its business is in light and heavy manufacturing
- 45% of MSC’s business is categorized as metalworking products and solutions.
- MSC shares that the company used to primarily rely on a “spot buy” business model, but now most of its business is from planned spend.
- Through the end of MSC’s fiscal 1Q25 — ended Nov. 30, 2024 — the company’s eCommerce business represented 63.7% of total business (Q1 results shared Jan. 8, 2025).
MSC’s continued growth requires that they invest and protect the core foundation that they built the business on – Metal Working products and solutions supported by their experienced associates.
They have expanded (and continue) to expand the breadth of products they offer customers and are investing in growing their large and national account business with focused sales support programs.
From the MSC Industrial 2024 Annual Report, issued Dec. 12, 2024, MSC defines its strategy simply as “The first phase of our company-wide initiative, referred to as “Mission Critical,” focused on market share capture and improved profitability.”
This strategy banks on “solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and eCommerce capabilities and diversifying our customers and end-markets.”
At a high level, I view the MSC growth plan as being heavily focused on the fastest way to grow as distributor — which is growing business and share with existing customers.
The MSC digital platform’s strength and their continued investment in the platform (pricing alignment, SKU expansion, technology upgrades, direct customer connections) is a smart move as their ecommerce is 63.7% of their business and growing.
So, what can you learn as a channel leader from MSC for your business in 2025?
Understanding how you can grow business and share with your existing customers in 2025 is key. The market growth rates are uncertain and growing and taking share with strong end-customer programs is likely the best way to grow in the next year.
MSC is investing in expanding the breadth of their product and solutions offering and making it as easy as possible for their customers to do business with them. MSC customers order 63.&% of their sales digitally so the focus and investment for their business is clear.
How can you focus on improving the two key pillars for growth in 2025 – Growing share with your existing customers by offering them more products and solutions to buy and growing your share of customer.
As always, we appreciate your comments and feedback. jgunderson@channelmkt.com
Leave a Reply