Fastenal’s digital lesson for other distributors: It pays to diversify

Business buyers like multiple digital channels to purchase from distributors. An excellent example of a distribution company doing just that is Fastenal, which generated total sales of $6.01 billion in 2021 and a branch network of 3,209 locations in 25 countries.

As a major public distributor of industrial and construction products, Fastenal Co, has a big lesson to teach other wholesale and distribution companies: It pays to diversify.

Distributors see their business buyers of all sizes morph into digital-first customers. Meanwhile, they also are seeing these customers make organizational purchases by multiple digital channels, including ecommerce sites and apps, electronic data interchange, e-procurement, and marketplaces.

Business buyers don’t just make all their digital channels strictly on ecommerce sites. Often buyers may come to a distributor’s website to research and place an online order, but they may pay for that order through EDI. Or buyers may make a transaction on a marketplace or place an ecommerce order through punchout, which enables an organization to purchase supplies directly from a supplier’s ecommerce website or B2B marketplace without leaving their own e-procurement application.

B2B buyers want multiple digital channels

Business buyers like multiple digital channels to purchase from distributors. A good example of a distribution company doing just that is Fastenal. It generated total sales of $6.01 billion in 2021 and a branch network of 3,209 locations in 25 countries.

Fastenal defines ecommerce as sales through Fastenal.com and other ecommerce sites, electronic data interchange and “other types of technical integrations.”

Fastenal also breaks out sales for what it calls its total digital footprint. That includes ecommerce sales along with customer transactions processed through its FMI inventory management programs, including FASTtock, FASTbin and its FASTVend internet-connected vending machines.

And that digital footprint — and diversification — is paying dividends. Fastenal’s digital footprint accounted for $852.6 million, or 47.9% of total second-quarter sales. That’s up from $628.4 million and 41.7% a year earlier. FMI stands for Fastenal Managed Inventory.

Digital capabilities enhance growth

“We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers,” Fastenal said in announcing its Q2 results. “As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.”

For the first six months of 2022 ended June 30, Fastenal posted total sales of $1.778 billion. That’s up 18% from $1.507 billion for the first six months of 2021. Given that digital sales accounted for about 47% of sales in the first half 2022 vs. 42% in the year-earlier period, digital sales totaled $835.7 million in the first half of 2022. That’s an increase of 32% from total digital sales of $632.9 million in the first half of 2021.

For the first half of 2022, Fastenal’s ecommerce sales accounted for 17% of all sales and grew year over year by 53%. Based on those metrics, Digital Commerce 360 projects that ecommerce sales totaled $302.62 million for the first six of 2022. That compares with $198.0 million in the previous year.

Ecommerce ‘continues to grow nicely’

“COVID period pushed everybody to abruptly change what they are doing, and I think that the strength you see in our ecommerce sales growing north of 50% is a testament to the marketplace,” Fastenal CEO Dan Florness said on a recent earnings call.

“I don’t know if the marketplace is reacting to what we’re doing or we’re reacting to what the marketplace is doing. I think it’s more of the latter. Buying habits have changed. And you see it in your personal life. What you do today is different than what it would have been five years ago.”

Florness says diversity is the key to Fastenal’s increased digital commerce growth.

“Ecommerce continues to grow nicely. It rose 53% in the second quarter of 2022. And our large customer-oriented EDI was up 53%, whereas our web sales were up. And when you combine those two, ecommerce is about 17.1% of sales in the second quarter,” he told analysts. “Our digital footprint. We’ve talked about that in prior calls. It’s our ability to manage supply chain more efficiently and illuminate that supply chain for our customers.”

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