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Fast-Growing Fastenal

<b><i>Electrical supplies may represent a small portion of all the products Fastenal sells. But when you have 2,160 locations and more than $2 billion in total annual sales, it all adds up.</b></i>

When you make your living as a fasteners distributor, you have to sell an awful lot of nuts, bolts and washers to make ends meet.

But as one of largest distributors of MRO supplies in the world, the numbers add up quite nicely for Fastenal Co., which has expanded its interests to include hand tools, power tools, abrasives, plumbing and HVAC supplies, materials handling equipment, electrical supplies and safety products. Fasteners still account for approximately 42 percent of the company's 825,000 stock-keeping units (SKUs).

Fastenal was founded in 1967 in Winona, Minn., by Bob Kierlin, its current chairman. Senior management doesn't like to talk much about the company's operations or growth plans, but SEC documents and information on paint a picture of a huge distributor that's not afraid to expand its product offering far past its core fasteners business; offer 200,000 SKUs in its online storefront; and expand geographically in grand style.

Fastenal first added electrical products to its product offering in 1997, and today sells 19,000 SKUs, according to its annual report. The company is a big believer in private labeling and it sells many of these electrical products under the PowerPhase and Blackstone brands. The list of vendors represented in the rest of its electrical offering reads like a who's-who of the electrical industry's manufacturing community and includes Coleman Cable, Cooper Lighting, Eaton, Essex, GB Electrical, Greenlee, Hubbell, Ideal Industries, Klein Tools, Leviton, Panduit, Southwire, Osram Sylvania and Wiremold.

Fastenal has grown rapidly over the years through a massive branch expansion campaign. The company has opened up well over 1,300 branch locations in the past 10 years, and while it intends to slow down its branch growth, it's still opening stores at a mind-numbing rate. Fastenal opened 53 new stores during the first quarter of 2008, compared to 73 new locations in the first quarter of 2007. And — get this — it still sees the potential for 3,500 stores in North America.

The sheer number of Fastenal branch locations is all the more impressive when you realize that the five largest full-line electrical distributors — Rexel, WESCO, Graybar, Consolidated Electrical Distributors and Sonepar — operate a combined total of approximately 1,400 branches. In addition to its 2,160 traditional branch locations, Fastenal also operates almost 900 “in-plant sites” where it sells products to customers either in their own locations or from nearby facilities.

In a recent financial release explaining the “slowdown” in branch openings, Fastenal said, “For most of the last decade, we have used store openings as the primary growth driver of our business. As announced in April 2007, we intend to add outside sales personnel into existing stores at a faster rate than historical patterns.”

Fastenal hasn't been immune to the staggering increases in fuel costs. It recently reported that its fuel costs averaged $2.9 million per month for the first three months of 2008 — $800,000 per month more than its 2007 monthly fuel bills for the same period. The company said the increase is due to increases of 34 percent and 32.9 percent, respectively, in diesel and unleaded gasoline prices.

The 12,535-employee company had a solid fiscal 2008 first-quarter ending March 31. Fastenal reported a 15.8 percent sales increase year-to-year to $566.2 million for its first quarter, and a 26 percent increase in net earnings year-to-year to $68.1 million. Its 2007 annual sales were $2.06 billion, a 13.9 percent increase over 2006. At press-time, the company's stock was selling for approximately $49 per share, not far from its 52-week peak of $52.94.

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