Business update

In July 2013, Fastenal disclosed its intention to increase its investment in people at the store level and in additional leadership personnel at the district and regional levels. The company felt this expanded investment was necessary to add “selling energy” to the organization. Since July 2013, Fastenal has added 2,032 people either into a store, or into a leadership role at the district or region level, or an increase of 19.2%.

With expanded investment comes expanded expectations — in July 2013, Fastenal grew average daily sales over the same month in the preceding year in the low single digits. In December 2014, the company grew average daily sales over the same month in the preceding year by 17.4%.

Fastenal believes these investments in “selling energy,” when combined with the related investments in “support energy” (people, distribution, and internal manufacturing capabilities), and in FAST Solutions® (industrial vending) devices give it a “great platform for growth.”

Marketplace characteristics

Fastenal says its business performance reflects several aspects of its marketplace: (1) it’s big; the North American marketplace for industrial supplies is estimated to be in excess of $160 billion per year (and Fastenal has expanded beyond North America); (2) no company has a significant portion of this market; (3) many of the products Fastenal sells are individually inexpensive; (4) when a Fastenal customer needs something quickly or unexpectedly, the local store is a quick source; (5) the cost and time to manage and procure the products sold is meaningful; (6) the cost to move these products, many of which are bulky, can be significant; (7) many customers would prefer to reduce their number of suppliers to simplify their business; and (8) many customers would prefer to utilize various technologies to improve availability and reduce waste.

Fastenal’s motto is Growth through Customer Service.® The company states that the concept of growth is simple: find more customers every day and increase your activity with them. However, execution is hard work. First, Fastenal recruits service-minded individuals to support its customers and their business. Second, the company operates in a decentralized fashion to help identify the greatest value for customers. Third, Fastenal builds machinery behind the store to operate efficiently and to help identify new business solutions. Fourth, the company does these things every day. Finally, Fastenal strives to generate strong profits; these profits produce the cash flow necessary to fund growth and to support the needs of customers.

During the past several years, the company’s FAST Solutions® (industrial vending) initiative has stimulated faster growth with a subset of its customers.

Growth drivers

During Fastenal’s almost 50 years of business existence, it has evolved to better serve the market. In the company’s first 20 to 25 years, it closed several store locations because it felt the market was insufficient to operate a profitable “fastener only” business. Every one of those locations was subsequently reopened when the business model evolved to serve these markets profitably. During the past 20 to 25 years, Fastenal has had continued success with its store-based model, and the company states that it continues to challenge this approach. Fastenal has closed approximately 85 stores in the past ten years — not because they weren’t successful, but rather because the company felt it had a better approach to growth. In the first six months of 2014, Fastenal closed about 20 stores (all but four of these locations were in close proximity to another Fastenal store). In the second quarter of 2014, the company took a hard look at its business and identified another 45 stores to close in the second half of 2014 (all but eight of these locations were in close proximity to another Fastenal store). During the second half of 2014, it identified some additional stores for closure and closed 52 stores in total.

Product line expansion

In the early 1990s, Fastenal began to expand its product lines beyond primarily fasteners, and added new product knowledge (the non-fastener products now represent about 60% of Fastenal sales).

During the past several years, the company’s FAST Solutions® (industrial vending) operation has been an expanding component of its store-based business. Fastenal believes industrial vending will be an important chapter in the Fastenal story; it also believes it has the potential to be transformative to industrial distribution.

Fastenal’s expanded industrial vending portfolio consists of 19 different vending devices, with the FAST 5000 device, its helix-based machine (think candy machine), representing approximately 40% of the installed machines. Fastenal currently has target monthly revenue ranging from under $1,000 to in excess of $3,000 per device.