How to launch a D2C channel

Amidst a recession a mature but vulnerable manufacturer was fighting for their life. Banks were crushing, and traditional customers went bankrupt. That’s when Grainger decided to make a leap and go D2C.

Recession usually hits manufacturers the hardest, and every time it strikes the idea of launching a new D2C distribution channel appears to be a promising solution. However, fear of losing contracts with established retailers poses a significant challenge. Many brands are reluctant to take the risk, as retailers would definitely see the move as competition and retaliate. Grainger Tools faced exactly the same challenge in 2007. They made a leap, however, and by 2011 were named among the top-10 DIY retailers in the USA. This is how they managed to succeed.

Testing the environment

Wasn’t a rocket science to figure out that their traditional customers  wouldn’t be excited about the manufacturer becoming their competitor

Just like every business in the US, W.W. Grainger Inc was hit hard by the global financial crisis of 2007. Loans became not that easy to obtain, hundreds of businesses, including DIY retailers who were the main source of revenue for the company were going through a period of disruption. To make things even tougher in 2008 a mortgage and real estate crisis struck which threw hundreds of thousands of construction companies (another reliable source of Grainger’s revenue) out of business.

Company’s management had nothing left but to start thinking of opening a sales channel that would be more manageable, predictable and profitable than what they had by then. They started thinking of spinning off into D2C.

And just like every manufacturer they had reasonable concerns about the whole ideaa. Wasn’t a rocket science to figure out that their traditional customers — big retailers — wouldn’t be excited about the manufacturer becoming their competitor, especially taking into consideration tough economic conditions the whole country was thrown into.

On the surface, they had 2 options:

• To start selling directly to consumers little by little, testing waters
• Or go all-in with a more aggressive approach and hope they would get a considerable market share before their ex-partners realize what was happening

Many companies would go down the first road. And most probably fail. As noobs in retail business are killed fast and efficiently by more mature players. But going all-in is still too risky as it might not pay off, and the company would become bankrupt after losing all the traditional partners and failing to gain new customers fast.

This is exactly why Grainger came up with the third option — test the whole thing in a safe environment. That is, outside their main market. .

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The company chose Japan as a reasonable “playground” for their D2C experiment. It was a well-developed economy, pretty close to the USA in terms of consumer expectations and behavior. And it was close to China-based manufacturing facilities, which turned logistics from a nightmare into a walk in the park. In June 2009 Grainger invested $4M into purchasing 53% majority share in MonotaRO, a Japan-based family-owned maintenance, repair and operating (MRO) supplies seller. And the life-and-death experiment began.

In June 2009 Grainger invested into purchasing 53% majority share in a family-owned maintenance, repair and operating (MRO) supplies seller. And the life-and-death experiment began.

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