Industrial tools and supplies may not be glitzy products to sell, but selling them has added a lot of glitz to the balance sheet of MSC Industrial Direct Co., one of the largest public companies headquartered on Long Island.
The distributor's revenue, which passed the $2-billion mark in 2011, has grown an average of 15 percent annually for the past few years. Its return on equity -- an indication of how efficiently it uses investors' money -- was an impressive 21.4 percent in its 2012 fiscal year.
And the company has plenty of cash on hand for investments and acquisitions. Last month, it completed its biggest acquisition, the $550-million purchase of Barnes Distribution North America, a Cleveland-based industrial distributor.
Despite its success, MSC prefers a low-key image. The business is housed in an unassuming one-story white tile and brick building in Melville. All the offices are the same size, no matter the title of the occupant, says Erik Gershwind, president and chief executive. The only reserved parking is a space set aside to honor the late founder, Sid Jacobson, Gershwind's grandfather. Jacobson started the business in Brooklyn in 1941, when it was known as Sid Tool Co.
Gershwind, 41, who seldom wears a tie, says the informal approach helps to promote the spirit of cooperation, which he says is key to MSC's success.
He has worked at the company since 1996 and became just the fourth chief executive in MSC's 72 years when he took the reins Jan. 1.
So you think the spirit of collaboration and cooperation contributes to morale and the bottom line?
Having people who believe in what you believe in, value what you value and really are passionate around the mission of the organization is probably the single most important element of our business.
What's the toughest challenge facing your business?
In North America alone, the market we compete in is about $140 billion. And the top 50 competitors, including ourselves, have only 30 percent [total] of the market. That creates an amazing growth opportunity for us. The challenge that comes with it is the need to stay disciplined. It would be easy to get sidetracked to just try to grab everything. So there is a strong sense of not just growing for the sake of growing but understanding where we want to grow.
So that means there are a lot more potential clients and a lot more opportunities for acquisitions?
Yes. We see part of our growth coming organically, meaning on our own, and part of that coming through acquisitions. We have a very strong balance sheet. We generate a lot of cash. So definitely we have a big appetite for growth.
What challenges do you face in doing business on Long Island in particular?
We love Long Island. I love Long Island. I have grown up here. And we've got a very strong talent base here of people who have grown up with the business. As we look to position the company in the next five years, the next 10 years, the next 15 years, the biggest challenge we saw was access to enough talent, particularly enough talent in an industrial business.
So Davidson, N.C., for example, where you will soon open a second headquarters, has a big enough industrial base that generates enough talent?
It really does. What we decided is we can't and wouldn't abandon Long Island. It was too important, too much woven into the fabric of the company. But we needed to have an additional location for expansion.
By 2016, you hope to grow revenue to $4 billion, double the $2 billion your company first reached in 2011. What's fueling your optimism?
No. 1 is the market that we compete in; the dynamics that I described. It's a huge market, and it's highly fragmented. There's a tremendous opportunity with those dynamics for larger companies, well-run, well-capitalized companies to take advantage of market dynamics. The second thing is we give [our customers] one-stop shopping. So we carry 600,000 items in inventory, and if a customer calls us by 8 p.m., they're going to see [their shipment] the next day. Our field sales organization is currently 1,100 people. With the Barnes acquisition, we will be at around 2,000 and will actually cover every ZIP code in the U.S.
What things do you sell the most of?
The roots of the company and where my grandfather got started is cutting tools and metalworking supplies. That's were the bread and butter of the company has been. Within metalworking, we look at ourselves as the market leader; we have a market share of around 10 percent in the U.S. We carry 600,000 items, and around half of those are in metalworking.
Your company is growing and hiring mostly off Long Island. Is that because of business conditions on Long Island like higher costs?
I think it's a function of where we can access the industrial talent so we can continue to grow the business.
You have some impressive academic credentials. You graduated summa cum laude with a bachelor's in economics from the Wharton School of Business and magna cum laude from Harvard Law School.
Given your outstanding academic background, are you running the company differently from the way your uncle or your immediate predecessor, David Sandler, did?
We view this as a relay race. So I don't have to come in with any new vision. There's a lot of continuity here. We also have a strategic planning process that is grounded in principles that have survived years and years. Certainly, any of the four of us operated the business in a different time and in different conditions, and there's no question that our growth ambitions of $4 billion will require some different things than the business did at $1 billion.
What's one thing you've learned on the job that neither business school nor law school taught you?
I would say the biggest thing is the power of a culture to drive performance, of having people who believe what you believe and value what you value. You can't overestimate that.
NAME: Erik Gershwind, president and chief executive of MSC Industrial Direct Co. in Melville.
WHAT IT DOES: Distributes industrial products, including power tools and safety and electrical supplies, to manufacturing companies.
EMPLOYEES: About 5,000, including 700 on Long Island.
REVENUE: $2.4 billion in fiscal year ended August 2012.