Fastenal Stock

Fastenal Company (Fastenal), together with its subsidiaries, engages in the wholesale distribution of industrial and construction supplies. The company distributes supplies through a network of branches and Onsite locations. Collectively, the company refers to its branches and Onsite locations as in-market locations.

The company began with a marketing strategy of supplying threaded fasteners to customers through a branch network in small, medium, and, in subsequent years, large cities. The company sells a broader range of industrial and construction supplies spanning more than nine major product lines through a global network of in-market locations utilizing diverse technologies such as vending devices, bin stock devices, and eCommerce. The large majority of the company’s transactions are business-to-business. The company provides additional descriptions of its product lines and market channels later in this document. At the end of 2023, the company had 3,419 in-market locations (defined in the table below) in 25 countries supported by distribution centers in North America (the United States, Canada, and Mexico), and Europe.

Channels to Market

The company engages its customers primarily through branch and Onsite locations. Branches and Onsites exist very close to its customers, usually within miles in the case of the former and most often within or immediately proximate to its customers' physical locations in the case of the latter, and together constitute its 'in-market' network. Many of the company’s customers engage with it through eCommerce, but in most cases these customers are utilizing eCommerce to supplement its service through its other channels.

The company has two primary versions of its branch locations:

A 'traditional branch' typically services a wide variety of customers, ranging from the local operations of large, national account customers to smaller local businesses. Based on the unique characteristics of certain markets, some traditional branches will be structured and stocked to service retail customers. Locations are selected primarily based on their proximity to the company’s distribution network and employment and production data for manufacturing and non-residential construction companies. The company stocks all branches with inventory drawn from all of its product lines and tailored by its district and branch personnel to the needs of the local customer base. Since Fastenal's founding and through 2013, traditional branch openings were a primary growth driver for the company.

Traditional branches are also differentiated by their operating styles. Certain locations are Customer Service Branches (CSBs), which tend to feature a showroom and the company’s standard stocking model of products designed for contractors. CSBs often conduct some business with non-account or retail-like customers.

An 'international branch' is the format the company typically deploys outside the United States and Canada. The company first expanded outside of the United States and Canada. Since then, the company has continued to expand its global footprint, and at the end of 2023, it operated in 23 countries outside of the United States and Canada. Mexico is the largest of these, and it also operates in Europe, Asia, and Central and South America. The company’s ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a global basis is attractive to its customer base, much of which are the foreign operations of North American-based companies.

Traditional and international branches sell to multiple customers. In each year since 2013, the company has experienced a net decline in its total branch count, primarily due to consolidations in its the U.S. market, including net declines of branches in 2023.

The company provides dedicated sales and service to a single customer from a location that is physically within, or strategically proximate to, the customers' facility, with inventory that is specific to the customers' needs. In many cases, the company is shifting revenue with the customer from an existing branch location, though it also sees new customer opportunities arise as a result of its Onsite capabilities.

Business Tools

Fastenal Managed Inventory (FMI)

Over time, the company has invested in and developed various technologies that allow it to put physical product closer to the point of use in a customer location, increase the visibility of a customer's supply chain (to the customer as well as its personnel), and/or improve the ability to monitor or control usage.

Bin stock (FASTStock and FASTBin) programs, where product is held in bins in a customer facility, are similar to the company’s vending business in that it involves moving product closer to the point of customer use within their facilities. Such programs have existed in the industrial supply industry for a considerable time, with open bins being clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, maintenance, repair, and operations (MRO) fasteners, and/or non-fastener products that are consumed in the customers' operations. Historically, these bins were simply plastic and metal containers that held product and were visually inspected by the company’s customers or Fastenal personnel to determine replenishment need. These bins in some cases are organized and labeled into customized digital plan-o-grams, which the company calls FASTStock and allow for the scanning of product when it is at a minimum desired level. However, in 2019 the company introduced its FASTBin technology. FASTBin is the evolution of FASTStock into a set of electronic inventory management solutions that automate process controls by providing 24/7 continuous inventory monitoring, real-time inventory visibility, and more efficient replenishment of bin stock parts. These technologies come in three forms: scales that utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, notifying Fastenal to replenish when inventory hits an established minimum; infrared (IR) that uses infrared sensors lining individual bins to provide real-time visibility of approximate quantity and inventory values, notifying Fastenal to replenish when inventory hits an established minimum threshold; and RFID, which is a Kanban system that utilizes RFID tags so that when an empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system), a notification is sent to Fastenal to refill the order. These technologies provide superior monitoring capabilities and immediate visibility to consumption changes, allowing for a lean supply chain, reducing risk of stock-outs, and providing a more efficient labor model for both the customer and the supplier.

Industrial vending (FASTVend) was introduced to provide the company’s customers with improved product monitoring and control. The company’s industrial vending portfolio consists of 20 different vending devices, with 16 of these being in either a helix or locker format. The company’s most utilized models include the helix-based FAST 5000 and its 12- and 18-door lockers; combined, these comprise approximately 66% of its installed base of devices. These are either configurable or are available in multiple configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of its customers.

Digital Solutions

The company also invests in digital solutions that aim to deliver strategic value for its customers, leverage local inventory for same-day solutions, and provide efficient service. While there is a transactional element to its digital services, many of the solutions the company invests in are intended to add value to customers by illuminating various elements of their supply chain. These solutions take many forms:

Transactional: The company’s transactional, or eCommerce, platforms (web verticals or integrated catalogs) provide a means for its customers to effectively and efficiently procure MRO and unplanned spend. While there is a retail component to its transactional digital services, most of the revenue attributable to this is with its traditional customer base, nearly all of which purchase digitally as a supplement to other channels and tools that it utilizes with Fastenal. The company attributes the revenue generated from a customer location through its transactional platforms to the in-market location that traditionally services that customer location.

Digital Visibility: Certain of the company’s digital capabilities are intended to produce operational efficiencies for its customers and itself and/or to deliver strategic value by illuminating customer supply chain operations. For instance, the company has developed, and continue to develop, 'Mobility' applications, one example of which is its Vending App, which provides a number of benefits. It provides easy, real-time information pertaining to a customer's local inventory position within their point-of-use devices. It incorporates customer usage data to recommend optimized parts and quantity for specific devices, which improves customer inventories while reducing the risk of stock-outs. Moving the company’s fulfillment process from a vending device-based keypad function to a tablet or scanning interaction improves the restock process (reduced risk of product outages), reducing time consumed (greater efficiency) while improving accuracy (improved quality assurance). The company will continue to build out its suite of Mobility applications. Electronic Data Interchange (EDI), is the connectivity between its system and its customers' procurement systems – whether a direct integration into their Enterprise Resource Planning (ERP) system or through a third-party procurement network or marketplace. These solutions provide a system-to-system exchange of electronic procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend). The company’s eProcurement Solutions provide a bridge between its FMI replenishment activity and its customers' procurement systems – creating an efficient, accurate and streamlined procure-to-pay (P2P) process. FAST360° acts as the bridge between the company’s FMI footprint and a customer's view into its managed service model. FAST360° surfaces data around these managed services as one central source of information as it manages its customers' OEM and MRO product lines. This is achieved through the company’s FMI technologies providing locational data around its FASTStock, FASTBin, and FASTVend footprint, and FAST360° being the means of surfacing that data and activities to its customers.

Analytics: The company provides solutions-based digital platforms (e.g., web verticals or integrated catalogs) which leverage its existing strategic environment by creating a means of migrating online spend offline, which illuminates its supply chain capabilities. This is marketed under the FAST360° Analytics label, as it is an enterprise-centric extension of the digital visibility capabilities of FAST360°. The company brings value to its customers, as well as itself, by using these digital platforms and analytics to shift product from a 'non-sticky' transactional environment (which is online) to a 'sticky' strategic environment (which is its FMI programs).

Digital Footprint

The company’s digital products and services are comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of its eCommerce sales that do not represent billings of FMI services (collectively, its Digital Footprint). The company’s Digital Footprint represented 56.1% of sales in 2023.

The company’s integrated physical and virtual model, when paired with its national (and increasingly international) scope, represents a unique capability in industrial distribution when compared to eCommerce as an independent sales channel. The company’s global channels to market and business tools, including those that it considers to be growth drivers (Onsites, international expansion, FMI, and digital solutions), represent alternative means to address the requirements of certain customer groups.

Distribution Network

The company operates regional distribution centers in North America: the United States, Canada, and Mexico. The company also operates distribution centers in Europe. The distribution centers in Indiana and Kansas also serve as 'master' hubs, with those in California and North Carolina serving as 'secondary' hubs to support the needs of the in-market locations in their geographic regions as well as to provide a broader selection of products for the in-market locations serviced by the other distribution centers. The company operates North American distribution centers with automated storage and retrieval systems (ASRS).

The company also utilizes a network of Local Inventory Fulfillment Terminals (LIFTs) which reside within its existing distribution centers and is intended to support areas that have a dense population of FMI devices. The company primarily utilizes a 'drop-and-deliver' model wherein a LIFT is responsible for stocking and packaging FMI supplies, producing inventory and accuracy benefits, and delivering them to the business unit, where delivery and replenishment is then performed by local district or branch personnel. In a minority of cases it deploys a 'drop-and-scatter' model, wherein delivery and replenishment is also performed by LIFT personnel.

Information Systems

The company’s Information Systems teams develop, implement, secure, and maintain the computer-based technology used to support business functions within Fastenal. Corporate, digital, distribution center, and vending systems are primarily supported from central locations, while each selling location uses a locally installed Point-Of-Sale (POS) system. The systems consist of custom in-house developed, purchased, and subscription licensed software. A dedicated Wide Area Network (WAN) is used to provide connectivity between systems and authorized users.

Trademarks and Service Marks

The company conducts business under various trademarks and service marks, and it utilizes a variety of designs and taglines in connection with each of these marks, including Where Industry Meets Innovation.

Products

Fastenal was founded as a distributor of fasteners and related industrial and construction supplies. This includes threaded fasteners, bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories. The company’s fastener product line, which is primarily sold under the Fastenal product name, represented 32.4% of its consolidated sales in 2023.

Fastener distribution is complex. In most cases, the product has low per unit value but high per unit weight. This presents challenges in moving product from suppliers, most of whom are outside of North America, to the company’s distribution centers, as well as from its distribution centers to its branch, Onsite, and customer locations. At the same time, fasteners are ubiquitous in manufactured products, construction projects, and maintenance and repair while also exhibiting great geometric variability based on use and application. In many cases, a fastener is a critical part in machine uptime and/or effective use.

The most significant category of non-fastener products is the company’s safety supplies product line, which accounted for 21.2% of its consolidated sales in 2023. The company plans to continue to add other product lines in the future.

Customers and Marketing

Approximately 70% to 75% of the company’s customers are in manufacturing end markets, which encompasses fabricated products, heavy machinery, petrochemical, mining and aerospace and includes both OEM and MRO customers. The remaining 25% to 30% of the company’s customers fall primarily into non-residential construction (general and commercial contractors), reseller (retail and wholesale trades, dealers, and rental businesses), transportation (transportation services, such as air, train, maritime or truck transport, as well as fulfillment centers) and state and local government entities, including schools, school districts and universities.

Based on the company’s customer profile being oriented toward manufacturing, its business has historically been cyclical. The company’s model has certain features that moderate the volatility of its results around cyclical changes. First, the company has a large number of customers that serve a wide range of segments within the broader manufacturing market.

The company’s national accounts program is aimed at creating contractual agreements with single or multi-location customers. These contractual programs are intended to help improve its customers' supply chains by identifying productivity and efficiency gains throughout their organization. The scale and scope of the OEM and MRO products that these companies need to manage is very complex and costly.

Additionally, the company’s local presence as part of a national, and increasingly international, footprint, its ability to provide a consistent level of high-touch service, and its ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these multi-site customers.

Direct marketing continues to be the backbone of the company’s business through its local in-market selling personnel, as well as its non-branch selling personnel. The company supports its sales team with multi-channel marketing including direct mail and digital marketing, print and radio advertising, targeted campaigns, promotional flyers, and events. In recent years, the company’s national advertising has been focused on a NASCAR sponsorship through its partnership with Roush Fenway Keselowski Racing as the primary sponsor of the No. 17 car in the NASCAR Cup Series, driven by Chris Buescher. In 2020, the company’s sports marketing efforts were extended when the National Hockey League (NHL) awarded it as the preferred MRO supplier of the sport.

Seasonality

Seasonality has some impact on the company’s sales. The first and fourth quarters of each year (year ended December 31, 2023) are typically the company’s lowest volume periods, given their overlap with winter months in North America during which its direct and indirect sales to customers in the non-residential construction market typically slow due to inclement weather. The fourth quarter also tends to be more greatly affected by the Thanksgiving (October in Canada and November in the United States), Christmas, and New Year holiday periods, due to plant shut downs. In contrast, the second and third quarters of each year typically have higher revenues due to stronger non-residential construction activity and relatively fewer holidays (although Good Friday will sometimes fall in the second quarter and the 4th of July will always fall in the third quarter).

History

Fastenal Company was founded in 1967. The company was incorporated under the laws of Minnesota in 1968.