Fastenal Company Business Information, Profile, and History
Winona, Minnesota 55987-1500
Quality products and quality service—that's what Fastenal Company is all about!
History of Fastenal Company
Fastenal Company sells nuts, bolts, screws, and other fasteners and related supplies (the company's original product line); power tools; cutting tools; hydraulics and pneumatics products; material handling products; janitorial supplies; electrical supplies; welding supplies; and safety supplies. Going into 2001 it offered as many as 195,000 different parts at its 897 company-operated stores throughout the continental United States, Puerto Rico, and Canada. The stores are stocked via 11 distribution centers. Famous for the frugality of the company founder, Fastenal is also distinguished by its record of rapid, highly successful growth since going public in 1987.
The idea for Fastenal was conceived by 11-year-old Robert (Bob) A. Kierlin. When Kierlin assisted his father at the family's auto supply shop in Winona, Minnesota, he noticed that customers typically drove from store to store looking for fasteners that they needed for particular jobs. If a hardware store did not have the right nut or bolt, the owner would often send the customer to the Kierlins' store, and vice-versa. In many instances, Bob noted, the fastener simply could not be found and the buyer would have to place a special order and wait. "I wondered if you could put together a store with all the parts," Kierlin recalled in the November 9, 1992 issue of Forbes.
The idea stuck with Kierlin. After graduating from high school in 1957 he went on to major in mechanical engineering at the University of Minnesota, where he later earned his M.B.A. After college Kierlin accepted a job with IBM in nearby Rochester. He worked as a financial analyst for about ten years, but was itching to start his own business. According to Kierlin, the opportunity came when he missed an interview for an international position because of a late plane. Instead of getting the job, he ended up starting the company he had envisioned as a boy.
With some effort, he was able to persuade an IBM coworker, Jack Remick, to help him pursue his goal of selling nuts and bolts. Also joining Kierlin were former high school buddies Michael Gostomski, Dan McConnon, and Steve Slaggie. Slaggie, Kierlin, and McConnon had graduated from Winona Cotter High School in 1957, and Gostomski had followed in 1958. The five partners ponied up $30,000 and rented a 20-foot-wide storefront in Winona. The group's first dispute was over what to name the store. Someone suggested "Lightning Bolts," but two of the founders were so opposed to the name that they threatened to take their money and leave. The men finally settled on Fastenal, as in "Fasten All." Remick hand-painted the store sign, which one day would be framed and hung in the company's headquarters offices.
The founders' goal with Fastenal was to devise a means of making all kinds of nuts and bolts readily available to the general consumer. The group tinkered with various solutions, including an idea for a nuts and bolts vending machine. They finally settled on a retail strategy to stock a store with thousands of fasteners that would serve as a dependable one-stop shop. Most of the initial planning was done during the weekends and other times when the group could get time off from work. "It was almost like a hobby," Remick reminisced in the November 1994 Corporate Report Minnesota.
The first Fastenal shop opened its doors in 1967 on Winona's Lafayette Street. Despite sluggish sales, the group opened a second outlet in Rochester a few years later, thinking that the larger city might provide the customers that the Fastenal concept needed. It soon became clear to the partners, however, that the venture was a flop. The partners were delivering nuts and bolts in a 1949 Cadillac and having to periodically chip in $1,000 from their savings just to keep the company afloat. "The ship almost went under," Slaggie recalled. "We'd look at the income statement and say, 'We lost how much money?' and then order a round of Budweisers. There was so much red ink."
1970s and 1980s: Finding the Right Formula and Expanding It
The group finally determined that their retail strategy was flawed. Rather than targeting the general consumer, they decided to focus on the commercial market. It turned out that price was much less of a factor than timeliness for that market segment, because contractors and companies often lost money searching or waiting for a particular part. Kierlin and his partners discovered that there was a great need for a service that could quickly provide the fastener or part that a buyer needed. The change turned out to be exactly what the stores needed to become profitable, and Kierlin left IBM in 1973 to run Fastenal full time.
Kierlin continued to improve Fastenal's strategy during the 1970s and gradually began expanding with new stores. The concept became relatively simple: the partners would open outlets in small to medium-sized towns like Winona and Rochester, where price competition tended to be lower than in large cities, which had special fasteners and parts more readily available. As a result, Fastenal was able to generate profits on the basis of reliability and quick service. The company also targeted towns that had healthy manufacturing and construction industries, seeking to become those customers' one-stop shop for fasteners and related parts. The stores stocked a large selection and promised prompt delivery of any item that was not on the shelf. Later, Fastenal even began manufacturing custom parts that could not be found on the market, at a manufacturing and distribution plant established in Winona.
Fastenal branched out during the early 1980s. Importantly, in 1981 Fastenal purchased the inventory and customer list of the fastener lines of Briese Steel in Rochester. That move spurred growth, first into La Crosse, Wisconsin, and then throughout the upper Midwest. By the early 1980s Fastenal was operating more than 30 company-owned stores. Although all of the original founders contributed to the venture's growth, Kierlin was always the driving force; in fact, the other founders, with the exception of Slaggie, went on to start their own small companies while remaining part-owners in Fastenal. Kierlin focused aggressively on customer service and used his financial background to keep tight control on the company's finances.
Kierlin was a singular personality. His cluttered office in Winona housed a telescope that he used to birdwatch (Winona is perched along a scenic stretch of the Mississippi River about 100 miles south of Minneapolis). He rarely wore a tie to work and was known for his informal style, as well as a unique salary plan. Even when his company became a publicly traded, multimillion-dollar corporation, he paid himself only $120,000 annually, which was less than he paid several of his employees. In addition, unlike other chief executives who received low salaries, he paid himself no incentive bonus of any kind. Instead, he was content to watch his ownership interest in Fastenal grow along with the company. Also unusual was the fact that no employees had their own parking spaces and everyone, including Kierlin, received the same vacation benefits.
Beneath his casual exterior, Kierlin was an aggressive capitalist and ideologue with little patience for the methods of government or organized labor. He also held a fierce commitment to education. In a book that he self-published in the early 1990s, The Unified Theory of Life, Kierlin condemned the state of public education. "Increasingly," he wrote, "ownership of what goes on at the public schools resides not with the parents, nor even with local voters, but rather with state legislatures and state departments of education. ... 'Experts' impose their beliefs on what schools should teach and how the schools should teach them. The sense of omniscience leads the 'experts' to get into the minutiae of school schedules, start-times, extra-curriculars and hot-lunch programs."
Kierlin backed his rhetoric financially. In 1987 he and the other Fastenal cofounders set up the Hiawatha Education Foundation to help Cotter, their alma mater, and other area Catholic schools. Within six years the foundation had contributed $25 million. Much of that was used to transform Cotter into a world-class, technology-rich institution that was ultimately attracting hundreds of boarding students from around the country and even the world. The Cotter campus was moved to the closed College of St. Teresa, where ceilings were lowered to house computer networking infrastructure. In addition, a $2 million sports complex was built that incorporated six indoor tennis courts. Because of the foundation's endowment, tuition to the school was a relatively low $1,225 by the mid-1990s, and each graduate was entitled to a college scholarship ranging from $500 to $7,000.
Kierlin continued to expand Fastenal at a rapid rate. By 1985 the chain had grown to a total of 35 company-owned stores. That number grew to 45 in 1986 and 58 in 1987. To generate cash for more expansion, Fastenal's founders took the company public in 1987. The stock jumped from $9 to $15 by year-end, making the Fastenal initial public offering the most successful of the 627 conducted during the year of the October 1987 crash. Fastenal tapped the proceeds of the sale to add new outlets to its burgeoning chain. Seventeen shops were added in 1988, 28 in 1990, and 32 in 1991. By 1992 Fastenal was operating 200 stores throughout the industrial heartland of Pennsylvania, Ohio, Michigan, and Minnesota, but also as far away as Texas, New York, the Dakotas, and West Virginia.
Rapid Growth in the Early 1990s
Fastenal's gains were the result of Kierlin's profitable strategy and constant adaptation to markets. By the early 1990s each Fastenal store was offering a huge 30,000 items. Four thousand of those were stocked, while the rest could be delivered within 24 hours from regional distribution facilities in Winona, Indianapolis, and Scranton (Pennsylvania). Store operators were trained to find the answer to any question posed to them by a customer, as service was the centerpiece of the Fastenal strategy, and any parts that Fastenal employees could not track down could be custom manufactured in the Winona plant. The stores were typically able to garner profit margins of between 50 percent and 80 percent, which was far above the industry average of about 37 percent. Costs were kept low by locating shops in low-rent districts and minimizing other overhead.
As Fastenal carried its successful strategy into small and medium-sized towns throughout the United States and into Canada, sales and profits surged. Even per-store sales continued to climb, despite economic recession in the early 1990s. Fastenal's revenues grew from $11.6 million in 1985 to $20.3 million and $41.2 million in 1987 and 1989, respectively, while net earnings climbed from $818,000 to $4.3 million. Between 1989 and 1992, sales doubled to $81.3 million as net income climbed to $8.83 million. In 1992 Fastenal opened a fourth distribution center in Dallas and agreed to purchase a fifth in Atlanta. It also entered its 29th state. Kierlin and the other cofounders, who still owned a combined 45 percent of the company, had become millionaires.
The reason for Fastenal's proliferating base of customers was readily apparent: customers were willing to pay a premium for a dependable service that could save them a lot of money. About 50 percent of Fastenal's sales during the early 1990s came from manufacturing companies, while another 30 percent came from the construction industry. As an example, a contractor paying employees $30 per hour in wages and benefits could not afford to have a project held up by the lack of a special fastener for a piece of equipment—and he knew he could find it at Fastenal. In one instance, a Ford plant's assembly line was shut down by a breakdown that required a few dozen special bolts. Ford's regular supplier told the company it would have to wait until Monday—three days later. "Meanwhile, it's costing them something like $50,000 an hour to have this line not operating," Slaggie said in the March 11, 1992, Successful Business. "They called us and the part is an oddball, something we don't have in stock. We had them fax us the blueprint for the machine and we determined we could make it. ... We had them finished Sunday afternoon."
Amazingly, Fastenal moved through the early 1990s with virtually no long-term debt, while expanding at a rampant pace. New stores were added from the East Coast to the West Coast, and the company opened up a sixth distribution center. The total number of Fastenal outlets grew to 256 in 1993 and 324 by the end of 1994. With solid gains in existing store sales, company revenues increased to $110 million in 1993 and $161 million in 1994. After posting record net earnings of $11.9 million in 1993, Fastenal's net income surged to $18.7 million in 1994.
Fastenal entered 1995 with 330 stores in 44 states, each of which offered 37,000 different items, and the company was planning to add 150 outlets to the chain within the next few years. Some of the stores were called FastTool, which debuted in 1993. Positioned next to Fastenal shops, FastTool carried the same concept to the tool market by offering about 3,000 different power and hand tools and safety products. The company was also experimenting in 1995 with a small Fastenal/FastTool combination store for small towns with 5,000 to 8,000 residents.
Expanding the Product Line, Entering the 21st Century
The final years of the 20th century saw Fastenal expand both its product lines and the number of stores it operated. Product introductions during 1996 included the SharpCut line of metal cutting tools, the PowerFlow line of fluid transfer parts and accessories for hydraulic and pneumatic power, the EquipRite line of material handling and storage products, and the CleanChoice line of janitorial and paper products. Two more product lines were added the following year: the PowerPhase line of electrical supplies and the FastArc line of welding supplies. By this time, the company had nine distribution centers; it then opened two more in early 1998, in Winston-Salem, North Carolina, and Kansas City, Missouri. Expansions of the distribution centers in Scranton and Dallas were begun in 1998 and completed in 1999. Meanwhile, by year-end 1997, Fastenal was operating 644 stores, which were located in all 48 of the contiguous United States, as well as in Puerto Rico and Canada. Another 122 stores were opened in 1998, a year in which net sales reached $503.1 million, a 26.4 percent increase over the preceding year.
Another development in 1998 was the establishment of a subsidiary in Mexico, which employed a sales force dedicated to marketing within that country. Also that year came the distribution of the company's first all-inclusive catalog, an 824-page color-coded behemoth. The following year Fastenal began accepting orders via the company web site; as of mid-2001, however, only 1 percent of overall sales came in over the Internet. Sales and earnings growth slowed in 1998 and 1999 due in part to the aftereffects of the Asian financial crisis, which began in late 1997 and dampened demand for North American manufacturing exports. The opening of new stores was consequently slowed down, with only 43 stores opening in 1999 and 88 in 2000. One area of increased growth was in so-called in-plant stores, which were supply depots set up and run by Fastenal within the plants of large customers. There were eight such locations at the beginning of 1999 and 21 at the end of that year. Another method that Fastenal employed to make up for the revenues that would have accrued from the previous faster pace of store openings was to place increased emphasis on sales of the newer product lines. Older Fastenal stores were seeing much of their growth coming from the sale of products outside the original fastener line. By 2000, 35.5 percent of overall sales were being generated by the newer, nonfastener product lines.
In 2000 Fastenal began operating a second manufacturing facility at its Fresno, California, distribution center. Sales for 2000 increased 22.4 percent over the previous year, reaching $745.7 million, while net earnings totaled $80.7 million, an increase of 23.3 percent. Toward the end of the year, the slowdown of the U.S. economy began affecting Fastenal's sales, a trend that continued into 2001. This left some doubt about whether Fastenal could sustain its remarkable record of continuous and fast growth. Nevertheless, the company continued to carry no long-term debt and had plans to open between 100 and 150 stores in 2001, depending on the strength of the economy. Giving credence to the optimistic view of the company's future was Fastenal's proven ability to select the right sites for its stores; only four locations had been closed in the entire history of the company. Another cause for optimism was the continued leadership of the thrifty Kierlin, who remained firmly in charge as chairman, president, and CEO, and who continued to hold a 10.6 percent stake in the firm he cofounded, a stake worth more than $250 million as of mid-2001.
Principal Subsidiaries: Fastenal Canada Company; Fastenal Company Services; Fastenal Company Purchasing; Fastenal Company Leasing; Fastenal Mexico Services S. de R.L. de C.V.; Fastenal Mexico S. de R.L. de C.V.
Principal Competitors: W.W. Grainger, Inc.; Primus, Inc.; Applied Industrial Technologies, Inc.; Lawson Products, Inc.; MSC Industrial Direct Co., Inc.; Park-Ohio Holdings Corp.; Noland Corporation; Pentacon, Inc.; PennEngineering; Production Tool Supply.
- Key Dates:
- 1967: Robert A. Kierlin and partners open the first Fastenal store in Winona, Minnesota.
- 1968: Company is incorporated.
- Early 1980s:[fsps*3]Fastenal is operating more than 30 company-owned stores.
- 1987: To fund further growth, company is taken public.
- 1993: Expansion beyond fasteners begins with the launch of the FastTool line of power and hand tools.
- 2000: Company is operating 897 stores in 48 states, Puerto Rico, and Canada.
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