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MSC Industrial Direct ups prices amid ‘fast and furious’ supplier price increases

Dive Brief:

  • MSC Industrial Direct posted a June price increase due to “continued significant pricing activity from” suppliers, CEO Erik Gershwind said this month on an earnings call
  • The increase is earlier than expected, but “certainly warranted given the environment,” Gershwind explained, pointing to inflation’s impact on supplier prices.
  • MSC had already raised prices in March as it dealt with product disruptions and is open to raising them again if supplier prices continue to go up. “We will not hesitate to move again if suppliers continue raising their prices,” Gershwind said on the call.

Dive Insight:

MSC warned back in April that it could forsee raising prices again, and that’s exactly what it did. Going forward this year, the company said it’s willing to double down on its strategy of raising prices to combat supplier increases, when needed.

“Price increases coming from suppliers is fast and furious,” Gershwind said on the call. This environment has forced MSC to increase prices twice within “a matter of a few months,” something the company hasn’t had to do in a while, he said.

“The past quarter, the supply chain issues have become more acute, not less,” said Gershwind, hurting suppliers’ ability to produce products.

Inflation and price increases have raised the stakes for procurement teams looking to save costs

Pushing costs onto customers is one way to handle the quandry. MSC’s March increase resulted in a “sequential lift in gross margin,” rising from 42% to 42.3% (30 bassis points) from Q2 to Q3, company leaders said.  

MSC said it expects to end the year with flat growth compared to 2020, but it views that as a positive if the economy is at the start of an inflationary cycle. 

Typically, what you would see from us is the early stages of an inflation cycle … price [we charge] would outpace cost [of production], and we believe that’s where we’re at right now,” Gershwind said. “Certainly in the later stages, things can flip around, but to the extent that this inflationary cycle has some legs to it, as it appears, we would expect price to outpace cost.”

As companies adjust to address inflation concerns, the issues that have plagued supply chains throughout the year persist. Port congestion, severe weather and COVID-19 disruptions continue to impact product availability as demand lifts upward.

“What’s happening is there’s a lot of product scarcity and that’s beginning to lead to significant inflation,” Gershwind said during last quarter’s earnings call. 

A part of the challenge with addressing inflation is dealing with all the disruptive events and issues that are combining to push prices higher. Gershwind pointed out that a big issue continues to be a lack of labor.   

“I think that in particular, the one that is just white hot is access to labor,” he said. “Everybody I’m talking to is feeling the pinch.”

This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.

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