Item 1. Business

The Company

W.W. Grainger, Inc., incorporated in the State of Illinois in 1928, is a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with operations primarily in North America, Japan and Europe. In this report, the words “Grainger” or “Company” mean W.W. Grainger, Inc. and its subsidiaries, except where the context makes it clear that the reference is only to W.W. Grainger, Inc. itself and not its subsidiaries.

The Grainger Edge (Purpose, Aspiration, Strategy)

Grainger's framework, “The Grainger Edge”, uniquely defines the Company by describing why it exists, how it serves its customers and how its team members work together to achieve its objectives. Grainger’s purpose is to keep the world working. Whether that means helping a hospital focus on patient care, a manufacturing plant focus on building great products or a school focus on educating, Grainger and its team members help keep facilities running so customers can focus on what they do best.

The framework also outlines a set of principles that define the behaviors expected from Grainger’s team members in working with each other and their customers, supplier partners and communities. It is a basis for holding team members accountable to these principles and helps the company execute its strategy and create value for shareholders.

Business Model

Grainger's strategy is defined by its customers’ needs and the Company uses a combination of its high-touch and endless assortment businesses to serve the varying needs for customers of all sizes.

The high-touch model serves customers with complex buying needs, primarily in North America. This model helps Grainger deliver a great customer experience and develop deep customer relationships—whether onsite, at a branch, over the phone or online. Grainger creates value for customers through its sales and service representatives, technical product support, fulfillment capabilities, inventory management solutions and other services.

The endless assortment model is designed for customers with less complex needs and includes the Zoro brand in the United States (U.S.) and United Kingdom (U.K.) and MonotaRO in Japan. Customers buying through the endless assortment platforms have access to an expansive product assortment and can quickly find the products they need with an easy and streamlined online search experience. The assortment contains millions of Stock Keeping Units (SKUs), including products outside of traditional industrial MRO categories.

Competing with these two business models allows Grainger to leverage its scale and advantaged supply chain to meet the changing needs of its customers. The following provides a high-level view of each model:

Accelerated Growth

Grainger’s high-touch and endless assortment businesses are supported by Grainger's strong competencies to help drive accelerated growth across the MRO industry.

Geographic Overview

In the large and fragmented MRO industry, Grainger holds an advantaged position with its supply chain infrastructure, broad in-stock product offering, robust eCommerce platform and deep customer relationships.

While the global MRO market is vastly large, Grainger's estimated addressable market is more than $200 billion. Grainger is most successful in markets where it has scale positions in purchasing, supply chain and information technology (IT), and where a developed infrastructure exists. Those markets include North America, Europe and Japan. Each of these core markets has similar characteristics: the market is large, and the competition is highly fragmented. In total, Grainger estimates it has approximately 6% share within these markets with ample opportunity for growth.

Grainger’s two reportable segments are the U.S. and Canada through December 31, 2020, and are further described below. Other businesses include the endless assortment businesses, Zoro in the U.S. and the U.K. and MonotaRO in Japan, and smaller international businesses primarily in the U.K. and Mexico. Effective January 1, 2021, Grainger’s two reportable segments are High Touch – North America and Endless Assortment to align with Grainger's two distinct business models. For further segment and financial information, see Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 1 to the Consolidated Financial Statements (Financial Statements), included in Part II, Item 8: Financial Statements and Supplementary Data of this report, which is incorporated herein by reference.

The table below shows Grainger's estimated share of the MRO market and the summary of its operations by reportable segments and other businesses as of December 31, 2020:

			Approximate Market Share						Distribution Centers (DCs)(1)						Branches(1)						Approximate Number of Customers Served (thousands)(2)
United States - high touch business			7%						17						287						1,100
Canada - high-touch business			4%						5						49						50
Other businesses:
Endless assortment businesses			3%						4						—						3,800
International high-touch businesses			2%						3						71						50
Total			6%						29						407						5,000

(1) See Item 2: Properties for more information.

(2) Customers served in the U.S. may include overlap with Zoro within the endless assortment businesses.

Customers

Approximately 5 million customers worldwide rely on Grainger for MRO products and services representing a broad collection of industries, including, but not limited to commercial, government, healthcare and manufacturing.

Grainger's high-touch and endless assortment businesses appeal to varying customer needs and complexities as follows:

Products

More than 4,500 suppliers worldwide provide Grainger businesses with about 1.5 million products stocked in DCs and branches. Additionally, Grainger’s endless assortment businesses offer approximately 26 million products through the Company's expanding drop-ship assortment. No single supplier comprised more than 5% of Grainger's total purchases and no significant barriers exist with respect to sources of supply.

Grainger’s MRO product offering is grouped under several broad categories, including material-handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies and metalworking tools. Products are regularly added and removed from Grainger's product lines on the basis of customer demand, market research, suppliers' recommendations, sales volumes and other factors. No single product category comprises more than 19% of global sales.

Coronavirus (COVID-19) Pandemic Response

In response to the COVID-19 pandemic, the Company built and executed a pandemic-response focused on serving customers, supporting team members, and ensuring the Company remains financially strong. Grainger is an essential business, allowing the Company to serve its customers with needed supplies and services throughout the pandemic and recovery. As the pandemic evolved throughout 2020, the Company has continually shifted accordingly to ensure the Company is well positioned to continue executing its priorities. See Part II: Item 7: MD&A and refer to the Impact of the COVID-19 Pandemic on Grainger Businesses for further details.

United States - High-Touch

The U.S. business offers a broad selection of MRO products and services through its eCommerce platforms, catalogs, branches and sales and service representatives. A combination of product breadth, local availability, speed of delivery, detailed product information and competitively priced products and services is provided by this business.

Sales in 2020 were made to approximately 1 million customers and no single end customer accounted for more than 3% of total sales. U.S. business customers range from mid-sized businesses to large corporations, government entities and other institutions within many industries. Macro trends and technology drive the way U.S. business customers behave. High-touch customers desire highly tailored solutions with real-time access to

information and efficient delivery of products and services. These trends are reflected in how customers do business as demonstrated in the following tables for the 2020 line mix:

Order Origination									Order Fulfillment
Digital channels:									Direct-to-customer:
Website			32		%				Ship to Customer			73		%
EDI/ePro			28		%				KeepStock®			15		%
KeepStock®			15		%				Subtotal			88		%
Subtotal			75		%				Branch Pick-up			12		%
Non-digital channels:									Total			100		%
Branch			6		%
Phone			19		%
Subtotal			25		%
Total			100		%

Customers have access to more than 1.5 million products through Grainger.com and other branded websites. Grainger.com provides real-time price and product availability, detailed product information and features such as product search and compare capabilities. For customers with sophisticated electronic purchasing platforms, the U.S. high-touch business utilizes technology that allows these systems to communicate directly with Grainger.com. The majority of products sold by the U.S. business are third-party owned products. In addition, approximately 20% of 2020 U.S. business sales were private label MRO items bearing Grainger’s registered trademarks, including DAYTON®, SPEEDAIRE®, AIR HANDLER®, TOUGH GUY®, WESTWARD®, CONDOR® and LUMAPRO®. Grainger has taken steps to protect these trademarks against infringement and believes that they will remain available for future use in its business.

Sales and service representatives in the U.S. high-touch business drive relationships with customers by helping select the right products for their needs and reducing costs by utilizing Grainger as a consistent source of supply. Additionally, inventory management through KeepStock® allows the U.S. high-touch business to help customers be more productive. KeepStock® is a comprehensive program that includes vendor-managed inventory, customer-managed inventory and onsite vending machines.

DCs are the primary order fulfillment channel with approximately 73% of direct shipments. Automation in the DCs allows the majority of orders to ship complete with next-day delivery and replenish branches that provide same-day availability to customers. The U.S. business DC network is also a primary component of Grainger’s North American distribution network and it supplies inventory, product management, supply chain and related support services to all Grainger subsidiaries in the North American region including Zoro, the U.S. endless assortment business. Approximately 32%, 59%, and 92% of inventory purchases in 2020 for the Canadian business, Mexican business and Zoro, respectively, were sourced from the U.S. business.

Branches in the U.S. high-touch business serve the immediate needs of customers by allowing them to directly pick up items and leverage branch staff for their technical product expertise and search-and-select support. Branches also fulfill local KeepStock® operations in their local markets.

The U.S. business houses the North American Customer Service Centers which support the needs of customers in the U.S. and Canada. The centers handle more than 62,000 daily customer interactions for the region via phone, email, eCommerce portals and online chat.

Canada - High-Touch

The Canada business provides a combination of product breadth, local availability, speed of delivery, detailed product information and competitively priced products and services. The Canada business primarily serves Canadian customers through its integrated DC and branch network as well as sales and service representatives.

Other Businesses

Other businesses is comprised of the endless assortment businesses, Zoro and MonotaRO, and smaller international high-touch businesses primarily in the U.K. and Mexico.

Zoro - Endless Assortment in the U.S.

Zoro is an online MRO distributor, primarily serving U.S. customers through its website, Zoro.com. With sales of more than $700 million in 2020, Zoro offers an expansive selection of approximately 6 million products to its customers. Zoro has no branches or sales representatives, and customer orders are fulfilled through the U.S. business supply chain and third parties.

MonotaRO - Endless Assortment in Japan

Grainger operates in Japan primarily through its majority interest in MonotaRO. MonotaRO had more than $1.4 billion in revenue in 2020 and provides customers with access to approximately 20 million MRO products primarily through its websites and catalogs. A majority of orders are conducted through MonotaRO.com and fulfilled from its DCs and third parties. MonotaRO also operates in other Asian countries, which represent less than 5% of their sales.

Seasonality

Grainger sells products that may have seasonal demand fluctuations during the winter or summer seasons or during periods of natural disasters. However, historical seasonality impacts have not been material to Grainger’s operating results.

Competition

In the large and fragmented MRO industry, Grainger faces competition from a variety of competitors, including manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, retailers and internet-based businesses. Also, competitors vary by size, from large broad line distributors and eCommerce retailers to small local and regional competitors, with a high degree of overlap for both business models. Grainger differentiates itself by providing local product availability, a broad product line, sales and service representatives, catalogs (which include product descriptions and, in certain cases, extensive technical and application data) and advanced electronic and eCommerce technology. Grainger also offers other services, such as inventory management and technical support.

Government Regulations

Grainger’s business is subject to a wide array of laws, regulations and standards in each domestic and foreign jurisdiction where Grainger operates. In addition to Grainger’s U.S. operations, which in 2020 generated approximately 78% of its consolidated net sales, Grainger operates its business principally through wholly-owned subsidiaries in Canada, China, Mexico and the U.K., and through its majority-owned subsidiary in Japan. Compliance with these laws, regulations and standards requires the dedication of time and effort of employees as well as financial resources. In 2020, compliance with the applicable laws, regulations and standards did not have a material effect on capital expenditures, earnings or competitive position. For a discussion of the risks associated with government regulations that may materially impact Grainger, please see Item 1A: Risk Factors.

Human Capital Resources

As of December 31, 2020, Grainger had approximately 23,100 employees worldwide, of whom approximately 21,800 were full-time and 1,300 were part-time or temporary. Approximately 86% of these employees resided in North America, 8% in Asia and 6% in Europe. Grainger has not experienced any major work stoppages and considers employee relations to be good.

The Company strongly believes that its corporate culture must be aligned with its business strategy and aspiration to create value. To that end, Grainger's Board of Directors and senior management are actively involved in cultivating Grainger’s culture. Grainger believes that a purpose-driven culture is an asset that creates a sustainable, competitive advantage for the Company. Building on its strong foundation while evolving a framework to address future challenges is critical to Grainger’s continued success.

The Company has in place a strategic framework, The Grainger Edge, which defines who Grainger is, why Grainger exists, and how team members work together to achieve Grainger’s objectives.

The Grainger Edge outlines Grainger's purpose, aspiration, strategy and principles, which are foundational to its culture. The Grainger Edge principles are:

•Start with the Customer			•Win as One Team
•Embrace Curiosity			•Invest in our Success
•Act with Intent			•Do the Right Thing
•Compete with Urgency

Grainger’s culture and principles help the Company attract, retain, motivate and develop its workforce and help drive employee engagement. The Company believes an engaged workforce leads to a more innovative, productive and profitable company and measures employee engagement on an ongoing basis. The results from engagement surveys are used to implement programs and processes designed to enhance Grainger’s inclusive culture.

The Grainger Edge principles also guide the Company’s actions supporting health and safety, diversity, equity and inclusion, and team member experience.

Health and Safety

Grainger is committed to providing a safe work environment and ensuring team members are properly prepared to perform the many tasks required to support customers. The Company’s Environmental, Health and Safety (EHS) program is designed to integrate EHS initiatives into Grainger’s business operations and comply with applicable regulations. To that end, the Company requires each of its locations to perform regular safety audits to confirm proper safety policies, programs, procedures and training are in place.

The Company promotes a culture of safety and education. Operational team members must complete routine training to fully understand the expectation of behaviors defined by the Company’s global EHS policy. Grainger also leverages external partnerships to support its EHS professionals and is a member of the Campbell Institute of the National Safety Council, whose mission is to use research, education and advocacy to eliminate preventable injuries and deaths. Managing and reducing risks at DCs and other facilities remain a core focus, and injury rates continue to be low. In 2020, the Company’s Occupational Safety and Health Administration (OSHA) North American Total Recordable Incident Rate was 1.2 and the Company’s OSHA Lost Time Incident Rate was 0.3 based upon the number of incidents per 100 employees (or per 200,000 work hours).

At the onset of the COVID-19 pandemic, Grainger established a task force to help ensure the Company’s actions around team members and facilities meet the rigorous guidelines from the Centers for Disease Control and the World Health Organization and to work with state and local health officials to help ensure its team members and facilities were safe and compliant. To minimize exposure and slow down the rate of infection, Grainger established a mandatory work remote policy for all team members who are able to do so. For team members who must be on-site, whether to ship products or serve customers, Grainger instituted temperature checks and social distancing practices, provided essential personal protective equipment (PPE) to employees, increased cleaning procedures and offered premium pay as well as pandemic absence pay to cover lost wages.

Diversity, Equity and Inclusion

Grainger has a diverse talent pipeline to live its principles, foster innovation, build high performing teams and drive business results. The Company understands that future business success requires a mix of current and new skill sets, multiple experiences, and a diversity of backgrounds and perspectives, hence the Company's hiring, retention and promotion practices reflect this priority. The Company aspires to and promotes a welcoming, inclusive culture that values all people – regardless of sex, gender, race, color, religion, national origin, age, disability, veteran status, sexual orientation, gender expression or experiences – through recruiting outreach, internal networking, business resource groups and mentoring programs.

Grainger's commitment to diversity, equity and inclusion starts at the top. The Company’s Board of Directors is comprised of 25% female and approximately 33% racially and ethnically diverse directors. Grainger also maintains this strong commitment at its senior management level and throughout the organization. Of Grainger's six executive officers, 50% are women and approximately 33% are racially and ethnically diverse. As of December 31, 2020, within Grainger’s U.S. workforce, approximately 38% of team members were women and approximately 35% team members were racially and ethnically diverse.

The Company is a signatory to The Chicago Network Equity Pledge and has committed to striving to achieving 50% representation of women in leadership positions by 2030. In 2020, the Company earned the top score of 100% on the 2020 Corporate Equality Index. Additionally, the Company attained a 90% rating in the Disability Equality Index for the second consecutive year, and was designated as one of the "Best Places to Work for Disability Inclusion" for the fourth consecutive year.

Team Member Experience

Grainger believes that a great customer experience starts with a great team member experience. The Company is committed to providing its team members with resources designed to help them succeed. Grainger focuses on creating opportunities for employee growth, development and training education, offering a comprehensive talent program that continues throughout a team member’s career. This talent program is comprised of performance management, career management, professional development learning opportunities and milestone leadership development programs.

Grainger believes that its future success is highly dependent upon the Company’s continued ability to attract, retain and motivate employees. As part of its efforts in these areas, the Company offers competitive compensation and benefits to meet the diverse needs of team members and support their health and well-being, financial future and work-life balance. Team members are given access to health plan resources which include 24-hour virtual health services, disease management, tobacco cessation, parental support, stress management and weight loss programs with access to online support communities. In addition, Grainger provides retirement savings, paid holidays and time off, educational assistance and income protection benefits as well as a variety of other programs to U.S. team members.

Available Information

Grainger makes available free of charge, through its website, http://www.invest.grainger.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after these materials are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). The content of Grainger’s website is not incorporated by reference into this Form 10-K or in any other report or document filed with the SEC, and any references to Grainger’s website are intended to be inactive textual references only. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Information about Executive Officers

Following is information about the executive officers of Grainger including age as of January 31, 2021. Executive officers of Grainger generally serve until the next annual appointment of officers, or until earlier resignation or removal.

Name and Age			Positions and Offices Held and Principal Occupation and Employment During the Past Five Years
Kathleen S. Carroll (52)			Senior Vice President and Chief Human Resources Officer, a position assumed in December 2018. Previously, Ms. Carroll served as Executive Vice President, Chief Human Resources Officer of First Midwest Bancorp, Inc., a diversified financial services company, from 2017 to 2018. Prior to that role, Ms. Carroll was employed at Aon Corporation, a global insurance brokerage and consulting company, between 2006 and 2017, in various Human Resources roles, culminating in her position as Vice President, Global Head of Talent Acquisition.
John L. Howard (63)			Senior Vice President and General Counsel, a position assumed in 2000. Previously, Mr. Howard served in several roles of increasing responsibility at Tenneco, Inc., a global conglomerate including Vice President – Law. Prior to that role, Mr. Howard held a variety of legal positions in the federal government, including Associate Deputy Attorney General in the U.S. Department of Justice and in The White House as Counsel to the Vice President.
D.G. Macpherson (53)			Chairman of the Board, a position assumed in October 2017, and Chief Executive Officer, a position assumed in October 2016 at which time he was also appointed to the Board of Directors. Previously, Mr. Macpherson served as Chief Operating Officer, a position assumed in 2015; Senior Vice President and Group President, Global Supply Chain and International, a position assumed in 2013; Senior Vice President and President, Global Supply Chain and Corporate Strategy, a position assumed in 2012, and Senior Vice President, Global Supply Chain, a position assumed in 2008.
Deidra C. Merriwether (52)			Senior Vice President and Chief Financial Officer, a position assumed in January 2021. Previously, Ms. Merriwether served as Senior Vice President and President, North American Sales & Services of the Company, a position assumed in January 2020, Senior Vice President, U.S. Direct Sales and Strategic Initiatives, a position assumed in September 2017, Vice President, Pricing and Indirect Procurement, a position assumed in 2016, and as Vice President, Finance, Americas, a position assumed in September 2013. Prior to Grainger, Ms. Merriwether held various positions across finance, procurement and operations at Sears Holdings Corporation, a broadline retailer, including as Chief Operating Officer, Retail Formats, PriceWaterhouseCoopers, a global professional services firm, and Eli Lilly & Company, a global pharmaceutical company.
Paige K. Robbins (52)			Senior Vice President and President, Grainger Business Unit, a position assumed in January 2021. Previously, Ms. Robbins served as Senior Vice President and Chief Technology, Merchandising, Marketing and Strategy Officer, a position assumed in November 2019, Senior Vice President and Chief Merchandising, Marketing, Digital, Strategy Officer, a position assumed in May 2019, Senior Vice President and Chief Digital Officer, a position assumed in September 2017, and Senior Vice President, Global Supply Chain, Branch Network, Contact Centers and Corporate Strategy, a position assumed in 2016. Since joining Grainger in September 2010, Ms. Robbins has held various positions as a Vice President, including in the areas of global supply chain and logistics.
Eric R. Tapia (44)			Vice President and Controller, a position assumed in 2016. Previously, Mr. Tapia served as Vice President, Internal Audit from 2010 to 2016. Mr. Tapia is a Certified Public Accountant (CPA) and before joining Grainger in 2010 was an audit partner with KPMG, a global professional services firm.