Online tool pioneer Coastal Tool & Supply continues to make a name for itself on the Internet, selling more than $5 million a year from its Web store

Industrial Distribution - November 1, 2006

Kimberly Griffiths
Contributing Editor

It's an amazing story, really. It's one that most distributors would question, but here it is: A discount tool shop decides to move its paper catalog onto the newly burgeoning Internet, and within years has built up an annual sales segment of more than $5 million dollars, about 55 percent of the company's total sales.

If you're thinking that's not possible, witness the growth of Coastal Tool & Supply, the above-mentioned discount tool distributorship, and realize the truth of those numbers.

"The Internet sales continue to surprise me every morning," says Robert Ludgin, president of Coastal Tool, headquartered in West Hartford, Conn. "We're able to reach millions of people at low expense, and are able to quickly respond to promotions and specials from the manufacturers. Adjusting those prices immediately is something that was never possible with a paper catalog."

Coastal Tool went online in 1995, taking advantage of the unlimited space on the Internet to supplement its paper catalog. After mere months, the company was doing next to nothing with the catalog and decided to concentrate solely on the Internet site.

Todd Mogren is Coastal Tool's Internet guru and a major part of the company's expansion on the Web.

"At that time, in 1994, a Home Depot had opened four miles from our building, we had a small retail store with limited parking, and a small paper catalog," says Mogren. "We were one of the first discount tool stores to go online, and that was to combat those disadvantages."

In its first complete year online (1996), Coastal Tool's Web site store boasted sales of $186,000. In 1997, sales increased to $485,000. In 1998, the store reached $1 million in sales. In 1999, it doubled to $2 million.

"Since 2001, we haven't seen that dramatic of sales increases, but they have continued to grow about 20 percent to 30 percent each year," says Mogren. "That's consistently the case month to month, also. And actually, we haven't paid a dollar in advertising for the site since 2000, so word of mouth and the ease of Internet searches have been our biggest catalysts for growth."

Selling over the Internet

Coastal Tool's online success isn't a big mystery. The company simply offers a variety of tools at a discount price and ships them out promptly.

"We do have the advantage of age on the Internet, with links dating back more than 10 years," explains Mogren, referring to the amount of information that the company already has online. "And our sales philosophy translates very well to the Web. We broadened the scope of our tool offerings on the Web and carry almost everything. We do niche sales, as well as concentrate on all areas, including those off the beaten track."

The less-popular and hard-to-find SKUs are readily available at coastaltool.com.

"You can offer so many more products online," adds Mogren, referring to the breadth of space for showcasing each product to the customer.

As a discount tool house, Coastal Tool uses a low-price structure and depends on the velocity of the business to bring in the profits.

"We want to sell 500 of a product, not five," Mogren explains. "We make up the discount in sheer volume selling. Everything listed on the Web site is stocked in our warehouse, and I'd say about 95 percent of it is shipped the same day as the order comes in."

Coastal Tool looks for niche customers: They're after dad's plumber, not dad. Since the beginning, the company's target has been contractors who spend thousands of dollars a year on tools.

"Initially, some customers may find us because they're looking for an obscure item and an Internet search brought us to their attention," says Mogren. "But having that item, then shipping it out the same day, encourages their repeat business. Because of this, our customer retention rate is extremely high."

A bright future

For Coastal Tool, whose Internet domination continues to grow, the future is full of tools exclusively.

"I don't know how many straight tool houses there are anymore," says Mogren. "When someone does a tool search online, the results are, more times than not, the same 20 usual suspects—those of us who have been doing this for a long time."

But what about The Home Depot and its movement on the Internet?

"Everyone and no one is a competitor for us," Mogren explains. "With Home Depot, yes, they have the distribution advantage [by way of supply chain/market reach] but we outflank them with product. We can't beat them with the best-selling items, but, as an example, let's look at rotary hammer bits. Home Depot has 20 or 30 available; we have 300. They may be able to get the others, but the order may get split, or take more time to fill. We beat them there by out-reaching them in product availability."

The Internet allowed for extreme market expansion in Coastal Tool's case, but how does the distributor just starting out online today hope to gain those kinds of sales numbers?

"Whatever has made that distributor a success off-line in their region is what will probably make them different online," advises Mogren. "The strategies between the two may differ, but the core features of what make the company a success will come through online."

Sharp and astute people

Heber Anderson is director of sales, Northeast, for Black & Decker products DeWalt, Porter-Cable and Delta. He's worked with Coastal Tool for years as a representative for the three lines.

"Coastal Tool is a family-owned distributorship, and Rob [Ludgin] is a sharp businessman," he says. "Todd [Mogren] is extremely astute about the Internet, and they know which products to promote and how to do it. The fact that they only promote what's in their warehouse, and are able to ship it the next day, is a big deal to us."

Anderson cites the promotion of a particular flooring nailer as an example of Coastal Tool's attention to unique products.

"Porter-Cable has a flooring nailer that is specifically designed for hard floors. Most distributors would say that the product is too specialized to carry, but Rob and Coastal Tool promoted it and found niches where it has sold. They're smart at finding the right markets for all products," he says. "I wish I had a hundred Coastal Tools."

Filling a need

Coastal Tool was founded in 1980 by Ludgin and his father, Lou. Inspired by a family friend who had a discount tool business in Oakland, Calif., the Ludgins quickly took to the profession, establishing suppliers and a target audience: professionals who wanted quality tools.

"Many of our initial suppliers didn't want us offering their products at discounted prices and pulled away from us, but we saw a market there and wanted to fill that need," says Ludgin.

For 17 years, the company was housed in 4,500 square feet of showroom and warehouse space, with little to no parking. It was that location that welcomed The Home Depot to the neighborhood in 1994.

Four years later, Coastal Tool moved to a larger facility right across the street from that Home Depot. The company now boasted 18,000 square feet of space, including a 5,000-square-foot showroom, and was directly across the parking lot from what some tool distributors would consider a nightmare to their annual sales numbers.

Not so for Coastal Tool

"Everyone had been to a Home Depot, but that couldn't be said of Coastal Tool," says Ludgin. "So when Home Depot put up a sign saying that they would beat any of our discounts, they brought the knowledge of Coastal Tool to their customers. Their customers would come visit us to see what the sign was all about."

"But now, it's not really that kind of competition, and it's not adversarial. If someone's in their store looking for a router bit that they don't have, they'll send them over here."

Coastal Tool's retail store, like its Internet site, boasts growing sales. As for selection, though the Web site handles up to 3,000 SKUs, the store itself houses closer to 5,000. Its sales have grown at a 5 percent to 8 percent rate annually, and it continues to draw customers from a 50-mile radius.

"We've been very successful with the one location," Ludgin says. "We may look at a chance to expand, but that's down the road."

Sticking with tools

Ned Smith is owner of Ned Smith Construction, LLC, a residential renovation construction company in Windsor, Conn. Smith has bought tools from Coastal Tool since the company was founded, and considers Ludgin a friend and business partner.

"Rob will go out of his way to get the odd-ball items, if a particular machine happens to not be in stock," Smith says. "He stands behind all his tools, and if something isn't working out to my satisfaction, he'll do anything to make it right."

Smith was a customer at the company's first location, as well as at its second, across from The Home Depot.

"Leave it to Rob to find a new building right across the street from a Home Depot," says Smith, "but he's so confident in his prices—and he wants the sales—he shows that he's a step above the big boxes."

Smith cites Coastal Tool's customer service as the main reason he keeps buying from the company, explaining that all the employees are knowledgeable about the products, and that, if they aren't sure about something, Ludgin will have the answer.

"Rob doesn't sit behind a desk all day. He'll be out and about talking to people" says Smith. "The store is shopper and user friendly, and is becoming more and more of a hub of power tool selection. They're constantly expanding, and customers don't lose that personal experience."

Coastal Tool has always sold tools, and as far as Ludgin is concerned, it will stay that way. Related items are available in the company's retail store and on the Web site, but Ludgin intends to keep Coastal Tool a tool distributorship.

"A lot of distributors' downfalls are trying to be everything to everyone, and ending up being inferior in most everything," he asserts. "You can't be a master of it all."