Digi-Key: Small but special

Digi-Key turns in above-average performance despite the downturn

Heidi Elliott -- Movers & Shakers, 8/15/2002

In a time when other distributors were forced to reduce staff, one company was able to hold the line. But that’s not the only thing that makes Digi-Key unique.

“It’s nice to outperform the marketplace during a time when the industry has gone up, down, and sideways.” Mark Larson, CEO, Digi-Key

The catalog distributor based in Thief River Falls, Minnesota, has also managed to do better than the industry average during good times and bad. CEO Mark Larson notes that during the 1997 to 2001 period, when the top 25 distributors as a group grew 27 percent, Digi-Key saw its sales increase 75 percent. "It’s nice to outperform the marketplace during a time when the industry has gone up, down, and sideways," Larson says.

 Even during the turbulent 2001 year, when most distributors saw their sales plummet back to 1999 levels, this niche distributor saw a modest drop of less than 4 percent. Privately held Digi-Key had estimated revenues of $361 million in 2001, compared with an estimated $372 million the year before. "Normally, I wouldn’t brag about a decrease, but in the current market, I’ll take it," Larson says. "It’s something that we have accomplished that I’m very proud of. We didn’t lay off any people. That means we’ve been able to retain people that have been well trained and understand our business."

As a catalog distributor, Digi-Key primarily serves the small-order market of prototype projects and test production runs. Digi-Key has grown tremendously since Larson’s arrival in 1976 as general manager, and his eventual rise to president in 1985. "They clearly have been the most dynamic MRO distributor for the last number of years," says analyst Clarke Walser, principal with Walser & Associates.

The company was founded in 1972 and initially served the needs of the electronics hobbyist market. When Larson joined the company, Digi-Key had revenues of $800,000 with about 15 or 16 employees. Under Larson’s direction, the company transitioned into supplying parts to the engineering community, which placed similar orders, albeit somewhat larger ones. Between 1978 and 1984, Digi-Key moved out of the hobbyist niche and into the design engineering/prototype market.

The company competes with a few others in the catalog niche, including giant Newark Electronics (the US division of Premier Farnell plc), Allied, and Mouser. Newark was the dominant player for a long time, and still is the largest component catalog in the industry. However, even before Newark parent company Premier Industrial was acquired and merged with Britain’s Farnell (to be renamed Premier Farnell), Digi-Key began building a loyal customer base. In fact, Digi-Key is consistently rated either No. 1 or No. 2 in customer-satisfaction surveys in terms of its responsiveness.

“It’s something that we have accomplished that I’m very proud of. We didn’t lay off any people. That means we’ve been able to retain people that have been well trained and understand our business.” Mark Larson, CEO, Digi-Key

"Clearly Digi-Key has built a lot of momentum, and Newark lost a lot," says Walser, who attributes the change in part to the acquisition of Premier by Farnell and subsequent management turmoil at that company.

Because Digi-Key is privately held, it answers to no one but itself, and it did not pull back on its marketing campaign in the past year. Instead, it went forward with its plans, and even built additional capacity in its warehouse facility.

"We don’t have to answer to the investment community," Larson says. "So, we really didn’t break pace at all."