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Moving the nation's goods

| Wednesday, July 9, 2003

Whether it's distributing Hershey bars, liquidating out-of-season T-shirts for The Gap, or disposing of returned electronics for Best Buy, Genco Distribution System has a hand in moving a considerable swath of the nation's commerce.

As more retailers and manufacturers turn to outside companies to manage their inventory, O'Hara Township-based Genco continues to grow as the predominant player in the distribution and reverse logistics (handling returned goods) industries.

In the past decade, Genco's growth has exploded.

In 1998, when the third-generation, family owned company celebrated its 100th anniversary, it reached the $100 million level in sales. Five years later, and the company is on target to reach $300 million.

"The contract that propelled us was Target," said Chief Executive Herb Shear of the company's first deal, in 1992, to provide a centralized returns center for a major national retailer.

After Target, Sears and Kmart and many others followed.

William "Gus" Pagonis, retired three-star general and Charleroi native who coordinated the logistics for the U.S. military during the 1991 Gulf War, and who now is the president of Sears Logistical Services, swears by Genco.

During the Gulf War, Pagonis said, about 90 percent of the military's supply chain service was provided by private companies.

"I'm a great believer in third-party logistics operators," he said. "Genco is one of the top third-party operators in the country. They are superb in knowing how to liquidate product worldwide and know how to get the biggest bang for the buck."

Genco now operates more than 18.5 million square feet of warehouse space for retail distribution and for centralized product returns. It recently won a deal to provide two returns facilities for Minneapolis-based Best Buy Inc., while on the distribution side of the business, consumer products giant Unilever, with nearly $50 billion in annual sales, has selected Genco to operate two new distribution centers in Dallas and Pontoon Beach, Ill., totalling more than 1.7 million square feet.

Genco operates three return centers for Sears, two for Ikea and has recently opened a facility for Hewlett Packard, to name just a few more of the company's clients.

"Anything sold in the consumer market, we're probably touching it at some point," said Curtis Greve, president of Genco's retail business unit.

Genco was born in 1898 when Hyman Shear began leading a blind horse pulling a dray through the streets of Pittsburgh.

The company bought it's first truck in 1917. Samuel Shear joined his father in the early 1940s, after selling his own pharmacy business. He pushed the business into regional warehousing and distribution services with a client base that included Kaufmann's and Gimbels department stores, Mattel toys and Copperweld Steel.

Shortly after Hyman's grandson, Herb, joined the business in 1971, Genco won the contract to provide distribution for the Pennsylvania Liquor Control Board, which it maintains today.

The company has branched in several new directions under Herb Shear's guidance through natural outgrowth and acquisition.

As the 1980s wore on, Genco began handling its customers' returned items, which prior to the rise of reverse logistics, usually went straight into a landfill.

Through the later 1990s, Genco added consulting services, such as warehouse and transportation audits that help companies determine where along their distribution chain items are being mishandled and damaged, resulting in returns.

It also can provide light assembly, logo application and co-packaging services for manufacturers. For Master Lock, for instance, the company packages assorted sizes and types of locks into variety packs.

As a residue of its trucking roots, Genco can also manage a company's transportation needs through a network of carriers.

In 1997, the company acquired Pittsburgh-based Alpha & Omega, a provider of warehouse management software, and in 1999, it bought Cumberland Distribution Services, a Maryland-based provider of distribution center management services.

The company now employs more than 4,000 across the country, with about 200 in its O'Hara headquarters operation.

For Philips Consumer Electronics, Genco will put its employees inside the return centers of retailers selling Philips products to verify the eligibility of returned products for a credit to the retailer.

This prevents returns that don't qualify, either because their warranties have expired, they have been abused by the consumer or are not even the manufacturer's product, from ever making it back to the manufacturer.

For overstock items, or legitimate returned items, Genco maintains a database of thousands of secondary market vendors who will liquidate the inventory through various channels, such as dollar stores, foreign markets, or Internet auctions on Ebay. It will also refurbish items for resale, donate to charity or recycle -- whichever method provides the most value for its clients.

"You wouldn't believe the stuff some people will buy," Greve said of the eclectic players in the salvage market, where even single shoes without a mate often have a buyer.

Retailers can specify to Genco how they want their products sold on the secondary market. Some may want their products' tags and logos removed. Others may insist that their overstock only be sold in foreign markets.

"Retailers love it because we can enforce the rules," Greve said.

That means, for example, if a secondary market bidder on J.C. Penney merchandise violates an agreement to sell overstock merchandise with the tags cut off, that vendor will not only be cut off from bidding on future J.C. Penney merchandise, but also merchandise from any other retailer Genco does business with.

The market for logistical third-party logistics has been estimated to range upwards of $65 billion with tremendous growth potential.

With that growth potential comes plenty of new competitors.

Companies like UPS and FedEx Corp. have included logistics services among their offerings.

"Competitors can match pieces of our service offerings, but I don't know of anybody who can match it all," Shear said.

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