Las Vegas -- Keynote speaker Mark Herbek, of Cleveland Research Company, took the NRHA stage here at the National Hardware Show just moments after the grand-opening ceremony concluded. His message to the home improvement industry: Get on board with e-commerce. And the sooner, the better.
In a presentation titled "Preparing For and Participating in the Accelerating E-Commerce Shift -- What it Takes to Win," Herbek went over the facts and figures related to the economic downturn and spelled out the rapidly increasing opportunities presented by online shopping.
"Home prices were increasing 10% to 15% annually in the early 2000s," he said. "You all remember the days of redoing your kitchen every four to five years."
Unfortunately, the economy has yet to bounce back to these levels, he explained. The year 2014 is the first where there'll be a deficit in the supply of homes, and the industry is still an average of 25% below peak in many key categories.
However, 2013 was a strong year for the economy in several respects, and Herbek remains optimistic due to home prices being up and strong sustained demand in warm-weather regions. The year 2013 also saw the strongest annual growth in comps since 2005 for both Home Depot and Lowe's.
Couple that with the fact that cumulative mall traffic is down nearly 20% since 2000, and that $30 billion of retail sales moved online in 2013 alone, and that some companies are moving as much as 70% of their digital ad budget to mobile (up from 30% the prior year) -- that's a recipe for change. The $300 billion building products industry currently makes 4% of its sales online -- but that number is rapidly moving to 19%, he said. Building products e-commerce growth is expected to outpace other key consumer categories this year, especially in the cabinets, countertops, fashion plumbing, appliances, hardware and tools categories.
With 30% of product searches beginning on Amazon (compared with 13% for search engines), the retail behemoth has lessons to be drawn from. Of note are its fulfillment centers located within 50 miles of 19 of the top 50 markets, said Herbek. Additionally, industry pros have their eye on AmazonSupply, the B2B business launched in April 2012 with over 1 million SKUs to date. However, customer resistance to change and high loyalty to local businesses has prevented Amazon from fully taking over in this space, where customer service and knowledge are key.
In order to best prepare for the shift, retailers, distributors and suppliers will have to contend with changes in their marketing spend, store closures, fewer footsteps, major changes in distribution and supply change and upgrades to software and technology -- and not cling too tightly to the shore.