2012: Is the home improvement glass half full or half empty?
There is an old curse: “May you live in interesting times.” Unfortunately for the economy, the last several years have been “interesting times.” Home improvement has weathered this storm better than some areas (notably new-home construction), but the industry has clearly been impacted. Twice a year the Home Improvement Research Institute (HIRI) publishes a detailed size-of-market forecast for home improvement product sales. A review of historical data spanning the period 1977 to 2007 shows only two years when the home improvement market declined. That was in 1982 with a 0.2% drop and 1991 with a 4.5% decline. That is one impressive track record! Well, the economy along with the housing crisis hit the industry in an unprecedented way. The market shrunk for three straight years (2007 to 2009) with a peak-to-trough decline of 15.5%.
The home improvement industry started its rebuilding in 2010 with a 2.3% growth, and it continued into 2011 with an estimated 2.8% gain. So from the low point in 2009, the industry will be up more than 5.0% over two years.
Consistent with the HIRI estimate for 2011 is the trend of retail sales for building material and supply dealers (NAICS 4441). For the most recent 12 months, ending in October, this grouping of retailers was up 4.0% over a year ago. The most recent month was even stronger at +6.1%.
So 2011 has been a reasonably good year, but what is the outlook for 2012? In short, it is cautiously optimistic. HIRI’s forecast done in September is for a 4.0% gain. While, the most current data that feeds HIRI’s forecasting model are somewhat weaker, growth is still expected. Areas of concern are the weak income growth and the destabilizing possibilities of the European debt crisis.
What is the outlook from the consumer? Overall consumer confidence has been rising recently, but how do they feel about home improvement? Monthly, HIRI conducts a survey regarding consumer plans for home improvement activity. The following chart has data through December 2011 and shows one of the measures from this monthly study — planned project incidence among homeowners. This measures the percent of homeowners planning to do one or more projects over the next three months.
Very noticeable in the graph is the seasonality in planning projects. As we exit the winter, outdoor projects become very popular. This increases the proportion of homeowners planning to do projects. The peak in planning comes in April, and then the level declines slowly, reaching a low in December.
After declines in 2009 and 2010, the level of project planning stabilized in 2011 with some months even showing growth. Since January, the project planning incidence for homeowners has been positive or just slightly below the previous year. This is true for our most recent month of data, December 2011, which showed 1.4% growth from the prior year. So it seems likely that the bottom has been found and 2012 may offer growth.
Beyond these numbers, there are several other factors that can drive growth in 2012:
• Consumers remain very pessimistic that this is a good time to sell their homes. So, homeowners are likely to think less about moving and more about improving their existing homes.
• Bigger-ticket, more discretionary projects have taken the biggest hit. Should the economy demonstrate improvement, there has to be pent-up demand for home improvement projects that were deferred over the last few years.
• Household size has been growing with multiple generations living together. The decline in homeownership rates reflects this trend. People losing their homes to foreclosure is a key driver in building average household size. The pressure of additional people in the same household can create home improvement needs.
So 2012 has the makings of a good year for the home improvement industry. Consumer attitudes are stable, and a variety of factors could contribute to growth. Major risks still exist, but this could be a good time to start feeling that the glass is half full.
A 24-year industry veteran, Fred Miller is the managing director of the Home Improvement Research Institute (HIRI). He can be reached at [email protected].
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A landmark settlement in toxic drywall cases was reached last month, one that may bring relief to thousands of homeowners and put an end to hundreds of state and federal cases filed against insulation manufacturers.
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At Lowe’s, pivotal decisions continue
Describing 2011 as a pivotal year for the nation’s No. 2 home center chain, Lowe’s executives continued to hammer on their theme transformation from retailer to a “home improvement company” during its annual conference last month.
What exactly is a home improvement company? CEO Robert Niblock explained.
“At the heart of our strategy is Lowe’s fundamental mission to deliver a better customer experience — in fact, the best it can be,” Niblock continued. “Better experiences begin the day a customer first thinks about the need for home improvement and continue until that project or need is fulfilled.”
The customer is something the Lowe’s team has studied in scientific detail. Senior VP marketing and advertising Tom Lamb defined the company’s target customer by first breaking down home improvement consumers into four distinct groups, each with primary shopping motivation that influences their habits.
• “Diligent maintainers” are those who get the project done and move on. They represent 15% of households and 10% of home improvement spending;
• “Opportunistic diehards” are those who relentlessly search for the best deals. They represent 20% of households and about 20% of spend;
• “Inquisitive curators” are those who seek out expert opinion and innovation for their home as a retreat. They represent 30% of households and 30% of spend; and
• Finally, the “trendsetting upgraders” are those who love exploring and experimenting with their homes. These consumers represent 30% of households and 40% of spend.
Lamb described the target customer as a combination of “inquisitive curators” and “trendsetting upgraders.” Together these two groups are described as “creators,” and they represent more than 70% of home improvement dollars. Creators value reputation, customer experience, product range, availability and good value, he said. The retailer believes that by meeting the expectations of the creator customer, it will exceed the expectations of all customers.
The creator mind-set also applies to the commercial business customer, who makes up about 25% of Lowe’s sales today, he added.
Getting to know the customer, and retain the customer, will determine the success of the company’s goals. Niblock pointed to tough decisions — including a round of 20 store closings in October — as part of a changing world.
“In 2011 we made a series of very hard, very critical but very important decisions to create Lowe’s of the future,” Niblock said. “Rather than be a home improvement retailer focused on store expansion as the engine for growth, we’ll be a home improvement company focused on maximizing asset productivity in order to grow.”
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