Contractors go digital, but not social
By Brad Farnsworth
A recent study conducted by The Farnsworth Group, research and insight specialists for the building material and home improvement industries, found roughly 50% of builders and remodelers purchasing products online.
The kinds of products being purchased online include those that are purchased infrequently, such as hand tools and accessories, and more commodity-oriented products, such as building materials. Currently, less than 20% to 25% of pros are purchasing any specific product category online. Although online is a growing source of products purchased, online purchasing remains relatively small as a percent of total purchases made by builders and remodelers.
Another key finding of the “Pro Communication Study” is that pros are interested in receiving information via multiple mediums, including emails. As with many forms of communication used by the pro, 9 out of 10 primarily want new product information, technical specs and general product information. In addition to product information, given today’s economic environment, pros are also looking for information on any specials, discounts or promotional deals from either manufacturers or suppliers.
While 87% of remodelers and builders use the Internet to look for product information once a week or more, pros are not currently looking to social network sites, in general, for professional purposes. Websites that professionals show interest in using are trade-specific sites. These sites include manufacturer sites, which 61% say they use more today than five years ago, as well as supplier websites. Trade publication sites and public forums of builders, remodelers or other specialty trade groups are also viable online resources.
These data points represent a few selected tables in the “Pro Communication Study” conducted by The Farnsworth Group in 2012. For more information, email [email protected].
Old is for museums, current is for retail
When I picked up my local newspaper the other day, a headline read “Collierville’s McGinnis Hardware to close its doors after 146 years.” Clearly this isn’t the first independent store to go out of business, but it brought on feelings of nostalgia. Started in 1866 and in the same location on the picturesque Town Square since 1879, McGinnis Hardware was a fixture in the community. It stood through the Spanish-American War, World Wars I and II, the Korean War, the Vietnam War, Desert Storm and the Iraq War. What could bring this institution to an end?
Consumer change undermined this retailer and many more that have preceded it into closure. In this case, competition moving in from both The Home Depot and Lowe’s was more than McGinnis could withstand. Nonetheless, many hardware stores remain vibrant players in the market. Why didn’t McGinnis make it while others have done well? A look at the Home Improvement Research Institute’s (HIRI) “2012 Retail Selector Study” gives us some important insights. This study was conducted among 1,603 consumers who had made a home improvement purchase in the past three months.
As one would expect, home centers dominated the share of the purchasers at 68%. Hardware stores got 7% of the activity; a very similar number to what had been shown in this same study going back to 2005.
A primary goal of the study is to understand the reasons why people select a particular retailer for a specific purchase occasion. Looking at the top-of-mind reasons for selection, there are primary areas: price, convenience and product selection. The mixture of these reasons is significantly different by type of retailer. Examining these differences is enlightening.
Consumers who purchased at home centers often mentioned all three major reasons for their choice of store. This is noticeably different than what we see for hardware, specialty and discount stores. Specialty stores are very strong for product selection. Given the depth of products in their chosen category, this makes a great deal of sense. Discount stores rely on low prices as their key attraction. With this store type’s focus on price, this is likewise understandable.
The reason for shopping in hardware stores is focused on convenience. Unlike specialty and discount stores, this isn’t an inherent characteristic of their basic business model but more a function of how they operate. Convenience comes from a variety of characteristics. Some variables that drive convenience are store location, ease of parking, ability to find the needed product easily, product in stock and ease of check out.
Being in the same location for 133 years may be a wonderful part of history, but is it convenient? A picturesque location on a town square is delightful, but does it have easy-to-find parking spaces, and is it still the center of commerce in town? Is the store configured to make it easy to find needed products? When you go to check out, is it quick and easy?
Unfortunately for McGinnis, it doesn’t appear that its longevity overcame the perceived advantages for consumers to shop elsewhere.
There are important lessons to be learned from this story:
• Today’s winning formula may not make it tomorrow;
• Even loyal customers can be persuaded to shift their business; and
• Understanding your advantage in the market is critical, and finding ways to enhance that edge should be a continuous activity.
Another HIRI study, “The Future of Home Improvement,” helps members understand emerging trends and prepare to be relevant as consumer desires shift. Embrace change. Those who aren’t going forward are going backward.
If you aren’t a museum, maybe moving once every 100 years isn’t a bad idea?
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].
Betting the house on demographics
A chorus of voices is giving hope to the housing industry, which is starting to show signs of recovery. Demand for housing, as measured by pending home sales, was at a two-year peak in October, according to the National Association of Realtors. Builders broke ground on 894,000 housing units that same month, their fastest pace in four years, according to the U.S. Commerce Department. The National Association of Home Builders (NAHB), which surveys its members every month, declared that its Builder Confidence Index hit its highest level in November since May 2006.
Add one more voice to this growing belief: housing analyst Ivy Zelman, a former Cassandra who predicted, early on, that the housing downturn would be long and deep. Using a satellite hook-up at the ProDealer Industry Summit (PDIS), Zelman shared her latest perspective on the state of the housing market. She told a large audience of LBM executives, assembled in late October, that the acceleration of household formation, combined with a dwindling number of available rental units, has created a housing shortage that needs to be addressed — immediately.
“We, as a country right now, do not have very many opportunities for shelter,” Zelman said. Household formation is rising through legal immigration (nearly 482,000 people in 2011) and pent-up demand from adult children leaving their parents’ homes in search of their own apartments and condos. “It’s tough to date when you’re in your 30s and living in your mom and dad’s house,” Zelman observed. And, unlike young adults in some European countries, “people are still falling in love and getting married and having babies,” she added.
Those searching for new dwellings will find a tight rental market, with current occupancy rates for apartments at 94.5%. Renters who can’t find apartments are turning, instead, to renting single-family homes. Occupancy rates for those are also high, at 94.6%. Monthly leases average $1,036 for apartments and $1,150 for single-family houses.
Given these circumstances, now might be a good time to buy a house. But the nation’s housing stock is at an all-time low. Houses being used for rentals are off the market, and production builders cut back on inventory a long time ago. Some home builders have started break ground again, and Zelman predicted 770,000 housing starts in 2012. Zelman & Associates’ official forecast for 2013 is 980,000 housing starts. The 1 million mark will be breached in 2014, when Zelman & Associates has forecasted 1.225 million housing starts.
Of course, many other factors will influence the recovery. More than 2 million foreclosed houses are still listed for sale. Banks will have to start lending to home builders and their suppliers again. On the latter issue, there has been a slight increase in Acquisition, Development and Construction (AD&C) loans, according to the FDIC, and this trend will continue to improve, Zelman said. “Banks are always slow getting back into the housing market,” she noted. The biggest impediment to foreclosures are the states where the process runs through the judicial system; the four states with the highest foreclosure inventories — Florida, New Jersey, New York and Illinois — must use the judicial system to clear foreclosures, according to CoreLogic, an Irvine, Calif.-based information and analytics provider.
Zelman viewed the sustained rise in existing-home prices, which she calculates at 8.8% through July 2012, as another signal that a supply-demand shift is coming. “We believe we are in the beginning of a pretty strong long-term pricing cycle,” she said. States where housing went bust after the building boom — i.e. Arizona, Nevada, California and Florida — are showing six-month price increases that range between 7.5% and 13.1%. These four states, along with Washington, D.C., Texas, Virginia, Maryland, North Carolina and Illinois, account for an estimated 66% of public home builders’ active projects as of the third quarter of 2012, according to Zelman’s research.
Many home builders paint a less rosy picture of their current business conditions, given the shortage of labor and the inflation in building material costs. These problems are being passed on to lumberyard owners, who asked for Zelman’s perspective when she presented at the PDIS event.
Much of Zelman & Associates’ research is based on studying the financial reports of public and private home builders and a monthly poll of home-building executives from around the nation. All else being equal, home builders need a 0.5% home price increase to cover a 1.0% increase in labor and materials, according to the firm’s most recent analysis. In short, builders can cover price increases with minimal price appreciation on the homes they sell, Zelman said. “If they’re pushing back on you [on prices], I think you should have that discussion again,” she said, adding: “Builders are going to have to pay up [if] they want to make Wall Street happy.”
But builders are still gun shy, and no one knows for sure if the federal government won’t wipe out the mortgage interest deduction, or if the FHA’s future is secure. Nevertheless, Zelman foresees a “waterfall of new residential strength” in the next three years. Included in this cascade is spending on home improvement projects, which Zelman and Associates estimates will rise in the “mid-single digits” over the next several years. While many of these purchases will involve houses that were bought and sold, others will go into households that never changed owners.
“The home improvement industry is more dependent on the people who don’t move,” Zelman started. “The power of the female buyer will reignite spending on our homes.”