On the fence: study points to opportunity
The fence category offers retailers several openings — including the growing popularity of vinyl, the introduction of composites with similar aesthetics to wood and the aging population in general. According to the Freedonia Group, an industry research firm, these trends and others point to a U.S. fencing market that is expected to grow 2 percent annually through 2012.
Chris Church, an analyst with Cleveland-based Freedonia Group, said home centers will see the greatest opportunity in installation because the fast-growing vinyl fencing requires precision in its installation. “As the market for vinyl fencing continues to grow, home centers may increasingly be the point of purchase for both materials and installation services,” he said. “Also, as the U.S. population ages, a growing segment of the population with the willingness to pay for fencing and its installation will increase demand for such services.”
U.S. fencing demand is expected to grow from 857 million linear feet in 2007 to 935 million in 2012. The residential market accounts for more than 50 percent of that demand, according to Freedonia.
Wood remains the most popular fencing in the residential market and will continue to be the favorite choice for the foreseeable future, the research group said. “Vinyl requires less maintenance than wood fencing, however, consumers like the appearance of wood fencing,” Church said. “And many DIY homeowners are more comfortable installing a wood fence than a vinyl fence.”
Asked if his group could predict the timing of the housing turnaround, Church said, “We’re reluctant to predict when the market will bottom out. The recent turbulence in credit markets has added to the uncertainty regarding the outlook for housing construction.”
Among fencing materials, demand for plastic and composite fencing is forecast to grow fastest, as these products continue to penetrate the large residential fencing market at the expense of wood products. Plastic materials can offer similar aesthetics to wood products while significantly reducing maintenance costs.
“Composites are an exciting segment of the fencing industry,” Church said. “There is a lot of innovation among composite fencing manufacturers, and many focus on improving the environmental profile of the fencing product. For example, Trex makes its fencing out of wood scrap and recycled plastic grocery bags. Additionally, these products look similar to wood products, often possessing a similar grain and color. Although composites only hold a small share of the market, they are expected to be one of the fastest growing products.”
In its report, “Fencing,” Freedonia said the nonresidential fencing market should provide some of the best opportunities for growth. Installations at institutional buildings will grow this market, as demographic trends drive the construction of new health care and educational facilities.
Functional or fad?
Port Washington, N.Y.-based NPD Group has released data from a consumer survey of the most popular items in one of the most trend-focused home channel categories — small appliances.
The group noted that in the year ended August 2008, the categories with the largest percentage growth in unit sales across specialty kitchen electrics were jar openers, electric kettles, popcorn makers and tea makers. The biggest unit declines were chocolate fountains, electric rotisseries, pizza ovens and roaster ovens.
Electric kettles were the largest category in all specialty kitchen electrics tracked by NPD in the 12 months ending August 2008 (23 percent of units, 19 percent of dollars). The category grew by 21 percent in units and 28 percent in dollar sales. According to the NPD Group’s National Eating Trends, per capita or per person consumption of tea in the home has been steadily increasing over the past five years.
On the other end of the spectrum, chocolate fountains had the largest percentage of unit and dollar declines in the specialty kitchen electrics category, resulting in a 51 percent unit sales decline and a 48 percent dollar sales drop. Chocolate fountains were a big trend in recent years, with the largest growth among these specialty categories in the 12 months ending August 2007, nearly tripling dollar sales of the previous year and quadrupling unit sales.
“It’s noteworthy that specialty kitchen electrics such as popcorn makers, tea makers and electric kettles are showing such substantial growth in the past year,” said Peter Goldman, president of NPD’s home services. “Despite economic turmoil, consumers are seeking comfort and convenience to enhance their stay-at-home lifestyle. Tea and popcorn makers certainly fit the healthy living trend as well.”
Goldman added that in a rougher economy, consumers likely won’t be looking for the latest fad, “or a product that does not offer real value to their everyday lives.”
“Electric jar opener growth is a good example of this and can be attributed to an aging population,” he added. “In this regard, we anticipate seeing more successful specialty appliances geared toward this population as the opportunities there continue to grow.”
Analyst: Home Depot price cuts appear to be working
Deborah Weinswig, an analyst for Citigroup, has released a research note saying that Home Depot’s recent efforts to slash prices on approximately 1,200 items in stores appears to be successful so far.
Weinswig said the pricing shows early signs of success, and customers also appear to be leaving stores with more overall products purchased, leading the results from the cuts to “exceed expectations.” She added, “In light of the difficult environment, HD is focused on delivering a more relevant merchandise assortment to customers and improving service levels in the store to drive sales and gain market share.”
In mid-September, Home Depot voted to cut prices on various items throughout its store in a bid to boost sales and grab market share — prices on one in every 25 items in stores were cut from 5 percent to 50 percent.
Insulation and thermostats, toilets, trash bags and paint all were on the agenda for the price cutbacks, the retailer said. In all, 1,200 items saw prices slashed through the initiative, which is expected to continue through the coming quarter.
Tough economic indicators — falling home prices, a rocky performance on Wall Street –all undoubtedly led to the decision to scale back on pricing. But there are some other, longer-term goals, Home Depot CFO Carol Tome pointed out, saying some price cuts all have the strategy of establishing “everyday value” in an economic downturn.
“By moving to a strategy where every category has a role and intent, it means that pricing should have a role and intent as well,” she said at the recent Bank of America Investment Conference in New York. “So if you look at a category, for example, like a destination category, say, insulation; we have been heavily promoting insulation. There is no need to promote insulation, we just need to move to everyday value, and that’s what we’re doing. We are moving away from promotions to everyday value.”