Home improvement retailers thrive amid housing boom
Shares in home improvement retailers are on the rise as U.S. housing pricing and home building continue to thrive, The Wall Street Journal reports, noting that several analysts see home improvement retail stocks, including those of Lowe's and The Home Depot, as good bets.
Eight of 15 retail categories tracked by Retail Metrics are forecast to report first quarter same-store sales declines, and home improvement retailers are just behind personal care retail among those on the positive side, with a forecast for a same-store sales increase of 4%, according to a note Retail Metrics President Ken Perkins emailed to Retail Dive. “The macroeconomic backdrop for retailers continued positive throughout April. Consumer confidence is elevated near cycle highs. Labor and housing markets are both in very good shape. The Leading economic indicator is up solidly for 3 straight months."
Moody’s Investors Service recently called home improvement one of the retail industry’s “bright spots for ongoing growth," predicting 7.5% operating profit growth this year for the sector, just behind dollar stores’ 10%.
Thanks to an iffy recovery following the Great Recession the great rise of Amazon, consumers have honed their price-comparison skills. That's helped make commodities out of products in just about every category — a situation that leaves price as the great differentiator. But garden and home improvement stores have largely been spared.
The reasons for that are both psychological and practical. The psychological: Many home owners don’t see spending on their homes as a luxury or discretionary purchase, but as an investment. The practical: Shoppers still see a need to run to a home improvement store to browse and buy colors of paint, for example. Add to that the fact that about two thirds of homes in the U.S. are older, requiring more upkeep, and that low interest rates and rising home values are making such spending highly palatable.
But Amazon sales in the category are growing more than five times as bricks-and-mortar sales, thanks to the rise of the do-it-yourself movement, according to research from One Click Retail. Amazon's share of the American tools and home improvement market remains relatively low, but its 35% growth is handily outpacing overall sector growth of 6%.
"Though often seen as an Amazon-proof industry, the old-fashioned American hardware store is not untouchable," One Click Retail partner Nathan Rigby wrote in a March blog post. "Amazon has all the same advantages in the Tools & Home Improvement sector that it has in Grocery, Beauty Products and Health Care — and we’ve seen plenty of evidence of those industries feeling the Amazon Effect. As more uber-connected millennials enter home ownership, Amazon’s share of this product group, like many others, will continue to grow at a disruptive rate."
Dedicated home improvement retailers may also face challenges from other directions. Last year, J.C. Penney announced that it’s expanding its window-covering sales by allocating another 25% of floor space to curtains, blinds, shades and decorate hardware. Before the recession, J.C. Penney was helping a third of U.S. households to dress their windows, according to the Dallas Morning News.
- Wall Street Journal Housing Recovery Helps Home-Improvement Firms Avoid Retail Blues
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