Hardware Retailing The Industry's Source for Insights and Information
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It doesn’t take an Ivy League economist to explain what happens when consumers have more money in their pockets, their homes’ values increase and they are more confident about their employment prospects and generally comfortable with the state of the economy overall. They spend more money.
Such has been the case so far in 2015 as home values headed up, unemployment continued to move down and other positive factors came into play that made average consumers feel a bit more comfortable opening their wallets.
Of course what they did once their wallets were open is also important, and this year consumers showed their willingness to once again spend money to improve and maintain their homes.
When the year settles out, the North American Retail Hardware Association (NRHA) is predicting that these favorable economic factors should translate to an increase of about 4.9 percent in home improvement retail sales for 2015.
The increase will bring the overall sales volume for the industry up to $338.6 billion this year.
This growth continues to outpace inflation and gives a strong indication that consumers have shaken off the recessionary shell shock and returned to more normal spending patterns on home improvement goods and services.
2015’s Recipe for Growth
We just made the recipe for growth in home improvement sales seem rather simple, but there are actually many factors that affect whether or not the market will expand. And while home improvement sales have seen measured growth for the past several years, 2015 felt like the first year all of these factors aligned.
Let’s face it; even though 2014 saw many of the same economic factors come into play that we have seen this year, consumers were still very wary about whether these conditions were tenable. This uneasiness appears to have waned in 2015 and can be attributed to several things.
First, consumer confidence was buoyed throughout the year by growth in the job market. Though the job market had expanded in previous, post-recessionary years, unemployment remained high enough that consumers were still cautious when it came to hopes for sustained stability.
Throughout 2015, we saw the unemployment rate drop from 5.7 percent in January down to 5.0 percent in October, the lowest rate since April 2008.
This rate not only represents the lowest unemployment in nearly 90 months, but it is also much more in line with the rates the economy was posting in the four years leading up to the recession, when home improvement sales and growth were running at their strongest rate this decade.
Next, 2015 also represented the first time in years that consistently good news was coming out of the housing market.
Historically, housing activity serves as an extremely accurate leading indicator for home improvement growth, especially when you look at the areas of housing starts, existing home sales and home prices.
In 2014 and 2015, all three of these measures produced strong growth.
Existing-home sales throughout 2015 are up 8.8 percent over 2014. By September, housing starts were at nearly an eight-year high of 1.2 million.
Perhaps most notably, the median existing home price was up 6.1 percent year over year through September. As prices increase, homeowners feel more comfortable making investments in their homes, and this translates to freer spending on home improvement products.
The final ingredient in 2015’s growth recipe came from factors outside of housing and employment. Weather conditions, low interest rates on consumer credit and lower gas prices all contributed positive momentum for home improvement spending.
Growth ahead?
Can this pattern continue? At least for the short term, the answer is yes.
NRHA is predicting home improvement retail sales’ growth will continue into 2016 at a rate of about 4.6 percent, still outpacing inflation and retail spending in other categories.
This growth should be fueled by the continued positive economic conditions outlined above. However, there are several factors industry watchers will want to keep their eyes on that could influence overall performance in either positive or negative ways.
This growth should be fueled by the continued positive economic conditions outlined above. However, there are several factors industry watchers will want to keep their eyes on that could influence overall performance in either positive or negative ways.
On the positive side, the National Association of Realtors indicates that new home construction is not keeping pace with employment activity in a majority of the country’s major metro markets.
This slow new-home construction means that there is both pent-up housing demand and that the prices of homes are unnaturally inflated.
This will be important to watch over the near term. If housing starts begin to catch up with demand for growth, it could stimulate home improvement spending. However, the negative impact this growth could have on existing home values could also have a chilling effect on homeowners dipping into equity for projects.
With 2016 being an election year, legislators will also be likely to curb any decisions that might have a negative impact on the economy, so interest rates and legislative changes shouldn’t play a big role in industry performance.
To download the entire 2015 Market Measure, including charts, distributor information, top chains’ performances and an overview of the housing market and economic landscape, complete the form below.
Additional Free Information!
NRHA and Hardware Retailing have also provided additional charts not found in the 2015 Market Measure. Additionally, they have created a resource that focuses on Average Transaction Size, which complements the Cost of Doing Business Study (CODB) data featured in this report. This CODB resource will help you and your employees better understand average transaction size and how it can impact your business. The resource includes an explanation of average transaction size, industry best practices, case studies from other retailers who have implemented strategies to improve this metric and a video that will help your employees understand their impact.
