Market Measure 2025: The Industry’s Annual Report

As 2023 was winding down, many of us held high hopes that 2024 would mark the year for a return to upward momentum in the industry.

Following the outsized growth the industry experienced during the pandemic and the marked retreat
recorded in 2023, most industry watchers were bearish but optimistic about the industry’s potential this year.

In fact, the NHPA team was anticipating modest growth for 2024 of 0.9%. It only took the first three
months of the year to realize that these hopes for growth likely would not materialize.

Adverse weather during Q1 combined with inflation and persistently high interest rates all proved to be a
strong barrier to growth in the early months of 2024. Spring didn’t bring much relief as these conditions
persisted. By midyear the industry was posting sharply down from expectations, and we were tracking a
year-over-year decline of about 4.5%.

Even though the numbers we saw coming in were concerning, like many other analysts, we saw a parting of
the clouds on the horizon.

As inflation eased and the Fed began targeting interest rates, we remained confident the direction of the industry would change heading into the second half of the year.

So far, this prediction has been somewhat mixed. The third quarter did show slower declines for the industry, but the interest rate cuts we had anticipated would provide a kickstart for sales failed to make the impact we had hoped.

Also, while politics don’t typically impact broader economic swings, this year’s highly contentious election
cycle may have been enough to keep consumers on the sidelines unsure of what might lie ahead.

Even with these headwinds, many of the industry’s largest players were pleasantly surprised by their third
quarter 2024 results.

Home Depot and Lowe’s both revised their full-year guidance up and Ace Hardware was comping better
than expected for the quarter. Both Home Depot and Lowe’s cited factors such as an improving economy and increased demand from hurricane repairs as the primary reasons for their enhanced projections.

Now, as the fourth quarter has wrapped up (though we are still awaiting financial reports at the time of this analysis) the outlook for 2024 isn’t as bleak as it was six months ago.

As it stands, NHPA is tracking industry sales to be down by about 3.4% versus 2023. Other industry organizations that track this kind of data are even more optimistic with the Home Improvement Research Institute (HIRI) anticipating only a 0.9% sales decline and others like Cleveland Research Company anticipating a decline of about 2.9%.

Moving Forward

With 2024 in the rearview mirror, we are more confident the industry should return to positive growth over the next 12 months.

Some of the factors influencing this prediction include a continually improving economy, further projected interest rate cuts and the fact that many of the pandemic-related product sales are likely reaching the repurchase phase.

Beginning in 2025, we are predicting modest growth for the industry of about 2.1%. The analysts at HIRI are charting a more aggressive growth pattern for the year of 3.9%.

Of course, there are multiple factors that could influence this growth. The first is the continued decline in interest rates and inflation.

These two factors go somewhat hand in hand, so if inflationary pressures creep back in, the Fed will likely be hesitant to trim rates further. Should this happen, we will likely see growth sub 2%.

Another factor closer to retail that will be important to monitor is the trajectory of store traffic, transactions and transaction size.

The industry has seen steady declines in traffic and transaction counts over the past two years. Simply put, fewer shoppers are coming into stores and fewer of these visits are translating to purchases. This trend was seen by both independent retailers and the big boxes.

Despite slower traffic and transactions, home improvement retailers have managed to hang on to transaction size.

It could prove more concerning if we start to see transaction size numbers slipping as we move into next year without offsets from traffic or conversions.

In a longer range outlook, we see the industry returning to a more typical growth pattern of 3-4% growth over the next five years.

Even with this projected return to positive momentum, we are still tracking an accelerating decrease in the number of units serving the industry. As more Baby Boomers retire, consolidation continues and new
store openings slow, we believe that unit count in the industry will decline by 5-6% over the next five years.

All in all, it is a relatively encouraging picture for the industry. Even with a downward cycle over the past two years, the industry started this decline from a much higher platform: Sales from 2019-2022 increased by more than 30%.

So despite two years of backward movement, the home improvement industry remains strong. Wall Street and private equity continue to view the industry in a positive light, which could serve as a positive indicator for the three-to-five year horizon for growth in the channel.

To read our complete 2025 Market Measure, click here.