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Market Measure 2023: The Industry’s Annual Report

While we have all grown somewhat hardened to hearing terms like “uncertainty” and “unprecedented” over the past two years, as we close the books on 2022, we are still left trying to accurately define what the home improvement market is going through and how to measure its trajectory.

Factoring in decades-high inflation, fluctuations in sales through the pro versus consumer markets, and a supply chain that is still struggling to recover there remain a number of questions as we wrap up last year and head into 2023.

Looking back to the beginning of 2022, home improvement retailers were coming off of two of the strongest years the North American Hardware and Paint Association (NHPA) has ever recorded. The twoyear period of 2020-2021 saw consumers embrace investment in their homes and home improvement projects like never before. This pandemic-fueled spending propelled the U.S. home improvement industry to a two-year stacked increase of more than 30%. In the 2022 Market Measure Report, NHPA estimated that the size of the U.S. home improvement retailing market hit nearly $527 billion in 2021.

Those consumer-led investments contributed to the unprecedented growth in the industry, which not only gave the independent channel an increase in its overall market share, but also saw independent retailers posting record-setting profits. According to the 2022 Cost of Doing Business Study, independent home improvement retailers’ net profits were as much as three times what we would see in a typical year in 2021. For example, in 2021, the average hardware store saw net operating profits of approximately 9.1% of sales—this is up from a typical average of about 3%.

Despite posting strong sales and profitability numbers, however, as 2021 wound down, most home improvement retailers were very cool on the prospects of additional growth in 2022.

Much of this conservative outlook was being driven by the major uncertainties the industry was facing in the supply chain and the economy overall, along with a pressing pessimism that there was no way the pace of the previous 24 months could persist.

Entering 2022, additional external factors gave rise to even more concerns about how the industry would perform. From rising gas prices, decades-high inflation, interest rate hikes, war in Eastern Europe and the continuing specter of COVID-19, it felt like everyone was bracing for a crash not seen since the Great Recession.

However, as we trudged along throughout 2022, it became apparent that despite all of these gail-force headwinds, the strength of consumers’ desire to spend money on their homes was not in steep decline. In fact, at the midway point in the year, roughly two-thirds of independent retailers were reporting sales increases over the previous year. As far as the overall home improvement market, NHPA pegged growth through June around 7%.

It is important to note a few things about this growth that do somewhat muddy the waters on how great a year the industry was actually having.

While sales for the industry were up, inflation of roughly 9.5% on home improvement items actually meant that, comparing apples to apples, the year was flat to down.

It’s also worth mentioning that while most home improvement retailers were reporting increases in transaction size over the previous year, the number of transactions continued a downward trend throughout 2022. The same was true for transaction unit count, which was down by nearly 4%.

On the positive side, the majority of independent retailers are reporting that, despite inflation and price changes, they were managing to maintain or grow their gross margins through most of the year. However, as we entered the fourth quarter, this trend appeared to be wavering.

Entering the fourth quarter, most categories and regions appeared to be softening from the strength they had seen in the first three quarters of the year. This waning appears to be dragging industry growth back from the mid 6% range to high 5%. All in all, NHPA is predicting that the overall U.S. home improvement retail market will hit approximately $566.1 billion in sales in 2022, representing a year-over-year growth of 5.9%.

This growth, while primarily fueled by inflationary prices and strong sales to the pro market, should translate to another strong year of profitability for independent retailers who have managed to hold margins.

Looking ahead, we’re anticipating the word of the moment to shift to “sustainable.” While we do anticipate industry sales to soften in 2023 and early 2024, there is normalcy on the horizon. Over the next two to three years, industry growth will return to slower growth in the mid 2% range through 2026.

To read our complete 2023 Market Measure, click here.

This Market Measure report is compiled by NHPA staff from a variety of sources that are attributed throughout.

About Melanie Moul

Melanie is the communications and content manager for the North American Hardware and Paint Association. She joined the NHPA team in 2016 as an editor for Hardware Retailing and now helps lead the communications team to deliver relevant, timely content to the industry.

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