Hardware Retailing

DEC 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | December 2017 26 The primary culprit here was the double-edged sword we are facing in the housing market. With banks lending money to consumers again and with unemployment continuing to drop, you would think there would be a ready market for home sales. However, the downside to these positive factors is the increasing price of homes. According to a housing market forecast from the Home Buying Institute, the rising cost of homes in many areas is literally pricing some consumers out of the market. "In recent years, home values in many cities have been rising rapidly, to the point that they outpaced wage and income growth. This was mostly the result of an imbalance between supply and demand. In many cities across the country, housing inventories are falling short of demand," the forecast article states. Rising prices in many markets have seemingly caused some potential homebuyers to take a wait-and-see attitude on moving, which negatively impacts home improvement product sales. The final factor that might be restraining the industry from more positive momentum is a little tougher to get your arms around. Let's just call it a sort of consumer malaise. If you look at the retail industry in general, consumers seem to be stepping back a bit from spending on material goods. Home improvement has continued to be a bright spot for all retail sectors, but even in the hammer and nail set, consumers are still not letting go of as much of their hard-earned dollars. The Results By our estimates, what this analysis amounts to is that the home improvement retailing industry is growing at a rate of about 4.5 percent in 2017, a full 110 basis points slower than growth during the previous year and slightly below our predictions. While a good bit of that can be attributed to unpredictable and temporary issues such as bad weather, the other economic factors facing the industry may persist in the months to come. That being said, we are anticipating slightly stronger growth in 2018 (4.7 percent), fueled in part by the continued economic momentum we are experiencing, as well as a modest uptick from building in areas heavily impacted by hurricanes. We also anticipate that consumers who choose not to move may begin to tap more readily into their home equity to engage in remodeling projects. This slightly stronger sales trend should continue through 2019, and then we are anticipating a period of slight cooling as we head into 2020. The Wildcards There are a few factors to consider that make predicting the direction of any industry difficult. First is the general unrest many consumers feel about the socio-economic climate of the country. Uncertainty about the economic direction the country, foreign affairs and even social issues can cause a general constriction on consumer spending. These factors can have a mixed impact on the home improvement industry. On one hand, consumers concerned over world events or economic direction may tighten spending, but they may also spend money on improving their homes. That's why 2018 and 2019 might prove to be the best years from growth in the industry if all other factors remain constant. The presidential election looming in 2020 could be enough to make consumers sit on their wallets until all the ballots are counted. Another more immediate factor that could provide a headwind to industry growth is the direction of interest rates. There has been a general discussion that interest rates will rise in the near future. How much and to what extent this could impact consumers' willingness to buy remains to be seen. The final wildcard is, as always, the weather. While we have seen a few years of unfavorable weather conditions for home improvement product sales, one might expect that we are "due" for a weather cycle that could benefit the industry. Of course, no one has ever gotten rich on their ability to predict the weather. We also anticipate that consumers who choose not to move may begin to tap more readily into their home equity to engage in remodeling projects.

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