Home Centers 1984: A Year of Positioning

By Gregory J. Hauca Director Home Center Institute

HE DO-ityourself industry is huge - $45-plus billion at retail in 1983. But it is a far different industry than it was a few short years ago.

High inflation in the late 1970s, two years of recession in the 1980s and a maturing of the home center market have brought permanent change.

During the 1970s, when home centers were in an explosive growth stage, sales volume for the industry grew at better than a 250/o average annual rate. This year, as the indgstry recovers from recession, home center sales for the first threequarters were running l29o ahead of a slow 1982. Home Center Institute projections through 1990 show average annual sales growth at about 1490, still substantial but slower than the boom years and a sign of a maturing industry.

As that maturity develops, the battle for do-it-yourself dollars is intensifying as new types of do-it-yourself retailers come into the marketplace. And the do-it-yourself consumer has changed, has become more price conscious, more value-oriented, more sophisticated, better educated, more experienced.

The newest competitor is the warehouse home center. Although the concept was brought to reality in Atlanta four years ago, it was not until this year that warehouse home centers literally burst into the do-ityourself market.

Home Depot, well entrenched in Atlanta, moved into Florida markets, then into New Orleans to compete head to head with w. R. Grace's HouseWorks; other retailers jumped into the market primarily in Texas, Florida and California.

Most offer the customer few amenities, but they do offer low prices, broad assortments of all hardware and building material related lines, and, in some cases, welltrained salespeople. The salesfloors are huge, in the 70,000 to 90,000 square feet range; merchandise is stocked to the ceilings, moved in with forklifts; and customers are expected to pick up and move their own purchases in exchange for the low pnces.

As fast as these retailers have sprung up, as much volume as they are moving in a year's time (they figure to do something like $15 million annually per store), they seem to most industry observers to be a major metro phenomenon.

It takes a population base of at least 150,000 to support just one of these large warehouse home centers. This limits their potential locations to about 4O cities, and reasonable estimates of the total number of units that could be supported in the United States place the maximum at 400. Further, these warehouse retailers are expected at maturity to account for only about 890 to 1090 of total do-it-yourself sales.

Although the physical numbers may be limited, the impact on home center retailing, especially lumberbuilding material retailing, is substantial and far-reaching.

Home Center Institute studies done in the Atlanta and New Orleans markets document how warehouse home centers can affect other retailers of hardware and building materials.

They have the potential to make profound changes in where consumers buy lumber and building materials. An HCI study of the Atlanta market indicates clearly that consumers go to home centers and warehouse home centers for lumber purchases to the exclusion of traditional lumberyards!

That study put home centers'

Sfo4r at a Glance

Home center induslry $45 billion at rctail. . .d.i.y custom. er maturing. . .warehouse im. pact substantial. . .home centers' effect on lumber sales. .retail advertising's role in price perceptions.

share of do-it-yourself lumber sales in the total United States at 520/o of the market, lumberyards at 4lt/o; in Atlanta, however, home centers have 4890 of the market, home center warehouses 3590 and lumbervards TVzolo.

The reason?

Heavy, aggressive advertising that delivered a strong price-value message. The warehouse retailers planted the idea that they were the Iowest priced retailers in town, not always true as HCI research found, but the "perception oflow prices can be reality" when consumers choose where to shop.

The warehouse home centers delivered their message powerfully in advertising and reinforced it with a salesfloor presentation of merchandise that shouted low price and quality goods. The lumberyards in Atlanta have not conveyed a consumer orientation.

In a "marketbasket" study that checked prices of identical items in hardware stores, lumberyards, discounters, home centers and home center warehouses in New Orleans. HCI found that in actual fact the hardware store and lumberyards, for example, had lower prices on many of the items but consumers thought the warehouse home center was lower priced across the board. lower even than K-Mart.

The HCI study in Atlanta found these factors to be of greatest importance to do-it-yourself consumers: good value for the money, quality merchandise, low everyday prices, good sale prices, wide variety and selection of merchandise, adequate stock of advertised specials, knowledgeable employees, easy return policies, and quick checkouts.

It further found that in Atlanta and New Orleans, customers perceived the warehouse home center as being the best retailers at providing those factors.

The ramifications of this new, intense competition for do-it-yourself dollars for traditional home centers and lumberyards center on the need to recognize the changes in the consumer and to find a special niche in the market for each store.

Although consumers may be price conscious and/or price aware, a ma- jority of the consumers still value quality goods, service, and convenience. How each retailer decides to go to market depends on his own strengths. Pure price is one way; but specializing in service, a convenient location, customer assistance and top quality merchandise are equally effective ways to position a store in a competitive market.