D-l-Y market bullish

By Bradley T. Farnsworth Executive Director Home Center Institute

I N coNrnAST ro the recent un- I rest in the stock market, we remain bullish on the d-i-y market because the industry keeps turning in solid growth numbers. Even on the stock market's "Black M onday " in October, both retailing and manufacturing companies tied to this industry fared much better than the market numbers in general.

F-or instance, our Home Center Stock Index declined only about 80/o compared to the 230lo slide in the Dow, while our Lumber/Building Material Index also fell only about 8%.

The d-i-y market should remain full of vigor through the end of the decade. Over $67 billion in retail sales moved through this channel in 1986, and sales are expected to hit $100 billion in 1991.

In fact, the d-i-y market is far out performing the nation's total retail community. Over the last ten years, total retail sales in the U.S. grew at an 8.1% compound annual growth rate while d-i-y retail sales set the pace with an 11.80/o growth rate for the same period.

In 1986 our sales were up 13.5%. We forecast a strong 12% jump in 1987, and we see sales growing at an annual rate of 9.6% through 1992.

While the d-i-y market is tallying solid growth numbers in terms of sales, it is a maturing market in terms of store units. In the 1970s and early 1980s, the expansion of new stores and the addition ofnew square footage fueled the growth in this market. That we believe has passed. Retailers are going to have to become much sharper marketers, doing more business with existing customers and taking business away from competitors.

We have already seen a shake out in the marketplace especially among the most recent form of d-i-y retailingwarehouse home centers. The market was introduced to the format with the opening of the first Home Depot outlet. Other retailerssome experienced in d-i-y retailing, some less so - rushed to test this format, and many found that they didn't have the merchandising anil management disciplines or the commitment to stay the course.

As a result, we have seen a slow down and withdrawal in the ware-

Story at a Glance

Independents will continue to dominate d-i-y retailing. safes to grow 9.6/" yearly through '92. fewer new store openings. warehouse home center segment will remain below 10%.

house home center market, Today there are approximately 300 units in about 60 markets with 80% of these units controlled by three corporate giants.

Presently this warehouse home center segment has captured only about a 50/o share of the total d-i-v market. We believe that even if thev would reach maximum penetration, which we see at about 400 units. thev would hold only a 7Vo-9Vo markei share.

Warehouse home centers are an exciting segment of the d-i-y market, however, and like other corporate retail chains in this channel. thev receive quite a bit of ink in the trade press. However, it's interesting to note that our channel of distribution is not chain driven as are some others. For instance, let's compare us to the discount field. In the d-i-v industry, the top 25 retail chains account for only 13.50/o of the store units among home centers and d-i-y lumberyards and only 27.80/o of the sales through these outlets.

In the discount field, the top 25 chains account for 830/o of the store units and 90o/o of the sales, an extreme consolidation of power when compared to the d-i-y channel.

In fact, the market share of d-i-y chains has been declining since 1983 when about 320/o of this channel's sales moved through these outlets. As a result, you see a distribution channel dominated by independent retailers still poised for solid sales growth through the end of the decade based on our numbers.