WHEN THE TIDE GOES OUT

Warren Buffett, the world’s fifth richest man, is famous for having once said (referring to a bad recession): “Only when the tide goes out do you discover who has been swimming naked.” He was obviously talking about companies who were carrying too much debt, too much inventory, or were just being badly managed during good economic times—but still making money.

Buffett knows about economic cycles. He’s profited from them to accumulate a net worth of some US$118 billion—more than twice the size of the Canadian retail home improvement industry.

In 2022, we calculate the size of our industry—at retail (to end users)—at just over $61 billion. (Turn to page 46 for our annual Top 20 Retailers analysis.) The nation’s home improvement retailers grew their sales by 4.6 percent last year. With a national inflation rate of 6.8 percent in 2022, that means the industry contracted, in real dollars, for the first time since the Covid home improvement gold rush.

So, is the tide going out?

RONA thinks so. Just over four months after it had been acquired by Sycamore steve@hardlines.ca

Partners, a New York City-based private equity firm, it announced a serious restructuring that involved eliminating 500 positions, citing its need “to reflect new market realities.” Meanwhile, Home Depot, the world’s largest home improvement retailer, updated its year-end 2023 revenue forecast to between minus three and minus five percent. Lowe’s Cos. predicted slightly better results, but not by much. Canadian Tire has noted, in its investor calls, that consumers are shying away from big ticket items.

So, what is the risk to your store as the tide begins to turn?

First of all, it’s worth remembering that the industry grew by 34.4 percent during Covid (comparing 2019 year-end industry sales with 2022 revenues). If we appear to be heading for a slowdown, it was entirely predictable. And if you are a well-run operation belonging to a well-run banner group, you will be able to keep swimming with your dignity intact.