High Performance Retailing Brought to You by Hardware Retailing and The Farnsworth Group
FALL 2020 V2 | H1
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Projects Made Real
How Customers Are Making 2020 a Banner Year for Home Improvement Page H6
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Connect With Us CONTENTS
FALL 2020 | VOLUME 2
Website HPRmag.com
Cover Story H6
ANALYSIS
Pinpoint Their Needs
High Performance Retailing is a collaboration between the North American Retail Hardware Association and The Farnsworth Group. Both organizations are committed to helping the home improvement industry prosper with relevant, informative and timely data.
The 2020 Retail Selector Study from The Farnsworth Group and the Home Improvement Research Institute is a thorough guide to DIY shopping habits. Discover some of the hottest home improvement sales trends from the first half of 2020 and learn precisely what motivates customers to make a purchase.
Executive Vice President and Executive Editor, NRHA Dan Tratensek, dant@nrha.org Senior Partner, The Farnsworth Group Jim Robisch, jrobisch@thefarnsworthgroup.com
92%
of hardware store customers visited a location in person Source: 2020 Retail Selector Study
Departments H4
HOUSING
On the Homefront
Todd Tomalak, principal at John Burns Real Estate Consulting, offers an overview of U.S. housing. Discover what upcoming real estate and construction trends will mean for your home improvement business. H10 MARKETING
The State of Advertising
Relying on the status quo can be a grave mistake for high-performance retailers. Guide your advertising plan by reviewing the latest data from the Association of National Advertisers.
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Online Exclusive
Market Research Analyst, The Farnsworth Group Amy Theophilus, atheophilus@thefarnsworthgroup.com
Editorial, Design + Production Managing Editor Melanie Moul, mmoul@nrha.org Project Editor Todd Taber, ttaber@nrha.org Copy Editors Kate Klein Hans Cummings Director of Communications Whitney Daulton Production Manager Nancy Vondersaar
Sponsorship Opportunities
Top Category Insights
You’ve seen firsthand the explosive growth of DIY home improvement projects this year. Now, take a look at the three top-performing categories from the 2020 Retail Selector Study to guide your operation as you begin planning for success in 2021. Visit HPRmag.com/2020categories to review key data points on the year’s most active categories, including average consumer spends and top products in paint, lawn and garden and electrical.
High Performance Retailing Fall 2020
Vice President of Sales and Publisher Kevin Hohman, khohman@nrha.org 317-275-9430 Northern Region Sales Director David Brodowski, dbrodowski@nrha.org 440-520-9551 Business Development Representative Matt Caruso, mcaruso@nrha.org 317-275-9409 Southern Region Sales Director Scott Gilcrest, sgilcrest@nrha.org 317-275-9414 Regional Sales Director Jordan Rice, jriceo@nrha.org 317-275-9443
LET’S TALK
Connect With Dan Email dant@nrha.org
FOUNDATIONS
LinkedIn Dan Tratensek
During Good Times or Bad, Consumers Focus on Home I am now headed into my 25th year playing some small part in the home improvement industry. Over the years, one thing has truly struck me. There is a certain resiliency to home improvement that you don’t find in nearly any other sector of the economy. Looking through this installment of High Performance Retailing, it really stood out just how adaptive this industry is. But this fact also begs the question: why? Home improvement spending certainly has its share of fits and starts, but for the most part, there aren’t many protracted downturns that plague our channel. Take, for instance, the last time we saw a major setback in this channel. It was in the late aughts when the housing bubble burst that we saw sales in home improvement take a hit. The fact that homeowners saw their equity dry up and could no longer tap into their homes’ values for home improvement projects was one factor driving this sales slide. The other factor was that consumers’ ability to buy and sell homes was depressed by lower home values. Within a matter of about two years, however, this problem began to abate. Homeowners took what disposable income they had and started investing in their homes once again. So now, here we are in the midst of a pandemic that has laid havoc to the economy. Service industries, restaurants, entertainment and other retail sectors are all taking the full brunt of this economic downturn, and many say the industries may never recover.
Meanwhile, home improvement retail is seeing record sales. Consumers value one material thing above just about anything else: their homes. During times when consumers are flush with cash, they spend money to create the homes of their dreams or move into the surroundings they had always aspired to have. During challenging times, consumers look to cut spending in almost every other area while taking their disposable income and investing in the one thing they know they can derive peace and pleasure from: their homes. When you consider this economic reality that seems to play out time and again, it should be encouraging to know you are part of an industry that may be the most resilient of all. It should also be uplifting to realize just how important your vocation is to each and every homeowner who aspires to something greater when times are good and looks to you to help them find comfort in their homes when challenges arise.
When you consider this economic reality that seems to play out time and again, it should be encouraging to know you are part of an industry that may be the most resilient of all.
Dan M. Tratensek Executive Editor, NRHA
Fall 2020 High Performance Retailing
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IN CONVERSATION
Todd Tomalak is principal at John Burns Real Estate Consulting, a housing research organization. In his role, Tomalak oversees building products research, including in-depth forecasts of building products spending in new construction and remodeling. For more information, visit John Burns Real Estate Consulting online at realestateconsulting.com.
Hope for Housing How 2020 Real Estate Trends Affect Your Business
E
xploring the U.S. real estate market helps you anticipate future trends and customer needs. COVID-19 disrupted
what began as a strong year for housing, but seven months into the pandemic, reevaluating key industry metrics and understanding how they will affect your business could prove vital.
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High Performance Retailing Fall 2020
What have been COVID-19’s major impacts on the U.S. housing market? The effects of the pandemic have been enormous. Coming into the year, housing showed some very positive signs. Parts of the market were weak, like luxury housing where homes would sit for sale for years in high-income areas, but all of that weakness is currently gone. We’re now seeing low home inventory; people are purchasing almost anything that’s available. Housing has truly gained status in terms of where consumers are prioritizing spending their dollars.
U.S. Housing Market at a Glance
The supply of existing homes fell 21.1% annually, with just 1.5 million homes for sale at the end of July. Source: U.S. Census Bureau
What do strong housing starts mean for U.S. housing overall? Looking at single-family housing starts in Florida alone, we’re seeing figures up 97 percent year-over-year for signed contracts. Texas is up 83 percent. If you want to move out of your home, there’s no existing homes to buy. You can put in an order for a new home, but it’s going to take time before that turns into a start and time before that translates into orders for building products. I think we’re going to see a case where a lot of housing starts begin in 2020, but homebuilders make building product orders in 2021 due to delays we’re seeing in cycle times. Existing home sales in July jumped about 25 percent over June. What does this surge reveal about the U.S. housing market? Existing home sales figures represent closings. In March and April, we saw a wave of delayed closings as many businesses temporarily shut down. Many closings in April and May came due in July. The July existing home sales figures reflect the general strength of the housing market, but the issue is that you can’t buy what’s not for sale. With inventory so low, it’s no longer a demand issue, there are only so many homes that could have been purchased. If anything, with strong demand and low supply, we should see home price appreciation, which is a positive
indicator for the remodeling market. We’re enthusiastic about that and we’re already seeing big boxes report sales gains from DIY projects. What should independent retailers know in terms of real estate activity? Roughly 12 percent of major projects were canceled or postponed. At the same time, we saw a large shift toward unplanned, pandemic-driven DIY projects. That’s showing up in a lot of recent sales for retailers. Historically, the most useful indicator to predict small DIY project activity was wage growth. What’s wild is that personal income figures for April were up 12 percent due to the CARES Act stimulus. It really is translating into significant DIY project growth. What’s on your mind for the remaining months of 2020 and 2021? The pace of DIY remodeling growth will slow compared to summer. The activity was unreasonably strong; there’s no reason to believe it will keep going. Next year, we could see uneven growth. We’re going to reach a point in the second quarter of 2021 where we’re lapping the unplanned projects that started during the pandemic. The overall year could turn out quite positive, but individual quarters could see negative growth simply because of how strong 2020 activity has been. Retailers will have to take the long view.
U.S. homeownership has risen 3.7% since the first quarter of 2019. Source: U.S. Census Bureau
Home prices were up 4.3% in June over the same period in 2019. Source: S&P CoreLogic Case-Shiller Indices
Put It to Use Customers are on the move. Help them get the greatest home value by recommending affordable DIY projects.
Fall 2020 High Performance Retailing
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AUTHOR
Todd Taber Trends Editor
ANALYSIS
ttaber@nrha.org
The Select Market The 2020 Retail Selector Study offers a thorough analysis of a home improvement marketplace brimming with possibility.
T
he home improvement channel has seen 2020 as a year of renewed focus. With more people from all walks of life rethinking exactly what they want from their homes, analyzing home improvement shoppers’ behaviors, inspirations and new retail preferences can help you anticipate your customers’ needs and meet them precisely. Market research firm The Farnsworth Group has partnered with the Home Improvement Research Institute (HIRI) for the comprehensive 2020 Retail Selector Study, a factor-by-factor analysis of what DIYers are buying, where they’re shopping and what outside factors are motivating their purchases. Conducted from April 17 to May 15, the 2020 Retail Selector Study is a clear assessment of the current home improvement market, reflecting the clashing influences
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High Performance Retailing Fall 2020
of COVID-19, a patchwork of stay-at-home orders and the reality of new ways of living and working for millions of Americans. Grant Farnsworth, managing partner of The Farnsworth Group, says understanding consumer behavior is critical, especially as COVID-19’s effect on retail sectors looms large. “The study offers a thorough analysis of what exactly has motivated shoppers’ most recent home improvement purchases,” he says. “We can see what DIYers are buying in home improvement, where they are going for purchases and why.” Read on to discover topline discoveries from the study and key takeaways to guide your business in the months ahead.
ONLINE
Category-by-Category Data Discover the three home improvement product categories DIYers shopped most at HPRmag.com/2020-categories.
Market on the Move One of the key strengths of the 2020 Retail Selector Study is its sample size. The study includes insights from more than 2,000 adults who had made home improvement purchases in the past three months, giving high-performance retailers an incisive look at their customer base. One of the key findings from this year’s data is that shoppers are on the move. More than 20 percent of respondents say they plan to buy or sell a home in the next 12 months, more than doubling the rate found in 2016 and nearly 10 percent higher than the 2018 results. “This growth ties into what we’re seeing elsewhere in the market regarding new home construction and existing home sales,” Farnsworth says. “New home sales are up month after month, and we’re starting to see some really strong forecasts for single-family housing starts in 2021.” Farnsworth says real estate shifts can be attributed to the nesting phenomenon observed during COVID-19 wherein homeowners begin to make plans for long-term comfort and versatility in their homes. For many, this nesting phenomenon has prompted research into possible home renovations and actual construction activity.
Brick and Mortar Remains Powerful Home improvement retailers across North America have seen sales rise during COVID-19, and many are now seeing increased in-store foot traffic as the early days of the pandemic have passed. More than 90 percent of respondents who made their purchases at hardware stores visited that business in person. Brick-and-mortar traffic also follows generational customs, too. Roughly 80 percent of baby boomers visited a physical retail store for their purchases, while 61 percent of Gen X and 45 percent of millennials also visited a physical store for their DIY products.
Fall 2020 High Performance Retailing
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How DIYers made their most recent home improvement purchase Physical retail store Online Purchased online but picked up in physical retail store
22% 48% 29% Department/ Discount Store
14% 8%
78% Hardware Store
Millennials were the biggest patrons of buy online, pickup in store services, with nearly one-quarter using that option for their home improvement purchases. Considering shoppers of all types of home improvement locations, 72 percent of males and 85 percent of females visited a brick-and-mortar store for home improvement products.
Every Category Is in Play 17% 9% 74% Home Center Note: Home centers denotes big-box chains like Home Depot, Lowe’s and others. Hardware stores counts independents. Department stores/ discount refers to Walmart, Target, etc. Source: 2020 Retail Selector Study
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Of the 15 major home improvement product categories charted in the study, only two saw year-over-year declines in purchases (lumber and plumbing). Farnsworth says this cross-category growth is indicative of a truly engaged consumer base. “It’s interesting that electrical and HVAC saw small sales bumps. Those aren’t categories normally associated with DIY activity, but as more people have time on their hands or want to limit contractors entering their homes, spending in those categories is increasing,” Farnsworth says. On average, study respondents purchased 20 percent more home
High Performance Retailing Fall 2020
improvement product categories per purchase occasion than in 2018 and spending per occasion rose 5 percent.
Availability Is Absolutely Key One of the strongest takeaways is the fact that product availability is quickly becoming the most important motivator for DIYers’ product purchases, sometimes outpacing price and convenience. “The concept of product availability—getting what I want, when I want it—is becoming critical,” Farnsworth says. “Price and convenience as purchase motivators have dropped. That’s not to say they’re not important, they still are, but in context of availability, many shoppers may be willing to trade off.” Data from the North American Retail Hardware Association confirms independents are keenly focused on this customer mandate. More than one-third of home improvement retailers are making purchases through more suppliers during the pandemic. About 20 percent of retailers have begun ordering items directly from manufacturers more often.
How Your Customers Shop The complete 2020 Retail Selector Study includes more than 300 pages full of data on what motivates today’s home improvement shoppers and is available exclusively to HIRI members. Use the information below to learn more about your modern shoppers. Visit The Farnsworth Group online at thefarnsworthgroup.com and HIRI at hiri.org.
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Cross-shopping is a growing trend.
The study notes an increase in project types and among home improvement shoppers, leading to a rise in cross-shopping behavior. Shoppers are buying more products in multiple categories at once, possibly motivated by a desire to reduce retail visits during COVID-19.
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Mobile devices are a new home improvement tool.
Alongside a hammer, nails and paint, customers are viewing their mobile devices as an essential tool for any DIY project. Nearly half of millennials used their mobile devices to research project how-to information, and about 40 percent of Gen Xers used a retailer’s mobile app to compare product prices.
3|
Customers want to be inspired.
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Shoppers value the convenience of hardware stores.
In every product category, 70 to 90 percent of shoppers gathered information online before making a purchase. With more shoppers than ever making a majority of their home improvement product purchases online, online video sites and retailers’ websites also grew significantly as sources of information for customers.
DIYers were asked what motivated them to choose the type of retailer they eventually used for their purchases. For hardware store shoppers, convenience was the biggest motivator, beating big boxes in this respect. Variety of products was the second most powerful motivator, followed by customer service.
Fall 2020 High Performance Retailing
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SPRINGBOARD
Marketing With Purpose Solidify Your Strategy to Reach Customers Amid COVID-19 Marketing your business strategically is more important than ever as customers quickly adopt new shopping habits and view the retail experience through a new lens of safety and security during the pandemic. The Association of National Advertisers (ANA) recently published “The New Reality of Marketing,” an overview of
new customer expectations related to marketing, which sheds light on how major advertisers are approaching marketing during COVID-19. Discover some of their top tips and incorporate their advice into your advertising strategy to position your business as an agile partner for every home improvement customer.
01 | Highlight your virtual services.
02 | Don’t let that app go cold.
As nights out become nights in, ANA reports shoppers are increasingly hungry for experiences, not just products. Consider how your team can offer virtual services—offer project estimates, hold new product showcases, host how-to classes—to add value to shoppers’ lives.
Though apps are nothing new, ANA notes many shoppers are using them more often to gather up-to-date information on products and hours of operation. Be sure your app lists all important COVID-19 updates.
03 | What do you stand for?
Two-thirds of customers say their likelihood of purchasing a product depends strongly on how its manufacturer responds during the pandemic. Accordingly, more than 70 percent of brands have “embraced purpose” more and nearly half are collaborating with nonprofits more frequently.
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04 | Customers want
seamless online shopping. In April, online orders for more than 6,200 companies rose compared to the same period in 2019. ANA says as customers increasingly shop for items online they’d normally get in stores, 85 percent of them say easy payment options and a fast, easy-to-navigate website were crucial factors in e-commerce.
BETWEEN THE LINES
In Search of U.S. Jobs Analyzing U.S. Unemployment Rates in 2020 Dig Deeper
One of COVID-19’s biggest impacts on retail is the unemployment rate it has left in its wake. In January, U.S. unemployment stood at 3.6 percent, but rose sharply by April to 14.7 percent as the pandemic forced many businesses to lay off workers. By August, the unemployment rate had hit its lowest rate since April at 8.4 percent, when nonfarm payrolls increased by 1.4 million. Retail alone added nearly 250,000 jobs in August. The August unemployment rate is in line with several other metrics showing promise for economic stability: retail sales and real estate activity rates have both risen in recent months. However, some economists say without another stimulus package for U.S. citizens or a possible vaccine, those sectors could see stalled progress in the months ahead.
High performance retailers could be seeing an influx of job applicants. Visit HPRmag.com/hiring for resources to help you select star candidates for your business.
“The duration of unemployment acts as an additional headwind to a robust jobs recovery, even as the number of unemployed workers decreases,” John Leer, economist at data firm Morning Consult, says to Yahoo News. “History has shown that it becomes increasingly difficult for unemployed workers to find new jobs the longer they remain unemployed or furloughed, either because they lose the skills they need to compete, or due to the stigma of long-term unemployment.”
Monthly Unemployment Rate 15%
Review the Data The U.S. economy added only 1.4 million jobs in August, with payrolls roughly 11 million jobs below pre-pandemic levels.
14.7% 13.3%
12% 11.1% 10.2%
9%
8.4%
Before COVID-19, the highest postwar U.S. unemployment rate was 10.8% in 1982.
6% 3.5%
3.6%
3.5% 3.5%
3.6%
4.4% 3.5%
3%
0% SEPT 2019
OCT
NOV
DEC
JAN 2020
FEB
MAR
APR
MAY
Source: U.S. Bureau of Labor Statistics
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JUN
JUL
AUG
In August, more than 24 million Americans were furloughed, down more than 20 percent from July levels. Source: U.S. Department of Labor