Growing with the Economy According to Fitch Ratings

Growing with the Economy § According to Fitch Ratings, home improvement spending is forecast to increase 4. 5% during 2016. Growth in the housing market will have the greatest impact, although higher interest rates could negatively affect refinancing for some consumers. § The Joint Center for Housing Studies of Harvard University (JCHS) estimates a similar increase, of 4. 4% during Q 1 2016, compared to 3. 4% for Q 4 2015, and then increasing significantly to 6. 8% for Q 2 2016. § According to the JCHS’s LIRA, or Leading Indicator of Remodeling Activity, for Q 3 2015, total home improvement spending will be $146. 9 billion during Q 1 2016 and $154. 5 billion during Q 2 2016.

More Homes = More Home Improvements § Existing home sales is a particularly good indication of home improvement product sales. During Q 3 2015, sales totaled 5. 5 million units, a 3. 3% increase compared to Q 2 2015 and an 8. 0% increase compared to Q 3 2014. § Another significant trend is that as more Millennials enter the housing market, 34% prefer an existing home in which they can make major renovations to create a more unique home. Plus, “fixer-uppers” are more affordable. § With continued growth in the labor market and wages, specifically, the new-household formation forecast for 2016 is 1. 25 million. This is expected to contribute to a 16% increase in housing starts during 2016.

Remodeling: Major Impact and Influence § According to the National Association of Remodeling Industry’s (NARI) Q 4 2015 Remodeling Business Pulse, 80% of surveyed remodelers expected their revenues to increase during 2016, and by an average of 13. 1%. § “Postponed projects, ” at 63%, was the primary reason remodelers cited for expected growth during 2016. “Economic growth” and “home prices improving” were second at 48%. § Of all the remodelers participating in an October 2015 survey, 43% said their 2016 revenues would be the same as 2015. It is likely labor shortages and remodelers working at capacity may be the reasons for this less-than-optimistic outlook.

The Stores with More § In the retail home improvement market, The Home Depot and Lowe’s are the major players. The Home Depot is #4 on the National Retail Federation’s 2015 Top 100 Retailers list and Lowe’s is #8. Ace Hardware is next on the list at #28. § According to data on Market. Watch, The Home Depot’s revenues increased 5. 5% from fiscal year 2014, $78. 81 billion, to fiscal year 2015, $83. 18 billion. For Lowe’s, the increase was 5. 2% from $53. 42 billion to $56. 22 billion. § With total sales at US home centers reaching $210. 1 billion during 2015, The Home Depot and Lowe’s were responsible for 66. 3%. Total home center sales are forecast to increase to $220. 3 billion during 2016 and $244. 1 billion by 2019.

Home Improvement Shoppers Insights § DIY home improvement consumers continue to be a majority of shoppers. According to Market Force Information, 66% of men and 59% of women buy home improvement products and do their projects themselves. § Baby Boomers account for almost 50% of all home improvement spending, at 47. 8 percent. The youngest Baby Boomers, or those in their 50’s, are expected to spend approximately 30% more than all other consumers on home improvements. § Although Millennials are only responsible for 2. 6% of all home improvement spending and are still cautious homebuyers, 45% were planning or doing a home improvement project, according to a recent Better Homes and Gardens survey.

Advertising Strategies § Since Baby Boomers spend the most on home improvements and are part of the largest demographic of TV viewers, television should be a major advertising medium for home improvement stores. § Suggest that local home improvement stores or regional chains use TV and social media to promote a quarterly special event featuring top local remodelers in various categories to host in-store workshops and be referred to homeowners, especially those 55+. § Suggest that retailers organize and use TV and social media to promote an annual, semi-annual or quarterly community home improvement project similar to Habitat for Humanity. Volunteer remodelers could lead a team of DIYers and help improve their skills.

Social Media Strategies § Considering the large percentage of home improvement DIY content on Pinterest, retailers should have a major presence there. Pins can present latest products and project ideas or a showcase of the recent projects of remodelers “partnering” with the retailer. § Videos are essential content for retailers’ social media pages. In lieu of expensive productions, local retailers can post videos of employees explaining the scope of products available in a specific department and interviews with shoppers about their DIY projects. § Millennials will eventually be the dominant home improvement consumers, which is why a smart local retailer should start planning today to become the major presence in the mobile channel and execute an aggressive mobile marketing program during the next 5 years.