(Image: Paintbrush – Flickr – Alan Cleaver)
Do It Yourself Is Losing Out to Do It For Me
The housing market in the US looks set for a strong run. Annual household formation is forecast to be well above 1 million, and comfortably above the long‐term average, in both 2016 and 2017. We recently noted the opportunities in the US home improvement market in our 16 Global Retail Trends for 2016 report.
In theory, do‐it‐yourself (DIY) stores should be enjoying boom times, not just in the US, but also in robust European property markets. In reality, however, structural changes mean consumer‐focused DIY retailers are likely to underperform versus the housing markets over the medium term. Shoppers in mature markets are shifting more toward “do it for me” (DIFM), where they pay tradespeople to do home maintenance for them instead of doing it themselves.
A key driver of DIFM is the aging of populations in Western Europe and North America, where affluent older consumers are looking more to professionals to do work for them. At the same time, many younger shoppers appear to be less familiar with DIY techniques than previous generations were, and so are likely to need professional help with home projects.
And specific markets are facing particular changes. In the UK, home ownership is becoming much more skewed toward older generations, with millennials—“generation rent”—less likely than previous generations to own their own home. In the US, growth in multifamily households is helping drive demand for home improvement services.
What DIFM Means For Retail
Demand for Convincing Trade‐Focused Propositions
The most obvious result of the DIFM trend for DIY retailers is a falloff in trade: professionals tend to turn to specialist business‐to‐business suppliers rather than to consumer‐positioned DIY stores for their needs. In this context, how are major DIY retailers responding?
When we attended Home Depot’s analyst day in December, the pursuit of the pro customer was a recurring theme. The company noted a number of initiatives it had undertaken in pursuit of the business: it had reorganized in order to have one team dedicated to the needs of professionals; it had acquired Interline, a seller of products to trade customers, which should bolster its penetration among professionals; and it had worked on developing delivery and credit options, sales reps, and a loyalty program focused on trade customers.
But it is not always so easy to woo professional customers by tweaking a long‐standing consumer fascia. In recent years, European DIY giant Kingfisher attempted to specifically target professionals in its core UK chain, B&Q, by rolling out TradePoint zones in its stores. Despite these investments, B&Q continued to turn in underwhelming top‐line performance, even in a strong property market. The chain is now closing 60 of its 360 stores and downsizing six others. A more successful plank of Kingfisher’s UK strategy has been growing its Screwfix chain of stores, which are much more strongly, and convincingly, targeted to trade customers.
B&Q’s major UK rival, softer‐positioned Homebase, was recently sold by Home Retail Group to Australia’s Wesfarmers. The new owner plans to bring the chain under its Bunnings fascia, which has a harder‐end, lower‐price positioning. To capture growth in the UK market, we think it needs to target the trade customer with conviction. The chain’s new name is unfamiliar to UK shoppers, which gives the company the advantage of starting with a clean slate.
Opportunity for Services
Big consumer‐focused DIY chains are not limited to serving pro customers; they can compete with them, too. For example, trusted names in DIY could attempt to grab share of home maintenance services markets, which offer the prospect of fatter margins and which tend to be dominated by small traders.
In its recent presentation for analysts, Home Depot noted that US aggregate spending on consumer home improvement, professional maintenance, repair and operations, and DIFM services totals $550 billion. That dwarfs Home Depot, with its $89 billion in annual sales. The scale of the market means that even mature DIY retailers can find opportunities to tap, if their product offerings are convincing enough to win professional customers and their services appeal sufficiently to consumers.