Home Improvement - As the real estate market bounces back, improvement stores such as Home Depot and Lowes are getting quite busy. However, there is intensifying price competition among the stores as the do-it-for-me market offers an opportunity for growth. For these reasons, industry research firm IBISWorld has updated its fiscal report.
For example, IBISWorld industry analyst Eben Jose, “During that time, revenue growth was driven by the expansion of services, enabling operators to steal market share from hardware stores and wholesalers.”
In particular, major players Home Depot and Lowe’s leveraged their size and purchasing power to aggressively price goods, making them more appealing to consumers. In addition, smaller downstream contractors and construction firms increasingly looked to home improvement stores for contractor-related services, such as rentals.
Still, the industry’s expansion slowed substantially from 2009 to 2011 after the subprime mortgage crisis decimated consumer demand for home improvement products. As people lost their homes and national homeownership levels declined, there was little demand for home improvements. Furthermore, consumers faced low disposable incomes as unemployment surged, leading to lower investment in home renovations and remodeling.
As a result, revenue is expected to increase at an annualized rate of only 0.5% to $164.4 billion in the five years to 2013. Meanwhile, falling profit margins from 2009 to 2011 led many underperforming stores to close early in the period or be acquired by the industry’s major players, contributing to already-high market share concentration. Consequently, the Home Improvement Stores industry has failed to expand much over the period.
Nonetheless, “a recent recovery in sales has led to rising industry profitability, which has helped reverse the industry’s contraction,” says Jose.
The recent economic environment has been favorable to the industry. Rising confidence in the economy and higher income has encouraged households to make bigger purchases and engage in more home improvement projects. As the economy continues to recover, these favorable conditions will continue through 2018.
Some financial analysts believe that improving a home by 2015 could benefit current homeowners, especially those that are underwater.