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Improvement
Market profile
Despite Limited Growth, Industry Still Waiting for Recovery
ou know that feeling you get when you are sitting in a restaurant waiting for the server to bring your drinks and she just keeps passing by your table. You check your watch, you clear your throat and you think to yourself the drinks have to get here any minute, Ive been waiting so long.
Yet when the kitchen door swings open, all the server has is a tray with three orders of lasagna for table six and your drinks are still nowhere in sight. thats kind the same kind of feeling we all have right now in regard to the economic recovery. we got our table, ordered our drinks and here we sit waiting for unemployment to improve, waiting for stocks to bounce back and waiting for houses to start sellingthe whole time wishing we had a drink. in 2009, we saw the home improvement market bottom out somewhere in the high $260 billion range and at a five-year low. So, we knew things would have to get better in 2010. And they did. in 2010, the home improvement industry posted sales of $277.7 billion according to our estimates. this represented an increase in industry sales of about 4.7 percent year over year.
Retail Home
A Mixed Blessing
while it may seem hard to give the government much credit for doing anything right these days, it seems that the tax incentives offered to new homeowners during the first several months of 2010 actually helped fuel sales in the home improvement industry.
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Unfortunately, the governments hope that the tax incentives would give the housing market a push start failed to come to fruition, and after the incentives expired, housing returned to its new normal levels throughout most of the remainder of the year. the good news for the home improvement industry heading into the last half of 2010, however, was that the industry was once again growing. After three consecutive years of declines, home improvement sales in the U.S. were actually on the uptick again. heading into 2011, once again we looked longingly at that kitchen door and thought to ourselvesour drinks have to be coming out next. the good news is, we got our drinks. the bad news, the order was wrong. Last year, we predicted that 2011 sales would increase to $294.7 billion. we felt that this strong increase would be fueled by a rebound in the housing market as affordability hit new levels and even cash-strained buyers would take advantage of low prices. At the time, our estimates of a housing rebound and more robust economic recovery were earlier than some other analysts had predicted but we were confident that pent up housing demand would cause movement in the market. By now, we are well into 2011 and we have all realized that the recovery in the housing sector still lies further down the road. But thats not the only bad news
$400
$350
$300.6 $300.3 $294.5 $294.9 $307.1 $320.6
$272.1
$250
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$200
that hampered industry growth in 2011. here are a few other factors that held the industry down this year: Unemployment. despite record levels of housing affordability and record lows for mortgage rates its hard to qualify for a loan if you dont have a job. And you cant discount the fact that unemployment rates can negatively impact even individuals who have jobs as they cast a specter over the nations entire economic outlook.
November 2011
30
Hardware Retailing
$265.2*
$277.7
$284.1
$300
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$336.3
Another View
2011 $270 Bil. 2012 2013 2014 2015
$250 $300 $285.8 Bil. $301.6 Bil.
To keep perspective on how other analysts see the home improvement retail industry developing over the next several years, to the left are the predictions from the IHS Global Insights and the Home Improvement Research Institute (HIRI).
Source: IHS Global Insights/HIRI
improvement industry. And while some of the growth through the first two quarters of the year seemed modest, consider that these year over year advances were competing against the tax-incentive fueled sales of 2010. As a result, we are anticipating sales in 2011 to ring in at $284.1 billion, well short of our prediction from last year but still an increase of about 2.3 percent over 2010s totals.
this has caused some retailers to hold back on expansion plans, adding new product lines and other business moves that could have helped promote sales. Governmental Gridlock. if you havent noticed, there is a bit of acrimony in washington these days. the political powers that be on both sides of the aisle seem to be more concerned with keeping score than they do with solving the nations economic troubles. Meanwhile in 2011 we saw the nation pushed to the brink of defaulting on its loans. none of this incites confidence among consumers or business owners who see whats going on economically in other countries around the world that were once thought to be financially strong.
Changing Habits
So, now that we have discussed all the factors that stunted growth in 2011, you may be wondering, were there any bright spots? the short answer is yes. while the economic tenor in our nation today is skewed to the negative, consumers are still spending money on home improvement and here are a few points about how their habits have changed:
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Home repair and maintenance is still a primary catalyst. with many people choosing to forego moving into a new home, they are left having to repair and maintain existing homes. while it is true that more is typically spent on home improvement purchases around the sale of a home, that doesnt mean people arent spending to fix toilets, paint rooms, carpet floors and more. The rental market. this is one area of the housing industry that is actually robust these days. As more young people delay purchases or families find themselves no longer in the market for buying a homerental is the only option. this surge in rental activity means sales of products to property owners as rental clients turnover. Niche areas. despite the down economy, Americans still find ways to spend money on their hobbies and luxuries and many of these items are sold through home improvement channels. take for instance the boom weve seen in pet supplies, farm and ranch, lawn and garden and hunting and outdoors products. this consumer spending resulted in slight gains in 2011 for the home
31
2010-2015
2010-2015
outlets
hardware Stores home centers 19,940 9,755 9,800
2010
Lumberyards
2010
Lumberyards
totAl
hardware Stores home centers
$277.7
$38.1 $176.8 $69.2
totAl
hardware Stores home centers
39,495
19,940 9,750 9,775
2011
Lumberyards
2011
Lumberyards
totAl
hardware Stores home centers
$284.1
$39.5 $182.9 $72.5
totAl
hardware Stores home centers
39,465
19,920 9,720 9,750
2012
Lumberyards
2012
Lumberyards
totAl
hardware Stores home centers
$294.9
$41.2 $188.9 $77.0
totAl
hardware Stores home centers
39,390
19,900 9,710 9,725
2013
Lumberyards
2013
Lumberyards
totAl
hardware Stores home centers
$307.1
$44.1 $198.3 $78.2
totAl
hardware Stores home centers
39,335
19,900 9,650 9,775
2014
Lumberyards
2014
Lumberyards
totAl
hardware Stores home centers
$320.6
$46.2 $206.2 $83.9
totAl
hardware Stores home centers
39,325
19,890 9,675 9,785
2015
Lumberyards
2015
Lumberyards
totAl
hardware Stores home centers Lumberyards
$336.3
4.1% 3.6% 4.5%
totAl
hardware Stores
39,350
-0.25% -0.82% -0.15%
November 2011
August*
2010-2015
totAl
3.9%
totAl
-0.379%
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Hardware Retailing
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top 10 Results
top 10 Chains
Net Sales
(in billions)
No. of Stores
(as % of total industry)
-5.8%
1.6%
Stores at End of 2010 2,248 1,749 457 470 240 281 57 106 55 88
Home Depot
Atlanta
$68.0 $49.0 $4.1 $3.5 $2.2 $1.5 $0.9 $0.7 $0.7 $0.7
lowes
Mooresville, N.C.
ABC Supply
Beloit, Wis.
pro-Build Holdings
Denver
Menard Inc.
Eau Claire, Wis.
84 lumber
Eighty Four, Pa.
Sutherland lumber
Kansas City, Mo.
November 2011
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Hardware Retailing
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Industry
Year in Review
December 2010
Orgill formed a partnership with canadas castle Building centres Group and began serving retailers throughout the country. By the end of 2011, orgill plans to have all products become canadian compliant in terms of packaging and languages.
January 2011
True Value announced its comparable-store sales were up 0.3 percent for 2010. the company also reported that its new e-commerce initiatives were successful, noting that more than 70 percent of the online purchases are shipped to true Value stores for customers to pick up. Lowes Cos. laid off 1,700 middle managers nationwide and added thousands of hourly, part-time sales staff on weekends. the company redefined hundreds of middle-management jobs and eliminated those between assistant store manager and store manager.
Home Depot reported sales of $15.1 billion for the fourth quarter of fiscal 2010, a 3.8 percent increase from the fourth quarter of fiscal 2009. comparable-store sales were up 3.9 percent, and comp-sales for U.S. stores were up 4.8 percent.
February 2011
Lowes former president Larry Stone announced he would retire on June 2, after 42 years with the company. U.S. factories out-produce chinese manufacturers by more than 40 percent despite closing factories and lost manufacturing jobs. Lowes reports that its comparablestore sales increased 1.1 percent and its net earnings were up 39 percent in the fourth quarter of 2010. Sales increased 3.1 percent to $10.5 billion, up from $10.2 billion in the fourth quarter 2009. Walmart reported 2010 fourth quarter net sales for 2010 topped $405 billion, an increase of 1 percent over fiscal year 2009. walmart U.S. comparable-store sales for the fourth quarter were below guidance. net sales for the fourth quarter of fiscal year 2010 were $112.8 billion, an increase of 4.6 percent from $107.9 billion in the fourth quarter of 2009.
Hardware Retailing
March 2011
Blish-Mize celebrated its 140th anniversary at its spring buying market in overland Park, kan. the hardlines distributor was founded in 1871 by three brothers-in-law and is still family owned and operated today. Ace Hardware reported its merchandise sales to comparable domestic stores increased $40.6 million in the fourth quarter of 2010, compared to 2009. Fourth quarter total revenues were $859.3 million, an increase of $59 million or 7.4 percent from 2009.
Handy Hardwares first quarter results showed overall sales increased 4.1 percent compared to the same time in 2010. the company also transitioned to a new computer operating system during the first quarter of 2011.
May 2011
Home Hardware Centers and tyndale Advisors created a new retail operations and management company, the central network retail Group (cnrG), LLc. cnrG is jointly owned by the two companies and will initially own and operate the home hardware center chain while the new management and operations structure will serve as a platform for future retail growth. cnrG said it hoped to expand home hardware center retail operations beyond Mississippi and Louisiana.
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April 2011
Walmart began building its first express storea small format store which is less than one-tenth the size of an average walmart Supercenterin Gentry, Ark., about 20 miles southwest of walmarts Bentonville headquarters. the new express store measured 14,400-square-feet.
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November 2011
Ace Hardware reported that its first quarter merchandise sales to comparable domestic stores increased 2.2 percent compared to 2010 and total revenues increased 2.8 percent to $23.4 million. Lowes Cos. reported its comparablestore sales decreased 3.3 percent and sales decreased 1.6 percent to $12.2 billion from $12.4 billion during the first quarter. Target announced comparable-store sales increased 2 percent during the first quarter while walmarts comp-store sales dropped 1.1 percent. however, walmarts first quarter net sales were up 1.1 percent and targets sales increased 2.8 percent. Home Depot reported its overall comparable-store sales decreased 0.6 percent and U.S. comparable-store sales down 0.7 percent. Sales for the first quarter decreased 0.2 percent to $16.8 billion. RONA announced its first quarter same-store sales decreased 12.6 percent
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and total sales decreased 4 percent or $38.7 million; net income was down $19.8 million. The Merit Group, which does business as Lancaster and Five Star, filed to reorganize under chapter 11 of the U.S. Bankruptcy code. the company obtained a commitment of a $55 million debtor in possession facility from its senior lender, regions Bank, to continue operations during the reorganization process. Home Depot introduced a handheld device into its stores that can be used as a phone, walkie-talkie and a mobile cash register. home depots First Phone can be used not only to update inventory counts, but also to answer customers questions and process their sales transactions without having to go up to the registers. The National Hardware Show saw a 4 percent increase in attendance this year, on top of the 20 percent increase in 2010.
June 2011
Walmart lost its appeal of most of a $187.6 million verdict for Pennsylvania hourly workers who accused the worlds largest retailer of denying them meal and rest breaks. A survey showed more retailers are falling victim to organized crime. of 129 retailers surveyed, 94.5 percent said they were victimized by organized criminals in the past year. 84.8 percent said the problem has only worsened in the past three years.
November 2011 Hardware Retailing
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Industry
Year in Review
July 2011
The Federal Reserve Board set the cap on so-called swipe fees at 21 cents, up from the 12-cent cap it proposed late last year. this number is still down from the previous average debit card transaction cost of 44 cents.
August 2011
November 2011
True Value reported comp-store sales down 0.1 percent in the first six months of 2011. revenue increased 0.4 percent to $529.5 million in the second quarter and overall revenue for the first half of the year was $977.3 million, an increase of 2.2 percent compared to the same time a year ago. Lowes Cos. reported comparablestore sales for the second quarter decreased 0.3 percent and decreased 1.7 percent for the first half of 2011. Sales for the quarter increased 1.3 percent to $14.5 billion, up from $14.4 billion in the second quarter of 2010. the company also announced that it will buy back up to $5 billion of its
Hardware Retailing
common stock and abruptly closed seven stores following the release of its second quarter financial report. Sears second quarter financial results showed total revenues decreased $125 million to $10.3 billion and overall domestic comparable-store sales decreased 0.7 percent. Sears comparable-stores sales decreased 1.2 percent and kmarts comparable-store sales were flat. Sears canada comparable-store sales dropped 5.8 percent. Ace Hardware reported a 0.6 percent comparable-stores sales increase in the second quarter compared to the previous year. revenue increased $5.6 million to a total of $1.021 billiona 0.5 percent jump from the same quarter in 2010. Walmart reported comparable U.S. sales were down 0.9 percent in the second quarter. net sales for the second quarter were $108.6 billion, up 5.5 percent from the same period last year. The Home Depot reported second quarters sales rose 4.2 percent from the second quarter of fiscal 2010 to $20.2 billion. comparable-store sales were positive 4.3 percent, and comp-sales for U.S. stores were positive 3.5 percent.
Do it Best Corp. expanded operations into Southeast Asia with the soft opening of the first of four Pongs do it Best home centers. the first store opened on Aug. 4 in Jakarta, indonesia.
September 2011
Ace Hardware increased its craftsman product offerings to more than 1,050 products in more than 1,000 Ace stores nationwide. Ace first started selling craftsman-brand products in 2010 and more than 1,200 of its stores will carry a full line assortment by the end of 2011.
October 2011
Orchard Supply Hardware became independent from former parent company Sears holdings corp. and announced plans to build 30 to 40 new stores throughout california in the coming years. Ace Hardware broke ground in Suffolk, Va., where its new 336,000-square-foot import re-distribution center (rdc) will be built. construction is scheduled for completion on May 1, 2012.
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November 2011
y most any measure, 2010 was not a banner year for the home improvement industry. one thing we did learn, however, was that there was a widening gap between the strong performers and the also-rans. Across all store formats in the home improvement industry the gap between the high-end performers and the average performers widened in 2010. this seems to suggest that bestin-class retailers are managing to steal business from the average stores. this trend seems to have been exacerbated by the economic conditions in the country but it also appears to be a darwinian process that has been unfolding in home improvement retailing dating back well before the nations recent economic woes. Simply put, the best of the best continue to outperform marginal stores at a much greater rate. this suggests that the typical home improvement store isnt just competing against the local big box for business. instead, an average hardware store, home center or lumberyard also has to be highly concerned about other independent stores who have better cost controls, cash flow and a more compelling value proposition to consumers. Like in many business scenarios, tough financial times dont necessarily create problems for companies but they often bring existing problems into clearer focus. while reviewing the numbers on the following pages it is extremely important to note that these figures are derived from the north American retail hardware Associations Cost
of Doing Business (codB) study. the 2011 codB is a compilation of performance numbers for hardware stores, home centers and lumberyards from 2010. each year this report contains numbers from a different sample group of stores. that means overall sales figures will vary widely based on the respondents. this year, we have highlighted some of the statistics from stores that participated in both of the last two studies to give a comp-store comparison where appropriate.
Hardware Stores
in 2010, the average hardware store didnt experience a lot of growth. in fact the average store participating in our codB study reported sales of $1.29 million. while the study respondent sample changes from year to year, from an overall historical trends perspective, this indicates that the combination of consumer insecurity and record low housing activity (with both new and existing home sales) continued to keep industry growth in check throughout 2010. the average customer count at the typical hardware Store was 80,000, which is consistent historically. one of the dominant trends that emerged is a sales polarization of hardware Stores participating in the most recent codB study, as it relates to typical and high-Profit Stores. the sales gap between the typical and highProfit hardware Stores widened in 2010, compared to previous years. in the most recent study, the high-Profit hardware Store eclipsed the $2 million sales mark ($2.01 million) for the first time since nrhA began compiling the study. Much of this can be attributed to these stores
ability to attract nearly a 50 percent larger customer base (117,908 vs. 80,000) than typical hardware Stores. of the 300 comp-store retailers (representing 426 stores) who participated in both the last two nrhA codB studies, year-over-year (09-10) sales and customer counts were down slightly (1.8 percent for both). Gross Margins at both the typical and high-Profit hardware Store were strong in 2010 as coGS held steady from a historical comparison. Gross Margin After rebate at the Average hardware Store was 42.1 percent of sales, while highProfit hardware Stores saw 43 percent. Both Average and high-Profit retailers also maximized their purchase rebates throughout 2010 compared to 2009 levels. For the comp-store group, however, Gross Margin (after rebate) took a nose dive year over year, falling from 42.8 percent to 40.3 percent of sales, as coGS increased more than 3.6 percentage points. total operating expenses is generally where the separation exists between typical and high-Profit hardware Stores, and 2010 was no exception, as the typical hardware Store saw total operating expenses of 41 percent compared to 37.6 percent for highProfit hardware Stores. there was no one expense category that stood out, just a little bit here and a little bit there, which added up to a differential of 3.4 percentage points. total operating expenses were also down more than 2 percentage points for the comp-store group year over year in 2010, the typical hardware Store saw 2.2 cents drop to the bottom line for every dollar in sales, which was identical to the typical hardware Store in last years study. high-Profit hardware
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Hardware Retailing
stores saw 6.2 cents fall to the bottom line for every dollar in sales, reflecting their ability to buy better, demand higher margins from customers and control expenses more effectively. For the comp-store group, bottom line profitability increased from 1.6 percent of sales to 2.1 percent year over year.
Home Centers
Sales at the typical home center in 2010 were $3.02 million, which from an overall historical perspective was down slightly from 2009 levels. Like hardware Stores in the study, the after effects of the recession and housing crisis continued to play out in 2010. the average customer count of 85,500 at the typical home center in 2010 continued to fall compared to previous years as consumers put off home remodeling projects and contractors continued to wait for the phone to ring. Also like hardware Stores in the study, however, a dominant trend seen in the home center sample was a sales polarization between typical and highProfit stores. the sales gap between the typical and high-Profit home center widened dramatically in 2010, compared to previous years. Again, keeping in mind that the sample respondent group changes from year to year, with about half of the respondent group participating year over year, high-Profit home centers reported $5.63 million in sales for fiscal year 2010, more than $2.5 million than the typical home center. Like high-Profit hardware Stores, much of this can be attributed to these stores ability to attract more customers (110,900 vs. 85,500 at the typical home center). of the 52 comp-store home center retailers (representing 205 stores) who participated in both the last two nrhA cost of doing Business Studies, year-overyear sales increased 7.3 percent while customer counts increased 15 percent. Gross Margins at both the typical and high-Profit home center in the
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2011 Study held steady from a historical comparison. Gross Margin After rebate at the Average home center was 32.7 percent of sales, while high-Profit home centers recorded a Gross Margin of 30.8 percent, reflecting their slightly higher pro to consumer customer breakdown (47 percent pro vs. 42 percent consumer sales at high-Profit home centers, with the typical home center at 42 percent pro vs. 47 percent consumer). For the comp-store home center group, Gross Margin (after rebate) increased by a half a percentage point, as coGS decreased by nearly the same amount. expense control was a key difference between typical and high-Profit home centers in 2010 equating to a difference of more than 5 percentage points. the typical home center saw total operating expenses of 31.7 percent compared to 26.6 percent for high-Profit home center. A point and a half savings in payroll expensesa half a point in occupancy expensebetter overall expense management contributed to the difference in high-Profit home centers. total operating expenses were almost a point higher for the comp-store home center group year over year in 2010, the typical home center saw a bottom line of 2.1 percent of sales, while the high-Profit home center stores saw a bottom line of 5.3 percent of sales. For the comp-store group, bottom line profitability increased from 2.2 percent of sales to 2.5 percent year over year. But overall, higher levels of profitability continue to elude most home center operators in todays under-performing economy.
LBM Outlets
Sales at the typical LBM outlet in 2011 were $2.22 million as the typical LBM outlet struggled to break even. the sales polarization between typical and high-Profit stores was also evident in this category, as sales at high-Profit LBM outlets were $4.43 million, double than that at typical stores, but still lower than
historical high-Profit LBM outlets in previous codB studies. the struggle for these stores was the elusive customer. Just 21,500 customers visited the typical LBM outlet in the study versus 25,900 for high-Profit LBM outlets. But again, even this higher level was down nearly 11,000 customers from the high-Profit group in last years study as the nations housing woes continued. one of the key differences, however, was the high-Profit groups ability to maximize each transaction, as sales per customer at high-Profit LBM outlets was $171 vs. the $103 average transaction at typical stores. this difference also reflected the different customer makeup of the typical store (68 percent pro vs. 22 percent consumer) and high-Profit stores (80 percent pro, 12 percent consumer). For the comp-store group, sales decreased 8.8 percent from 2009 to 2010. the difference in Gross Margins at typical and high-Profit LBM outlets also reflected the slightly different focus of typical and high-Profit stores. Gross Margin (after rebate) at the typical LBM outlet was 26.7 percent of sales, while gross margin at high-Profit LBM outlets was 22.2 percent. obviously, high-Profit stores are more geared to selling highturning commodity LBM products, which was also reflected in both inventory turnover and Sales to inventory differences between the two groups. For the comp-store group, however, Gross Margin (after rebate) took a nose dive year over year, falling from 42.8 percent to 40.3 percent of sales, as coGS increased more than 3.6 percentage points. in 2010, the typical LBM outlet barely made a profit, recording a bottom line of .9 percent of sales. even their high-Profit counterparts only brought 2.7 percent of sales to the bottom line. Year over year, profitability increased from -0.6 percent to 0.9 percent of sales, which further illustrated how difficult it is to turn a profit when your primary focus is selling lumber and building materials to pros.
November 2011 Hardware Retailing
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60 percent of the confidence panel feels consumers are more motivated by convenience than they were 20 years ago.
2011
100% 80% 60% 40% 20% 0% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0%
Customer Count
Respondents saying customer count was up over previous period. Respondents saying customer count was down over previous period.
45.5% 41.3%
52.5%
33.2%
2011
Q1
Q2
2011
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
80 percent of the confidence panel feels consumers are more influenced by the media (TV, Internet, Radio) than they were in the last 20 years.
2011
Sales Activity
Respondents saying sales were up in period over previous year. Respondents saying sales were down in period over previous year.
53.0%
18.2%
Source: NRHA/Hardware Retailing Confidence Panel
10 100 8 80 6 60 4 40 2 20
2010 2010
Q4
Q4
2011 2011
Q1
Q1
2011 2011
Q2
Q2
2011 2011
Q3
Q3
2011
Q1
Q2
2011
Q3
November 2011
60 percent of the confidence panel feels consumers are more motivated by price than they were 20 years ago.
100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0%
transaction Size
Respondents saying average transaction size was up over previous period. Respondents saying average transaction size was down over previous period.
68.0%
50.7%
43.3%
58.5%
25.6%
34.4%
25.8%
20.1%
2010 2010
Q4
Q4
2011 2011
Q1
Q1
2011 2011
Q2
Q2
2011 2011
Q3
Q3
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Hardware Retailing
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Financial profiles
Financial profile of Hardware Stores
operating profile
Avg. Size Selling Area (sq. ft.) Total Sales Sales per Store Total Asset Investment Total Inventory
2006
8,000 $1,157,356 $1,150,766 $573,701 $368,000
2007
9,100 $1,893,907 $1,421,740 $664,480 $436,800
2008
9,097 $1,425,296 $1,415,739 $809,795 $509,432
2009
9,000 $1,430,459 $1,413,209 $698,504* $450,000
2010
8,760 $1,330,152 $1,287,986 $687,707 $443,571
2006
$145 $46 2.0x 3.1x $136,160 $15
2007
$156 $48 2.9x 4.3x $135,404 $16
2008
$156 $56 1.8x 2.8x $149,025 $17
2009
$157 $50 2.0x 3.1x $148,759 $17
2010
$147 $51 1.9x 3.0x $143,110 $16
profitablility profile
Gross Margin Net Profit (Before Taxes) to Net Sales
2006
39.7% 2.9% 130% 10.1%
2007
39.4% 2.5% 133.3% 8.5%
2008
41% 2.6% 162.2% 8.6%
2009
39.7% 2.2% 128.5% 8.3%
2010
40.6% 2.2% 122.2% 7.8%
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study. *Average of five years historical assets due to influence of response data
November 2011
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study.
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Hardware Retailing
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2006
14,000 $4,590,136 $4,179,306 $2,220,262 $1,190,000
2007
12,000 $5,635,077 $3,634,461 $1,943,465 $948,000
2008
12,000 $5,172,285 $3,847,389 $1,852,690 $985,631
2009
12,000 $4,169,156 $3,379,518 $1,823,371* $924,000
2010
10,600 $3,836,680 $3,024,520 $1,748,807 $897,137
2006
$328 $85 2.1x 3.9x $199,571 $45
2007
$303 $79 2.9x 5.9x $165,203 $35
2008
$321 $31 2.8x 5.2x $192,369 $41
2009
$282 $77 2.3x 4.5x $194,225 $38
2010
$284 $84 2.2x 3.4x $183,304 $35
profitablility profile
Gross Margin Net Profit (Before Taxes) to Net Sales Gross Margin Return on Inventory Return on Net Worth (Before Taxes)
2006
31.3% 2.8% 124.5% 9.4%
2007
35.1% 1.9% 138.9% 5.9%
2008
33.5% 1% 135.3% 9.6%
2009
31.7% 1.7% 121.1% 5.1%
2010
31.3% 2.1% 110.4% 5.5%
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study. *Average of five years historical assets due to influence of response data
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study.
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Financial profiles
Financial profile of D-I-Y lumberyards
operating profile
Avg. Size Selling Area (sq. ft.) Total Sales Sales per Store Total Asset Investment Total Inventory
2006
7,400 $5,033,061 $4,707,751 $2,123,617 $976,800
2007
7,500 $5,088,503 $4,252,288 $1,631,225 $750,000
2008
7,200 $4,083,096 $3,022,463 $1,602,620 $852,593
2009
5,000 $3,872,256 $3,237,253 $1,370,317* $630,000
2010
6,000 $2,289,127 $2,216,316 $1,186,173 $489,889
2006
$680 $132 2.4x 5.2x $239,670 $101
2007
$567 $100 3.1x 6.8x $257,714 $105
2008
$420 $68 2.5x 4.8x $241,797 $98
2009
$647 $126 2.8x 6.1x $249,019 $127
2010
$369 $82 1.9x 4.7x $221,632 $103
profitablility profile
Gross Margin Net Profit (Before Taxes) to Net Sales
2006
25.3% 2.1% 133.4% 8.3%
2007
23.2% 1.1% 134.3% 4.4%
2008
29.3% 0.8% 185.5% 7.0%
2009
25.6% -0.2% 135.4% -0.5%
2010
25.8% 0.9% 120.8% 3.5%
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study. *Average of five years historical assets due to influence of response data
November 2011
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business Study.
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Hardware Retailing
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Financial profiles
Home Depot
2,248 105,000 $68.0 Bil. $40.13 Bil. $10.63 Bil. $288.64 4.1x 6.4x $211,838 $51.93 219.4%
lowe's Cos.
1,749 113,000 $48.82 Bil. $33.67 Bil. $8.32 Bil. $247.82 3.8x 5.9x $204,444 $62.07 205.9%
Income Statement
Net Sales Cost of Goods Sold
Home Depot
100.0% 65.7% 34.3% 25.7% 8.6%
lowe's Cos.
100.0% 64.9% 35.1% 28.5% 6.6%
Balance Sheet
Total Current Assets Cash Receivables Inventory Other Fixed Assets Total Assets
Home Depot
33.6% 1.4% 2.7% 26.5% 3.1% 66.4% 100.0%
lowe's Cos.
29.6% 1.9% nA 24.7% 1.0% 71.0% 100.0%
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Hardware Retailing
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Do It Best Co. 8
orgill Inc. 5 nA nA $1.179 Bil. $1.3 Bil. 71% 0% 29% 9% 1,761 71,000 6.5 nA nA nA nA
Handy Hardware Wholesale 2 1,259 21 $235 Mil. $245 Mil. 65% 1% 34% 6% 446 48,000 4.2 nA nA nA nA
14 4,450 0 $3.53 Bil. nA 73% 0% 22% nA 4,000 approx. 80,000 nA $70 Mil. 40% 60% nA
1 Fiscal year 2010. 2 Domestic and International. 2
Reliable Distributors 109 109 200 $2.1 Bil. $2.1 Bil. 20,000 nA 9
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Housing trends
surface. how the potential homebuyer has fared over the past year coupled with the challenges for the coming year has a lot to say about how the housing market will affect the home improvement market in the coming months.
be doing maintenance and repair. this creates a good opportunity for retailers to strengthen sales with rental managers and to expand the selection of products they typically stock. in addition, investors and homeowners alike may be waiting for good deals on distressed properties. once purchased, those distressed properties will likely have a few years of deferred maintenance to repair. the home improvement research institute estimates those who buy a distressed property will spend about 14 percent more on improvements in the first year than those who buy a nondistressed property. Another positive sign: A strengthening rental market has been lifting multifamily housing production. the national Association of home Builders (nAhB) reports the Multifamily Production index (MPi) rose for the fourth consecutive quarter to the highest mark since 2006, indicating an improving market in that sector.
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November 2011
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
*The Multifamily Index is one of the leading indicators measuring confidence developers have in the multi-family market. Any number over 50 indicates that more respondents report conditions are improving than those who report conditions are getting worse.
Source: National Association of Home Builders
with an overall uneasiness about the economy and the fact that banks have tightened lending restrictions results in a market that, despite affordability, isnt as inviting as it could be to prospective home owners. changing demographics will also likely play a key role in the shape of the housing market, as well as what those consumers look for from home improvement retailers. Baby boomers continue to dominate the housing market now and will continue to over the next decade. According to the harvard Universitys State of the nations housing report, households headed by persons 65 or older will jump 35 percent from 2010 to 2020. As they retire, some of them will move into housing developments with both independent and assisted living options. others may choose to retire in their current homes, but some will downsize to a smaller home. Smaller homes tend to be the first choice for young families as well. As a result, the coming years could see a greater demand for those smaller-sized houses. the younger generations, however, also will need to form new households in order for the housing market to
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take off again. According to statistics reported by the 2010 decennial census, household growth was 17 percent lower in the 2000s than it was in the 1990s. Some of that decline in household growth can be attributed to the recession, some of it to social factors, like a growing minority population and the fact that more young adults are choosing to stay with their parents later in life instead of moving out on their own.
to. According to the State of the nations housing 2011 report, after housing prices plummeted, nearly 15 percent of homeowners had properties worth less than their mortgages. Plenty of others saw their hard-earned equity erode, which means they no longer had access to cash to make improvements to their homes. to help, the obama administration extended the home Affordable refinance Program (hArP) through June 30, 2012. this program helps borrowers refinance up to 125 percent of their homes value, as long as their income will support the loan. the program also allows homeowners to refinance and not pay mortgage insurance, even if their equity falls below 20 percent. consumers are waiting for some stability before they stop watching the market and start acting. when they do act, expect that pent up demand to quickly eat through the supply of unsold homes on the market. in the meantime, retailers are well advised to strengthen their ties with do-ityourself consumers looking to save money while improving their homes, and with property managers, who may have their hands full with more renters on the market.
November 2011 Hardware Retailing
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Housing trends
Housing Affordability
Median-priced existing SingleFamily Home 2008 2009 2010 Aug. 2011 (p) $196,600 $172,100 $173,100 $168,400 Mortgage Rate 1 6.15 5.14 4.89 4.69 Monthly p&I payment $958 $751 $734 $698 payment as % Income 18.5% 14.8% 14.4% 13.6% Median Family Income $62,030 $61,082 $61,313 $61,553 Qualifying Income 2 Composite Affordability Index 3
1 Effective rate on loans closed on existing homes. Federal Housing Finance Board
2 Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment.
3 Index equals 100 when median family income equals qualifying income.
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164
59
143 121 62 72 61
210 135 97 98 80
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Hardware Retailing
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