Market Measure: The Industry’s Annual Report

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Market Measure: The Industry’s Annual Report

Another remarkable year for the home improvement industry is complete, and while at this point last year many retailers couldn’t fathom breaking the records 2020 brought, 2021 was a banner year, again.

The annual Market Measure report highlights the growth trajectory for the industry of the prior fiscal year. The North American Hardware and Paint Association (NHPA) analyzes a combination of government data and industry surveys to make projections using internal models and those models established by firms like the Home Improvement Research Institute/IHS Markit.

In 2020, the unprecedented growth was so unusual that the models we typically use couldn’t accommodate the rapid increase. This caused us to restate our size of the industry prediction for 2020. When the dust settled, we saw the industry grow by 22.3 percent and final total sales tallied $497 billion.

market measure onlineOne of the resources we use is the annual Cost of Doing Business Study. The data from this year’s installment detailed what retailers had been telling us throughout 2020: Not only were sales hitting never-before-seen highs, independent retailers were also turning in one of the most profitable years on record. Both hardware stores and home centers posted their highest-ever profits before taxes—8.9 percent and 6.7 percent respectively. Retailers also saw customer counts expand and watched cash-on-hand increase.

The Consumer Impact

Consumers were eager to spend their money at independent home improvement businesses in 2020, which led to independent retailers increasing their market share by about 40 basis points.

Despite this demonstrable growth, 2020 did leave retailers with a fair share of concerns. Chief among them were the still-broken supply chain, labor challenges and the ever-present question of how long COVID-related spending on home improvement would continue.

Toward the end of 2020, most retailers were cautious in budgeting for more growth in 2021. We knew the first few months of the year would comp strong because they were measuring against a pre-pandemic Q1 2020. However, most retailers were just hoping they could carry any additional profits from the start of 2021 through the balance of the year.

Insights on Consumer Confidence

Click here for an update on consumer confidence from an analyst from the Kearney Consumer Institute.

In fact, when NHPA surveyed independent retailers toward the end of 2020, 80 percent of survey respondents indicated they would be budgeting sales flat or down for 2021.

Our projections for Q1 were accurate, as 2021 started with strong comps. By midyear, most retailers had seen a bit of a summer swoon in sales, but comps were still holding relatively strong. When we polled retailers again in early Q3, 60 percent of respondents said sales were up over the same period in 2020, with the average increase sitting at 14.9 percent.

While some of this increase was the result of inflation, retailers were still outpacing 2020 sales and performing considerably better than their conservative budgets. In fact, nearly 56 percent of retailers surveyed said they were performing better than their expectations.

As we headed into the back half of 2021, we continued to hear a similar refrain from retailers: “We would be happy if we could just comp flat against the last six months of 2020.”

Home Improvement Industry Year in Review

To read the analysis from the Home Improvement Research Institute, click here.

In Spite of It All, Growth

Barring the persistent challenges of supply chain and product and labor shortages, along with pandemic restrictions being lifted for consumers, we saw most retailers hold the line against the previous year.

So, after two years of unprecedented industry growth, where does that leave us to make projections about 2022 and beyond?

We anticipate the final quarter of 2021 to finish flat against 2020 and leave sales for the industry up 8.2 percent over 2020. No small feat coming off the largest single-year increase we have seen for the industry.

Housing Trends With Nadia Evangelou

Click here to get insights from an economist with the National Association of REALTORS®.

Moving forward, we see 2021 as a bit of a reset point for the industry. In the past, industry sales have bumped along with increases of about 3.5 to 4.5 percent, and we anticipate a return to this normalcy for the next three to five years.

Based on a more measured several years of increases for the industry, we put the overall five year compound annual growth rate for the industry (2020-2025) at 4.7 percent.

Of course, with all the continued ripples from COVID still creating uncertainty for just about every industry, we make these predictions with a bit of a cautious eye toward future potential disruptions.

Unprecedented Activity in Canada

To read the Canadian Market Report, click here.

A Real-World Look at Retailers’ Financials

The 2021 Cost of Doing Business Study presents the North American Hardware and Paint Association’s (NHPA) annual financial and operational profile of independent hardware stores, home centers, lumber and building materials outlets and paint and decorating outlets. (Paint and decorating outlet data is not included in this report. Click here for those metrics.)

This study assesses the financial performance of home improvement retailers who graciously submitted confidential financial reports for fiscal year 2020 to NHPA. The study presents composite income statements and balance sheets plus averages for key financial performance ratios.

Retailers can use this data to measure their own performance against industry averages and establish financial plans to improve profitability.

Click here for the data from the 2021 Cost of Doing Business Study in the digital edition of Paint & Decorating Retailer.

Cost of Doing Business Study

To get your copy of the 2021 Cost of Doing Business Study to analyze your operation, click here.