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Housing derails the sector in 2005 but future is still bright as the latest Verdict research reveals.
DIY and gardening has suffered more than any other sector from the slowdown in the housing market – and this year will see its first ever decline in consumer expenditure, as the latest Verdict retail research reveals. But Verdict analysts remain optimistic over the longer term prospects for the £ 16.4 bn (€ 24 bn) DIY and gardening sector, with favourable economic, cultural and demographic drivers still in place.
The 2005 downturn represents a major reversal in fortunes, following a decade of outperformance. As house price growth has stuttered and consumer debt awareness has grown, Mortgage Equity Withdrawal (MEW) has fallen off significantly in 2005, and Verdict expects levels only three-fifths of those in 2004, at £ 29.1bn (€ 42.5 bn). A substantial proportion of MEW is spent on home improvement, and this drop has heavily impacted the leading retailers, with negative like-for-like sales performance the norm even for the powerhouses of the sector in 2005.
The sales dip has hit harder against the backdrop of highly impressive growth. In the past five years (1999-2004) the DIY and gardening sector has bloomed, driven by strong house price growth, high levels of housing transactions, growing consumer and media interest in the home and a favourable economic backdrop. Indeed it has been the fastest growing major retail sector over this period. Yet in 2005 the analysts expect it to slump to the worst performer among major retail sectors – and forecast a decline of -1.6 per cent in DIY and gardening expenditure.
However, they see this as a temporary, rather than permanent, derailment with many favourable drivers still in place. There has been burgeoning consumer interest in the home over the past decade – inspired by the media – and this mindset has not disappeared overnight.
Moreover, the broader economic framework appears robust, and the August 2005 interest rate cut is a step in the right direction for encouraging more consumer spending. On top of this, the analysts expect housing transaction numbers – which have fallen off markedly in 2005 – to rebound, and house prices to return to modest growth. This will inspire higher levels of expenditure on the home, and DIY is in pole position to benefit. And although the population profile is ageing, older consumers are fitter and more active than before.
Gardening is particularly well placed for growth. It will benefit from broader favourable economic drivers, and a strengthening housing market. But the move towards more outdoor living – and the garden as an extra room to the house – continues, with consumers prepared to invest more in external areas. Moreover, the TV emphasis on gardening remains strong, while an older population profile will result in an increase in the number of keen gardeners.
Nonetheless, the sector will fall short of the heady heights of growth achieved in the past decade. A key driver here has been house price growth. This has impacted in two main areas. First, it has created the option of withdrawing equity from property to fund major home improvement projects, and secondly it has increased the return on investment in such projects. In an environment in which the analysts expect house prices to rise more modestly, this will be a weaker growth driver.
2004 was a challenging year for market leader B&Q. It was unable to build on its exceptional market share growth in previous years, only managing to maintain its share at 24.1 per cent. Meanwhile, major rival Homebase added 0.2 percentage points to take its share to 10.4 per cent. Though well behind B&Q, at a group level ARG – Argos and Homebase combined – claimed 15.2 per cent. And while Verdict analysts anticipate a modest 0.1 percentage point increase in market share for B&Q in 2005, they expect ARG to add a full 0.8 percentage points, with strong gains at both Homebase and Argos.
Under the Argos Retail Group, Homebase has emerged as a far more effective operator. ARG ownership is bringing clear improvements in product offer, pricing and store environments – key factors behind the relative strength of Homebase’s recent trading. Further development of its mezzanine programme is helping to create more aspirational store environments. While B&Q remains the undisputed market leader, ARG is an increasing force to be reckoned with on the DIY and gardening stage.
The 2005 downturn represents a major reversal in fortunes, following a decade of outperformance. As house price growth has stuttered and consumer debt awareness has grown, Mortgage Equity Withdrawal (MEW) has fallen off significantly in 2005, and Verdict expects levels only three-fifths of those in 2004, at £ 29.1bn (€ 42.5 bn). A substantial proportion of MEW is spent on home improvement, and this drop has heavily impacted the leading retailers, with negative like-for-like sales performance the norm even for the powerhouses of the sector in 2005.
The sales dip has hit harder against the backdrop of highly impressive growth. In the past five years (1999-2004) the DIY and gardening sector has bloomed, driven by strong house price growth, high levels of housing transactions, growing consumer and media interest in the home and a favourable economic backdrop. Indeed it has been the fastest growing major retail sector over this period. Yet in 2005 the analysts expect it to slump to the worst performer among major retail sectors – and forecast a decline of -1.6 per cent in DIY and gardening expenditure.
However, they see this as a temporary, rather than permanent, derailment with many favourable drivers still in place. There has been burgeoning consumer interest in the home over the past decade – inspired by the media – and this mindset has not disappeared overnight.
Moreover, the broader economic framework appears robust, and the August 2005 interest rate cut is a step in the right direction for encouraging more consumer spending. On top of this, the analysts expect housing transaction numbers – which have fallen off markedly in 2005 – to rebound, and house prices to return to modest growth. This will inspire higher levels of expenditure on the home, and DIY is in pole position to benefit. And although the population profile is ageing, older consumers are fitter and more active than before.
Gardening is particularly well placed for growth. It will benefit from broader favourable economic drivers, and a strengthening housing market. But the move towards more outdoor living – and the garden as an extra room to the house – continues, with consumers prepared to invest more in external areas. Moreover, the TV emphasis on gardening remains strong, while an older population profile will result in an increase in the number of keen gardeners.
Nonetheless, the sector will fall short of the heady heights of growth achieved in the past decade. A key driver here has been house price growth. This has impacted in two main areas. First, it has created the option of withdrawing equity from property to fund major home improvement projects, and secondly it has increased the return on investment in such projects. In an environment in which the analysts expect house prices to rise more modestly, this will be a weaker growth driver.
2004 was a challenging year for market leader B&Q. It was unable to build on its exceptional market share growth in previous years, only managing to maintain its share at 24.1 per cent. Meanwhile, major rival Homebase added 0.2 percentage points to take its share to 10.4 per cent. Though well behind B&Q, at a group level ARG – Argos and Homebase combined – claimed 15.2 per cent. And while Verdict analysts anticipate a modest 0.1 percentage point increase in market share for B&Q in 2005, they expect ARG to add a full 0.8 percentage points, with strong gains at both Homebase and Argos.
Under the Argos Retail Group, Homebase has emerged as a far more effective operator. ARG ownership is bringing clear improvements in product offer, pricing and store environments – key factors behind the relative strength of Homebase’s recent trading. Further development of its mezzanine programme is helping to create more aspirational store environments. While B&Q remains the undisputed market leader, ARG is an increasing force to be reckoned with on the DIY and gardening stage.
