Is it going to get a whole lot tougher?

We’re facing into some serious economic headwinds which are already
beginning to impact on demand for Home and Garden products across the UK. But what’s most fascinating, is that compared to any other previous economic slowdown, everything appears to be different, almost upside-down.

What normally happens when consumer spending is squeezed, is that big ticket, showroom and the larger home and garden projects take the hit first; people decide to delay projects and save their money in case they need it. Often when this happens, consumers continue to paint and decorate and take on smaller projects around the home and garden, because with only a small investment, these projects can transform their homes and gardens and improve their lives.

However, as at May 2022, we’re seeing very little fall off in demand for kitchens and bathrooms and demand for Trade remains consistently strong. For retailers and merchants in this space, we’re continuing to see positive comparisons year on year when compared to pre-pandemic 2019 levels. And yet, day by day, we’re hearing an increasing number of reports from brands and retailers that sales and demand for core, basic Home Improvement, Decorating and Gardening products are experiencing significant declines.

These results do come with a health warning; let’s not forget the impact of the early 2021 lockdown on these businesses and the lack of any restrictions in place in 2022. There are also the serious availability issues experienced in 2021 and the significant, across the board price increases that have ready been passed onto customers. These figures do a great job of clouding the situation, making it much harder to get a handle in what is really happening out there.

As we know, demand for Home Improvement & Garden (HIG) products in 2021 remained high and was much better than we all expected; due to the lockdowns and the lack of any serious competition for consumer spending. If you assume the two leading competitors to HIG spend are holidays and new cars, then both were put on hold during 2021. Holidays, because of the obvious Covid impact and new cars due to availability. We simply had nowhere else to spend our money and when linked to the additional time we had on our hands due to the lack of any commuting time, there was suddenly a couple of very powerful motivators to drive significant HIG spending.

This year, it’s all changed so quickly and we’ve already seen a significant return to expenditure on leisure, particularly holidays but also money spent in restaurants, museums and tourism, in many cases well above the same period in 2019.

Yet I am receiving regular reports of demand and EPOS (electronic point of sale) sales in steep decline for products associated with the smaller projects and at the same time, discounters like The Range and B&M Bargains are having tough weeks and suppliers are experiencing unexpected declines. Surely in tough times, the discounters come out on top, it’s always been that way?

Based on history what’s currently happening doesn’t make sense. In every previous economic slowdown, kitchens and bedrooms were the first to take the hit, it’s a significant spend and people will usually either put off these projects and save their money for a rainy day or alternatively choose to spend the money on more immediate things including leisure.

My theory

I do have a theory which is being borne out with almost every conversation I have and every new set of retailer results that are published. My theory and to be fair it is a huge generalisation, is that the population is falling into two very distinct halves.

Firstly, there are those who have benefited and continue to benefit from the experience of the last two years. They have been able to increase their cash savings, in fact they continue to save money every month by not commuting. As house prices rise, they are cushioned by increasing equity in their homes and as a result of these factors, they are barely affected by the increases in utility bills and food inflation. They are continuing to spend on their homes and gardens as they did in 2020 and 2021; they are moving house, investing in kitchens and bathrooms, having extensions built, all of which require significant investment and most importantly, require the Trade.

Not only that, but there is still money available for holidays, it’s no longer a choice between a new kitchen or a holiday, they’re doing both.

The other half of the population who in actual physical numbers significantly outnumber the better off homeowners, were not able to save money during the last two years, as many jobs were lost or furloughed.

What is the outlook for the remainder of 2022?
So the big question now, is what is the outlook for the rest of the year? Here’s my view:-

  1. Trade will continue to be the driver for the majority of 2022, as the backlog of work remains high across almost all trades, although similar to 2021, demand is likely to soften as the year progresses.
  2. Showroom will follow a very similar pattern, but it will get much tougher when the next round of utility increases hits. To attract the volume mid to bottom end of the kitchen and bathroom market, the retailers are going to have to work hard and I mean fight really hard to persuade potential customers that 2022 or early 2023 is a good time to buy.
  3. Own label and price entry products will become increasingly important as consumers save money by trading down – we’re already seeing this in food and many other categories like power tools and pressure washers where share is already shifting to own label.
  4. Premium brands may have to seriously revisit their strategies for 2022, to ensure they remain relevant and can justify their price/quality position.
  5. The big-box retailers and even the discounters are going to find it increasingly tough as the year progresses. The fall-off in demand is already hitting their most profitable categories including Paint, Decorating Accessories and Gardening.
  6. Stock holding will become a greater problem as the year progresses. Retailers and manufacturers have invested heavily in stock over the last 12 months, particularly those sourcing from the Far East and many warehouses are already bursting at the seams. A fall-off in demand to this extent wasn’t forecast and this will be an increasingly big problem as the year progresses.
  7. Many manufacturers are seeing factory volumes falling at a time when factory costs are escalating, meaning it’s going to become increasingly important for these businesses to secure similar volumes to 2021.
  8. Second and third placed brands (both retailers and manufacturers) in any of our sectors will be squeezed as the bigger players flex their muscles, reduce prices to secure the volume and take the oxygen out of the market.

In Conclusion
With these challenges, I strongly recommend Home and Garden businesses to batten down the hatches and revisit their strategies, as we have a choppy 12-18 months ahead of us. Trade will remain the engine of growth and we still have 3-6 months of positive showroom sales, but volume of the core Decorative, Home and Garden categories will not come easily. For manufacturers and retailers it’s now more important than ever to invest in both your brands and price, to provide solid and robust reasons why consumers shouldn’t trade down to cheaper price entry competitors. At the same time, it’s critical to demonstrate the value of your proposition both to customers and consumers, push and raise awareness of innovation like never before and remember for a retailer or merchant, footfall is everything.

Steve Collinge is an international speaker, influencer, retail commentator and is Managing Director of Insight Retail Group Ltd and executive editor of Insight DIY. You can follow Steve on LinkedIn and Twitter.