presented by: are sunny skies ahead for the 2013 home improvement season? laura kennedy senior...

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ARE SUNNY SKIES AHEAD FOR THE 2013 HOME IMPROVEMENT SEASON?

Laura KennedySenior Analyst

Doug HermansonEconomist

June 7, 2013

Home Improvement Webinar Series

© Copyright 2013 Kantar Retail

Agenda

• Macroeconomic Outlook: Government Tax and Spend Effects from the Certain to the Possible

–Payroll tax and the “sequester”–Entitlement cuts

• Kantar Retail ShopperScape®: How Shoppers Are Approaching the Spring Home Improvement Season

• Project Intentions• Where They’ll Shop, and Why• How They’ll Plan

2


Payroll Taxes and The Sequester

• Discretionary home and softgoods categories

• Nondiscretionary products with a stronger value proposition may benefit

• Regional markets with little to offset negative impact

• Haves and Have Nots in different ways

3

Uncertainty may be the biggest threat to growth

Payroll Tax Increase and Sequester Budget Cuts: Relative to Income Gains

2013 Full-Year Impact in Billions of Dollars

* Estimated assuming 2.5% to 3.0% income growth based on job growth of 1% to 1.5%Source: U.S. Department of Commerce and Kantar Retail

Who is affected?

© Copyright 2013 Kantar Retail 4

$25,000 $50,000 $100,000Salary

-$500 -$1,000 -$2,000Salary reduction from the

payroll tax increase

Payroll Tax: Facts•Payroll tax was lowered two percentage points in 2011 as a temporary stimulus measure

•Payroll tax brought back to its previous rate on January 1, 2013

Payroll Tax: Facts•Payroll tax was lowered two percentage points in 2011 as a temporary stimulus measure

•Payroll tax brought back to its previous rate on January 1, 2013


65% 66%61%

35% 34%39%

All Shoppers Home Improvement Shoppers

Hardware Store Shoppers

Yes No

Have you noticed a difference in your take-home pay since the payroll tax rate increased?

(among past-4 week shoppers who receive a paycheck, e.g., not retired or unemployed)

5

*Read as: 66% of home improvement shoppers said they have noticed a difference in their take-home pay since the payroll tax increase.No significant differences compared with all shoppers at the 95% confidence levelAll shoppers n = 2514; Home Improvement n = 1106; Hardware Store n = 333

Source: Kantar Retail ShopperScape® , February 2013

Two-thirds of Home Improvement Shoppers Have Noticed Lower Take-Home Pay as a Result of the Payroll Tax Rate Increase


All ShoppersHome Improvement

Retailers Hardware Stores

Eat out at restaurants less often 32% 34% 31%Use more coupons 32% 36% 33%Cut back on small indulgences 30% 33% 31%Cut back on more "discretionary" products 30% 32% 27%Cut back on everyday expenses 27% 28% 25%Buy less expensive versions of products 24% 25% 26%Stock up when retailers have specials deals 23% 27% 28%Purchase fewer "big ticket" items 21% 26% 26%Do more shopping at retailers that have good sales 18% 22% 23%Do more shopping at dollar stores 13% 15% 17%Postponing home improvement project 13% 17% 16%Do more shopping at Walmart 10% 12% 12%Other 1% 1% 1%Do not plan to change behavior 35% 33% 34%

Do not plan to change behavior or are not affected by payroll taxes 72% 73% 69%

Shading indicate significantly greater percentage compared with all shoppers; border indicates significantly lower percentage (95% confidence level). Behaviors apply to all shopping, not necessarily home improvement

6Source: Kantar Retail ShopperScape® , February 2013

Significantly more likely

than all shoppers to postpone HI projects, as well as shop at Walmart

Significantly more likely

than all shoppers to postpone HI projects, as well as shop at Walmart

Some Shoppers Indicate They Will Postpone HI Projects as a Way to Cope with Tax Increase

Affect of Payroll Tax Increase on Shopping, Spending Behavior(among past-4 week shoppers who receive a paycheck, e.g., not retired or unemployed)

Note: changing

behavior is in the

minority

Note: changing

behavior is in the

minority


Affect of Payroll Tax Increase on Shopping, Spending Behavior(among past-4 week shoppers who receive a paycheck, e.g., not retired or unemployed)

27%

1%

18%

33%

35%

35%

27%

29%

22%

15%

21%

32%

36%

25%

38%

1%

15%

31%

33%

31%

27%

22%

20%

10%

11%

24%

34%

25%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Do not plan to change my shopping behavior

Other

Postpone a home improvement/decorating project

Cut back on more "discretionary" products

Eat out at restaurants less often

Cut back on small indulgences

Stock up when retailers have specials deals

Buy less expensive versions of products

Do more shopping at retailers that have good sales

Do more shopping at Walmart

Do more shopping at dollar stores

Cut back on everyday expenses

Use more coupons

Purchase fewer "big ticket" items

Haves

Have Nots

Arrows indicate significant difference between column percentages (95% confidence level). Behaviors apply to all shopping, not necessarily home improvement. Have and Have Not distinctions are based on income levels of respondents.Haves n = 406; Have-nots n = 259

“Have-Not” and “Haves” Indicate Similar Behavior Toward Home Improvement Spending

7Source: Kantar Retail ShopperScape® , February 2013


What is it?•Triggered by the inability of congress to reach a budget deal that cuts long-term spending

•Short term: 85 billion dollars of U.S. government cuts from March 1, 2013 to September 30, 2013.

•Long-term: 1.1 trillion dollars in U.S. government spending cuts through 2021.

What is it?•Triggered by the inability of congress to reach a budget deal that cuts long-term spending

•Short term: 85 billion dollars of U.S. government cuts from March 1, 2013 to September 30, 2013.

•Long-term: 1.1 trillion dollars in U.S. government spending cuts through 2021.

The “Sequester”: The Facts

Source: Pew Research Center, U.S. Congressional Budget Office, and Kantar Retail 8

What programs are affected?•Directly: Half the cuts are from discretionary military spending and the other half are from discretionary non-defense spending

•Indirectly: To a lesser degree funding for education and private-sector manufacturing

•Does not affect mandatory programs such Medicaid, Social Security and SNAP, but more on that later……..

What programs are affected?•Directly: Half the cuts are from discretionary military spending and the other half are from discretionary non-defense spending

•Indirectly: To a lesser degree funding for education and private-sector manufacturing

•Does not affect mandatory programs such Medicaid, Social Security and SNAP, but more on that later……..

What is the affect on retail?What is the affect on retail?


1/6 have government jobs; much smaller number of jobs affected indirectly

9

To what extent are you concerned that government budget cuts known as 'the sequester 'may negatively impact the job security

of employed members of your household?

Source: Kantar Retail ShopperScape®, April 2013

Threat: More are Concerned Than Ought to Be

52%38%

10%

Concerned

Not Concerned

Don't know/not sure

Home Improvement and Hardware Shoppers


Those that are concerned are significantly more likely to spend less

10

To what extent are you concerned that government budget cuts known as 'the sequester 'may negatively impact the job security

of employed members of your household?


Threat: More are Concerned Than Ought to Be

Home Improvement and Hardware Shoppers

Concerned

Not Concerned

Don't know/not sure

Signicantly more likely to spend less


The Sequester—and Other Regional Effects

11

The growth threats are often focused, if not offset

* Ranging from about 1 of every 3 jobs in Washington D.C. to about 1 of every 5 jobs in Virginia.

Source: Kantar Retail analysis

Washington D.C.Wyoming

AlaskaNew Mexico

MississippiOklahoma

HawaiiWest Virginia

MontanaAlabamaMaryland

Virginia

Vulnerable States With Highest Share of Government Jobs*

Other Vulnerable States

Most vulnerable are these states

where recovery has lagged the

most

Most vulnerable are these states

where recovery has lagged the

most

MaineMissouriNevadaRhode Island


Hawaii

CT

Rising Home Prices as Key Recovery Indicator

12

They create job and wealth gains that vary across states

• Home prices in 10 states back up above pre-recession peak

• More states seeing sizeable jump in home prices from recession low

.

States by Home Prices

Source: U.S. Bureau of Labor Statistics, Federal Housing Finance Agency, and Kantar Retail

*Measures current home prices (through Q1 2013) relative to pre-recession peak

Home Prices vs. Pre-Recession Peak*

Alaska

At or above pre-recession peakDown less than 10% from peakDown 10 to 24% from peakDown more than 25% from peak

Prices up 8.0% or more from lowHome prices remain near low

Home Prices vs. Recession Low Point**

**Measures current home prices (through Q1 2013) relative to recession low point

D.C


Apr-12 Mar-13 Apr-13

(a) (b) (c)

Much/Somewhat Better Off 20% 23% a c 20%

Job security No Change from Last Year 61% b 59% 64% b

Somewhat/Much Worse Off 19% c 18% 16%

Much/Somewhat Better Off 31% 31% 31%

Household income level No Change from Last Year 45% 43% 46% b

Somewhat/Much Worse Off 25% 26% c 23%

Much/Somewhat Better Off 26% 31% a 29% a

Credit card debt level No Change from Last Year 58% b 53% 57% b

Somewhat/Much Worse Off 16% 15% 14%

Much/Somewhat Better Off 23% 27% a 25%

Monthly mortgage and car payments No Change from Last Year 65% b 61% 64% b

Somewhat/Much Worse Off 12% 12% 11%


Worth of investments No Change from Last Year 50% 49% 51%

Somewhat/Much Worse Off 20% b c 17% 15%


Value of my home No Change from Last Year 51% c 49% 48%

Somewhat/Much Worse Off 26% b c 18% 18%

Note: Superscript letters indicate a signif icant difference betw een time periods (90% confidence level)

Home Improvement/Hardware Store Shoppers' Perceived Household Financial Health Compared with Last Year

Financial Health of Home Improvement Shoppers is Holding Up

Source: Kantar Retail ShopperScape®, April 2012, March 2013 & April 2013

Feelings about investments, home

values have improved significantly from last from the same time

last year

Feelings about investments, home

values have improved significantly from last from the same time

last year

Scant signs that shoppers are feeling

worse off about incomes and job

security in the wake of government tax and spend effects

Scant signs that shoppers are feeling

worse off about incomes and job

security in the wake of government tax and spend effects


161

209 206

165

2004-2007 2012 Q1 2013 Apr-13

Job Growth: Holding up in 2013

14

Strong Q1 followed by moderate April gains

Source: U.S. Department of Labor and Kantar Retail

Monthly U.S. Job GrowthAverage Month-to-Month Change in Jobs in Thousands

• Unemployment rate trends suggest Have Not job gains have picked up in recent months —construction and retail

• Economy added another 175,000 jobs in May

Pre-Recession

Trend


40%

45%

50%

55%

60%

65%

70%

75%

80%

Suggests uncertainty having greater effect on “Haves” spending plans

15

Haves* (annual HH

income $60k+)

Have Nots (annual HH

income <$60k)

All Home Improvement

Shoppers

Have & Have Nots: Percent of Home ImprovementShoppers Planning to Spend

About the Same or More (three-month moving average)

Source: Kantar Retail ShopperScape®, January 2009–April 2013

*Read as: 75% of upper-income home improvement/hardware store shoppers surveyed in April 2013 indicated plans to spend about the same or more at retail in the coming month.Note: Refers to spending at retail in general, not necessarily at home improvement and hardware store retailers

“Have” Households Gaining after Leading Falloff; “Have Nots” More Resilient, but Leveling Off


-2%

26%

-4%

42%

1%

39%

-2%

36%

-8%

60%

-3%

75%

Defict Debt

16

• Even planned budget cuts (i.e., “sequester”) will mean persisting deficits, elevated debt levels

• Points to need for additional measures to put government on a sustainable path

U.S. Government Debt and Budget Deficit*As Share of Gross Domestic Product

Source: U.S. Congressional Budget Office and Kantar Retail

U.S. Government Spending: The ProblemPersisting budget deficits and accumulating debt

1997–20011982–19961970s 2002–2007 2008–2012 2013–2020F

Deficit worsened past 4 years, hitting bottom at -10% of GDP in 2009

Accumulated government debt is projected to stay elevated through 2020

*Projections through 2020 include “sequester” budget cuts triggered on March 1, unless Congress approves alternative budget plan

After 2020, projected to worsen again

toward 4% deficits


38%

45% 47%

55%57%

61%

1972 1982 1992 2002 2012 2020F

17

• Under current CBO projections, these programs will approach 2/3 of all government spending after 2020

• Will mean reversal of government spending priorities of 40 years ago

Share of Government Spending: Entitlement & Other “Mandatory” Programs


Ultimate Targets: Entitlement ProgramsSocial Security, Medicare, health care spending, etc. …


38%

45% 47%

55%57%

61%

1972 1982 1992 2002 2012 2020F

18

• A serious effort to control spending would mean unpopular choices:

– New constraints on Social Security eligibility and benefits?

– Active restraint of health care costs via Medicare, Medicaid, health care exchanges?

Share of Government Spending: Entitlement & Other “Mandatory” Programs


Biggest Drivers: Social Security & MedicareHealth care reform programs will add to entitlement growth

Social Security & MedicareMedicaid & Health Care Reform ProgramsIncome programs including SNAPOther programs (e.g., for Federal Workers, Military, Veterans, etc.)


66% 67% 69% 72% 72% 74%

1971 1981 1991 2001 2011 2020FC

34% 33% 31% 28% 28% 26%

1971 1981 1991 2001 2011 2020FC

Government Cuts Will Hit “Have Nots” Hardest

19

Their share of income is falling even with government aid

60% households 40% of households

“Have Nots” “Haves”

Falling Share of All Income Sources Rising Share of All Income Sources

~25% income < $62,000 Per Year

~75% of income> $62,000 Per Year Household IncomePay

chec

k

Paych

eck

$

Source: U.S. Department of Commerce, Congressional Budget Office, and Kantar Retail analysis


66% 67% 69% 72% 72% 74%

1971 1981 1991 2001 2011 2020FC

34% 33% 31% 28% 28% 26%

1971 1981 1991 2001 2011 2020FC

Government Aid = About 1/3 of Have Not Income

20

Grown significantly in 40 years, especially last few years

60% households 40% of households

“Have Nots” “Haves”

~25% income < $62,000 Per Year

~75% of income> $62,000 Per Year Household IncomePay

chec

k

Paych

eck

$

Source: U.S. Department of Commerce, and Kantar Retail analysis 3%97% 8%92%

Government Entitlement, Assistance Programs

20%

80%

35%

65%

Growing Reliance on Government

Falling Share of All Income Sources


Key Takeaways: Macroeconomic Outlook• Payroll tax increase may dampen or delay, but not derail most

purchases

• Uncertainty is the biggest threat from the “Sequester”

• If there is a noticeable impact from the “Sequester” it will be regional, especially among states lagging the recovery

• Haves’ spending plans are more affected by budget uncertainty

• Have Nots are more focused on month-to-month job gains/losses

• In the long-term, spending of “boomers” and lower-income households possibly hurt by future cuts to entitlements

Source: Kantar Retail analysis 21


Agenda

• Macroeconomic Outlook: Government Tax and Spend Effects from the Certain to the Possible

–Payroll tax and the “sequester”–Entitlement cuts

• Kantar Retail ShopperScape®: How Shoppers Are Approaching the Spring Home Improvement Season

• Project intentions• Where they’ll shop• How they’ll plan• How retailers are reacting

22

© Copyright 2013 Kantar RetailSource: Kantar Retail ShopperScape®, April 2013 23“Lowe’s shoppers” are past-four-week Lowe’s shoppers; significant differences are at a 95% confidence level

Home Improvement Shoppers More Likely to Have Long-Term Relationships with Homes

Shoppers’ Descriptions of Their

Relationships with Their Homes or

Where They Live (among all shoppers)

Shoppers’ Descriptions of Their

Relationships with Their Homes or

Where They Live (among all shoppers)

51% of home improvement

shoppers; Gen Y, Gen X, and “Have Nots” less likely

51% of home improvement

shoppers; Gen Y, Gen X, and “Have Nots” less likely

Gen Y, Gen X making new-household changesGen Y, Gen X making

new-household changes

Home improvement/hardware

store shoppers more likely

Home improvement/hardware

store shoppers more likely

HI shoppers less likely; Gen Y, Gen X, and Have

Nots more likely

HI shoppers less likely; Gen Y, Gen X, and Have

Nots more likely

47% of home improvement shoppers

47% of home improvement shoppers


Only Slightly Higher Project Intentions in 2013Is government uncertainty further delaying spending?

Source: Kantar Retail ShopperScape®, April 2013 24

This year, Gen X and “Have” shoppers (incomes

$60K+) are more likely than all shoppers to plan

projects

This year, Gen X and “Have” shoppers (incomes

$60K+) are more likely than all shoppers to plan

projects

Last year the warm winter resulted in

shoppers spending before traditional

spring months

Last year the warm winter resulted in

shoppers spending before traditional

spring months


But Men Could Drive SpendingSignificantly more men than women plan projects, and higher shares of men plan projects than in 2012


Likelihood of Initiating a Home Improvement Project in the Next Six Months

(Among all shoppers)

Bolded and underlined percentages are significantly greater than female and 2012 percentages at a 95% confidence


Outdoor Project Plans Still Rank HighestSignificantly fewer shoppers plan large-ticket projects like a new kitchen or roof


Bolded and underlined percentages are significantly greater than 2012 percentages at a 95% confidence


Still, Shoppers Are Gradually Shifting Away from the Cheapest Projects


Bolded and underlined percentages are significantly greater than 2011 percentages at a 95% confidence


A Discretionary Spending Option: Retailers Push Outdoor Entertaining

Source: Kantar Retail store visits, Lowe’s circular 28


But Price Remains a Focus

Source: Kantar Retail store visits 29

“It does take a while depending on the traffic hitting that category for the customer to

encounter those values, to encounter the new ranges and market assorting impacts.” –Greg

Bridgeford, Lowe’s Chief Customer officer

“It does take a while depending on the traffic hitting that category for the customer to

encounter those values, to encounter the new ranges and market assorting impacts.” –Greg

Bridgeford, Lowe’s Chief Customer officer


Remember the Options: Value Discounters Offer Convenience, Price, Low Commitment

30Source: Kantar Retail store visits

What are HI retailers’ comparative value propositions, price

justifications?

What are HI retailers’ comparative value propositions, price

justifications?

At the same time, THD and Lowe’s sell more

cheap toolsets…

At the same time, THD and Lowe’s sell more

cheap toolsets…


Shoppers Consider Home Depot the Price LeaderHome Depot viewed as the price leader versus Lowe’s


Retailer Viewed as Price Leader for Home Improvement Products (among shoppers who purchase home improvement products)

Significantly greater shares of home

improvement purchasers name Home Depot as

the price leader vs. Lowe’s

Significantly greater shares of home

improvement purchasers name Home Depot as

the price leader vs. Lowe’s

Gen Y and Gen X

overindex on Amazon as

the price leader

Gen Y and Gen X

overindex on Amazon as

the price leader

“Haves” shoppers are also more likely than all shoppers to

see HD as price leader

“Haves” shoppers are also more likely than all shoppers to

see HD as price leader

Lowe’s shoppers are past-four-week shoppers. Underlined and bold percentage is significantly greater than percentage of home improvement shoppers who believe Lowe’s is the price leader, at 95% confidence


Up-Market Shoppers More Likely to Use Credit for Upcoming Projects

All Shoppers

Have-nots (< $60,000)

Haves ($60,000+)

Pay up front with cash/debit/check 65% 66% 63%Credit card not affiliated with a retailer 15% 12% 18%Retailer credit card (e.g., Lowe's or Home Depot credit card) 9% 8% 10%Use retailer's financing offer (e.g., delay payments, no interest until 2014, etc.) 5% 4% 6%Finance project through a contractor 3% 2% 4%Get a home equity loan 3% 2% 3%Get a loan from a bank/financial institution that is NOT a home equity loan 2% 2% 3%Get a loan from a family member/friend 2% 2% 1%Don't know 10% 12% 8%Prefer not to answer 2% 3% 1%

Credit availability still hampering lower-income shoppers


Bolded and underlined percentages are significantly greater than all shoppers at a 95% confidence; outlinedpercentages are significantly lower


Meanwhile, Shoppers Are More Willing to Pay Others to Do the Work—But Is It Plateauing?

Source: Kantar Retail ShopperScape®, April 2010-2013 33

Approaches to Their Next Home Improvement Project

Among shoppers who are likely to initiate a project in the next six months


Gen Y Still Views Retailers as a Trusted Source for Home Improvement

34

Approaches to Their Next Home Improvement Project

Among shoppers who are likely to initiate a project in the next six months


Bolded and underlined percentages are significantly greater than all shoppers at a 95% confidence


Ikea: A New Model for Home Improvement?

35Source: Kantar Retail store visits

Plus: cheap toolsPlus: cheap tools

Installation servicesInstallation services Appliances et al. Ikea-branded

Appliances et al. Ikea-branded


More Variety: More Consumers Plan to Shop Lawn and Garden Retailers This Year


54.9%55.4%

Where Shoppers Are Likely to Shop for Materials for Their Next Home Improvement Project

(Among shoppers planning a project and planning to buy their own materials)

Boomers and “Haves” (incomes $60,000+) more likely to shop Home Depot

Boomers and “Haves” (incomes $60,000+) more likely to shop Home Depot

Bolded and underlined percentages are significantly greater than 2012 at a 95% confidence


Gen Y Is More Likely to Shop Online and at Smaller Boxes; Less Likely at HD or LOW


54.9%55.4%





“Have Nots” More Likely to Shop Ace, True Value, and Hardware Stores


54.9%55.4%





Big-Box Garden Centers Feature More Solutions, Guidance—Targeting the Specialists?


Mostly branded displays…but some

retailer guidance

Mostly branded displays…but some

retailer guidance

Gardening “kits” cater to novices as well as smaller residences

Gardening “kits” cater to novices as well as smaller residences


Traditional and Digital Means of Trip Preparation Both Increase in 2013

40Source: Kantar Retail ShopperScape®, April 2013

Methods of Preparation Before a Trip to a Home Improvement Retailer

(All or most of the time, among home improvement store and

hardware store shoppers)






Gen Y, Gen X Far More Likely to Use Digital Tools

41Source: Kantar Retail ShopperScape®, April 2013








Digital Integration In-Store Is Still Slow…Lowe’s focuses on QR codes and MS codes, especially in garden



Lowe’s Reaches Out with Weekly Localized and Personalized Spring Tip Emails

Source: Home Depot circular, Lowe’s emails, Kantar Retail research and analysis 44

Also features “spring video series”

Also features “spring video series”

Tailors projects to type of home, location—though weather doesn’t always

coincide with project suggestion

Tailors projects to type of home, location—though weather doesn’t always

coincide with project suggestion


Key Takeaways: Spring Projects 2013• The strengthened housing market isn’t enough. Gen X and

upper-incomers are more likely to start projects soon, but by and large shoppers remain conservative with their home improvement project plans.

• Brands can help shoppers stretch their budgets. Retailers and shoppers are prioritizing solutions and guidance as value-adds in a tight environment. Find a place in a low-cost discretionary solution to help drive sales and baskets.

• The balance between value and price will be crucial. Even as shoppers remain thoughtful about their home improvement spending, retailers that can provide “something extra”—including better digital tools—will drive traffic and bigger tickets.

Source: Kantar Retail analysis 45


501 Boylston StreetSuite 6101Boston, MA02116

F +1 630 245 5647

www.KantarRetailiq.com

Two Easton OvalSuite 500Columbus, Ohio43219

F +1 630 245 5647

www.KantarRetailiq.com

Laura Kennedy

Senior Analyst

[email protected]

T +1 617 912 2851

Doug Hermanson

Economist

[email protected]

T +1 614 355 4044

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