presented by: laura kennedy, principal analyst doug hermanson, senior economist erin kennedy,...

Presented by:

Laura Kennedy, Principal AnalystDoug Hermanson, Senior EconomistErin Kennedy, Analyst

Home Improvement Webinar Series

May 9, 2014

Springing Forward Into Sustained Growth

© Copyright 2014 Kantar Retail

Agenda

• Macroeconomic Conditions–Shopper DNA: Have and Have Nots

• Ahead for Spring: Early Indicators of Shoppers’ Plans

• The Role of the Home Improvement Store–Home improvement in the context of spring merchandising trends

–The future of home improvement retail

2


Macroeconomic Conditions

3


* Starts and sales are through March

The Housing Market: A Key Recovery Driver

4

• Leading indicators—pending home sales, mortgage apps.—have only improved modestly

• Eventually recovery should be revived by job/income gains and added home supplies

• Rates will rise, but remain affordable as long as job and income gains persist

Source: U.S. Department of Commerce, National Association of Realtors, and Kantar Retail

Housing Market Measures*Indices, 1990=1.00

Housing Starts

New & Existing Home Sales

Existing home sales led the winter slowdown, but severe weather not only to blame


Now There Are Too Few Homes on the Market?

5

Current homeowners are cautious or unable to “trade up”

Source: National Association of Realtors

• Six months supply consistent with the “right” level

• Inventories recovered from spike that was fed by foreclosures

• Low inventories good for home prices, but potentially bad for existing home sales

• Low inventories will boost homebuilding

Existing Home InventoriesMonths Supply of Homes (through March 2014)

© Copyright 2014 Kantar RetailSource: U.S. Federal Reserve Board and Kantar Retail

• Higher rates will not extinguish recovery

• Will remain low enough to sustain investment and to drive persisting job, income gains

Interest Rates Key to Housing/Investment Outlook

6

Rates will remain relatively low even as they begin to rise

Risinghow

much more?

Risingwhen& howfast?

* Low point = June 2012 to May 2013

13.4

11.19.2

6.06.8

4.04.8

0.6

3.5

0.25

4.3

0.25

Fixed 30-Year Mortgage Rate Fed Funds Rate

Interest Rates Over Time Periods(Average Mortgage Rate and Fed Funds Rate)

Long-Term Rates Short-Term Rates

1986-19951978-1985 1996-2007

2008-2012

Low Point 2012-2013*From June 2013


Housing Market: Driving State/Local Conditions

7

Home prices are key market indicator of jobs and wealth gains

• Home prices back above pre-recession peak in 11 states (including D.C.)

• Still other states seeing sizeable jump in home prices from recession low• Especially in West and key states (AZ, CA, FL, MI, NV)

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

29%

At or above pre-recession peakStill below peak, but growing fast

Home Price Recovery by State**

**Measures current home prices (through Q42013) relative to recession low point (% is increase from low)

Alaska

24%

23%

Hawaii

24%

17%

17%

16%

24%

24%

45%

36%

41%

States by Recovery in Jobs & Home Prices

* Recovered states have gained back nearly all or more than all jobs lost during recession; unrecovered states have gained back less than half of jobs lost

Jobs Recovery by State*

RecoveredPartly RecoveredUnrecovered

D.C


“...we are looking at household formation.

Candidly, it was pretty weak, but…why was it so weak? It

goes back to credit availability. So we need to get those

millennials into a home…”

-Carol Tomé - The Home Depot - EVP, Corporate Services & CFO

“...we are looking at household formation.

Candidly, it was pretty weak, but…why was it so weak? It

goes back to credit availability. So we need to get those

millennials into a home…”

-Carol Tomé - The Home Depot - EVP, Corporate Services & CFO

Benefiting most from rebound in wealth—home prices and

stock market

More savings and home equity in previous home to make new

home purchase

Delaying household formation as job and income gains lag

First time home buyers squeezed more by recent

decrease in home affordability

Hurt more by tight lending standards

8

Gen YBoomers

and Seniors

Source: Kantar Retail research and analysis; Company reports


Pre-Recession

Trend

9

• After-tax income gains were about 1 PPT lower in 2013

• Decrease mostly due to the end of the Social Security tax cut—sequester impact was less than feared

• Sustained jobs recovery points to stronger income gains in the longer term

Growth Rate of After-Tax Household IncomeNot Adjusted for Inflation

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

Income Effects Will Boost 2014 Sales GrowthCalendar turns on temporary tax impact of 2013

Net Income Growth

Likely Sequester impactEnd of Social Security payroll tax cut


Persisting Job Gains Key to Growth Pickup

10

Recent trend has been stronger than conventional wisdom

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

Monthly U.S. Job GrowthAverage Month-to-Month Change in Jobs in Thousands• April posts strong job

gains after weather dampened some winter hiring

• Trend that emerged in 2012-2013 suggests jobs have returned to pre-recession growth

• Gains likely to persist given positive trends in jobless claims and investment Pre-

Recession Trend


Confidence vs. Spending Intentions: Caution Metrics

11

For retail, spending intentions are a less volatile indicator

Source: Conference Board, and Kantar Retail ShopperScape®

• Confidence has rebounded from Oct.-Nov. lows, but dipped slightly in April

• Spending intentions for home improvement shoppers moved up in March

• Spending intentions for all shoppers that are available for April indicate further improvement

1 Confidence is through April 2014 as reported by the Conference Board2 Spending Intentions of home improvement shoppers from Kantar Retail ShopperScape® is through March 2014; represents sum of % of planning to spend about the same or more at all of retail in the coming month compared to a year ago


More Households Plan to Spend Similar

12

An improvement or deterioration depending on perspectiveHome Improvement Shoppers’ Spending Intentions

Percent of Shoppers Planning to Spend in the Coming Month(through March 2014)

• Home improvement households moving toward spending about the same as a year ago at all retailers

• Suggests strong growth in homegoods partly at the expense of other categories

• Shift is from fewer Have Not households cutting back and fewer Have households planning to spend more

Source: Kantar Retail ShopperScape®

Plans to spend about the same

Plans to spend less

Plans to spend more

Represents sum of percentage of primary household home improvement and hardware store shoppers planning to spend in the coming month at all retail, not just home improvement

+4.6%

-3.4%

-1.2%


Shopper DNA: Have and Have Nots

13


Shaped by What Defines and Divides ThemExternal forces further divide Haves and Have Nots

Source: Kantar Retail analysis 14

Haves…

•Part of large younger, working-age cohort•Some wealth•A college degree•Married/couple•An urban resident•Plan to

retire late

Have Nots…

•Part of large older cohort nearing

retirement•Little wealth

•No college degree•Unmarried/divorced

•A non-urban resident•Plan to

retire early

Have Nots: Losing share of income

Haves: Gaining share of income

GovernmentAusterity

Haves…

•Some wealth•A college degree•Married/couple•Plan to retire late

Have Nots…

•Little wealth•No college degree

•Unmarried/divorced•Plan to retire early

“The US is experiencing bifurcation of income with the

middle class shrinking... [T]his bifurcation will challenge the traditional thinking about line structures and it could

provide opportunity for us on both ends.”

-Craig Menear, The Home Depot

“The US is experiencing bifurcation of income with the

middle class shrinking... [T]his bifurcation will challenge the traditional thinking about line structures and it could

provide opportunity for us on both ends.”

-Craig Menear, The Home Depot


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 Grown significantly in 40 years, especially last few years

15

40% of households60% households

“Have Nots” “Haves”

~25% income < $62,000 Per Year

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

chec

k

Paych

eck

$

Sources: 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


Where do Have & Have Nots Spend the Most?

Source: Kantar Retail ShopperScape®, January 2013–March 2014 16

Haves more likely to spend the most at Lowe’s and The Home Depot than Have Nots

Haves more likely to spend the most at Lowe’s and The Home Depot than Have Nots

Where Shoppers Spend the Most on Home Improvement Products

Where Shoppers Spend the Most on Home Improvement Products

Highlighting indicates significant difference between Haves and Have Nots

Have Nots more likely to spend the most at Hardware Stores

and Walmart than Have households

Have Nots more likely to spend the most at Hardware Stores

and Walmart than Have households

All Shoppers Have Nots Haves

Home Improvement Centers 66% 60% 73%

The Home Depot 33% 28% 37%

Low e's 28% 25% 30%

Menard's 6% 6% 5%

Other home improvement center 1% 1% 1%

Hardware Stores 5% 6% 4%

Ace Hardw are 3% 4% 3%

True Value 1% 1% 1%

Sears Hardw are 0% 0% 0%

Do it Best 0% 0% 0%

Other hardw are store (e.g. Do it Best) 1% 1% 1%

Mass Retailers 14% 19% 9%

Walmart/Walmart Supercenter 10% 14% 5%

Target/SuperTarget 3% 3% 3%

Kmart 1% 1% 1%

Other discount store/supercenter 0% 1% 0%

Amazon.com 1% 1% 1%

Sears 1% 1% 1%

Warehouse club retailer 1% 1% 1%

Value discounter/dollar store 1% 1% 0%

eBay.com 0% 0% 0%

Tractor Supply Company 0% 0% 0%

Other retailer not listed 9% 9% 8%


What Appeals to Have & Have Nots

Source: Kantar Retail ShopperScape®, January 2013–March 2014 17

Have Nots most likely to be focused on price when

choosing a retailer

Have Nots most likely to be focused on price when

choosing a retailer

Why Shoppers Choose the Retailer Where They Spend the Most on Home Improvement ProductsWhy Shoppers Choose the Retailer Where They Spend the Most on Home Improvement Products

Highlighting indicates significant difference between Haves and Have Nots

Selection, quality, and shopping experience more

likely to influence where Haves spend the most

Selection, quality, and shopping experience more

likely to influence where Haves spend the most

All Shoppers Have Nots Haves

Convenient location 50% 47% 54%

Better price(s) for the item(s) I need 42% 44% 40%

Better selection of products 29% 27% 31%

More likely to have w hat I need in stock 20% 19% 20%

Faster/easier shopping experience 12% 12% 13%

Higher quality products 10% 10% 11%

More helpful/know ledgeable associates 10% 10% 10%

Item on sale/better sale prices 10% 11% 10%

Better able to one-stop shop for many categories 10% 10% 10%

Had specif ic item/brand I w anted or needed 9% 9% 9%

Better return policy 8% 8% 7%

Store credit card/rew ards program 5% 5% 5%Had gift card/gift certif icate redeemable at this retailer 3% 3% 4%

Better/more convenient delivery/installation services 3% 3% 4%

Had store coupon, rebate or other promotional offer 3% 3% 3%

Availability of how -to clinics 2% 3% 2%

More/better options to f inance my purchase 2% 3% 2%Recommended/purchased by contractor/builder/designer 2% 2% 2%

Other 4% 4% 5%

No real reason -- bought on impulse 4% 6% 2%

Convenience most important for both segments, but more

so for Haves

Convenience most important for both segments, but more

so for Haves


Shopper DNA: Most Important Factors When Shopping

Source: Kantar Retail ShopperScape®, January and February 2014, and Kantar Retail analysis

How age-income segments differ from shared factors of importance

18


Retailers' Shopper Mix Relative to Overall Shopper Mix*

Source: Kantar Retail ShopperScape®, January-December 2013, and Kantar Retail analysis 19

*For 2013, Based on Past-Four Week Shoppers

1 Youngest Have Not households will grow ~ 2% per year; 15% in total by 2020;2 Oldest Have Not households will grow ~ 3.8% per year; 30% in total by 2020;3 Oldest Have households will grow ~ 1.6% per year; 12% in total by 2020;4 Youngest Have housholds may show little or no household growth;*Have households=income greater than $60,000 per year for U.S. households**Have Not households = income less than $60,000 per year for U.S. households


Key Macroeconomic Takeaways

20

• Macroeconomic Conditions.

o Winter slowdown due to reduced home affordability and tight home inventories, as well as severe weather

o Job gains will alleviate or offset any softness in home sales in 2014, keeping home improvement spending growing at a solid pace

• Have and Have Nots.

o Understanding how younger and older shoppers shape Have and Have Not shopping trends will be key for the home improvement channel

o Older Haves that are currently the largest shopping base for home improvement are expected to grow in numbers, but will have different needs and wants

o The biggest growth in households will be among Have Nots. Appealing to the differentiating needs of young and old Have Nots will be needed to sustain solid-to-strong growth in the channel


Ahead for Spring: Early Indicators of Shoppers’ Plans

21


Home Improvement Shopper Penetration Picks UpBut still down from the same time last year

Source: Kantar Retail ShopperScape®, March 2012-March 2014 22


Will Take Two Drive Traffic in Q2?Lowe’s, Home Depot intensify spring promotions

Source: Kantar Retail store visits; company websites 23

April 7, 2014April 7, 2014 May 7, 2014May 7, 2014


Younger Shoppers Could Drive Spending This Year

Source: Kantar Retail ShopperScape®, March 2014 24

Plan to spend…A lot/little

moreAbout the

sameA little/lot

less

All Shoppers 21% 47% 31%

Generation Y 23% 51% 26%

Generation X 22% 51% 27%

Baby Boomers 21% 46% 32%

Seniors 17% 37% 45%

Children <19 at home 24% 49% 27%

No children <19 at home 20% 47% 33%

Haves 26% 49% 25%

Have Nots 18% 46% 36%

Home Improvement Project Spending Plans (Among all shoppers)

Note: Bolded red percentages are significantly lower than all shoppers at 90% confidence, and bolded green percentages are significantly higher than all shoppers at 90% confidence

Looking to maintain or boost HI spending versus last year; less likely to spend less


Households Plan Painting, Minor ProjectsFlooring tops bigger-ticket projects on shoppers’ lists


Types of Home Improvement Projects That Shoppers Will Spend on This Spring(Among all shoppers)


Haves Lean Toward Bigger-Ticket Projects


Home Improvement Project Type Have Nots Haves

Paint or faux finish an interior room 28% 32%

Minor plumbing (e.g., replace a faucet) 18% 19%

Paint exterior of residence 15% 13%

Minor electrical (e.g., install a ceiling fan or light fixture) 14% 16%

Install new window treatments (e.g., blinds, curtains) 13% 14%

Install organization/storage system (e.g. in closet, bedroom, kitchen, bathroom, garage, etc.)

12% 13%

Install new carpet, flooring, or tile 12% 17%

Make energy-efficient upgrades 10% 11%

Replace roof, siding, or windows 9% 7%

Renovate a bathroom 9% 13%

Build a deck or patio 6% 7%

Renovate a kitchen 6% 7%

Set up a nursery/child's room 4% 3%

Room addition 3% 3%

Finish a basement 2% 4%

Home Improvement Project Type (Among shoppers who plan to complete at least one project)

Only project type that Have Nots

outnumber Haves

Only project type that Have Nots

outnumber Haves

What does this difference say about Have vs.

Have Not values?

What does this difference say about Have vs.

Have Not values?

Note: Bolded red percentages are significantly lower than all shoppers at 90% confidence, and bolded green percentages are significantly higher than all shoppers at 90% confidence


Painting Projects Rank Higher for Have Nots


Haves Project Ranking* Have Nots Project Ranking*

Paint or faux finish an interior room

Minor plumbing

Install new carpet, flooring, or tile

Minor electrical

Install new window treatments

Install organization/storage system

Paint exterior of residence

Renovate a bathroom

Make energy-efficient upgrades

Replace roof, siding, or windows


Minor plumbing


Minor electrical






Renovate a bathroom

1

2

3

4

5

6

7

8

9

10

*Rank was determined by ordering the percentage of people who plan to complete the project from highest to lowest.


Difference in Rankings Among Generations Reflect Life Stage Priorities


Gen Y’s Ranking Boomers’ Ranking




Minor electrical

Minor plumbing

Renovate a bathroom




Set up a nursery/child's room

1

2

3

4

5

6

7

8

9

10


Minor plumbing


Minor electrical



Renovate a bathroom




Cheap, least invasive

Cheap, least invasive

*Rank was determined by ordering the percentage of people who plan to complete the project from highest to lowest.


Households Focused Most on Lawn CareMore discretionary gardening projects also part of spring plans


Types of Gardening and Landscaping Projects That Shoppers Will Spend on This Spring

(Among all shoppers)


The Role of the Home Improvement Store:Spring Merchandising Trends

30


Home Depot Focuses on Savings, Lowe’s Focuses on Occasions

Source: Kantar Retail store visit 31


Spring Trends Across Channels


Vibrant Marketing

•In-store•Online

Shopper Engagement

•Pre-trip planning•Savings/loyalty•In-store experience

Springtime Solutions

• Easter/Holiday• Spring Cleaning• Outdoor living

How home improvement retailers fit into the landscape

© Copyright 2014 Kantar RetailSource: Kantar Retail Analysis, Company website, Company Twitter, Facebook 33

An email from Lowe’s offers tips

for springtime projects

Home Depot engages with shoppers via social

media sites, project guides on

HomeDepot.com

Home Depot and Lowe’s Acknowledge Pre-Trip Planning Online

Shopper Engagement

© Copyright 2014 Kantar RetailSource: Kantar Retail store visits 34

Lowe’s Leverages NCAA March Madness as a “Microseason” Leading Up to Spring

Lowe’s teamed with Scotts to offer March Madness

promotion

LG’s “Let’s Do Game Day Right” promotion is featured among Lowe’s kitchen displays

Shopper Engagement

© Copyright 2014 Kantar RetailSource: Kantar Retail store visits 35

Lowe’s and Home Depot Create a Bright and Festive Experience

Colorful duct tape brightens aisles and builds baskets at Lowe’s

Vibrant Marketing

Balloons create a pleasant and

festive shopping experience at Home Depot

Bright “spring is calling” signs set

the mood at Lowe’s

© Copyright 2014 Kantar RetailSource: Kantar Retail analysis & store visits 36

Lowe’s Emphasizes Spring Cleaning and Home Refresh

Lowe’s uses colorful displays to promote spring cleaning and painting;Drop zones and end caps build baskets by providing shoppers with all of the necessary supplies to take on a cleaning or painting project



Spring Black Friday signage features grilling solutions and patio furniture

Pre-packaged gardening set offers

solution for new gardeners

Source: Kantar Retail research and store visits 37

Home Depot Solutions Focus on OutdoorsSpringtime Solutions

Co-branded entertainment solutions, plus gardening projects

In the Garden Center, directing shoppers

online; prominence of branded guidance

© Copyright 2014 Kantar RetailSource: Kantar Retail research and store visits 38

Healthy Lifestyles Gain Prominence in Garden Center


Home Depot offers window sill gardens for urban

shoppers

Organic plant food sits in front of

Lowe’s “healthy life” displayLowe’s features

an entire display of fruit and vegetable seeds


Walmart’s Outdoor Event Aims to Drive Seasonal Traffic

Source: Kantar Retail store visits 39

A seed display frames gardening as the way

to a healthy lifestyle


Walmart’s lawn and garden section is

equipped with grilling solutions

Co-branded Burpee display

with Scotts


The Role of the Home Improvement Store:Store of the Future

40


Given the Impact of Digital…What Role Will the Store Play Going Forward?

Source: Kantar Retail research and analysis 41

The store is just one touchpoint with the shopper


Going Forward, the Store Must Seize Its Role


Where are we seeing glimmers

of this now?

Where are we seeing glimmers

of this now?


Guiding the Shopper Through the Shelf is Simple, But Inconsistent


??Information, but no real guidance

Elsewhere, brands provide the guidance


Lowe’s Garden Center Showcases More Shelf Guidance



Garden Centers Continue to Highlight HI Retailers’ Educational Capabilities


Plus provides cross-branded solutions


Home Depot Focuses on Branded Education in Garden



Spelling Out Project Steps Creates a Shopping List


But there is such a thing as too much information…


Are These Bathroom Displays the “Pods” of the New Customer Experience?


Each element of the design is identified, priced;

encouraged to shop on Lowes.com

Accessories (PL and national brands) displayed adjacent

“[Shoppers] told us they wanted to visualize the results of this project…

they want to understand what it looks like in end use, but they also wanted the touch and feel of the

projects, with the different products.” –Greg Bridgeford, February 2014

“[Shoppers] told us they wanted to visualize the results of this project…

they want to understand what it looks like in end use, but they also wanted the touch and feel of the

projects, with the different products.” –Greg Bridgeford, February 2014


Home Depot Builds Online into Its Solutions



From Other Channels, Future Store Takes Shape



Kroger Recipe Stations Provide Instant SolutionsCould HI project ideas be digitized?


Present shoppers with a multitude of meal solutions based

off of season, type of meal, prep/cook time.


How could sampling be integrated with new products?Sam’s Club Automates Free Samples w/ Freeosk


Freeosk allows shoppers to learn about a product, try it, and grab a full size

all in one place

Freeosk allows shoppers to learn about a product, try it, and grab a full size

all in one place

Bright orange “FREE SAMPLE” sign will attract

shoppers

Bright orange “FREE SAMPLE” sign will attract

shoppers

A digital screen displays an ad for the product. Shoppers scan their

loyalty card for a sample

A digital screen displays an ad for the product. Shoppers scan their

loyalty card for a sample


Drugstores Offer Pharmacy Services OnlineCould more on-demand services be on the way for DIY?

Source: 53


Closing Considerations: Seize the Chance to Shape the New HI ExperienceFind opportunities to:

–Help shoppers navigate the store—including online. This will require working with retailers to create signage and other informational material. Identifying opportunities to co-merchandise and provide solutions will also be helpful.

–Educate shoppers, as well as associates and your retailer partners. At times, it will be necessary to build both the category and your brand. Emphasize the importance of the in-store associate to this mission. And remember that cost remains a concern for shoppers at all ends, so explaining the value of your product will be crucial.

–Inspire shoppers to build baskets—and retailers to create projects. Here is where data will be crucial. Determining shoppers’ paths to purchase and pinpointing where you can build loyalty for both your brand and the retailer’s will help keep shoppers from falling down “chutes” created by digital.

Source: Kantar Retail research and analysis 54

June 4–5 in Chicago, IL or June 18–19 in New York, NY

ForumForumMid YearMid Year

New Planning Coordinates: Navigating The Multichannel World

Join Kantar Retail thought leaders for our signature Mid Year Forum aimed at ensuring you formulate future plans that are strategically vital, predictively accurate, and closely aligned

against your most important customers. Please email [email protected] for more information.


Contact:

Laura KennedyPrincipal [email protected]

617.912.2851www.kantarretailiQ.com

Erin [email protected]


Doug HermansonSenior [email protected]


presented by: laura kennedy, principal analyst doug hermanson, senior economist erin kennedy,...

Documents

home suppliesrates

kantar retailstates

kantar retailsource

kantar retailnow

kantar retailhousing

kantar retailhigher

jobs home pricesmainmapif

homebuilding copyright