Slow Housing Market, Slow Growth? Not for Home Depot

With mortgage rates and home prices on the rise, more and more Americans are choosing to stay put in their existing homes. This has led to a fall in new construction projects and a corresponding rise in home remodeling and Do-It-Yourself (DIY) projects. Couple these with an ongoing explosion of DIY blogs, tutorial videos and hobbyists, and it’s no surprise that the home improvement market is strong.

 

 

According to our Retail Insight solution, combined consumer spending on DIY, furniture and homewares in US in 2018 was $732 billion and per capita spending was $2240, both up 5% from 2017. Retail sales from DIY and furniture markets were $282 billion, with store-based sales accounting for 90% of these sales. Clearly, store sales still make up the lion’s share of retail in this market— like other big-ticket categories, this is a space with a strong “try-before-you-buy" ethos from its backbone customers of DIY professionals and hobbyists.

DIY and home furnishings has exploded on the online channel as well. Online sales for these two categories grew by 16% in 2018 - customers are increasingly becoming comfortable in making tools and furniture purchases online. Action images and online reviews are slowly replacing the experiential process of holding and ‘trying’ these items before buying – product detail pages and their images, descriptions, and reviews are giving consumers the new experiential retail. And the traditional brick-and-mortar home improvement retailers know this.

The expansion of brick-and-mortar retailers into ecommerce is not exactly breaking news, and merely being able to offer the convenience of accessing an unlimited digital shelf, free-shipping and lower prices are no longer the only differentiating factors.

Leading home improvement retailer Home Depot’s initiatives to combat pureplay (and other) competition by offering price matching and in-store pickup for quicker delivery times – which were favorably rewarded with a strong ecommerce sales growth of 22% in 2018 – illuminates the path home improvement omnichannel retailers can take to leverage their physical presence to meet shorter delivery periods and experiential retail through in-store services to find the edge over their online competition.

We will now explore ecommerce’s pricing and promo trends in two leading DIY/home furnishing categories – faucets and power tools –across Amazon and the leading omnichannel retailers, with focus on the Black Friday and Prime Day.

 

Online Pricing and Promotional Trends Across Traditional Home Improvement Retailers:

By expanding into ecommerce, specialized home improvement retailers can cut through the noise and rake in sales by making customers aware of the promotional discounts well before a promotional event.

Promotions for power tools increased uniformly across all retailers, starting well before Black Friday and continuing through the end of December. Only Home Depot, Lowe’s and Walmart promoted faucets during this period.

 

 

Of the retailers analyzed, Home Depot had the lowest selection of power tools on promotion, while Menards had the highest. Home Depot and Menards both offered their power tools range at the highest average discount of 20% during the period.

Meanwhile, Walmart had the largest selection of kitchen faucets on promotion, while Lowe’s had the lowest. Home Depot and Lowe’s both offered the highest discounts on their faucet range at 18% and 19%, respectively between end of October- December 2018.

 

Power Tools and Faucets Trends on Amazon US:

Pricing and promotional trends on Amazon are also important to understand – first because of the DIY/home furnishings categories’ rapid explosion in the digital space, and secondly because consumers here are distinct from the traditional consumer at the big-box DIY retailer.

Amazon possesses its own unique customer base and offers brands an additional avenue to sell their products to customers with quite different DIY mindset. These include repeat customers purchasing tool accessories and replacement parts, first-time customers who don’t necessarily want to try out the products before they buy them and rely wholly on ratings and reviews, customers with non-urgent home improvement needs, etc.

Amazon’s promotional activity was relatively stable, however, and promotional discounts in comparison to its omnichannel competitors in the category remained low. The ecommerce giant consistently ranked last or second to last amongst the retailers analyzed, perhaps indicating that DIY enthusiasts are more likely to find similar or better deals on power tools and faucets on specialized retailers’ platforms. Even Amazon’s Prime Day promotions didn’t measure up to its omnichannel competition.

 

 

 

 

Despite the lack of competitive promotions overall, sales during Black Friday week in 2018 were up nearly 30% in the Power Drills category. Indeed, most products on Amazon in this category were competitive with those of its omnichannel competitors, and Amazon’s aggressive pricing strategy kept the big-box stores playing defense.

For instance, Amazon offered competitive pricing on several popular items under ‘Combo Kits,’ which forced the omnichannel retailers to lower their prices on the same items.

For example: In the ending of October, Dewalt 20-Volt Max Lithium-Ion Cordless Combo Kit 4-Tool DCK420D2 was listed at $279 on Amazon, Home Depot and Lowe’s. However, Amazon dropped the price to $249 (a 12% decrease) at the beginning of November, while the price held steady at Home Depot and actually increased at Lowe’s through the Black Friday weekend. And while Home Depot matched Amazon’s listed price after Black Friday, Lowe’s didn’t match until February 2019.

 

 

 

Faucets Sales and Share on Amazon US

 

 

Kohler Losing Amazon Share to Kraus Due to Price?

The 3rd and 4th largest market share holders in kitchen faucets, Kohler and Kraus, are locked in a battle for market share on Amazon – and Kraus seems to be winning. Kohler started losing market share to Kraus towards the end of 2018 – around the time Kraus seems to have amped up the average discount on its items. The following graphs show that Kraus’s competitive pricing might be a contributing factor to Kohler’s loss in market share on Amazon.

 

 

 

Kohler has lost about 30% YoY market share in Q1 2019, whereas that of Kraus has nearly doubled. Our data shows that this could be due to Kraus winning the war on price and promotions.

Kraus promotes its faucets more heavily than Kohler’s – during Black Friday, Kraus had 75% of its kitchen faucets on promotion in comparison to Kohler’s 46%. Further during Q1 2019, an average of merely 5% of Kohler’s faucets were promoted on Amazon as opposed to 40% by Kraus.

Kraus’s average discount increased from 4% to a maximum of 18% between November 2018 and March 2019. Meanwhile, the average discount for Kohler kitchen faucets has been in the range of 10-12%. Kohler items already tend to be priced comparatively higher than similar items by Kraus.

A simple price comparison between similar items made by the two brands potentially hints at price being the reason for Kohler’s loss.

 

 

Key Takeaways for Brands and Retailers:

  • Home Depot’s strong ecommerce performance shows that omnichannel home improvement retailers can bolster sales by leveraging their physical presence. This can be done by creating value for existing customers and attracting new customers through experiential retail.
  • DIY-ers are aware of the choices they have across retailers and brands. Omnichannel retailers need to focus on offering added value proposition by creating a seamless experience for their customers between in-store and online shopping. They need to stand out in retail by investing in creating value for their customers and ensure long-term loyalty by doing so.
  • Brands, on the other hand, need to understand the pricing and promotional tactics of their competitors across retailers and optimize their digital shelves. Similar items need to be competitively priced by brands, especially on promotional events. Brands can avoid their items from getting lost in the promotional noise by strategically promoting their brand before or in-between promotional events.
by Anna Henriksen
Analyst, Edge by Ascential

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