presented by: doug hermanson, senior economist laura kennedy, principal analyst november 15, 2013...

Presented by:

Doug Hermanson, Senior EconomistLaura Kennedy, Principal Analyst

November 15, 2013

Home Improvement Webinar SeriesWhat the Holidays Will Bring in a Zero-Sum Game


Agenda

• Home Improvement: Out Capturing a Cautious Shopper–Holiday Channel and Category Forecast

• Early Holiday 2013: The Major Themes

• In Focus for 2014: Home Depot Leads the Digital Revolution in Home Improvement

3


10.9%

9.0%

8.6%

6.5%

4.4%

3.6%

3.3%

3.0%

2.8%

2.6%

1.6%

0.5%

-4.9%

Non-Store Retailers (including Online Sales)***

Jewelry Stores

Automobile and Parts Dealers

Home Improvement, Building/Hardware Stores

Retail Sales

Furniture & Home Furnishings Stores

Sporting Goods, Hobby, Book, & Music Stores

Apparel Stores

Big-Box & Small-Box Mass Stores**

Grocery Stores

Drug & Personal Care Stores

Consumer Electronics & Appliances Stores

Traditional & Discount Department Stores*

Government-Reported Retail Sales by Channel, 2013 YTD(% Chg Year-to-Year, Seasonally Adjusted)

The 2013 Retail Landscape

4

Home improvement among the leading channels

Three Trends

• Online increasingly driving growth in retail

• Household spending is most focused in “investment” categories/durables

• Consumable channels lagged in 2013

Source: U.S. Department of Commerce and Kantar Retail Analysis

*Includes discount department stores (mass merchandisers ex. supercenters) and conventional & national department stores**Includes warehouse clubs, supercenters and small-format value stores (value discounters). Excludes discount department stores (Mass merchandisers) ***The non-store channel includes the vast majority of online and catalog sales for all retailers.


More Households Plan to Spend Similar vs. 2012

5

An improvement or deterioration depending on perspective

Home Improvement Shoppers’ Spending IntentionsPercent of Shoppers Planning to Spend in the Coming Month

• 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


50%

60%

70%

80%

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Household Spending Plans

6

Haves and Have Nots segment breakouts

• Haves’ spending plans have leveled off in 2013.

• Have Nots benefitting more from job gains and low food/fuel inflation in 2013–shifting from spending less to spending about the same.

• Still, share that plan to spend more–incremental spending on homegoods–led by Haves.

Source: Kantar Retail ShopperScape®

Have Nots

Haves

All Shoppers

Home Improvement Shoppers’ Spending Intentions1

Percent of Shoppers Planning to Spend About Same or More

1 Represents sum of percentage of primary household home improvement /hardware store shoppers planning to spend about the same or more in the coming month at all retail, not just home improvement2 Haves are households with average income of $60,000 or higher, representing about 40% of households3 Have Nots are households with average income of less than $60,000, representing about 60% of households

© Copyright 2013 Kantar RetailSource: Conference Board and Kantar Retail

Measures of U.S. Consumer Confidence(Monthly, 1985=100)

OverallConfidence Index

• Confidence turned down in October

• Consumers’ expectations volatile, if not weaker in 2013.

• Consumers increasingly confident in their present situation in 2013.

U.S. Consumer Confidence

7

Trends through October 2013


Caution Driven by Government Effects

8

Fiscal cliff to sequester. Contributed to weak first quarter

Source: Calendar by digitalart, photos.com, Kantar Retail analysis

Jan-March

Jan 2014

July-Sept

Sept –Oct

Casting a shadow over holiday. New government budget deadline in mid-January. Budget ceiling likely reached soon after which would trigger another govt. shutdown.

Potential Fed tapering. Debate triggers market volatility and slip in spending plans

Standoff: budget debates, government shutdown, ACA. Oct 1 – October 16

Mostly temporary, but still hurting economic expectations


5.5%

3.4%

~1.5%

4.5% to 5%

~1.0%

~1.0%

2003-2008 2010-2012 2013F 2014-2018F

9

• After-tax income gains running about 1 PPT lower YTD

• Primarily reflects end of Social Security tax cut as sequester impact far less than feared

• Improving jobs recovery already pointing to longer-term, stronger income gains

Growth Rate of After-Tax Household IncomeNot Adjusted for Inflation

Source: U.S. Congressional Budget Office, Kantar Retail analysis

Income: Temporary vs. Permanent Effects 2014 and beyond partly reflects softer government effects

Net Income Growth

Potential Sequester impactEnd of Social Security payroll tax cut


Consumer Credit: Revolving Credit

Source: U.S. Federal Reserve Board and Kantar Retail

Households still cautious in their use of credit cardsConsumer Credit Outstanding*(Quarterly, Year-to-Year % Change)

• Reluctance to carry credit card debt tightens shoppers month-to-month spending plans.

• Shoppers more reliant on savings and shifting spending between categories.

*Non-Revolving loans represent automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, trailers, or vacation

-15%

-10%

-5%

0%

5%

10%

15%

20%

2004.3 2006.1 2007.3 2009.1 2010.3 2012.1 2013.3

Total Revolving Non-Revolving

Credit card debt growth is low compared to prerecession


Persisting Job Gains Most Positive

11

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

• 2012-2013 trend is close to pre-recession job pace.

• Job gains focused among sectors that benefit more Have Nots–retail, food service, construction and manufacturing.

• October pick-up encouraging for 2013 holiday

Pre-Recession

Trend

185 183 186204

2004-2006 2012 2013 YTD Oct-13


200

250

300

350

400

450

500

Jan-12 Apr-12 Aug-12 Dec-12 Mar-13 Jul-13 Nov-13

Trends in Jobless Claims

12

Jobless claims significantly lower than 2012

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

* Through week ending November 9, 2013

Weekly Initial Unemployment Claims *Claims are in Thousands, Seasonally Adjusted

• Indicates that job security for most workers is close to pre-recession levels.

• Job security fosters home buying and investment in homes.

• Hiring consistent, but tepid compared to past economic recoveries, feeding long-term unemployment.

Government shutdown in October 2013

2012 trend line

Jobless claims trended lower through most of 2013


Household Net Worth Boosts Financial Security

13

Surpassed pre-recession high in 2013

Source: Federal Reserve Board and Kantar Retail

Net Worth(Household assets less liabilities in billions of dollars)

• Net worth of households picked up in 2013 (+9.6%), boosting HI shopper spending plans.

• Driven by strong gains in the stock market and home prices.

• Households’ debt service relative to income is the lowest since at least 1980.

0

10000

20000

30000

40000

50000

60000

70000

80000

1981 1985 1989 1993 1997 2001 2005 2009 2013

S


Who’s Driving 2013 Home Improvement?

• Shopping frequency at home improvement retailers significantly higher among Haves in 2013 vs. 2012.

• Shopping frequency not significantly different among Have Nots from 2011 – 2013.

14

Driven most by Have shoppers; Have Nots still cautious

*Read as among all Have shoppers 55% shopped home improvement in the past four weeks .Arrow indicates significant increase or decrease in share compared to the prior year at the 95% confidence level

45.3%53.1%

39.7%45.1%

53.7%

38.9%

45.9%55.0%

39.4%

All Shoppers Have Have Not

2011 2012 2013 YTD

SEGMENT BREAKOUTS

Percent of Households Shopped Home Improvement Retailer during Past 4 Weeks

Sources: Kantar Retail ShopperScape® January 2011-October 2013, and Kantar Retail analysis


Home Improvement Gaining among Boomers

• No significant change in other segments but…

• Gen Y show some signs of shopping home centers less

• Seniors show signs of shopping home centers more; spending plans for this segment has expanded noticeably in 2013 after lagging recovery

15

Boomers benefited from wealth gains and refinancing


Percent of Households Shopped Home Improvement Retailer during Past 4 Weeks

45.3%

34.3%

43.9%49.2%

47.6%45.1%

35.3%43.5%

48.3% 47.9%

45.9%34.9%

43.9% 49.8% 49.0%

All Shoppers Gen Y Gen X Boomers Seniors

2011 2012 2013 YTD

*Read as among all Gen Y shoppers 34.9% shopped home improvement in the past four weeks .Arrow indicates significant increase or decrease in share compared to the prior year at the 95% confidence level

SEGMENT BREAKOUTS


Hardware Stores Capturing Fewer Shoppers

• May partly reflect households moving from maintaining homes toward bigger-ticket discretionary “projects” that benefit home improvement centers.

16

Both Have and Have Nots pulled back in 2013


*Read as among all Have shoppers 15% shopped hardware stores in the past four weeks .Arrow indicates significant increase or decrease in share compared to the prior year at the 95% confidence level

Percent of Households Shopped Hardware Store Retailer during Past 4 Weeks

14.9% 15.1% 14.8%14.9% 15.8% 14.2%

14.2% 15.0% 13.6%

All Shoppers Have Have Not

2011 2012 2013 YTD

SEGMENT BREAKOUTS


Hardware Stores Capturing Fewer Shoppers

• Boomers likely shifted more spending toward home centers

• Gen Y likely shopping less across home centers and hardware stores.

•Benefiting less from wealth gains

•Home buying likely slowing among this segment…for now

17

Gen Y and Boomers pulled back a bit in 2013


Percent of Households Shopped Hardware Store Retailer during Past 4 Weeks

*Read as among all Gen Y shoppers 9.6% shopped home improvement in the past four weeks .Arrow indicates significant increase or decrease in share compared to the prior year at the 95% confidence level

SEGMENT BREAKOUTS

14.9% 11.2% 11.8%16.4%

27.5%

14.9% 12.1% 11.0%16.4%

29.0%14.2% 9.6% 11.6% 15.1%

28.9%

All Shoppers Gen Y Gen X Boomers Seniors

2011 2012 2013 YTD


Holiday Forecast: About Same as Last Year

• Topline growth of 4% will be driven primarily by online sales gains

• Brick and mortar stores will grow a percentage point slower at 3%

• Online will continue its strong pace of growth

18

But about half PPT slower than current Q3 pace

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

CHANNEL BREAKOUTS

Topline: Holiday 2013 Retail Sales Breakdown*Growth Forecast vs. Prior Quarter and Prior Year

4% 3%

16%

5% 4%

17%

4% 3%

16%

Topline retail sales measure**

Brick & mortar stores

Online***

Prior Year Prior Quarter Holiday 2013

* Holiday is measured as fourth quarter: October, November and December**Topline measure excludes auto, fuel, & food service channels; includes auto parts

stores*** Online sales are from quarterly retail e-commerce sales reported by government


Home Improvement Holiday Forecast

• Channel will benefit from improved spending on appliances and home furnishings

• But cautious shoppers may shun add-on purchases

• Growth at home centers dampened by strong year-ago growth fed by Hurricane Sandy

19

Growth at or above all-retailing growth

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

3%4.7%

5.8%4%

8.5%6.5%

3%4.5%

3.0%

All-Retail Brick & mortar stores

Home Improvement Channel ¹

Home Improvement Centers²


Home Improvement Holiday 2013 Retail Sales *Growth Forecast vs. Prior Quarter and Prior year

* Holiday is measured as fourth quarter: October, November and December1 NAICS 4441. Fourth quarter is forecast. Excludes garden supply stores2 Includes home improvement supercenters such as Lowe's, Home Depot and

Menards. Third and fourth quarter are forecast by Kantar Retail


Better Holiday for Big-ticket Categories

• Increased housing turnover pent-up demand and improved financial security will boost appliance spending.

• Pricing cutting has hurt furniture spending growth in 2013, but should benefit from recent home buying.

20

Appliances and furniture on more shoppers’ lists this year

Source: U.S. Bureau of Economic Analysis, Kantar Retail analysis

CATEGORY BREAKOUTS

Big-Ticket Homegoods Categories²Year-to-Year Growth Rates in Household Spending

2 Includes consumer electronics, furniture, and appliances; Holiday is measured as fourth quarter (October, November, and December). Spending in al l channels including online

2.6% 2.8% 3.0%

0.8%

2.9% 3.3%

1.6%

3.5%

3.5% 3.6% 3.5% 3.0%

Big-Ticket Homegoods²

Consumer Electronics

Furniture Appliances



Smaller-ticket Homegoods Will Lead Holiday

• Durable and textile home furnishings are benefiting from growth in home sales and home renovations.

• Weak spending on tools a concern for hardware stores and home improvement centers

21

Home furnishings will outpace most categories

Source: U.S. Bureau of Economic Analysis, Kantar Retail analysis

CATEGORY BREAKOUTS

Small-Ticket Homegoods Categories³Year-to-Year Growth Rates in Household Spending

5.8% 5.5%

7.1%

3.8%

5.6%5.4%4.2%

5.2%

3.0%

7.1%4.5% 4.0% 3.5%

1.8%

6.2%

Small-Ticket Homegoods³

Toys Sporting Equipment

Tools Home Furnishings


3 Includes toys, sporting equipment, tools, and durable/textile home furnishings; Holiday is measured as fourth quarter (October, November, and December). Spending in al l channels including online


Key Macroeconomic Takeaways

22

• A conflicted shopper is responding by moving forward with homegoods and home improvement purchases that were put off in recent years, but is cutting back or holding the line in other areas of their spending.

• Shopper and macro trends are positive for home improvement in the short-run, but may be an ominous sign if government effects or higher inflation have a more permanent affect on shoppers, forcing cuts in homegoods spending.

• Home improvement retailers should outpace most retailers this holiday, especially among higher income and boomer/senior households.

• Hardware stores are lagging due to household shift to bigger-ticket homegoods purchases and some letup in the participation of Gen Y shoppers in the housing market.


Early Holiday 2013:The Major Themes

23


Early Holiday 2013: The Major Themes

• Online promotions kick off the season early

• Retailers broaden assortments to capture dollars in a cutthroat season

• Value continues to be a priority, though not the sole merchandising driver and more focused on budgets

• Festive merchandising and holiday theater are “anti-Amazon” tools

Source: Kantar Retail 24


Retailers Push Holiday Online Ahead of Brick-and-Mortar

Source: Kantar Retail store visits 25

November 1November 1

October 31October 31


Assortment: Dollar Stores Capitalize on Growth in Food, Everyday Essentials in Seasonal Offers


More holiday gifts and food at Family Dollar

More holiday gifts and food at Family Dollar

Dollar General sells more basics, cross-

merchandises food with holiday housewares

Dollar General sells more basics, cross-

merchandises food with holiday housewares


Assortment: Drugstores Branch Out to More Gifts, Bigger-Ticket Holiday Merchandise


CVS merchandises gift packs, small appliances for

holiday

CVS merchandises gift packs, small appliances for

holiday

Walgreens features toys and electronics

gifts prominently

Walgreens features toys and electronics

gifts prominently


Assortment: Gift Sets Stand Out and Pet Gifts Gain Prominence


Meijer encourages shoppers to gift their pets with special

treats; features HBA gift sets

Meijer encourages shoppers to gift their pets with special

treats; features HBA gift sets

Dollar General crosses the box with holiday-themed pet toys

and pet food

Dollar General crosses the box with holiday-themed pet toys

and pet food

Host and hostess gift sets at Target

Host and hostess gift sets at Target


Assortment: In Home Improvement, Selling Holiday Beyond Simply Décor


Home Depot promotes more gift wrap supplies and

suggests gift sets in more housewares categories

Home Depot promotes more gift wrap supplies and

suggests gift sets in more housewares categories

Menards capitalizes on shoppers’ treasure hunt instinct, expands

toy selection

Menards capitalizes on shoppers’ treasure hunt instinct, expands

toy selection


Value: Price Messaging Acknowledges the Need to Save in the Context of a Bigger Budget


At Walmart, good-better-best budget pricing (across

brands) in batteries

At Walmart, good-better-best budget pricing (across

brands) in batteries

Dollar General encourages one-stop gift shopping with

big discounts

Dollar General encourages one-stop gift shopping with

big discounts


Entertainment: Creating Holiday “Theater” to Assert the Store Over Online


At Kroger, “holiday magic” includes advice from in-store

cheese experts for entertaining

At Kroger, “holiday magic” includes advice from in-store

cheese experts for entertaining

“Tree farm” at Lowe’s“Tree farm” at Lowe’s

Eye-catching food displays at Giant Eagle make grocery

shopping more festive

Eye-catching food displays at Giant Eagle make grocery

shopping more festive


Menards’ “Enchanted Forest,” Seasonal Merchandising Maintains the Eventful Experience

Source: Kantar Retail store visit 32


Entertainment: In Home Improvement, Seizing the Educational Opportunity Using Holiday Lights



Implications: Early Holiday 2013

• Retailers’ approaches to the holiday season exemplify the cutthroat battle for share across retail. While some retailers, such as Home Depot and Menards, are broadening their selection to capture more dollars, others—such as the drugstores and dollar stores—are targeting their holiday selections to capture more dollars where they are most likely to succeed during the season.

• Online communication can be an important tool to secure share from Amazon during the holidays… Retailers jumping out to offer early holiday promotions and merchandising online were clearly trying to keep whatever share they could from online retailers, especially Amazon, which makes the hassle of holiday shopping far easier.

• …And so is the store. Displays like the ones Home Depot and Lowe’s feature for Christmas lights are educational tools, and give shoppers a hands-on experience online can’t achieve. The festive experiences that other retailers create are prime examples of the kind of methods retailers must deploy to convert shoppers in the store as well as to make it worth it to hold on to their real estate assets.

What can home improvement retailers and suppliers learn?

Source: Kantar Retail research and analysis 34


In Focus for 2014:Home Depot Leads the Digital Revolution

in Home Improvement

35


How is Home Depot Removing Friction in the Path to Purchase?

36Source: Kantar Retail

Shopping

Connecting Consumers

Brand Awareness

Discovery

Shopping

Connecting Consumers

Brand Awareness

Discovery

Purchasing

Speed to Conversion

Enhancing the Personal

Purchasing

Speed to Conversion

Enhancing the Personal

Fulfillment

Speed to Acquisition

Getting Closer to the Shopper

Fulfillment

Speed to Acquisition

Getting Closer to the Shopper


Home Depot Focuses on Mobile’s Role in the Path to Purchase

Source: Kantar Retail store visit 37


Augmented Reality Offers “Cool” Inspiration—and Ease of Purchase

Source: Home Depot mobile app 39

Spring/summer options include landscaping, patio décor

Spring/summer options include landscaping, patio décor


Home Depot Uses Pro App to Deepen Relationship with Pros

Source: Home Depot Pro mobile App 40

More-convenient pro fulfillment

option not highlighted till the

end of the purchase process

More-convenient pro fulfillment

option not highlighted till the

end of the purchase process

Sparse but necessary

options

Sparse but necessary

options

Capitalize on Pros’ repeat

trips

Capitalize on Pros’ repeat

trips


Meanwhile, Delivery Options at Home Depot Fulfill Wherever the Shopper Wants It

Source: HomeDepot.com 41

Deliver from Store is next on the list

1/3 of online orders through these two functions


Home Depot Cross-Promotes How-To on TV and Online to Drive Purchases

Source: HomeDepot.com 42

Adirondack chair video pairs a HD associate and a DIY blogger

Project How-To is prominent in search


Pinterest Is the New List: Focused on Personalized Planning and Triggers

Source: Kantar Retail store visits, Lowes.com 43

Home Depot brings Pinterest into the store

Home Depot brings Pinterest into the store

Lowe’s still uses Pinterest as a solely online vehicle Lowe’s still uses Pinterest as a solely online vehicle


Implications: Home Depot Is Setting the Digital Standard in Home Improvement

• Focus on multi-channel solutions. The standout innovations across channels are functional not just within the digital universe, but rather remove friction between channels for shoppers, making their shopping experience seamless.

• Mobile campaigns should be distinctive and personalized. Mobile communications should not simply be shortened or miniaturized versions of e-mail or website campaigns. Mobile allows retailers to personalize and target the relationships they have with shoppers.

• Suppliers need to create solutions within the mobile framework. Suppliers should think critically about how they can leverage mobile to drive awareness and engagement with shoppers, understanding their key need states.

• Innovation must be continuous. For example, at this moment, Home Depot’s store mapping features are simply directions around the store. But in the near future, it’s possible the retailer will associate coupons or branded deals with the maps, which would force the store maps further into the category of smoothing the conversion and purchase.

Source: Kantar Retail research and analysis 44


Contact:

Doug HermansonSenior [email protected]

T:+1 614.355.4044www.kantarretailiQ.com

Laura KennedyPrincipal [email protected]

T:+1 617.912.2851www.kantarretailiQ.com

presented by: doug hermanson, senior economist laura kennedy, principal analyst november 15, 2013...

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