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

Presented by:

Erin Kennedy, AnalystLaura Kennedy, Principal AnalystDoug Hermanson, Senior Economist

Home Improvement Webinar

August 15, 2014

Home Improvement WebinarDriving Loyalty as Shoppers Narrow their Focus

© Copyright 2014 Kantar Retail

Copyright © 2014 Kantar Retail. All Rights Reserved.

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Disclaimers

The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion.

This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides.


Agenda

• Macroeconomic Outlook–Forecasts

–Home Improvement Twister: Stretching for the Corners of Household Growth

• Back to Basics: The Shopper Demands Functionality• Closing Considerations: Aligning with Retailers to Create

Loyalty

3


Home Improvement Forecasts

4Z


The 2014 Retail Landscape

5

Home improvement among the leading channels

Recent Trends

• Home Improvement, drugstores, and food services outperforming

• Weak growth in most channels signals modest start to back-to-school

• Shoppers are spending, just not in a broad set of goods categories.

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.

© Copyright 2014 Kantar Retail 6

2014 Home Improvement Sales ForecastHome centers slower, but respectable growth in 2014

• Household demand leads home centers

• A letup in lumber inflation contributes to slower growth

• Some recovery at hardware stores

• Inflation likely boosting paint stores

Home Improvement Sales Growth% Change Yr-to-Yr, Not Seasonally Adjusted

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


This Year: 2014 Future: 2015Past: 2013

Retail Sales: Building Supply Channel

7

Nominal versus inflation-adjusted or unit volume growth

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

Retail Sales Growth RatesNominal Inflation-Adjusted Price Inflation

NAICS Code =4441, Includes home improvement stores, hardware stores, building specialists, and paint supply stores. Excludes lawn and garden stores


Past: 2013 This Year: 2014 Future: 2015

Home Improvement Sales: Channel Breakouts

8

Nominal versus inflation-adjusted or unit volume growth

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

Retail Sales Growth RatesNominal Inflation-Adjusted Price Inflation

NAICS Codes =44411: Home improvement centers (Lowe’s and Home Depot), 44419: Building Specialists, 44413: Hardware stores


Home Improvement Forecast Summary

9

• Household vs. Pro. Households likely leading demand in 2014. Pro customers will lead acceleration in growth among home centers in 2015. More normal weather, low home inventories and sustained job growth will trigger more demand for new homes.

• Home Centers. Slower home sales that took root late in 2013 will have a lagging impact on home center demand in 2014. Appliance and flooring spending seems to be especially affected by the reduced housing turnover. Pro demand and sustained discretionary spending among households will lift home centers in 2015.

• Hardware stores. Hardware stores will manage a modest rebound in 2014, but they will lag home centers as big-ticket discretionary projects remain in favor. This trend is expected to continue in 2015, creating headwinds for hardware store growth.


Home Improvement Twister: Reaching for The Corners of Household Growth

10


• Middle age groups will see little or no growth through 2020

Household Growth as Key Trend

Source: U.S. Census Bureau and Kantar Retail Analysis 11

Growth is polarized toward youngest and oldest households

U.S. Household Growth by Age GroupsCompound Annual Growth Rates, 2012-2020

All Households

Average Household Growth = 1.0%


• Youngest/oldest households will become mostly Have-Nots

• Greatest uncertainty is whether young households will become Haves at stronger rate

Household Growth as Key Trend

Source: U.S. Census Bureau and Kantar Retail Analysis 12

Growth is skewed toward youngest and oldest Have Nots

U.S. Household Growth by Age GroupsCompound Annual Growth Rates, 2012-2020

Have Nots All Households Have households

Average Household Growth = 1.0%

2.0%

??

= Youngest Have Nots

= Youngest Have households

3.8%

1.6%

= Oldest Have Nots

= Oldest Have households

Summary: Household Growth Rates for Key Segments


• Means strongest growth in totals of oldest, youngest Have Not households

• Means “graying” of Have households who stay skewed to middle-age households in peak income years

Impact of Household Growth on Have/Have Nots?

Source: Kantar Retail ShopperScape®, January-December 2013, and Kantar Retail analysis 13

Have Nots further polarize young/old… Graying of Haves

Have vs. Have Not Households in 2020Share of Segment by Age Group, Index to Total Age Group

*Have Nots are households with average income of less than $60,000, representing about 60% of households**Haves are households with average income of $60,000 or higher, representing about 40% of households

18%

32%

32%

18%

26%

21%

25%

28%

/ 79

/ 127

/ 114

/ 76

/ 114

/ 82

/ 91

/ 116

~60% of Households** ~40% of Households*

Share / Index

Share / Index

2.0%

??

3.8% 1.6%


• Core set of factors are important to all shoppers

• But other factors are more important to specific age-income segments

Success Hinges on Key Shopping Factors

Source: Kantar Retail ShopperScape®, January and February 2014, and Kantar Retail analysis 14

Key is to zero in on difference makers for age-income segments

Shopper DNA: Most Important Factors When ShoppingHow age-income segments differ from shared factors of importance

Younger

Older

•Interact with helpful, friendly employees

•Have fun/enjoy myself;•Discover new products or brands

•Spend as little money as possible;

•Do all or most of my shopping

in one place

•Purchase high-quality

productsHavesHave Nots

•Feel like I got a "good deal"

•Have a stress-free a shopping experience

•Complete my shopping as quickly

as possible


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lder

• Average shopper mix is at center axis where:– Have Nots = ~60% of

shoppers; Haves = ~40% of shoppers

– Age 49 & under = ~50% of shoppers; Age 50 & older = ~50% of shoppers

• Read Whole Foods shopper mix as:– Distributed more so

than average mix toward Haves (59%) and Age 49 & younger (62%)

A Have & Have-Not Framework by Age


By mix of young/old and Have/Have Not shoppers by retailer

Retailers' Shopper Mix Relative to Overall Shopper MixFor 2013, Based on Past-Four Week Shoppers

Paych

eck

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Household and Income GrowthWhere green = positive, yellow = mixedPay

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1.6%1.6%3.8%3.8%

2.0%2.0% ????


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lderWalmart, Retailers with Broad Appeal


Face greatest challenge from demographic and income trends


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•Personalization and contextualization capabilities will be key success drivers

•Leveraging loyalty programs could be advantage for Sears

1.6%1.6%3.8%3.8%

2.0%2.0% ????


Differences Between Shoppers and HI Spenders


Have HouseholdsHome Improvement Capture Rate*

Have Not HouseholdsHome Improvement Capture Rate*

Lowe’s and Home Depot have similar capture rates for incomes and ages

Walmart captures a higher share of younger have nots

A small share of Sears shoppers spent the most on home improvement at Sears, but skew toward Haves

Hardware stores capture a higher share of have nots, but similar across age segments

*For example, read as among 18-34 Have households that shopped Walmart the past four weeks 22% spent the most on home improvement at Walmart


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lderSmall-Box Formats Appeal to Young Have Nots


Walmart has current advantage with young, have nots


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•Benefit may go to small boxes that appeal to the fun/ enjoyment important to young shoppers

•Households likely light spenders on home improvement now, but Walmart has greater appeal to young have nots

•Benefit may go to small boxes that appeal to the fun/ enjoyment important to young shoppers

•Households likely light spenders on home improvement now, but Walmart has greater appeal to young have nots 1.6%1.6%3.8%3.8%

2.0%2.0% ????

Location is representative and not exact for past four week Walmart shoppers in 2013 that spend the most on home improvement products at Walmart


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lderOlder Have Nots Mostly an Open Quadrant


…but strongest household growth will be in this segment


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•Aldi may hold lessons of fewer SKUs that make it easier for this format to deliver better service valued by older shoppers

•Hardware stores and Tractor Supply in best position to fit needs of growing segment

•Aldi may hold lessons of fewer SKUs that make it easier for this format to deliver better service valued by older shoppers

•Hardware stores and Tractor Supply in best position to fit needs of growing segment

1.6%1.6%3.8%3.8%

2.0%2.0% ????


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lder

Older Haves: Core Home Center Shopper


Challenged by growth of older Have households


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•Can home centers keep shoppers as less inclined to walk a large store?

•Income prospects of core segment are bright, but changing needs of core shoppers and weak appeal to have nots a future challenge

•Can home centers keep shoppers as less inclined to walk a large store?

•Income prospects of core segment are bright, but changing needs of core shoppers and weak appeal to have nots a future challenge1.6%1.6%3.8%3.8%

2.0%2.0% ????


HavesHave Nots

HavesHave Nots

Youn

ger

Old

er

YoungerO

lder

Online Competition/Opportunity Among Young Haves


Uncertain household growth among question marks


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•Uncertain impact. Outlook clouded by lagging household formation, uncertain job prospects

•Certain impact. Rising incomes and changing behavior will keep leading shift away from traditional retailers—even if household formation lags

•Uncertain impact. Outlook clouded by lagging household formation, uncertain job prospects

•Certain impact. Rising incomes and changing behavior will keep leading shift away from traditional retailers—even if household formation lags

1.6%1.6%3.8%3.8%

2.0%2.0% ????

Location is representative and not exact for past four week Sears shoppers in 2013 that spend the most on home improvement products at Sears


Have/Have Not, Gen Y/Boomer Implications

22

• Older Haves. Home Centers will need to maintain loyalty and appeal of older Have shoppers, while stretching to areas of strongest household growth over the next five years. Digital tools and targeted deals/marketing may be the best strategies for this.

• Older Have Nots. May be best positioned to appeal to older have nots which will have the strongest household growth over the next five years. Customer service, easy to walk stores, value, and perhaps limiting SKU’s are important to capturing this shopper. Lowe’s and Home Depot may need to consider alternative small-box formats or store-within-a-store concepts to appeal to this growing segment.

• Young Have Nots. Walmart is best positioned to capture home improvement spending among the growing number of young have not households. Home centers will need to elevate their value proposition to gain a greater share of this growing household population.

• Young Haves. Wildcard?


Back to Basics: The Shopper Demands Functionality

23


5.8 5.0

Setting the Stage: Shoppers’ Broader Store Set is Shrinking

Source: Kantar Retail ShopperScape®, January-September 2007 and 2013 24

12.4 10.7

Average Number of Retailers in Shoppers’ Portfolio

Blue-Total Retailer PortfolioYellow-Core Retailer Portfolio


FUNCTION EMOTION

TIMEMONEY

Are the Winners and Losers Just Flukes?From a shopper perspective, no.

Source: Kantar Retail analysis 25

$ * F


Who Is the Shopper?Opportunities for unique triggers across cohorts

Source: Kantar Retail ShopperScape®, January-April 2014 26

Relative Importance of Factor, by Generation

Mo

re I

mp

ort

an

tL

es

s I

mp

ort

an

t

© Copyright 2014 Kantar RetailSoure: Kantar Retail ShopperScape®, March 2013-May 2014 27

DIY Shoppers Prioritize Function and Emotion

Mo

re I

mp

ort

an

tL

es

s I

mp

ort

an

t

(among shoppers who have shopped at a home improvement retailer in the past four weeks)

Relative Importance of Factor, DIY Shoppers

Foster loyalty with a functional and stimulating experience


Before the Project: DIY Retailers Can Lure Shoppers

Source: Kantar Retail ShopperScape®, April 2014 28

(among shoppers who started a project in the past six months)

How Shoppers Began to Gather Inspiration for Their Last DIY Project

Note: The above categories were formed by grouping together similar means of inspiration. Blue equal sign indicates no significant difference vs. All Shoppers (90% confidence); Green arrow indicates larger percentage vs. All Shoppers (90% confidence); Red arrow indicates smaller percentage vs. All Shoppers (90% confidence).


Younger Shoppers Are More Likely to Plan to Use Retailer Services


Boomers=52% I will buy the materials and do the work

18% A contractor will buy the materials and do the work

11% I will buy the materials and hire a contractor to do the work

6% I will buy the materials and have the store arrange installation

Gen Y Boomers

Gen Y Boomers

(among shoppers who plan to start a project in the next six months)

How Plan to Approach Their Next Home Improvement Project

Note: Blue equal sign indicates no significant difference vs. All Shoppers; Green arrow indicates larger percentage vs. All Shoppers; Red arrow indicates smaller percentage vs. All Shoppers (90% confidence).

Gen Y


Trip Preparation is TraditionalRetailer websites, digital continues to gain influence

Source: Kantar Retail ShopperScape®, April 2013 and April 2014 30

Top Ten Trip Preparation Methods (2014)

Make a handwritten shopping list 63%

Look at printed store circular/ad for specific retailer(s) I am going to shop

45%

Look at printed store circulars/ads to decide which retailer(s) to shop

41%

Research merchandise online prior to shopping in store

37%

Select paper/printed coupons to take with me on shopping trip

37%

Look online to check availability of specific merchandise in the stores

30%

Search for coupons online 28%

Look at online circular/weekly ad for specific retailer(s) I am going to shop

28%

Look at online circulars/weekly ads to decide which retailer(s) to shop

26%

Access a retailer Web site on a mobile device 14%

Significant Differences Versus 2013

•Research merchandise online prior to shopping in store

•Look online to check availability of specific merchandise in the stores

•Look at online circulars/weekly ads to decide which retailer(s) to shop

•Access a retailer Web site on a mobile device

•Look at Facebook pages to decide which retailer(s) to shop

•Look at Twitter feeds to decide which retailer(s) to shop

Significant Differences Versus 2013

•Research merchandise online prior to shopping in store

•Look online to check availability of specific merchandise in the stores

•Look at online circulars/weekly ads to decide which retailer(s) to shop

•Access a retailer Web site on a mobile device

•Look at Facebook pages to decide which retailer(s) to shop

•Look at Twitter feeds to decide which retailer(s) to shop

Top three methods are

“analog”


Online, Home Depot’s Homepage Focuses on a ProjectLinks shoppers to multiple resources

Source: Retailer website, online circular 31

Home Depot’s circular mirrors its website. This

consistency can help to earn shoppers’ trust.

Home Depot’s circular mirrors its website. This

consistency can help to earn shoppers’ trust.


Lowe’s Also Links Project-Oriented Solutions in Circulars, Email

Source: Retailer circular, retailer email 32

In this Lowe’s circular, everything needed for the project is featured on one page,

and the retailer gives shoppers options at multiple price points.

In this Lowe’s circular, everything needed for the project is featured on one page,

and the retailer gives shoppers options at multiple price points.

An email from Lowe’s provides everything from

inspiration to logistics

An email from Lowe’s provides everything from

inspiration to logistics


During the Trip: Bathroom Renovation Guidance Would Appeal to Younger Shoppers

Source: Kantar Retail store visits 33

Alerts shoppers of installation services

Directs shoppers to Pinterest for inspiration


Communication In-StoreLowe’s Features On-Shelf Education, Home Depot Offers Services


Shelf signage outlines steps to replace screening and explains the differences

between types of screening

Shelf signage outlines steps to replace screening and explains the differences

between types of screening

In the paint department, Home Depot alerts shoppers

of painting services

In the paint department, Home Depot alerts shoppers

of painting services


At the Purchase: Provide Solutions to Keep Shoppers in the Store


Retailer had everything I

needed

I trust the retailer more than others

Better products Better customer service

Other Only retailer available

where I live

Better after-sale support/ warranty

Better delivery/ installation options

“Other” Responses

(among shoppers who completed a project in the past six month and purchased materials from one retailer)

Reason for Purchasing from One Retailer for Last DIY Project


Product Availability Can Drive Shoppers to Another Retailer

Source: Kantar Retail Shopperscape®, April 2014 36

Reason for Purchasing from More than One Retailer for Last DIY Project(among shoppers who completed a project in the past six months and purchased materials from multiple retailers)


At the Purchase: Large DIY Retailers Lead Conversion, But Struggle With Big-Ticket Purchases

Source: Kantar Retail Shopperscape®, April 2014 37

Retailer Conversion Rates

The Home Depot (Total) 75%

The Home Depot store 75%

The Home Depot website 31%

Lowe's (Total) 71%

Lowe's store 71%

Lowe's website 27%

Lawn and garden retailer 66%

Hardware store (e.g., Ace, True Value, etc.) 62%

Paint retailer (e.g., Sherwin-Williams) 58%

Menard's (Total) 56%

Menard's store 56%

Menard's website 33%

Carpet/flooring retailer 55%

Lumberyard 48%

Specialty home improvement retailer (e.g., kitchen and bath)

47%

Large Home Improvement Retailers’ Likelihood of Conversion, Based on

Project Type

•Painting exterior of home •Minor landscaping (planting flowers,

fertilizing lawn, etc.)

•Renovating kitchen or bathroom •Installing new ceiling fan or lights•Installing new carpet, tile, or hardwood

floors

Large Home Improvement Retailers’ Likelihood of Conversion, Based on

Project Type

•Painting exterior of home •Minor landscaping (planting flowers,

fertilizing lawn, etc.)

•Renovating kitchen or bathroom •Installing new ceiling fan or lights•Installing new carpet, tile, or hardwood

floors


Lowe’s Simplifies Shopping for a Paint Project by Providing Solutions and Guidance In Store

Source: Kantar Retail store visits and analysis 38

Color coding simplifies on-shelf navigation

Color coding simplifies on-shelf navigation

Solution end caps removes friction along the path to purchase

Solution end caps removes friction along the path to purchase

Appeals to the busy Gen X shopper

Appeals to the busy Gen X shopper


Offering Solutions Across Budgets Can Convert More Shoppers


$ $$$$


Displays Allowing Shoppers to Experience the Product Can Educate and Build Trust


The ability to experience the product gives the shopper confidence that she is purchasing the correct product for her needs. It also suggests

transparency on the part of the retailer/supplier, which can help to build trust.

The ability to experience the product gives the shopper confidence that she is purchasing the correct product for her needs. It also suggests

transparency on the part of the retailer/supplier, which can help to build trust.


Branded Educational Signage in Big Ticket Categories Could Help With Conversion

Source: Kantar Retail Store Visits 41


Bathroom Vignettes: Solution End Caps of the Future?

Source: Kantar Retail store visit 42

Bathroom pods feature coordinating products and accessories of different styles to inspire shoppers and potentially build baskets. Bathroom pods feature coordinating products and accessories of different styles to inspire shoppers and potentially build baskets.


After the Project: Online Activity Presents an Opportunity to Engage Younger Shoppers


Percentage for All Shoppers in Parentheses

(12%)

(25%)

(63%)

What Shoppers Did After Completing Their Last DIY Project(among shoppers who completed a home improvement project in the past six month and

purchased materials from one retailer)


Showcasing Shoppers’ Projects Can Create Emotional Connections

Source: Company social media pages 44


Closing Considerations

• Offer cross-merchandised solutions.

• Make sure to articulate value.

Aligning with retailers to create loyalty

Source: Kantar Retail research and analysis 45

Providing a highly functional experience should be top priority.

Once functionality is established, work to engage shoppers.

Leverage online platforms to remove the friction along the path to purchase.

• Suppliers need to help large retailers convert shoppers completing big ticket projects.

• Engage the shopper with your brand and educate her on the merits of your product at the shelf.

• Help retailers simplify websites to make them more useful.

• Tailor your presence on social media sites to the different functions they serve.


Contact:

Laura KennedyPrincipal Analyst [email protected]

+1 617 912 2851www.kantarretailiQ.com

Erin [email protected]

T:+1 617 912 2849www.kantarretailiQ.com

Doug HermansonSenior [email protected]

T:+614.355.4044www.kantarretailiQ.com

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

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