Friday, January 16, 2009

Still Spending to Protect the Investment in our Homes

Last year, we talked with thousands of homeowners about a wide range of topics including food and eating at home vs. away from home, shoes and clothing, and home improvement and home maintenance. Our research through Q4 highlighted showed that: DIY is booming, pretense and conspicuous consumption are out, coupons are back, and at least in some categories, people believe they’re spending smarter, not spending less.

I thought it would be interesting, and possibly instructive, to share what we heard about these themes in each category, so I wrote a 3-part story. Part 1 was about food. Part 2 was about clothing. This last installment is on shelter.

In December, we talked to 50 homeowners in the Midwest about their home care habits and purchases in 2008. They told us they're still investing in their homes, and are focusing on expenses that add to their home's value. As a result, it was not surprising to us that home furnishings got slammed last year. Seems that people don't see furniture or decor as increasing the value of their homes. Stores like Pier 1, Restoration Hardware, and Pottery Barn, and others focused on the decor side of homes were all losers in 2008. Pier 1's Q4 comps were down 18%...and their quarter ended before December!

Although they weren't spending it on home furnishings, most homeowners felt their spending on home improvement and home maintenance since June had not changed. While they are definitely deferring some projects, they are also doing more themselves. That means more novice DIY’ers are doing projects around the house, which translates to greater demand for advice and reassurance. These are two things Home Depot is not known for.

This trend may explain the greater losses at Home Depot vs. Lowe’s. At Home Depot, 2008 profits dropped 38 percent compared to a 15 percent decline Lowe's through the first three quarters of 2008. It may also explain why independents and co-ops like Ace Hardware, where helpful advice is their point of difference, saw much smaller declines than the big box stores.

Homeowners also said they’re comparison shopping and relying on coupons more than ever. Home improvement and home maintenance stores that don’t do coupons or that neglect the web do so at their peril.

The skills and habits consumers develop during these hard times may last a lifetime. So, as this recession enters Year 2, it looks like retailers that get the DIY market in their category will make out better than the rest – while the recession is still with us, and after it has passed.

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