The UK DIY & gardening market will return to growth in 2007 after two years of falling sales, predicts a new report new report published this week by retail analysts Verdict Research.
However it notes the recovery will be fragile. Verdict says that rather than being driven by an upturn in underlying demand for home improvement products, the recovery reflects higher inflation and substantial investment by retailers to stimulate the market themselves.
After two successive years of decline, the UK DIY & gardening market is set to return to growth in 2007. Verdict Research estimates the market will increase by 3.1% to £16.6bn during 2007 compared with falls of 3.2% in 2005 and 0.2% in 2006.
Despite the recovery, Verdict expects the UK DIY & gardening to remain one of the weakest sectors in UK retail with only music & video and furniture & floorcoverings faring worse.
lead retail analyst Nick Gladding, said, “Even with this year’s upturn in sales, the UK DIY and gardening market will still be worth less than in 2004.”
“And while demand was strong through the first half of the year, helped by a buoyant housing market and warm April weather, more recently the combination of a disappointing summer and the succession of interest rate rises slowed sales once more.”
A key reason for the upturn in growth has been a pick up in inflation. As worldwide demand for commodities has increased and stretched supply, prices have risen steeply. This demand comes primarily from developing countries such as India and China and is impacting prices of sand, timber and other raw materials.
Furthermore, higher energy costs have pushed up manufacturing costs, and these price rises are being passed on to consumers. Verdict expects that in 2007, the sector will experience its highest inflation rate for 10 years - at 2.6%. Stripping out inflation, volumes will be just 0.5% higher than 2006, which while a vast improvement on the last two years, also illustrates the continuing weakness of underlying demand.
The sector is unlikely ever to return to the boom days it once enjoyed. Around the turn of the millennium the sector received unprecedented media coverage, making double-digit growth rates the norm for retailers. But now media coverage has greatly diminished and the leading DIY operators are no longer opening as much selling space as they did previously.
“Right sizing stores, refining the product mix and improving the customer experience have replaced the old emphasis on physical expansion. More than ever it is up to DIY retailers to stimulate market growth themselves,” says Gladding.
Building fashion and design credentials is one way to do this, advises Verdict. While Homebase has been working towards this for quite some time, B&Q is also now raising its design and fashion credentials. Regular range reviews are crucial in ensuring that home decoration products remain up-to-date and on trend, which is something DIY retailers have to learn quickly.
Introducing distinctive sub brands is another way to reinforce design credentials
B&Q for example is currently re-launching and rolling out its Colours own brand across a spectrum of home decoration goods with fashion and design as the brand’s core.
Focus, the third largest DIY specialist, is also likely to put new emphasis on fashionability in its ranges in 2008 following its recent purchase by US hedge fund Cerberus and subsequent change of management.
Providing customers with improved service is another key area of focus. When opening stores was retailer’ main priority, enhancing customer service received less attention but many retailers now place service improvements at the heart of their strategy. More recently leading specialists have invested heavily in these areas and will continue to do so going forward.
Other ways in which some DIY retailers are improving customer service include providing better in-store product information, tool hire services, take away guides/manuals and even in-store workshops.
According to Verdict Research, not only does an improved service proposition help specialist retailers differentiate from competitors, it neutralises the threat from non-specialists and particularly from grocers.
But product and service improvements must also be reflected in store ambience. Verdict argues that all DIY retailers with aspirations to develop a destination format at the softer end of the sector must ensure their stores are easy to shop, navigable and above all deliver customers with a pleasurable and rewarding experience, something that big box DIY sheds of old did not do.
Check out 12ahead, our brand new platform
covering the latest in cutting-edge digital marketing and creative technology from around the globe.
12ahead identifies emerging trends and helps
you to understand how they can apply to modern-day companies.
We believe 12ahead can put you and your
business 12 months ahead of the competition. Sign up for a free trial today.