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Industry corner: DIY home products: a global perspective.

The DIY (do-it-yourself) home products industry encompasses products purchased by consumers in retail outlets (or, in some cases, directly from the manufacturer) in order to maintain, repair, alter, add on to, or replace any part of a residential structure. As "DIY" suggests, consumers buy for self-installation, not contractor installation. Outlays for DIY home products are a subset of overall expenditures for residential repairs and improvements. DIY activity in new residential construction is very limited. Few people build their own homes.

The DIY industry can encompass a very broad array of products. This discussion addresses the product categories that require or are used in installation. We will discuss hardware and tools (i.e., builders' hardware, fasteners, nails, power tools and hand tools), paints, coatings and sealants, building materials (i.e., lumber, wood panels, gypsum, etc.), kitchen and bath products (i.e., plumbing fixtures and fittings, cabinets, vanities and pipe), windows and doors, roofing, siding and insulation, flooring (both hard surface flooring and carpeting), heating and cooling equipment, electrical devices and various miscellaneous products. We will not address related products that are not permanently attached or firmly affixed to some part of the house or property and which do not require any special effort to install. Examples are furniture, rugs, most appliances, light bulbs, room air conditioners, curtains and draperies, etc.

The DIY market is highly dependent on factors correlated with the expansion and financial stability of the aggregate housing environment, including both new and existing homes. Among the factors are residential construction outlays, trends in mortgage interest rates, availability of financing, household formations, demographic and employment factors, and consumer income and spending patterns. Another prominent indicator is fluctuations in labor and material costs. All of these indicators in turn affect building repair and refurbishment patterns (i.e., whether consumer outlays are geared toward maintenance and repairs, additions and/or replacements). They also help dictate not only the homeowners' ability and propensity to invest in the repair and/or refurbishment of their homes, but also his/her need to do the work without the aid of professional contractors.

The share of residential repair and improvement expenditures devoted to DIY projects also varies - often substantially - by type of residence. Factors affecting housing and household formation by market (i.e., single-family, multifamily and manufactured housing) are also significant determinants of DIY demand. Other, less tangible, variables affecting the size of the DIY market are consumer preferences for activities, availability of leisure time, and trends in product design (e.g., preassembled components) and availability.

MARKET SIZE AND OUTLOOK

The DIY home products market is inherently difficult to quantify. There is no standard definition of all products included in the industry. Moreover, the actual sale of a product to the DIY end user is rarely differentiated explicitly on a transaction basis from sales to contractors. In order to estimate market size and outlook, therefore, we have chosen to look at manufacturers' total sales of individual product groups included in the DIY home products industry. Then we estimate the percentage of these products going to residential replacement, i.e., repairs and improvements. Finally we estimate the percentage of residential replacement that is accounted for by DIY consumer demand.

Another approach is to use sales of products by retail home centers, hardware stores and related outlets. Unfortunately, such retailers carry a huge array of products that are not necessarily indicative of actual trends in DIY building activity. In addition, it is not clear what percentage of these retailers' sales are to DIY consumers. They also sell substantial volumes to professionals like building contractors and maintenance crews.

Demand for DIY home products is projected to increase 5.6 percent annually through the year 2000 to $16.4 billion. (See Table 1.) In spite of the favorable outlook described below, the rate of growth in market volume for DIY home products will show little improvement over recession-impacted 1989-95 performance. This sluggishness reflects many consumers' efforts to pay down debts and to forego many larger home improvement projects in favor of strengthening savings. In addition, the expected decline in the number of individuals under the age of 35 may also dampen market growth, because DIY project activity tends to drop slightly after age 35.

Gains will be attributable to overall acceleration in home improvement spending. The drivers will include an aging housing stock (about two-thirds of all homes are already over twenty years old), rising disposable incomes, and increased efforts by homeowners to maximize the value of their dwellings through home repair and refurbishment. A favorable environment for existing home sales, a gradual increase in the average size of residential structures, and the continued expansion of home centers and related retail outlets targeting the residential aftermarket will also stimulate gains.

An increased share of the heightened expenditures for home repair and improvement is expected to flow to the DIY market, in part because of rising costs of on-site, contractor labor. This will support the growth in the DIY sector. Another boost will be an increase in the number of homeowners with the knowledge and desire to undertake a wide range of home improvement projects without the aid of professional help. In addition, increased efforts by manufacturers to develop products specifically designed for the do-it-yourself consumer (e.g., simplified installation requirements, lighter weights, preassembled components) will foster gains.
Table 1

DIY Home Product Sales By Type
(in millions of dollars)

 1985 1989 1995 2000 2005

Res. Repair/Imprvmt. (bil$) 78.6 96.0 118.3 149.2 188.4
%DIY 88.2 94.7 105.5 109.9 112.8
DIY Home Product Sales 6936 9090 12484 16400 21250
Hardware & Tools 2130 2686 3388 4185 5080
Paints, Coatings & Sealants 1010 1288 1978 2460 2980
Building Materials 616 864 1443 1990 2660
Plumbing & Kit./Bath Prods. 721 997 1299 1750 2340
Windows & Doors 604 909 1260 1780 2470
RSI Products 594 741 968 1295 1720
Flooring 286 338 478 670 930
HVAC Equipment 212 294 418 620 910
Electrical Devices 72 107 137 190 260
Other 691 866 1115 1460 1900


While virtually all DIY product segments will benefit from these trends, windows and doors, building materials, flooring, and heating and cooling equipment will exhibit the strongest gains through the remainder of the decade. Newer product designs within these segments generally offer the most dramatic performance improvements over previous types.

INDUSTRY STRUCTURE AND DYNAMICS

Overall participation in the DIY home products industry is vast. Upwards of 9,000 firms compete. The industry's ability to support such broad participation reflects not only the vast range of products and materials, but also the relatively low technological and production-related barriers to entry in most sectors. The substantial opportunities that have traditionally existed to develop profitable niche markets along product, market and geographic bases also have contributed to the large number of participants.

In spite of this considerable diversity among the participants in the overall DIY home products market, two major categories can be identified. The first is manufacturers of building materials (e.g., roofing, siding, windows and doors). The second is producers of durable goods (e. g., plumbing fixtures and fittings, paint, carpeting, heating and cooling equipment). Nevertheless, caution must be used in applying even these terms because of the degree of overlap that exists.

Building Materials Sector

Building products manufacturers are predominantly large, integrated forest products companies that have diversified into production of wood and related building materials. The economies of scale that can be achieved by these firms, along with expertise in production processing technologies, allow a few firms to achieve significant market share. Similarities in the production techniques for the various building materials (e.g., siding, wood panels, lumber, windows and doors) also contribute to the dominance of these companies in the majority of product applications. Further, vertical integration allows these firms at least partially to offset fluctuations in raw materials prices, distribution costs and related variables. This creates a significant competitive advantage over companies that procure their materials requirements from suppliers. In spite of these factors, however, a significant number of producers of DIY home products classified as building materials are not vertically integrated. The majority of them tend to specialize in production of higher value-added products such as cabinetry, windows, decks, fencing, etc.

Durable Goods Sector

Manufacturers in the durable goods sector tend to differ significantly from the building materials firms. Most companies in this sector tend to participate along product rather than material lines, reflecting the fact that most of the DIY home products classified as durable goods do not have material or production similarities with other market sectors. For example, manufacturers of paints and coatings do not have similarities with producers of carpeting, plumbing fixtures, heating and cooling equipment. Although durable goods firms are gradually becoming more diversified, most continue to focus on their product market strengths. Sherwin-Williams, for example, the leading manufacturer of paint and coating for the DIY market, recently strengthened its position via the acquisition of Pratt & Lambert United, one of the top ten manufacturers of architectural coatings.

COMPETITIVE DYNAMICS

Because the DIY home products industry is so large and diverse, no single company dominates from a manufacturing point of view. There are several large companies that operate in multiple areas. They include American Standard, Black & Decker, Georgia-Pacific, Louisiana-Pacific, Masco, Owens Corning, Saint-Gobain and Stanley. (See Table 2.) However, most individual product areas have completely unique groups of competitors.
Table 2

Industry Leaders in Selected DIY Product Segments

Plumbing Products American Brands
 American Standard
 Masco

Hardware & Tools Black & Decker
 Robert Bosch
 Danaher
 Stanley Works

Roofing, Siding & Insulation Owens Corning
 Saint-Gobain

Paints & Coatings Sherwin-Williams
 Imperial Chemical
 Industries

Building Materials Georgia-Pacific
 Louisiana-Pacific
 Universal Forest
 Products


Most of the largest firms in the DIY industry do not focus only on DIY. Instead, they are the leaders of individual product sectors, such as insulation or paints and coating, which just happen to have a large DIY-oriented sales base. Another group, manufacturers of tools and hardware (e.g., Danaher, Stanley Works), are included among the largest producers of DIY products based on the proportion of their sales accounted for by consumers. The inclusion does not recognize, however, the fact that the products purchased (such as a hammer or screwdriver) are not always utilized specifically for DIY-based projects. In short, few if any firms become leaders in any one DIY product market without being at least equally dominant in production of that given product to all markets, including sales to professional contractors for new and replacement applications in both the residential and nonresidential building sectors. Owens Corning, for example, which is the largest manufacturer of roofing products, is also the largest supplier of roofing to the DIY market.

DISTRIBUTION CHANNEL DYNAMICS

Distribution channels are critical to success for DIY product producers. The consumer-level end user is dispersed, and many products are very expensive to ship and difficult for the consumer to transport. Manufacturers, therefore, must use the full array of retail outlets to offer convenience to the DIY customer. The DIY sector of retailing has participated profoundly in the boom-bust-rationalization cycle that has been very widespread in retailing of the 1990s. DIY "category killers" offering very broad selections, location convenience, and low prices spread rapidly across the United States in the first half of the 1990s. The powerful shakeout that followed set the stage for a number of closings and mergers in recent years.

For the DIY manufacturer, the retail cycle presents continuously shifting power structures in the channels. Rationalization is likely to create stronger, more sophisticated retailers in the coming few years. That, coupled with the power that information technology offers retailers in market forecasting and business planning, may mean pressures on manufacturers' DIY business margins.

GLOBAL OUTLOOK

While the United States will remain the largest market for DIY home products, opportunities for growth in numerous foreign markets will exceed those of the United States. For example, as living standards continue to rise throughout much of Latin America, Europe, and Asia, worldwide demand for DIY home products will accelerate significantly in conjunction with rising housing development activity. In addition to creating market penetration opportunities for U.S. producers of DIY products, worldwide growth for the DIY industry will propel global market expansion opportunities for U.S.-based retailers as well. The Home Depot, for example, the largest home center chain in the United States, opened five new stores in Canada in 1996 and expects to have fifty stores operating throughout the country by 1998.

Other indications of global market expansion for the DIY home products industry include strong sales gains for many of the leading international DIY retailers, combined with plans by many of these establishments to build a larger number of stores as well as to expand their existing facilities. Hornbach, for example, the largest DIY retailer in Germany, planned to have ten new outlets opened by the end of 1996. Similarly, Greece-based Goetzen Hellas increased its sales by 500 percent between 1994 and 1995. As global markets grow and mature, distribution dynamics similar to those experienced in the U.S. market can be expected. Already in the United Kingdom, for example, the retail cycle is moving into the rationalization stage.

Based on these trends, worldwide demand for DIY home products is expected to expand 10-15 percent annually through the remainder of the decade. The growth, as in the United States will follow trends in income, type of housing and level of home ownership. Markets that enjoy higher GDP per capita and relatively high levels of home ownership will offer the earliest opportunities.

Darrin M. Brogan is Research Analyst at The Freedonia Group, Cleveland, OH. Stanton G. Cort is Associate Professor and Head of the Marketing Division at The Weatherhead School of Management, Case Western Reserve University, Cleveland, OH.
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Title Annotation:do-it-yourself
Author:Brogan, Darrin M.; Cort, Stanton G.
Publication:Business Economics
Date:Jan 1, 1997
Words:2289
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