In partnership with the North American Hardware and Paint Association (NHPA), The Farnsworth Group surveys independent retailers in the home improvement industry each quarter to understand the business challenges and outlook for the independent retailer distribution channel.
This quarterly report is The Independent Retailer Index research. The Index tracks quarterly and year-over-year changes in various business areas including:
- Total sales
- Transaction count
- Inventory investment
- Cost of goods
- Gross profit margins
- Future expectations
- Investment plans: inventory, staff, property, plant and equipment
Independent Retailer Stats from Q4 2022
17% of retailers said, in Q4, that their transaction size decreased YoY compared to Q3. Comparatively, in Q3, no retailers remarked on a YoY decrease in transaction size. While retailers noted a decrease in transaction size in Q4 2022, compared to 2021, the average change was still a positive increase in total transaction size (+2.3%).
This discrepancy could be due to a decrease in unit sales informing an understanding of smaller transaction sizes while increased unit prices due to inflation are skewing the revenue averages.
Further, the number of retailers saying the cost of goods increased Q4-21 to Q4-22 is slightly down from Q3-21 to Q3-22, however the average increase is slightly higher in Q4.
These trends combined suggest that manufacturers have been appropriately adjusting their pricing strategies to cater to increasingly price sensitive consumers and Pros. In Q4 of 2022 the vast majority of retailers surveyed (67%) attributed about a quarter of the change to changing market impacts from inflation.
Total sales is currently an area of concern for independent retailers in the home improvement industry. According to findings from the index, two times as many retailers are seeing the gap in YoY sales declines widening; the number of retailers reporting a decrease in sales doubled from 16% in Q3 to 32% reporting decreases in total sales YoY in Q4. Overall, the Q4 average change in total sales is a positive 3.2%, however this is trending down from 6.3% in Q3.
Transaction size is an area of risk that independent retailers are monitoring. While still positive, as of Q4 2022, transaction size is down from Q3’s 8.5% YoY average increase."
Transaction count shows indications of improvement. Compared to Q3 of 2022, where transaction counts averaged a -2% YoY decrease, Q4 of 2022 index results show that this is trending in the right direction; the average percent change held steady.
Inventory investments are another area where independent retailers are being watchful. In Q4 of 2022, 40% of retailers said their inventory investment stayed the same YoY, but the average increase was still very positive.
Cost of Goods
COGS for independent home improvement retailers remains a primary area of concern, with a high YoY average increase reported by respondents in the Q4 2022 Index as well.
While COGS is of concern, profit margins for independent retailers are not showing any majorly troubling signs. The majority of retailers have seen no change in profit margins, however this is trending up compared to the 3rd quarter where 38% were seeing a decrease at a -3% average decrease.
Independent Retailer Sentiments When Looking Ahead to Q1 of 2023
Anticipated performance for Q1 of 2023 is mixed. Many retailers are expecting their cost of goods and gross profit margins to stay the same. This implies that retailers are bracing for another year of market challenges as manufacturers introduce different priced product lines back to the market to keep demand for starting new home improvement projects high.
The sentiments of independent retailers largely follow the sentiments that big box store behemoths Lowe’s and Home Depot are reporting.
Big Box Store Sentiments for 2023
Home Depot's 2023 Home Improvement Retail Forecast
On February 21, 2023, The Home Depot announced their Q4 and Fiscal 2022 results, as well as their guidance on 2023.
In their report on Q4 of 2022 compared to Q1 of 2021, they stated that, "Comparable sales for the fourth quarter of fiscal 2022 decreased 0.3 percent, and comparable sales in the U.S. decreased 0.3 percent."
As pertains to their anticipated earnings in 2023, Home Depot expects sales growth to be flat.
Lowe's 2023 Home Improvement Retail Forecast
On March 1, 2023, Lowe's announced their Q4 earnings results and their investor guidance on 2023.
In their report, U.S. sales in Q4 2022 were down 0.7% compared to Q4 2021 sales.
Lowe's executive anticipate comparable sales in 2023 to decrease by 2% or remain flat.
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