The future of home improvement; A European overview

​A couple of weeks ago, I have written an article on the key trends in the European construction industry which will have a big effect on the future of this sector. I would now like to share with you my views on the European home improvement market. There are many important trends in this market, however I would like to focus on 3 of them which I find the most important and interesting.

A couple of weeks ago, I have written an article on the key trends in the European construction industry which will have a big effect on the future of this sector. I would now like to share with you my views on the European home improvement market. There are many important trends in this market, however I would like to focus on 3 of them which I find the most important and interesting.

Market outlook

I would expect the European home improvement market to grow gradually with about 2 to 3% per year until 2020. We’re talking about the home improvement market, so this includes DIFM (and not only sales via DIY stores). When looking at the most recent sales figures of 2017 from European DIY chains we see that they are growing as well (i.e Hagebaumarkt 2.9% growth, Byggmax 2% growth, Kingfisher 1,7% growth etc). Of course, this doesn’t necessarily means that the market is growing, but it’s a strong indicator.

Key drivers for this growth are an increase in disposable income and the fact that a lot of home owners decide not to invest in their homes during the crisis. We now see that they are willing to invest again and delayed home improvement jobs are being carried out. Furthermore, during the crisis the housing market slowed down considerably (in some countries like the Netherlands even dramatically). This market has picked up momentum again and more houses being sold means more home improvement jobs.

A total value of the European home improvement market is hard to provide. However, the worldwide home improvement market has an estimated turnover of 590 billion Euro’s. The share of the European market would be an approximate 30% of the total estimated turnover.

When looking at the purchase channels used, the largest share of DIY products are being sold via the DIY chains (45,6%). Online is growing, but is (on a European level, all product groups) still below 10%. It seems that speciality stores and the building merchants are becoming less popular. The share of purchased by professional increased slightly.

Online

Overall, the home improvement market is much more dynamic than it’s professional counterpart, the construction industry. The traditional key players (big DIY chains) have been forced to adapt new strategies and revaluate their business strategy. E-commerce has had a huge impact on the market. If we look at the share of online purchases of home improvement products, it’s about 7 percent of the total purchases (see image above). The 8 percent represents all purchases in all product categories. When looking at specific product groups, the differences are huge. For example, the percentage of garden tools bought online is already above 20%, but the share of online purchases of paint is just 4%. I would expect, long term, an overall share of online DIY purchases of around 20%.

One of the key contenders is of course Amazon. Although only active in some European countries, their impact is massive. A good example would be the German market. Amazon has been active for quite some time in Germany. It’s effect can be seen in the share of online purchases, it’s the second highest in Europe with on average 11,7% online purchases. Only the UK tops this with 14,1%. To put this in perspective, in Belgium and France this is between 3-4%.

When asking consumers where they bought their DIY products online, 64% indicated that they bought their products at a generalist online store (read Amazon) and only 26% mentioned a DIY store. Again, this has to do with the fact that Amazon has been active in the German market for a long time and the DIY chains themselves were slow to adopt a good online strategy. In the Netherlands for example, it’s the other way around (19% generalist vs 64% DIY).

So what will happen? Will Amazon continue to grow and spread to more European countries? I think the answer will be yes on both accounts. The CEO of one of the leading DIY chains in Germany, OBI, said it himself during the global DIY summit last year: Amazon will be the market leader in DIY products in Germany in the coming 1-2 years. We have lost and cannot beat them.

DIY vs DIFM

A trend I expect on the mid to long term will be the shift from DIY towards DIFM (do-it-for-me). Currently, about 70% of all home improvement jobs are DIY jobs. The remaining 30% are DIFM jobs. Obviously, this differs greatly per product category. For example the share of DIFM jobs is much higher in product categories like roof windows (60% DIFM on average) then with paint jobs (75% DIY on average).

So why do we expect DIFM will grow? First of all, the aging population in Europe will reach a point were a large share of the consumers will become to old to continue preforming DIY jobs. The baby boomers (born between 1945 and 1965) is the largest group and is also more DIY savvy then for example Generation Y (also known as Millennials, born between 1980 and 2000). They will start to outsource the work, which will lead to more DIFM (and another trend I will address shortly). On the other end of the spectrum the generation Y is less DIY savvy and prefer to outsource the work more.

There are some trends that could dampen the shift towards DIFM. One of them is the increasing cost of labor. Due to the favorable market conditions, professionals have more work this leads to higher labor costs. It might reach a point where the incentive to do the job yourselves becomes high enough to convince the younger generations to pick up DIY. Furthermore, we also foresee that the trend towards DIFM will not be short term, because on sort term the baby boomers are fit enough to do DIY jobs and they will have more time to do so.

Some manufacturers of building materials are also looking to capitalize on the trend towards DIFM. A good example is a recent step PPG made in the Netherlands. Via their website https://www.sigmapaintr.nl/ consumers can arrange their entire paint job (inspiration, choice of paint and labor). PPG, or in this case it’s Dutch brand Sigma will arrange the rest.

So what will the consequences be if we see more DIFM jobs? First of all, it will be a question of who buys the products and decides on the brands. I would expect that more and more consumers will buy the products themselves and just hire a professional to just deliver the labor. We already measure this and if we look at a product category like paint in Belgium, we see that around 80% are DIY jobs and 20% DIFM. However, the share of the jobs where the products (in this case paint) were bought by the professionals isn’t 20% but 11.9%. The remainder is bought by the consumer. That being said, if the share of DIFM will increase, then DIY chains will notice this. Professionals will most likely buy their products at the building materials wholesale and not at the DIY stores (even though the DIY stores are doing their best to attract more professionals to their stores). 

Multi skillers

As explained above, an increase in DIFM is expected. However, we clearly see labor costs of professionals rising and their total population decreasing. Working in construction suffers from a bad image in Europe. This in turn has led to a strong increase of ‘multi skillers’ in the market. This group consist of companies (mostly below 3 employees) not specializing in a certain job, but conducting all types of home improvement job. Another large group within these multi skillers consists of semi-professionals or even illegal workers from Eastern Europe. 

It’s expected that the majority of this group is buying their products at DIY stores and not at the building merchants. DIY retailers are actively trying to accommodate these ‘white van guys’ with the traditional cup of coffee, but in some cases also with earlier opening hours and payments on account. Furthermore, DIY stores offer more professional brands then ever before. For manufacturers of building materials, it will become important to target this group as well as at the moment there is little information available on this group.

Changing retail concepts

With the pressure from online players like Amazon and the increase of the number of purchase channels in general, the DIY chains have been under a lot of pressure to improve their strategy. How can you ensure that your stores stay relevant if an increasing share of the consumers is buying their products online? There are various interesting developments in the market. The most logical step, which most retailers already made, is moving from retail to e-tail. Having a good and solid e-commerce strategy is of course vital. However some retailers have moved beyond this and help you with your online shopping. If you specify the job on their website, you get a detailed shopping list.

Some DIY chains are changing the function of their stores from a more warehouse orientated store towards an experience center. I visit DIY stores frequently (occupational hazard) and I have visited some that are becoming to resemble more an Ikea then a DIY store. No more endless rows of products, but mock-up rooms with information on which products are used.

Furthermore, there are more and more retailers who are also offering to provide the labor. You can buy your products in the store and they offer to provide the labor needed via preferred partner. This makes them a supplier of solutions and not just products. Recently Amazon started to provide this service in the US as well, but it will probably take more time to create the network needed in Europe.

As said, these are the three trends I find most interesting, but there are many more. The reason I have chosen these three is because they tie into each other quite nicely. In case of any questions or remarks feel free to contact me at Hoogenboom@usp-mc.nl

<p>Learn more?<br>Please contact Reinier Zuydgeest</p>

Learn more?
Please contact Reinier Zuydgeest
or Dirk Hoogenboom

zuydgeest@usp-mc.nl
+31 6 26 93 61 09LinkedIn

hoogenboom@usp-mc.nl
+31 6 52 09 89 24LinkedIn

<p>Learn more?<br>Please contact Dirk Hoogenboom</p>

Learn more?
Please contact Reinier Zuydgeest

zuydgeest@usp-mc.nl
+31 6 26 93 61 09LinkedIn

<p>Learn more?<br>Please contact Reinier Zuydgeest</p>

Learn more?
Please contact Dirk Hoogenboom

hoogenboom@usp-mc.nl
+31 6 52 09 89 24LinkedIn

<p>Learn more?<br>Please contact Dirk Hoogenboom</p>
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