Housing slump puts DIY stores at risk

By Errol Kiong

Plummeting house prices could see the home improvement havens for the DIY enthusiast become the next big casualty in the retailing sector's continuing slump, says one expert.

George Svinos, KPMG's head of retail Asia Pacific, said DIY retailers were in danger of a big drop in sales should real estate prices continue to slide.

"The DIY market in the US has copped a battering which should be of concern. I think that's really been driven by the massive deflation in house prices; people's inclination to improve their homes somewhat dissipates if they have the impression that it's worth less than what they owe on it.

"It depends on what happens to property prices. If property prices maintain themselves, then it may be okay. But you'd have to say that they're at risk.

"Certainly if you follow the US, that was the progression. It started in motor vehicles, and then moved into household goods and it's now moved into do-it-yourself. All major retailers over there are reviewing their operations."

Retail analyst Tim Morris, of Coriolis Research, agreed to an extent.

"It will be a sector hurt more than others but it doesn't leap out at me as one that would deserve any kind of special treatment."

Figures from Statistics New Zealand show DIY spend has been tracking down with the retail sector. Sales were up 5.4 per cent in January on the same month last year, but the trend has reversed dramatically. The latest figures, for July, show a 6.1 per cent drop-off from a year earlier.

The figures exclude floor coverings such as carpets, which together with furniture sales, fell 14.5 per cent in July.

Morris said the big box DIY stores, which rely more heavily on bulk sales to tradespeople and commercial operators, could feel the pinch more than the small neighbourhood stores for the home handyman.

Svinos said that unlike the last retailing slump between 1997 and 1998, this slowdown is accompanied by negative consumer confidence levels not seen in 16 years.

"There's still opportunities and that's something that we need to remember ... The way you run a business that's in an expanding mode is quite different to the way that you need to run a business that is in a market that's going to contract."

Volatility meant retailers needed to be flexible with working capital, inventory and cash.

"It's not just a matter of doing what you've always done and doing it better, it's really a matter of saying what does the consumer now want in the changed market?"

Svinos said while appliance retailers may not be able to do much about the slowdown in new building activity, they can certainly spur household consumers to buy replacements now. The fall in the New Zealand dollar creates this potential, as the price of imported goods could rise in the near future.

Some cosmetics retailers, meanwhile, were now marketing their products as "affordable" luxuries, he said.

Svinos, whose clients include Woolworths, David Jones and McDonald's, said no one could predict the depth and duration of the current slump.

"We will never guess the right time. The cycle will work its way through ... but fundamentally if you don't get your house in order in the current environment, you're going to place your business at risk. You can't sit back and wait for things to change."

- NZ Herald

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