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. 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 Q2 2024
Cost of Goods declined on a net percentage basis for the first time in this tracking study. With that, is also an increase in profit margins. However, total sales ($) and transaction count saw the largest net quarterly decrease since the study began.
Transaction Size
Transaction size increased in Q2 of 2024, on trend with seasonal increases in home improvement in the second quarter of the year. The net change from all retailers was an increase of 1.8%, however this was the highest increase since Q4 2022 (2.2%).
Profit Margins
Independent retailers have been able to reverse the negative profitability trend. The net change in profit margin is flat at 0.2% increase, a nearly 3% improvement over Q1 of 2024 and a positive change from negative net margins that were experienced generally over the prior three quarters.
Regarding year over year trends, independent retailers are nearly evenly split on seeing decreases, increases or no change in profit when compared YoY against Q2 2023.
Total Sales
Momentum is positive for home improvement sales. Total sales are beginning to improve over the prior two quarters, despite sales not being near the levels seen in 2022.
About a third of retailers said their total sales increased in Q2 of 2024(YoY). This is on par with Q2 2023 YoY.
The average percentage change of total sales was down 1% YoY, an improvement over prior quarters, but slightly worse than Q2 2023.
This is the lingering effect of an expected market correction and the home improvement industry remains on a growth trajectory in 5 year forecasts such as HIRI's Size of Market report.
Transaction Count
Transaction count shows indications of improvement. Although down 2.1% in Q2 2024, the average transaction count reported by independent retailers is trending better over prior quarters. In Q1 2024 transaction counts were down 4.5%.
Cost of Goods
After four straight quarters of seeing cost of goods decline, the mean change is flat with 0.3% average increase across retailers. This is a positive indicator for independent retailers as we look towards the second half of 2024, and is in contrast to what retailers were dealing with in 2022.
Inventory Investment
Most independent retailers are not investing heavily in inventory at present. Inventory investment continues a downward trend in outlays with a net of only 0.7% average increase. This is down from an 8% average increase in 2022 and 2% in 2023.
Independent Retailer Sentiments For the End of 2024
Anticipated performance for the remainder of 2024 is mixed. Over half of all retailers expect their cost of goods and profit margin to stay the same. Close to half expect sales revenue and transaction counts to go down.
This implies that retailers are expecting to face continued market challenges in competing for hindered project demand as homeowners make trade-offs with their discretionary income, project priorities, and project budgets.
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 2H 2024
Home Depot's 2024 Home Improvement Retail Forecast
On August 13, 2024, The Home Depot announced their Q2 and Fiscal 2024 results, as well as their guidance on the remainder of 2024.
In their report on Q2 of 2024 compared to Q2 of 2023, they stated that, "Comparable sales for the second quarter of fiscal 2024 decreased 3.3%, and comparable sales in the U.S. decreased 3.6%."
As pertains to their anticipated earnings in 2024, Home Depot expects sales growth to decline 2-4% compared to 2023.
Home Depot's acquisition of SRS Distribution in the first half of 2024 also expanded their total addressable market, specifically among Pro customers.
Lowe's 2023 Home Improvement Retail Forecast
On August 20, 2024, Lowe's announced their Q2 earnings results and their investor guidance on the remainder of 2024.
In their report, U.S. sales in Q2 2024 were down 5.1% compared to Q2 2023 sales.
Lowe's executive anticipate comparable sales in 2024 to decrease by 3.5% to 4%.
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