Leave it to the pros. While painting a home is considered one of the cheapest ways to spruce up a house, whether you're selling it or staying put, the actual drudgery of applying paint to brush has apparently caused more people to opt to hire someone to do it.
Sherwin-Williams (NYSE:SHW) says consumers are increasingly shifting from do-it-yourself to do-it-for-me when to comes to paint, and while big-box retailers like Home Depot (NYSE:HD) and Lowe's (NYSE: LOW) target the professional market, it's still the paint and coatings specialist who will benefit most.
Paint it black
Compared to Home Depot, where paint sales ($7.7 billion) accounted for 8.1% of Home Depot's total sales last year, or Lowe's, where they represented $4.1 billion of revenue (6% of the total), Sherwin-Williams generated $7.8 billion last year at its 4,200 stores that cater primarily to the pro market. Chairman and CEO John Morikis noted, "There's certainly a shift from do-it-yourself to do-it-for-me that's likely accelerated."
Sherwin-Williams' consumer division made $1.6 billion worth of sales in 2016, and it also acquired Valspar this year, which will further boost its consumer business. During its second-quarter earnings conference call with analysts, Morikis noted a broad-based shift away from DIY, one that didn't go unnoticed at Home Depot. According to the home improvement center's merchandising chief, its pro paint business "is multiples higher growth than our DIY paint business."
Obviously that poses a risk to the big-box retailers because, while Home Depot and Lowe's both woo contractors, they still rely heavily upon the consumer market for the bulk of their sales. Last quarter Lowe's said the pro business only accounted for 30% of its sales, meaning it has a long way to go.
It could be that because Lowe's has long lagged its rival in the pro and contractor market, it will be the one hurt most by the shift in sentiment by consumers, but after a long string of big gains, Home Depot may now find itself at risk, too.
No whitewashing the risk
Last year no department at Home Depot accounted for more than 10% of sales, while at Lowe's, just four departments accounted for almost 45% of its revenue. Appliances and fashion fixtures represented over one-fifth of the total, meaning it was heavily dependent on consumers making big purchases. Now if they're cutting back, as their paint purchases seem to suggest, it could be worrisome -- and a concern that still applies to Home Depot.
Because the paint department is its second-largest segment, Home Depot could begin to see sales sag. Worse, younger folks just aren't buying homes like they used to. HomeAdvisor, a service that pairs homeowners and contractors, says if there's anyone that would DIY a project, it's millennials. In its 2017 True Cost Report, HomeAdvisors said only 44% of millennials would always hire a contractor, the lowest percentage of any age group.
But homeownership itself is tumbling. The Federal Reserve shows the U.S. homeownership rate across all age groups is at 63.7%, back where it was in 1990, and 18- to 34-year-olds are choosing to continue living with their parents at rates not seen since the 1880s.
In short, macroeconomic and demographic changes are occurring, and they're largely ones that benefit the likes of Sherwin-Williams and other paint pros that appeal primarily to contractors at the expense of stores like Home Depot and Lowe's, which still depend on the consumer for most of their business.