A continued shift in buying behavior in the building products industry is beginning to have ramifications on market share.
During Zonda’s most recent Building Products webinar, Todd Tomalak and Matt Samson shared research highlighting the relationship between consumer pushback and pro contractors shopping for lower prices. Tomalak and Samson also discussed findings on pro contractor loyalty to either product brands or building product channels and the ramifications of the findings.
After experiencing an increase in market share and traffic during the pandemic period due to high inventory levels, big-box retailers are beginning to see a pullback in market share versus lumber yards, specialty dealers, and even e-commerce channels.
“For a period of time, all the pro [contractors’] expectations were a bit lower [during the pandemic]. During that period, homeowners were just happy to get a contractor in their house. That contractor was happy to get almost any brand of product they could, as long as they could pick it up and get it to the jobsite,” Samson, vice president of building products advisory at Zonda, said during the webinar. “Now we’re seeing contractors start to raise their game again. They’re requiring staff knowledge, they’re requiring a higher level of service [and] better delivery.”
In addition to shifting contractor expectations, an increased number of project proposals receiving homeowner pushback is leading to a shift in buying behavior. Samson said the pushback ratio—the number of proposals with homeowner pushback over accepted proposals—has been growing during 2023, and contractors with a higher pushback ratio are reporting “shopping around” for different products. Among contractors with a pushback ratio of 2, 77% are shifting their purchases to other channels in search of lower costs, according to Zonda.
To further analyze shifts in buyer behavior, Zonda conducted a survey of pro contractors gauging loyalty to channels—lumber yards, dealers, big-box retailers, etc.—compared with loyalty to specific product brands. The results indicated that pro contractors have a greater loyalty to the channels they shop at rather than specific product brands, which could have ramifications for brands with differing levels of exposure and distribution outlets.
“[Pro contractors[ pick the channel almost 2-to-1 over the brand. So if you’re going to switch a brand, you expand it to be because I want a different brand. [However], most people say because I’m shopping somewhere else, if I have to switch brands along the way, that’s just part of the story because the channel is my priority,” Samson said.
Building Products Market Update
During the webinar, Tomalak reaffirmed the forecast that building products spending would decline between 7% and 9% in 2023, driven by weakness in the second half of the year.
“We still believe conditions will get incrementally worse in the second half of 2023. We started the year with a strong backlog of projects, both on the new and the home improvement side that will have largely burned off by the second half of 2023,” Tomalak said.
According to a Zonda survey of pro contractors, the majority of contractors had a project backlog of over six months at the start of 2023. However, as the year progressed, fewer jobs came into the pipeline to replenish jobs that were being completed.
“Pro contractors sequentially improved their backlogs from the very worst months like March of this year. But the overall level of backlogs is still depleted, so it looks like it’s getting better,” Tomalak said. “But the buffer’s gone, which means some of those macro issues will hit more directly.”
Additionally, as the market stabilized, contractors reported a larger number of “pushback” on project proposals, in the form of either a reduction of the scope of work, a postponement, or a shift to lower price points.
In addition to shrinking backlogs, declines in real personal income and savings rates suggest households may be prevented from pursuing improvement projects for their homes. Tomalak said credit tightening and a drawdown of excess savings also could impact building products spending during the second half of 2023.
Despite short-term risks, Tomalak also reiterated the projection that the time period from 2020 to 2030 will be remembered as the “Golden Age of Remodeling.” While there was a pull forward in outdoor projects and bedroom-to-office conversions, a large amount of remodeling activity was deferred during the pandemic, according to Tomalak.
Additionally, homeowners who purchased during the frenzied pandemic period who are not completely happy with their home but are unwilling to give up their low mortgage rates also support the medium- to long-term forecast of remodeling spending improvement.
