With Home Sales Down, Focus Turns to Upkeep

Lowe's, Ikea Emphasize Value as Consumers Abandon Big Renovations for Small Projects

By Published on .

When you can't sell, repair and maintain instead.

That seems to be what's happening in the troubled housing market, which has experienced mixed results at retail. Executives at home-improvement retailers are finding consumers continuing to take on smaller, discretionary projects. And at home-furnishing retailers, functionality and durability are in, while purely decorative items are out.

Robert Niblock

"The biggest part of the magnitude of the decline in home prices is behind us," said Lowe 's CEO Robert Niblock at a recent investor conference. "But for many homeowners, you still don't have the psychological comfort of knowing it's over."

Mr. Niblock said Lowe consumer surveys revealed that 60% of housing-related expenditures were spent on ongoing repair and maintenance prior to the housing downturn. Today, that 's crept up to more than 70%, with less than 30% remaining for discretionary purchases.

Both Lowe's and Home Depot say that consumers continue to hold off on large, discretionary projects and purchases. Or, if a big project is in the works, they are trading down: stock cabinets rather than custom cabinets and Corian countertops instead of granite. As a result, Mr. Niblock said Lowe's has been careful to stock a variety of offerings in store and market shorter, smaller, less costly projects.

Similarly, home-furnishings retailers such as Macy's say that inexpensive updates, like changing the color of linens, are proving popular, though customers have not been resistant to more expensive product if it represents a value.

"[The customer] is comparison shopping. They know their stuff when they come into the store," said Stephen Cardino, home-fashion director at Macy's . He also added that , as a result of the economy and the popularity of open floor plans, multipurpose items have become must-haves. "There was a day when functionality and decorative were two different areas," Mr. Cardino said. "Today, everything must multitask."

Value is also top of mind at Ikea, which has been slashing prices on its most popular items for the last few years. It plans to cut prices another 2% to 3% this year, as well as next year, said Marty Marston, a spokeswoman for the retailer. Ikea's new catalog, set to launch in the coming weeks, will feature markdowns of as much as 25% on items, including one of its best-selling bed frames, she said.

"It goes along with Ikea's whole philosophy and mind-set of being the value choice," Ms. Marston said of the price cuts. "We know right now that the economy has made life difficult for everyone in different ways. We hope the value we're offering makes us their first choice."

But even with steady price cuts and rising commodity costs, the retailer continues to perform well. Sales rose nearly 8% worldwide in fiscal 2010 and are similarly brisk this year, Ms. Marston said. Though there might be speculation, internally and externally, that Ikea is attracting a higher-end consumer who's trading down, Ms. Marston says that 's not something that can be verified.

"We've made a huge effort worldwide and in the U.S. to improve our quality perception and the real quality of the products," Ms. Marston said. "And we think that we're just doing a better job casting a wider net, appealing to consumers who may have shopped with us before and come back or capturing new consumers."

While the latest housing reports indicating hopes of a second-half recovery may be optimistic, retailers are closely watching a variety of economic and industry reports, as well as current shopping patterns in order to divine the trends that will be important when the housing market rebounds.

Mr. Cardino said that open floor plans are influencing everything from upholstery to product selection. And Ms. Marston said the fact that home sizes began shrinking during the recession for the first time in nearly 30 years is a trend worth watching, as is the increase in multigenerational homes. Lowe's and Home Depot have both said that consumers are showing an interest in energy-efficient purchases, with the latter reporting that sales of LED light bulbs were up 500% in the first quarter.

"Once we get through that bottoming process and there is more news coverage about home prices moving the right direction, I do think that there is some pent-up demand out there that consumers will be focused on," Mr. Niblock said.

Most Popular