Market measure: the ups and downs of a positive year. (2024)

To simply state that 2016 has been a good year for home improvementretailing doesn't do justice to the complicated path the industryhas taken over the last 12 months.

It is a statement of fact that the industry, by just about anymeasure, has seen marked growth in 2016. The North American RetailHardware Association (NRHA) is estimating the industry's growththis year will come in at about 5.8 percent. And organizations like theHome Improvement Research Institute (www.hiri.org) are putting theirgrowth estimate at around 6.0 percent.

If you just look at the numbers being reported by the U.S. CensusBureau, you'd see sales in the industry (NAICS 444) throughSeptember clipping along at about 6.7 percent above last year.

In fact, building materials and home improvement sales have emergedamong the brightest stars in the retail galaxy this year, outpacingoverall retail sales increases by nearly 3 to 1.

So why does this leave us with a complicated picture for 2016?

Let's just say this wealth of expansion hasn't been feltequally across the home improvement retailing landscape. While justabout every segment of the industry has seen increases this year, themajority of the increase in sales has been driven by larger-ticketpurchases.

Though a stronger housing market tends to benefit all homeimprovement retailers, the construction of multifamily dwellings hasbeen a stronger driver in the health of the market.

Typically, multifamily housing construction has a greater impact onhome centers and lumber dealers than the average hardware store.

Big-box performance also contributed heavily to the stronger salesincreases as consumers opened their pocketbooks more freely forremodeling projects and big-ticket purchases.

The result is that hardware stores saw sales increases at a rate ofabout 200 basis points slower than other store types this year,according to NRHA estimates.

Store type wasn't the only determinant of retail success sofar in 2016 either, as regionality played heavily into sales growth.Unfavorable weather patterns in parts of the country during the firstand second quarters didn't help sales for stores heavy incategories like lawn and garden. Additionally, stores in areas like thesoutheast and upper Midwest that had experienced benefits from the oilboom saw sales dip as gas prices continued to moderate.

A Stronger Upside

Although sales have been a mixed bag based on store type andlocation, as a group, independent home improvement retailers stillexperienced positive results in 2016.

This assertion was validated by information from a recent NRHAsurvey of over 500 independent home improvement retailers. More thanhalf of the respondents to the October survey reported year-over-yearsales increases in 2016. Of these retailers, a full 10 percent say theyhad experienced "significant sales" increases.

INTRODUCTION

What's even better news for the industry is that the factorsthat appear to be driving these results don't show any signs ofabating in the near future.

The renewed buoyancy of the housing market is one of the maincatalysts for the positive sales movement in home improvement retailing,and economists see these trends continuing in the near future.

According to Kermit Baker, senior research fellow withHarvard's Joint Center for Housing, all signs indicate the strengthin the housing market will continue through 2017 with housing starts,remodeling expenditures and homeownership rates all poised foradditional growth. (To read more from Baker, please turn to the articleon Page 44.)

Added to the strength of the housing market is a renewed confidenceamong consumers that make them more likely to open their wallets tospend on home improvement projects. While multiple factors influenceconsumer confidence, two of the biggest determiners to consumer spending--employment and disposable income--are both predicted to remain strongin the coming months.

All of this has led to increased confidence among independentretailers. According to the NRHA research cited previously, 71 percentof survey respondents say they are predicting sales growth in 2017.

Many economists also agree with the positive outlook expressed byretailers in the NRHA survey, predicting that home improvement productsales should continue to outpace overall retail sales in 2017.

NRHA is predicting that 2017 will yield results very similar towhat we are seeing this year, anticipating industry growth in themid-5-percent range.

There are many factors that could influence this prediction in bothpositive and negative ways.

First, there is the ever-changing weather. Moderately inclementweather is usually a good thing for the industry, but over the pastseveral years, we have seen both feast and famine-experiencing mildwinters, wet springs, droughts and dry, hot summers. Unfortunately,there is no real way to accurately predict these cycles.

The next wild card is the results of this year's politicalactivity, though the election season has ended and a new U.S. presidenthas been selected. President-elect Donald Trump built his pre-electioncampaign around promises of massive change to the status quo. Wedon't yet know what the impacts on areas such as consumerconfidence and the housing market will be if Trump follows through onhis pledge for change.

Industry Sales Methodology

NRHA and Hardware Retailing take a large number of factors intoaccount when determining overall sales estimates for the industry.

We use a formula that incorporates information from NRHA'sannual Cost of Doing Business Study, direct retailer research, the U.S.Department of Commerce NAICS 444 sales reports and information fromother research outlets as the basis for our calculations.

We then weigh this information against company reports from theindustry's publicly traded corporations, wholesaler sales figuresand additional data from retail and industry partners. All of this datais combined to calculate our industry sales estimates and forecasts.

NRHA and Hardware Retailing's industry estimates considersales from all retailers whose primary business is selling homeimprovement products. We do not include sales from operations that donot utilize a retail sales model or only service other companies.

Our estimates include sales through the industry's hardwarestores, home centers, retail lumberyards and big-box outlets.

55%

of retailers surveyed by NRHA say their sales have increased in2016 over 2015.

Source: NRHA 2016 State of Independents Conference Research

71%

of retailers say they anticipate sales to increase in 2017.

Source: NRHA 2016 State of Independents Conference Research

6.3%

At midyear, Home Depot was predicting 2016 sales increases of 6.3%over 2015.

Source: Home Depot Financial Reports

Home Improvement Product Sales Performance(% Growth Rate) 2011-2015 2016 2017-2020Consumer 4.9% 6.0% 4.1%Professional 6.1% 6.1% 3.3%Total 5.2% 6.0% 3.9%Source: Home Improvement Research InstituteU.S. Home Improvement Sales(in Billions)CAG 2015-2020 = 4.5%2015 $338.62016 $358.22017 $378.32018 $392.62019 $406.82020 $422.6Source: NRHA/Hardware RetailingNote: Table made from bar graph.Home Improvement Retail Sales(in Billions)2011 $269.52012 $281.52013 $301.82014 $317.72015 $332.62016 * $350.0Source: U.S. Department of Census/Monthly RetailSales Report NAICS 444* EstimateNote: Table made from bar graph.

INDUSTRY BREAKDOWN

2016Home ImprovementSales By MonthSales in BillionsJanuary $22.1February $23.3March $30.0April $32.5May $34.8June $34.4July $30.3August $30.2September (p) $29.1Source: U.S. Department of Commerce/NAICS 444/Not Seasonally AdjustedHome ImprovementSales Growth2016 vs. 2015January 4.2%February 17.1%March 13.2%April 3.2%May 4.5%June 8.5%July -1.3%August 8.2%YTD 6.7%Source: U.S. Department of Commerce/NAICS 444/Not Seasonally Adjusted2015-2020Sales By Type of StoreSales in Billions Hardware Stores $44.1 Home Centers $210.12015 Lumberyards $84.4 TOTAL $338.6 Hardware Stores $45.9 Home Centers $222.72016 Lumberyards $89.6 TOTAL $358.2 Hardware Stores $47.8 Home Centers $235.62017 Lumberyards $94.9 TOTAL $378.3 Hardware Stores $50.1 Home Centers $244.22018 Lumberyards $98.3 TOTAL $392.6 Hardware Stores $53.3 Home Centers $252.32019 Lumberyards $101.2 TOTAL $406.8 Hardware Stores $55.6 Home Centers $262.22020 Lumberyards $104.8 TOTAL $422.6Compound Annual Hardware Stores 4.7%Growth Home Centers 4.5%Rate 2015-2020 Lumberyards 4.4% TOTAL 4.5%Source: NRHA/Hardware Retailing2015-2020Outlets2015 Hardware Stores 19,825 Home Centers 9,725 Lumberyards 9,750 TOTAL 39,300 Hardware Stores 19,810 Home Centers 9,7902016 Lumberyards 9,760 TOTAL 39,360 Hardware Stores 19,850 Home Centers 9,7902017 Lumberyards 9,760 TOTAL 39,400 Hardware Stores 19,750 Home Centers 9,7402018 Lumberyards 9,730 TOTAL 39,220 Hardware Stores 19,700 Home Centers 9,7202019 Lumberyards 9,710 TOTAL 39,130 Hardware Stores 19,700 Home Centers 9,7002020 Lumberyards 9,690 TOTAL 39,090 Hardware Stores -0.6%Percent Home Centers -0.3%Change Lumberyards -0.6%2015-2020 TOTAL -0.5%Source: NRHA/Hardware Retailing

CHAIN RESULTS

Market Share ProfileTop Chains: Industry Share Sales No. of Stores (as % of total (as % of total industry) industry)2011 49.1% 13.8%2012 50.0% 14.7%2013 50.2% 15.0%2014 * 49.4% 16.1%2015 49.7% 16.4%2011-2015 0.6% 2.6%PercentagePoint ChangeTop Chains: Combined Performance Net Sales No. of (in billions) Stores2011 $136.7 5,4412012 $146.4 5,7802013 $154.8 5,8852014 * $159.4 6,3082015 $168.5 6,4472011-2015 5.4% 4.3%CompoundAnnualGrowth Rate* For 2014, new chain stores were added and others wereremoved in a top chain reevaluation process.Top Chains: Individual Performance 2015 Sales Stores at Stores in 2016 (in billions) End of 2015 (as of November 2016)Home Depot S88.5 2,274 2,275Atlanta, GeorgiaLowe's $59.1 1,857 2,108Mooresville, North CarolinaMenards Inc. $8.7 297 300Eau Claire, WisconsinTractor Supply $6.2 1,488 1,542Brentwood, Tennessee84 Lumber $2.5 241 250Eighty Four, PennsylvaniaNorthern Tool + $1.5 92 95 EquipmentBurnsville, MinnesotaCarter Lumber $1.1 146 142Kent, OhioSutherland Lumber $0.9 52 48Kansas City, MissouriSource: Company Reports and Hardware Retailing EstimatesThe above represent home improvement retail chain stores that carryat least two core categories and have sales of approximately$1 billion or more.

COST OF DOING BUSINESS STUDY

Study Points To Another Strong Year

For more than 90 years, the North American Retail HardwareAssociation (NRHA) has been gathering financial and operational datafrom the industry's hardware stores, home centers and lumberyardsto produce its annual Cost of Doing Business Study.

This study provides the industry with valuable benchmarking toolsand information about the performance of its retail operators. Retailersthroughout the industry use the study for planning, goal setting andmeasurement.

Study participants contribute their financial information toinclude in aggregate in the report. These real-world numbers give anaccurate picture of how home improvement retailers of all sizes andstore types are performing. This year, 1,077 retailers participated inthe study.

This year's study includes information from the 2015 fiscalyear, composite income statement and balance sheet information andfinancial performance ratios.

The information is segmented for hardware stores, home centers andlumberyards. The data shows both average and high-profit storeperformance, as well as breaking out operations by sales volume andwhether they are single- or multistore operations.

Methodology

NRHA gathers the study's data by mailing questionnaires to asampling of hardware stores, home centers and lumberyards in the U.S.Retailers can mail their information or upload it online.

NRHA provides the analysis in the final report after extensivereviewing the data. Individual company responses remain confidential.

Most of the figures in this report are medians, which are themiddle numbers in the data when arranged from highest to lowest. Themedian represents the typical company's results, without extremelyhigh or low outliers skewing them.

To determine high-profit stores, NRHA ranked all participatingcompanies based on net profit before taxes. The high-profit companies ineach segment are in the top 25 percent.

To access guides and videos that discuss ways to improve yourbusiness' metrics, please visit NRHA.org/freetraining.

How to Use This Study

The Cost of Doing Business Study presents financial and operationaldata that retailers can use to evaluate their own businesses and planstrategic changes. Here are some pointers for using the reporteffectively.

* Determine your expenses as a percentage of sales and calculateyour balance sheet as a percentage of total assets. Compare your numbersto the study results for both typical and high-profit stores.

* Don't look at percentages alone. Compare your real-dollarexpenditures, as well.

* Compare your numbers to stores of a similar size. Don'tlimit your comparison to one type of store. Defining hardware stores,home centers and lumber outlets is practical for statistical purposes,but your store may have attributes of more than one type.

* When your numbers differ significantly, determine the cause anddevelop a plan to bring your numbers in line with high-profit stores.

* Although high profits have little to do with size, sales growthis one of the keys to profitability. Remember, there are basically fourways to generate additional revenue--traffic count, closure rate,transaction size and margins.

When reviewing the numbers on the following pages, it is extremelyimportant to note that this report contains figures from a differentsample group of stores each year. Overall figures have the potential tovary widely from year to year based on the group of stores participatingeach year. We use year-to-year comparisons to illustrate general trendsover time, not to draw specific year-over-year conclusions.

 HARDWARE HOME CENTER 3.8% 4.1%Profit Highest profit margin Highest profit marginMargin reported since the study ever, despite retailers began, driven by the reporting sales per highest transaction size customer at 2012 levels. ever: $21 per customer. 40.1% 32.6%Total Up slightly over the Operating expensesOperating prior year due to an decreased for the fourthExpense increase in other consecutive year due to operating expenses. other operating expenses dropping to 10-year lows. $176 $253Sales Per Hardware stores Sales per square footSquare Feet average $156 of are up for the third year product per square foot, in a row as inventory resulting in $176 in per square foot sales per square foot. increased to $60. $75,252 $68,196Gross Margin The number of employees While the number ofPer Employee remained the same as the employees stayed prior year, but sales per steady at 16, the gross employee hit an all-time margin per employee high of $175,812. dropped slightly. LUMBERYARD 3.7%Profit Profit margin reachedMargin 2013 levels as sales per customer grew to an all-time high of $157 26.5%Total Up for the fourth year inOperating a row as other operatingExpense expenses reached the highest level ever at 9.1 percent. $565Sales Per Sales per square footSquare Feet reached a respectable level despite inventory per square foot hitting its lowest since 2008. $96,597Gross Margin Even with smaller staffs,Per Employee lumberyards were able to attain the highest gross margin per employee since the study began.Source: 2016 Cost of Doing Business Study

RETAIL STORE PERFORMANCE

Home Improvement Sales By the Numbers

To offer a better perspective on the independent home improvementindustry, NKHA segments the data in the Cost of Doing Business Studyinto hardware stores, home centers and lumberyards. Within each segment,the data is broken out by typical, high-profit, single-unit andmultiunit stores, as well as by sales volume.

Hardware Stores

Hardware stores participating in this year's study showedrecord results thanks to market growth and better expense controls.Hardware stores recorded the study's highest-ever sales percustomer at $21 and the highest-ever gross margin after rebate at 42.8percent. This led to the highest-ever profit before taxes at 3.8percent. The record results came despite the fact customer counts wererelatively flat, showing that stores were doing an effective job ofselling more products to current customers.

The study numbers were better for high-profit hardware stores, asthey saw sales per customer of $23, a gross margin after rebate of 44.7percent and profit before taxes of 9.2 percent. They also had flatcustomer counts, but continued doing more with less by applyingpractices honed during the recession.

As is typically the case, high-profit hardware stores had tightercontrol of their expenses than typical hardware stores, reporting lowernumbers in every major expense category. High profits had 19.4 percentpayroll expense vs. a typical 21.3 percent, lower occupancy of 7.2percent vs. 7.6 percent and lower other operating expenses of 9.9percent vs. 11.2 percent. The efficiency doesn't stop there, ashigh-profit store sales per square feet are $214 vs. a typicalstore's $176. High-profit store employees are also more productive,with sales per employee at $198,126 vs. a typical store of $175,812.High profits had one more employee than typical stores.

Home Centers

Just like hardware stores, home centers reached record net profitsbefore taxes, coming in at 4.1 percent. This store type was one of thehardest hit during the recession, and owners clearly learned lessonsduring those lean years that are paying dividends as the market returnsto normal. The expenses were controlled throughout home centers as theyreached record net profits, despite sales volume dropping over theprevious year and sales per customer being at the lowest level since2012. On the up side, gross margin increased for the third year in a rowand other operating expenses were down for the third consecutive year,driving more dollars to the bottom line.

Even more impressive were high-profit home centers, as theyexperienced lower sales volume and lower customer count. Their sales percustomer were $51 and they had 250 basis points lower payroll expenses,driving them to nearly double the profit before taxes to 7.5 percent.High profits sold more inventory per square foot, at $334 vs. a typicalstore of $253. From an employee productivity perspective, high profitsoperated with three fewer employees but sales per employee were $232,886vs. $192,170. Inventory turnover was also slightly higher at ahigh-profit home center, coming in at 3 vs. a typical 2.7.

Lumberyards

Much like home centers, lumberyards saw a decline in customercounts for the second straight year. However, lumberyard owners arefinding ways to be more efficient, as is evident from the increase of150 basis points in profit before taxes to 3.7 percent and ahighest-ever sales per customer of $157. All of this was accomplishedwhile reducing their work force and by driving up sales per employee to$321,689, which is the highest level since the study began. Lumberyardsalso saw an increase in gross margin to 30 percent, reaching levels notseen since 2012.

The high-profit lumberyards accomplished even more in the 2016study, seeing profit before taxes reach 5.25 percent of sales. The $219sales per customer at the high-profit stores led to $974 of sales persquare foot. The employees at high-profit stores were very productive,with sales per employee at $409,120. High-profit lumberyards hadinventory turns of 5.2 compared to 3.8 at typical lumberyards.

Lumberyards historically have had the lowest participation in thisstudy, so their data are more susceptible to greater fluctuation. Thisyear, lumberyards with 141 locations participated in the Cost of DoingBusiness Study.

Hardware StoresMedian Sales Per Customer Typical High-Profit2011 $17 $182012 $18 $192013 $20 $212014 $20 $222015 $21 $23Note: Table made from line graph.Key Business Indicators Typical High-ProfitGross MarginAfter Rebate 42.8% 44.7%TotalPayroll 21.3% 19.4%Total OperatingExpense 40.1% 36.5%Note: Table made from bar graph.Home CentersMedian Sales Per Customer Typical High-Profit2011 $38 $342012 $36 $412013 $41 $452014 $42 $492015 $36 $51Note: Table made from line graph.Key Business Indicators Typical High-ProfitGross MarginAfter Rebate 35.5% 35.8%TotalPayroll 19.4% 16.9%Total OperatingExpense 32.6% 28.9%Note: Table made from bar graph.LumberyardsMedian Sales Per Customer Typical High-Profit2011 $69 $852012 $141 $1522013 $76 $872014 $105 $1672015 $157 $219Note: Table made from line graph.Key Business Indicators Typical High-ProfitGross MarginAfter Rebate 30.0% 27.2%TotalPayroll 15.8% 15.2%Total OperatingExpense 26.5% 23.4%Note: Table made from bar graph.

Source: North American Retail Hardware Association. Figures basedon responses to the 2016 Cost of Doing Business Study.

FINANCIAL PROFILES

Financial Profile of Leading Publicly Held D-I-Y Chains 2015Operating and Productivity Profile Home Depot Lowe's Cos.Number of Stores (at end of 2014) 2,274 1,857Average Size of Selling Area (sq. ft.) 104,000 112,000Total Sales $88.5 Billion $59.1 BillionTotal Asset Investment $42.5 Billion $31.3 BillionTotal Inventory $11.8 Billion $9.5 BillionSales Per Square Foot $370.55 $292.45Inventory Turnover 4.9x 4.1xNet Sales to Inventory 7.5x 6.2xTotal Sales Per Employee $229,870 $218,793Average Size of Transaction $58.77 $67.26Gross Margin Return on Inventory 289.8% 217.5%Income Statement Home Depot Lowe's Cos.Net Sales 100.0% 100.0%Cost of Goods Sold 65.8% 65.2%Gross Margin 34.2% 34.8%Total Operating Expenses 20.9% 27.3%Net Income (Before Taxes) 12.5% 7.5%Balance Sheet Home Depot Lowe's Cos.Total Current Assets 40.0% 33.9%Cash 5.2% 1.3%Receivables 4.5% 1.0%Inventory 27.8% 30.3%Other 2.6% 1.3%Fixed Assets 52.2% 66.1%Total Assets 100.0% 100.0%Current Liabilities 29.4% 33.6%Long-Term Liabilities 55.7% 36.9%Net Worth 14.9% 24.5%Total Liabilities and Net Worth 100.0% 100.0%Source: Home Depot and Lowe's annual reportsProfile of Top Four Distributors Ace Hardware Do it Best True Orgill Inc. Corp. Corp. Value Co.Number of 20 (1) 8 12 5DistributionCentersCurrent 4,300 (3) 3,700 4,400 N/ANumber ofMembersDollar Volume $5.0 $3.02 $2.03 $1.84Most Recent Billion Billion Billion Billion (4)Fiscal YearEstimated $5.1 $3.10 N/A $2.0Dollar Volume Billion Billion Billion (4)Calendar 2016% Sales Out 81.0% 35.0% 70.0% 71.0%of Warehouse% Sales Out 0.0% 0.0% 0.0% 0.0%of Pool/Relay% Sales 19.0% 65.0% 30.0% 29.0%Direct-DropShip% Sales in 0.0% 19.0% 15.0% 8.9%LBMNumber of 7,100 (3) 1,477 2,400 (3) 2,079 (5)EmployeesAvg. Number 75,000 (3) 67,000 80,000 (3) 75,100of SKUs inWarehouseSales/ 7.1 11.63 (6) 5.2 5.2 (2)InventoryRatio for 20152015 Member $145.9 $115.5 $19 N/ARebate Million Million (6) MillionDistributed% Cash 38.0% 77.0% 100.0% N/A% Stock 40.0% 23.0% 0.0% N/A% Other 22.0% 0.0% 0.0% N/ASource: Annual company reports andNRHA/Hardware Retailing Estimates(1) Includes 17 domestic and 3 international retail support centers.(2) Warehouse sales only.(3) Approximately.(4) Net of all returns, allowances and rebates.(5) U.S. operations.(6) Fiscal year ended June 25, 2016.Profile of Wholesaling Merchandising Groups PRO Group Inc. Distribution Val-Test Group AmericaCurrent Number 104 (1) 8 70of WholesaleMembersNumber Member 29 9 70WholesalersEnd 2015Number Member- 200+ (1) 10 73OperatedDistributionCentersDollar Volume $3.25 Billion $1.0 Billion $780 Million (2)for 2015Fiscal YearEstimated $5.25 Billion (1) $1.0 Billion $700 Million (2)Dollar VolumeCalendar 2016Number of 35,000 9,000 4,500Retail StoresServed byMembersNumber of 800 1,500 400Program StoresNumber of 16 10 9EmployeesSource: Annual company reports and NRHA/Hardware Retailing Estimates(1) Merged with Reliable Distributors in October 2016.(2) Val-Test Group's numbers also include pro sales, hardware,sundries, marine and flooring.

INDUSTRY YEAR IN REVIEW

DECEMBER (2015)

* A labor union that represents workers in New York, New Jersey andConnecticut filed a charge against Menards, alleging that the retailerlimits employees' rights with "an unlawful and overbroadwritten employment agreement."

* PRO Group, Inc. announced that Lancaster would join PRO Group asits newest distributor member.

JANUARY

* Walmart announced plans to close 269 stores, including 154locations in the U.S., which marks a change for the company. Theclosures included all 102 Walmart Express locations, 12 super centers,23 Neighborhood Markets, six discount centers and four Sam's Clubs.

* Regional distributor Handy Hardware retired its name at itsspring buying market, rebranding as national distributor World and Main.

FEBRUARY

* Lowe's announced an agreement to buy home improvementretailer and distributor ROIMA Inc. in a $2.3 billion deal, growing theU.S. company's presence in Canada. Despite the deal, the 2014partnership between RONA and Ace Hardware remained in place, meaningLowe's now owns the licensing rights to the Ace brand in Canada.

* After news of ROIMA selling to the U.S.-based Lowe's, HomeHardware CEO Terry Davis announced that the company was staying Canadianand was not for sale.

MARCH

* Two years after a data breach exposed payment card informationfrom more than 50 million of its customers, Home Depot announced plansto compensate some of the shoppers out of a pool of $19.5 million.

* The Sherwin-Williams Company and The Valspar Corporationannounced they had entered an agreement in which Sherwin-Williams wouldacquire Valspar for $11.3 billion.

APRIL

* Lowe's Orchard Supply Hardware announced it would beexpanding outside of California with plans to open new stores in Floridaand Oregon.

* Former Do it Best Corp. president and CEO Bob Taylor received astate award from Indiana Gov. Mike Pence. Pence named Taylor a Sagamoreof the Wabash, the highest civilian honor Indiana's governor canbestow.

MAY

* J.C. Penney made the decision to return to appliance sales at 500stores after a decades-long hiatus. The changes came after a successfulpilot program in three markets and under the leadership of CEO MarvinEllison, a former Home Depot executive.

* Walmart sued Visa, saying the credit card company would not letit require customers to use PINs rather than signatures to securepurchases made with chip-embedded debit cards.

JUNE

* Searching for ways to improve its business after reportingongoing financial losses, Sears Holdings decided to look at alternativeapproaches to selling its popular Kenmore, Craftsman and DieHard brands.

* On June 9, Walmart officially discontinued its ad-matchingprogram at 500 store locations. In place of the program, the companylaunched "long-term price rollbacks" on products, sendingcustomers to its app.

* Home Depot filed a lawsuit saying Visa and MasterCard aren'tmaking transactions as secure as they should and are working with banksto create chip debit and credit cards that are expensive for retailersto accept.

JULY

* Do it Best Corp. announced it surpassed $3 billion in total salesfor its 2016 fiscal year. The numbers reflected a year of strong membergrowth and expansion supported by retail performance programs and newproduct introductions.

* Amazon has become one of the top 10 biggest companies in theU.S., and is moving toward No. 1 in size, a report explains. Theretailer has more areas with potential growth than other companies thesame size or bigger, such as Facebook, Google and Apple

AUGUST

* Orgill, Inc. announced plans to expand its network ofdistribution facilities with the addition of an approximatelyhalf-million-square-foot distribution center located in Post Falls,Idaho.

* Wal-Mart Stores, Inc. announced it entered into a definitiveagreement to acquire online retailerJet.com for $3 billion in cash. Thepurchase highlighted Walmart's drive to boost its online business.

SEPTEMBER

* Amazon amassed its own delivery fleet of trucks and cargo planes,competing with companies that used to deliver millions of its boxes. Thee-commerce retailer now owns 4,000 truck trailers and leases 40 jets.

* Sears has returned to the paint business, looking for ways tohelp it compete with bigbox stores such as Lowe's and Home Depot.

OCTOBER

* PRO Group, Inc., merged with Reliable Distributors, Inc., whichis based out of Chicago and has more than 200 distribution centersacross the country. The merger added 74 distributors and over $2 billionin volume to PRO Group.

* Bass Pro Shops announced it was acquiring Cabela'sIncorporated for about $5.5 billion. The companies are expected to closethe deal during the first half of 2017.

* Target announced plans to test vertical farming in some U.S.stores in spring 2017, potentially allowing customers to see how greenvegetables are grown and harvested indoors in carefully controlledconditions.

NOVEMBER

* To help retailers remain competitive among big-boxes and onlineshopping, True Value Company has enhanced its ship-to-consumerinitiative. Abhinav Shukla, chief operations officer, shared withHardware Retailing the importance of omnichannel efforts.

HOUSING MARKET

The State of the Housing Market

A Q&A With Kermit Baker)

Kermit Baker is a senior research fellow at the Joint Center forHousing at Harvard University and the project director of the RemodelingFutures Program. The goal of this program is to develop an improvedunderstanding of the dynamics of the U.S. repair and renovation industryso businesses can better take advantage of opportunities the marketoffers. Baker is also chief economist for the American Institute ofArchitects. In this role, he analyzes business and construction trendsfor the U.S. economy.

What kind of growth have you seen in existing home sales this pastyear?

The market for existing-home sales has been recovering. We aregetting close to about 5 million at an annualized rate, which are thenumbers we were seeing before the downturn. Recovery has been slow andsteady, but it's picking up momentum, so that's a healthysign. There had been quite a few homeowners who were underwater on theirhomes and couldn't sell, but we are now seeing fewer and fewerowners in that situation.

There's been more job growth, too. A homeowner may want tosell and move across the country for a new job, and now they can do thatmore easily than in the past few years. This segment of the market seemsto be unfreezing pretty nicely.

What about growth in new housing starts?

There are two types: multifamily homes and single-family homes.Multifamily came back from the recession a lot stronger, as there wasmore demand for rentals as we came out of the recession.

We've seen some reasonably healthy growth in single-familyconstruction, too, but it's still well below where I'd say isthe trend line for the market. It will continue to grow, though, Ithink.

There is a lot of potential on the single-family side of themarket, but not as much on the multifamily side, as some of thosemarkets may be not only saturated, but overbuilt.

What does the remodeling segment look like?

According to our estimates, 2015 was the year we reached a newrecord high for spending on remodeling projects. We matched or exceededwhat we saw in 2007, which was when we were at the peak, before thedownturn began.

We've seen healthy growth in 2016, and that same growth isprojected for 2017. I think some of the upper end of the marketdisappeared--we aren't seeing as many of those $150,000 kitchenremodels as we had before. There aren't those high-priced projectsyou were hearing about before the downturn, but it's still strong.Contractors are, in some cases, overwhelmed. They are continuing to getprojects done and continuing to look for more labor.

What are the biggest housing trends that we should be looking at aswe head into 2017?

There are two we should really consider. One is the split betweensingle-family and multifamily housing and how those markets haverecovered so differentially. Multifamily home prices are about 40percent above what they were at their last peak. We also have a strongsingle-family market; prices are OK, but not anywhere near that level.

I think that plays in to the second trend: We've seen somepretty significant declines in the homeownership rate. In fact, reportsfrom over the summer say the national homeownership rate is the lowestit's been in 50 years. By and large, our population is gettingolder, and those are the ones who are more likely to be homeowners, soto see that rate so low is pretty dramatic.

As far as younger people becoming homeowners, one of the biggestchallenges continues to be saving up for a down payment and findingfinancing. Financing is much more difficult to get than it was a decadeor so ago.

During and right after the recession, there was a large number ofthose under 30 living at home, and that number is starting to come down,too.

In 2010, at the lowest point of the downturn, those in their 20s or30s, at an age where you might be more likely to be a first-timehomebuyer, were not buying homes. The peak year of birth was 1990, andpeople tend to buy in their late 20s or early 30s, so those born in 1990are moving into that buying stage. We might see higher rates ofhomeownership in the near future. The economy is improving and there arefavorable demographics and a favorable housing market--these factors allcould help the homeownership rate rise.

What do these trends and statistics have to say about the economyas a whole?

Quite frankly, I think it's doing pretty well. When you listento economists talk about what might happen next year, one of the brightspots is the topic of single-family construction. It's been slow inrecovering, but that recovery has to happen at some point.

There are also generally favorable consumer confidence scores,which tend to correlate with the unemployment rate. For a typicalconsumer, that's good news. There's a lot of optimism from theconsumer perspective, which is the most critical factor in generatingeconomic growth. Home prices are going up, and while mortgage rates aregoing up, they are still surprisingly low, so there are good reasons totake out or refinance a mortgage.

People are also taking out home equity loans, some for as many as$20,000, $30,000 or $40,000. That money is traditionally used for homeimprovements. Many aren't too inclined to trade up to a nicer homewhere they might have a mortgage with a higher interest rate, so theyimprove their homes instead.

What should retailers be aware of as we head in to 2017?

The fundamentals look pretty favorable. I think we will continue tosee strong house prices. Households continue to build up equity, whichencourages home improvement activity. We're seeing a lot of smallerremodeling projects. Contractors are working hard to keep up. They haveto ask themselves if they have the labor to staff those jobs, and theymay be running in to material shortages. This hasn't been an issuein so long that we've kind of forgotten about it, but now more andmore people want to buy or fix up a home.

ECONOMIC OUTLOOK

Where Is the Economy Growing?

A Q&A With Jack Kleinhenz

Jack Kleinhenz is chief economist for the National RetailFederation (NRF), the world's largest retail trade association.Formerly with the Federal Reserve Bank of Cleveland, Kleinhenz is acontributing forecaster to The Wall Street Journal, CNBC, FederalReserve Bank of Chicago and the Federal Reserve Bank of Philadelphia.

What is the state of home improvement retail?

We're seeing a considerable strength in home improvementspending and that translated into spending at retail establishments.

From what we've seen, retail sales in the building materialsarea have been really steady. Housing has softened a little bit. From aretail standpoint, people have to outfit their homes. They'relooking at supplies for repairs.

It looks like it's OK--just a bit of a softening in the lastfew months. It's hard to say. I think some of the home improvementactivities that go on are part of a housing cycle and timing. Homes getsold earlier in the year, not in the fall.

We've seen strength in the retail side in building materials,and in the garden supply areas. It's been a very healthy pace since2014, and it picked up in 2015 and then kind of started to tail off in2016. I think it's a good trend that we're seeing. I expectthat will continue.

Numbers can offset each other from month to month, but the overalltrend is a healthy 6 percent, which is much stronger than overall retailsales.

What do current economic indicators say about the end of 2016 and2017?

We saw a big uptick in consumer confidence at the end of September.Overall, there's elevated optimism about the economy. As we startlooking at some of the indicators, certainly payroll growth has beengood because, I think, as we get closer to full employment, there arefewer and fewer hires businesses are going to make.

My expectation for the gross domestic product (GDP) for theremainder of 2016 will probably be at a 2-percent growth rate, which isprobably double what we saw in the first half of the year. So, goinginto the holidays, and hopefully with momentum pushing us into 2017,we'll see the consumer continue to be the driver.

And hopefully housing stays in a positive state of affairs andcontinues to help push the economy, because that's where we'vebeen seeing the benefit of growth coming from--consumers and housing,and a limited amount of growth coming from the business sector. We mightsee more spending on equipment, but probably not on physical structures,per se, or a considerable amount of money in the nonresidential area.There just doesn't seem to be enough demand for it.

What is driving consumers' optimism?

The job growth, and some pickup in wages are propelling consumers.That gives our retailers an opportunity to actually see more spending,more dollars in their wallets.

What do you think economic conditions in the U.S. will look like in2017?

I think we should see a continuation of the overall momentumwe're seeing in the latter part of 2016, with a 2.2-percent growthrate. I'm thinking we're going to maintain that same pace in2017. We aren't going to see a significant pickup in the economy.The throttle on our engine is just set around 2.2 percent or so.

I think the consumer, the household, can continue to drive theeconomy. The consumer represents close to 70 percent of the economy. Ithink employment will continue to grow, but at a decelerated rate.

The economy's getting closer and closer to full employment. Aswe get to full employment, will there be enough domestic or eveninternational demand to lift up business? There's a lot of capacitystill from a business standpoint, but we could see more businessinvestment and production if we had increased demand. Most obviously, itwould have to come from outside the United States. We're reallydependent on the world economy. There's a lot of uncertainty.

We don't know what the new administration is going to do orwhat public policy will do in 2017. We still are at a point in theeconomy where we don't know where fiscal policy is going to comeout.

Monetary policy for the Federal Reserve has done the heavy liftingfor this economy. There's really no more room for them to doanything. That's why they're planning on normalizing interestrates, and that's why I'm expecting an interest rate increasein December. That could have a bit of an impact on consumers.That's a bit of an uncertainty.

I think businesses are not confident about their future, aboutwhether they're going to have to pay larger or smaller taxes, whatkind of programs might be there to stimulate or not. We just don'tknow. That's a big question, and it's going to have to getthrough Congress.

You don't know where interest rates are going to go, and youdon't know if there are going to be challenges in terms of highertax burdens.

What other thoughts do you have on the economy as we look to nextyear?

The key one for households is income growth. Wages and salaries.That's highly correlated. We're seeing some growth in use ofconsumer credit, which means that the consumers are confident they canrepay whatever they're borrowing. They're in a better placethan they were six months or a year ago, especially three years ago.Households are not over leveraged. The amount of debt that they areservicing is at 30-year lows. They have the income to spend, to borrowthe money and pay it back on a regular basis. That's anotherpositive indication that things are better and good for the future.

CANADIAN RETAIL REPORT

Canadian Market Realizes Slower, Steady Growth

Provided by Michael McLarney, Managing Director of NRHA Canada

While not as buoyant as the U.S. market, especially coming out of2015, Canada's retail hardware and home improvement industry isenjoying solid growth. But will it last?

Last year, sales by hardware stores, building centers, home centersand big boxes, and related sales by mass merchants in Canada, grew by amodest 2 percent, due mainly to harsh weather at the beginning of 2015.But coming into 2016, weather was on the side of retailers in most partsof the country. With a good start to the year, business stayed strongright into the fall, with notable exceptions in Alberta, which is theheart of Canada's oil industry, and Newfoundland and Labrador.

As a result, growth overall for 2016 has been revised upwards toexceed 4 percent. This is good news, given the headwinds the industry isfacing. While spending on new construction was up for the first part ofthe year, new housing starts are forecast to fall this year and next,according to Canada Mortgage and Housing Corp. The collapse of theenergy sector, exacerbated by the fire that swept through Fort McMurray,has had a drastic effect on retailers in Alberta. Falling naturalresources prices have further impacted Newfoundland and Labrador.However, 2017 is expected to slow down slightly, with growth closer to 3percent.

Regional Growth

Many parts of the country enjoyed healthier sales despite thedownturn in the energy sector, which affected the country in general,Alberta in particular and, to a lesser extent, Newfoundland andLabrador. But despite a slow start to 2015, the market maintainedstrength during the latter half of the year.

British Columbia began to enjoy an uptick in 2015, especially inthe Lower Mainland, but that growth was late in coming and focusedmostly on the Lower Mainland for much of the year. As a result, theprovince was down overall. B.C. has been showing greater growth in 2016across the province and is expected to sustain that growth through nextyear, as retailers catch up to improving conditions there.

The Prairies continue to suffer a downturn, with Alberta showingthe greater dip in dollar terms: it lost almost $150 million in homeimprovement sales in 2015. Last year, total retail home improvementsales coming out of that province totaled just over $5 billion, down 1.1percent from the previous year.

The Maritimes showed healthy increases, albeit on smaller overallsales. New Brunswick showed the greatest growth, up 0.6 percent, whilethe other provinces were virtually flat in 2015. Newfoundland andLabrador managed to show a slight increase, up 0.1 percent, despite thedownturn there. That region is forecast to show negative sales growth in2016.

Industry Marked by Consolidation

Just four retailers, Home Depot Canada, Lowe's Canada, HomeHardware Stores Ltd., and Canadian Tire Retail, account for well overhalf of all sales in the country now. Home Depot remains No. 1 withsales exceeding $7 billion. However, it faces tough competition:Lowe's $3.2 billion acquisition of RONA Inc., which closed in thespring of this year, moved Lowe's Canada up into the No. 2 spotwith combined sales of approximately $6.6 billion.

Even though two U.S.-based companies now dominate the scene here,the No. 3 position is held by a group of independents. Through acombination of aggressive retailer recruitment and growth by existingretailers, Home Hardware Stores Ltd. maintains third place in the topfour. In fact, independent retailers across a range of banners andbuying groups remain a large and vital part of the home improvementlandscape, generating more than half of all sales in the sector. Interms of sales, the largest groups after the top four, ranking No. 5through No. 8, are: TIMBER MART, Independent Lumber DealersCo-operative, Sexton Group, and Castle Building Centres Group Ltd. theNo. 9 and No. 10 spots are held by regional players: Groupe BMR inQuebec and Kent Building Supplies in Atlantic Canada, respectively.

Top 10 Home Improvement RetailersRank Company 2015 Sales in Millions1 Home Depot Canada $7,1952 Lowe's Canada $6,6003 Home Hardware Stores $5,8654 Canadian Tire Retail $5,4355 TIMBER MART Group $2,8406 ILDC $2,6507 Sexton Group $1,8368 Castle $1,8759 Groupe BMR $1,70010 Kent Building Materials * $769* Kent is part of ILDC, so its sales have been backed putof the total to avoid double-counting.Source: 2015-2016 Home improvement Retail Report, HardlinesHome Improvement Industry Sales Growth in Billions2011 $40.02012 $40.42013 $42.22014 $43.82015 $44.62016 (fc) $46.52017 (fc) $47.9Note: Table made from line graph.Big-Box Stores'Market Share75.8% Rest of the Market16.1% Home Depot Canada4.0% RONA*3.4% Lowe's Canada0.6% Kent** Big-box stores onlyNote: Table made from pie chart.