Sections: Business Models - Organization - Strategy - Policy - Trade Events - Research
On the subway train back home, strung-out and going through shopper's withdrawal, I attempted to estimate how much damage I had put on my credit. In a single weekend, I had managed to spend just over $1000 at Bed Bath & Beyond, Crate&Barrel, and Sur La Table, not the most I've ever spent, but unplanned and horribly unprecedented for the mere opportunity to eat like a civilized person.
Awakening from a Neanderthal stupor, to use real plates and utensils instead of those disposables, is like a bug that grips you with an uncontrollable need to measure and coordinate everything, right down to avocado slicers and over-the-bowl clippie to hold your spatula. Of course, because I'm a renter, my purchases are barely even counted by market watchers, since renters are not economically expected to improve their landlord's homes. Furthermore, analysts find it more sexy to analyze home sales, construction and installations (and remodeling), lumber, roofing, siding, plumbing, furniture, and broad categories in kitchen and bathrooms instead of my purchases of minor lifestyle luxuries, like a dining table.
In fact, the home improvement market has morphed from merely do-it-yourself and contracting to embrace previously tangential sectors such as furniture and appliances, and has single-handedly given itself more importance in the economy with its $300 billion size, comparable now to how much U.S. consumers spend on eating out (1). But the question remains: why would someone who doesn't own a home invest in a home not their own, and more surprisingly, using credit?
The answer would appear to be simply for the opportunity to socialize in a much nicer environment; because prices are "affordable"; because the investment isn't on the home, but on everyday items which can be moved to a future home. But none of these reasons make economic sense when one takes into consideration that eating standing up is better for one's digestive system; the cost of using disposable plates and utensils is much better when one also takes into account the time saved setting tables, washing dishes, cleaning up; and because we spend about 40%-60% of our "food budget" on eating out (2), it's logical to conclude that investing $1000 on eating like a normal person is an investment wasted 40%-60% of the time.
So why exactly do we desire to improve our homes?
An archeologist and anthropologist both will tell you that the desire to improve one's abode is apparent throughout the history of civilization, in every geographic area man has settled in, using every form of technology throughout time, whether he is renting or owns his home. Thus, the only conclusion is that man desires, and pays through the nose for, convenience and aesthetic pleasure, one of which makes perfect economic sense, the other of which doesn't, so, naturally, we should be economically inclined to pay about half of what we normally pay for home improvement.
So, what accounts for that extra $150 billion in the value of the market? It's no secret that branding, customer service, and the right merchandizing mix are proven factors in getting consumers to spend more. This is what comprises the goodwill that accounts for an increasing amount of the economic value on any balance sheet. Consequently, it would be reasonable to claim that, there being only two reasons consumers desire to improve their homes, and only one of those reasons has classical economic merit, every item sold under the heading is actually worth about half as much. (This theory, of course, doesn't take into account that manufacturers and retailers have actually invested in their goodwill so as to get away with charging what they charge.)
Based on a shopper's observation of the 14 online and offline retail choices available for home improvement in the New York metro area (including Bed Bath and Beyond, Pier 1, Williams-Sonoma, Sur la Table, Pottery Barn, Crate&Barrel, Linens N Things, Lowe's, Target, Amazon, Ikea, Sears, JC Penney, Netshops, Macy's), it is clearly a manufacturer's paradise since every manufacturer carries an almost identical selection in very similar departmental layouts. In fact, without a "queer eye", one would be hard pressed to even remember where one saw what. Even prices varied only slightly by 5 to 10%.
Not too long ago, the Toys R Us's of the world claimed defeat at the hands of big box retailing. Despite their selection, the cost of getting their selections out to every market, coupled with consumer's fluctuating need to access these selections, made the niche approach laughable in hindsight. But then retailers discovered "the long tail", and niche was back in, especially since it can now make money on a large scale with very little cost. In a combination of bricks and clicks, neither online or offline can displace the other in home improvement. But they certainly support each other, albeit not entirely in the interests of the retailer.
At this point in an
industry, consolidation is the obvious solution (over 13 specialty retailers,
not including mom-and-pops, antique stores, lighting stores, home décor
stores, etc, all carrying the same selection within 10 miles of each other
is precisely the same nonsense that lead Standard Oil to consolidate Pennsylvania
oil riggers on its way to becoming a monopoly). Even Wal-Mart
can't hope to cater to every aesthetic mood. Consolidation may immediately
yield two results: bringing innovation back from the ridiculous to the practical
and help consumers save time by avoiding visiting a dozen retailers who
all carry the same inventory. And that immediate period may be counted in
decades. Like every market, it'll return back to what it looks today in
another 30 or 35 years. In the meantime, I woke up this morning and absolutely
hated my bedroom set.
(2) Berrios, Al, "Cooking Less", http://www.alberrios.com/c/080304consumer.html