/ 18 January 2021

Covid will decide if home refurb boom continues

A Team Of Builders Prepare Steel That Has Just Been Delivered
Many happy returns: Hardware shops and similar businesses have seen sales increase by up to 16% during the pandemic. (Paul Botes/M&G)

The home improvement industry’s boom, triggered by the Covid-19 lockdown, will probably level out in 2021 — if life returns to normal.

With people having to spend more time at home, improvements such as retiling bathrooms and painting became a trend and they noticed household maintenance jobs they had neglected.

While many retailers slumped during 2020, stores specialising in hardware, paint and glass sold more than in the previous year, according to data from Statistics South Africa. Between August and October 2020, these retailers recorded an 11% rise in sales compared with the same period in 2019.

JSE-listed home improvement companies Cashbuild and Italtile, buoyed by the home improvement trend, performed well in 2020 despite tough trading conditions. 

Cashbuild’s integrated annual report noted that though the first part of the lockdown was difficult for business, the building materials retailer experienced unexpected good sales across all its stores as customers took on DIY projects.

Between July and November 2020, Italtile’s total retail store sales grew by 16.4% for the review period, while like-for-like retail store sales increased by 14.9%, according to a sales update. 

Manufacturing sales for the review period were up 16% compared with the previous corresponding period, and double-digit growth was reported across all of the group’s operations. The tile retailer attributed this growth to the “work-from-home trend … which boosted demand for home improvement products”. 

“The more time you spend at home, the more you realise the flaws in your living space,” said FNB’s senior economist, Siphamandla Mkhwanazi.

Lower interest rates and travelling costs supported the home improvement trend, he added. 

“Consumers who were lucky enough to stay employed during that period did have some savings, and some of those savings were being channelled into home improvement.”

The projects people were taking on were “home improvement in the truest sense of the word”.

“We didn’t see much value-adding projects like the extending of houses. Yes, there was a bit of that, but it was predominantly the changing of paint and retiling — the kind that does add some value but not significantly.”

But, said Mkhwanazi, the growth experienced by home improvement retailers started slowing down towards the end of 2020. 

As demand for these products increased, inflation on home improvement items also started creeping up, he added. “But I think the main driver for the slow down is that the demand has dried up now.”

Mkhwanazi said he expects the market will remain relatively stable in 2021 amid the further disruptions caused by Covid-19. If there is another hard lockdown, there may be another spike in sales, but not to the same heights as were seen in 2020, he added.

Ron Klipin, a senior analyst at Cratos Capital, said Cashbuild “is a different story” because its market — people in the middle- to lower-income bracket, including so-called bakkie builders — are continuously upgrading their homes. “So I imagine that market would continue to show relative strength.”

He added that if the economy worsens as a result of Covid-19 “it is going to be very tough” to keep the home improvement trend going.

“We are going to see a very tough budget. Unemployment is here to stay. So I think the first quarter is going to be rough for the South African economy.” 

Italtile’s agility will probably make it more resilient, said Klipin. 

Veteran retail analyst Syd Vianello said it is difficult to predict whether the home improvement trend will continue because it is not known when people will be able to return to their pre-Covid lives.

“When things start normalising, question one is: To what extent are things going to normalise? And as they start normalising, to what extent are people going to revert to the way they behaved before? And the answers to those questions, we just don’t know,” Vianello said.

If a vaccine is swiftly and effectively distributed, more people will probably return to working at the office, and there will be less sales momentum on home improvement, he said.

The department of health is working to procure Covid-19 vaccines to at least 38-million South Africans hopefully by the end of this year. Earlier this week, President Cyril Ramaphosa said the aim of the government’s vaccination roll-out is to achieve herd immunity. 

Scientists estimate that the country will probably reach herd immunity once about 67% of the population — 40-million people — are immune.

When South Africans become more confident that life will return to normal, they will likely divert their spending to things they have given up — such as travel — during the lockdown, he added.

“I think the home improvement market is probably reaching — if not at — a peak … and I think the growth in that market is going to level off quite substantially. Obviously, there are a lot of ifs there,” Vianello said.

“But if my assumption is correct, and a vaccine becomes available through the private sector, then I would think that from the middle of the year onwards there will be a rotation away from the home improvement market to the leisure market.”