Key investment points
Core logic: by reviewing the development process and single store model of building materials and home furnishing retailers in the United States, we find that 1) from 2010 to 2020, the floor efficiency of Home Depot stores increased from 3000 US dollars to nearly 6000 US dollars / square meter. In the mature market with slow growth in the home furnishing industry, we deeply dig into the customer unit value of store customers And improve the sales of viscous customers such as small B contractors, which can significantly improve the floor efficiency of stores; 2) In addition to large single product brands such as mattresses and functional sofas, retailers mainly operate in multiple categories. With the continuous enrichment of categories, compared with traditional stores, the store form of lifestyle stores can boost the customer unit value and the associated sales rate of supporting products, so that retail stores can still maintain growth vitality in the case of scattered traffic. Ashley still maintains the opening speed of 30-60 stores every year, and the ceiling of lifestyle stores is high; 3) In the process of category expansion, retailers are facing the pressure of multi category inventory management. After the reform of home depot supply chain, the inventory turnover rate has gradually increased from 4.2 in 2008 to 5.6 in 2020. A strong supply chain and logistics center layout can accelerate the inventory turnover efficiency and optimize the cost-effectiveness ratio and profit margin of stores in the long term.
The U.S. home building materials market is mature, the production and retail functions are separated, and the retail market is highly concentrated. The sales of home building materials products in the United States are mainly for the renovation of old houses, and the market scale has entered a stage of steady growth. In 2020, the retail market scale of building materials / home furnishings in the United States was US $457 billion / US $115.56 billion respectively, and the compound growth rate from 2015 to 2020 was 6.2% / 1.4% respectively. As the production function of furniture products is mainly transferred overseas, retailers in the United States occupy an important position in the industrial chain. At present, home depot and Lloyd’s account for 28.9% / 19.6% of building materials retailers respectively, ranking the top two; The market share of top 10 furniture stores is 24.1%, and the concentration of retailers is higher than that of manufacturers.
Under the trend of category expansion, the floor effect ceiling of lifestyle stores is higher. According to the list of American furniture retailers in furniture today, most of the furniture stores with high market share are multi category furniture stores, but mattress brands such as sleepnumber and functional sofa brand La-Z-Boy also rank among the top, mainly due to the strong functional attributes of mattresses and functional sofas, few SKUs and class standards, which can rely on single category to achieve high market share, Other home retailers mainly operate in multiple categories. Under the trend of category expansion, pure channel home stores such as Haverty’s, Berkshire Hathaway and big lots have insufficient growth power after the industry is mature and the expansion of stores slows down. In contrast, retailers that pay more attention to the display of living space and the upgrading of store status have high category associated sales rate and more room for store efficiency optimization. They can still open stores steadily in the highly mature American market.
The supply chain provides the bottom support for customer acquisition and inventory management, which helps to improve the quality of profitability in the long run. By reviewing the growth path of home depot, the largest home building materials retailer in the United States, we believe that the core driving force to improve the turnover rate and upgrade the floor efficiency in home depot is the processing capacity of the supply chain for multiple SKUs. After the gradual improvement of supply chain construction in 2010, the floor efficiency and customer unit value of Home Depot stores increased significantly. From 2010 to 2020, the annual growth rate of Home Depot’s annual transaction orders was 3%, and the annual growth rate of average customer order value was 3.6%, which led to the increase of store floor efficiency from US $3000 to nearly US $6000 / m2. We believe that the improvement of store efficiency mainly comes from: 1) Wuxi Online Offline Communication Information Technology Co.Ltd(300959) good coordination, smooth and frictionless online orders, and encourage online buyers to pick up goods offline, Drain and form joint consumption for stores; 2) Provide more comprehensive system services for pro customers, increase stickiness and raise the average single value; 3) Supply chain transformation and upgrading, reduce the distribution burden of stores through RDC, and store employees focus on sales and improve turnover. In the long run, by optimizing the supply chain, improving the inventory turnover rate and strengthening the customer acquisition ability of online and professional customers, it can significantly improve the cost-effectiveness ratio and profitability.
Risk tips: the risk of sharp fluctuations in the price of raw materials, the risk of expanding the scope of influence of overseas epidemics, and the risk of intensified industry competition.
