A lot to build on for the DIY industry

November 2018 – For a long time, Germany’s home-improvement centers have been guided by the motto: the bigger the better. But the old way of doing business is running into trouble. The traditional concepts are less and less popular with the customers, while purely online competitors are gaining very respectable market shares. The revolution the industry is undergoing and the strategies established traders are using to counter this are revealed in a current study by IFH Köln and HSH Nordbank.

A confusingly huge selection, endless high-rack labyrinths, and few sales staff who generally make a quick run for it when faced with clueless customers: This is more or less the scenario many customers are met with in German home-improvement centers. For a long time, the industry has seen the survival of the fittest: The biggest swallow up the big and become even bigger. Advice and proximity to customers have been subordinate to growth. These temples of the DIY industry can be found on the edges of countless German cities and in business parks. The only problem is that customers no longer seem to be heading to the self-service stores in such great numbers after work or on Saturday mornings. Paints, wallpaper, nails, hammers, floorboards and bathroom fittings have long been available on the internet too, and often for a lower price with greater convenience.

“Home-improvement centers are in danger of losing their role as the first port of call for customers. In order to counter this and to ensure their very raison d'être, home-improvement centers must consistently head further in the online direction and distinguish themselves with differentiation factors.”

Dr. Eva Stüber, member of the executive board at IFH Köln

Retail has always meant change, yet these ongoing and, most importantly, intensifying trends are set to bring fundamental change to home-improvement segment. The old self-serve formulas have served their time. “Home-improvement centers are in danger of losing their role as the first port of call for DIY customers. In order to counter this and to ensure their very raison d'être, home-improvement centers must consistently head further in the online direction and distinguish themselves from their competitors with differentiation factors,” says Dr. Eva Stüber, a member of the executive board at IFH Köln. The independent specialist analysts, who deal with all matters relating to retail, teamed up with the retail experts at HSH Nordbank to develop a research paper that reveals promising routes to the future for established home-improvement centers.

Change is imminent for home-improvement centers

To the cost of the big DIY chains they get massive competion online.
To the cost of the big DIY chains they get massive competion online.

To quote a buzzword, agility is the overriding principle here. “The toughest challenge isn’t the competition but rather time – home-improvement centers need to, above all, react quickly,” says Stüber. Time is so pressing primarily because the well-functioning USP that home-improvement centers have enjoyed for all these years no longer applies. The internet now offers a huge range – one that is even greater than the stores in some cases, while prices are generally lower.

Germany’s biggest home-improvement centers are outpaced by their digital counterparts

Germany’s biggest home-improvement centers are outpaced by their digital counterparts


Source: IFH Köln

Digital top-dog Amazon is already a much more frequent part of the “customer journey” for home-improvement customers purchasing online than the five biggest German store chains Obi, Bauhaus, Toom, Hagebau and Hornbach. On top of this, Amazon boasts an incomparable 76 percent conversion rate, compared to just 30 percent among the top five home-improvement centers. Put more simply, a 76-percent conversion rate means that Amazon turns three out of four visitors to its website into digital DIY buyers. And much to the chagrin of the major home-improvement chains, it’s not only Amazon that poses huge competition. Purely digital niche providers – the “category killers” – like reuter.de or fensterversand.com are increasingly causing trouble in the ranks.

So what are they to do? “Home-improvement centers must offer new business models with a clear performance promise. In particular, factors that are hard to replicate online, such as service, advice and experience, should be a key focus here. After all, this is the only way that home-improvement centers will have the chance to survive in future in the role of solution-provider alongside digital platforms,” says Jens Thiele, Head of Commercial Customers at HSH Nordbank.

“Do it for me” is ever more popular

The requirements of home-improvement center customers

“Do it for me” is ever more popular


Source: IFH Köln

Putting the customer back at the center of everything they do – that’s what it all boils down to. And that applies both in stores and online. Obi, for example, is doing well with garden projects and provides customers with guidance right from the beginning along the entire customer journey: With the help of the online configurator, customers can plan their own garden projects on the website, get inspiration from suggested designs, download instructions on how to do things themselves, and then get advice in person from the Obi garden planner in the store, who will help them choose products or apply the finishing touches. Obi’s competitor Hornbach holds rotating in-house exhibitions each month to inform customers about the latest trends relating to building, modernizing and designing; Knauber meanwhile cooperates with product manufacturers to offer a look at coming trends for the home and garden in its Innovation Stores.

“Home-improvement centers must offer new business models with a clear performance promise. In particular, factors that are hard to replicate online, such as service, advice and experience, should be a key focus here.”

Jens Thiele, Head of Commercial Customers at HSH Nordbank

DIY is going out of fashion

57 percent are interested in set up and connection, as well as installation and assembly by the store

These sorts of offers are hitting the mark and picking up perfectly on the mood of the times, according to the trend study by IFH Köln and HSH Nordbank: 35 percent of home-improvement center customers expect the stores to take them by the hand a little more and do more of the work for them. Particularly worthy of note is that among heavy online shoppers, this proportion is as much as 46 percent. Almost one in two customers sees the provision of craftspeople by the supplier as “very” or at least “quite interesting”. 57 percent are interested in set-up and connection, as well as installation and assembly by the store.

Almost one in two customers sees the provision of craftspeople by the supplier as
Almost one in two customers sees the provision of craftspeople by the supplier as "very" or at least "quite interesting"

What these figures show is that the DIY boom is long past. Instead, customers are increasingly asking for “do it for me”. More readily available, more personal and thus better advice is one of the keys with which classic home-improvement centers are able to differentiate themselves from the upstarts on the web. Smaller store areas can also ensure a more personal shopping experience: According to research by IFH Köln, 43 percent of home-improvement center customers have a positive view of smaller store formats. Among young people, this figure is as much as 54 percent. “Small store formats for a limited, perhaps periodically changing range in an urban location make it possible, for example, to address customer’s needs for inspiration and an experience within the spheres they would naturally move in, while also standing out from existing formats,” says Eva Stüber from IFH Köln. The Toom chain, for example, is already penetrating high-traffic, inner-city areas with pop-up stores, while its competitor Jeez acts as a mobile hardware store, supplying everything customers need for designing their rooms delivered directly to their door.