How Home Improvement Retailers Can Thrive in Asia
Asia Pacific is the fastest growing region in the world for sales of home improvement products, driven by the strong housing market and the launch of innovative products with higher profit margins. Amid the shifting demographic landscape, retailers will need to devise new ways to appeal to specific population segments, including the elderly, female consumers and millennials. Although Asia Pacific is largely a do-it-for-me rather than a do-it-yourself market, there is still great potential for growth if retailers cater to Asian consumers by offering comprehensive installation packages to make home improvement more convenient and invest in digital strategies to ride on the growth of internet retailing.
Prospects are bright for Asia
Today, the Asia Pacific is the largest and fastest growing region in the world for sales of home improvement products. The home improvement market in Asia Pacific was worth US$91 billion in 2016, accounting for 35% of global sales. The Asia Pacific market, which grew at a rapid rate of 30% from 2011 to 2016, surpassed North America in 2012 and shows no signs of slowing down in the future. Prospects are bright as the home improvement market is expected to show sustained growth of 20% over the next five years.
Fundamentally, the spectacular growth of home improvement could be attributed to the strong housing market in Asia. Taking into consideration the construction of private housing alone, the number of housing completions in 10 selected Asian markets* increased from 18 million units in 2011 to 20 million units in 2016. The primary and secondary property market play equally important roles in driving sales of home improvement products in Asia. While renovations on resale units drive sales of products such as home paint, floor coverings and wall coverings, a portion of new housing completions in developing Asia are constructed by independent contractors hired by home owners, who will purchase raw materials and fittings through retail channels. Even in countries where the property market has struggled in recent years, the demand for home improvement still registered positive growth. In Malaysia, the primary market for newly-built houses was challenged by the weak economic climate, currency depreciation and policy changes, but demand for home improvement products continued to rise due to the strong secondary market for resales and rentals, and attractive financing schemes for house renovations.
Pursuing innovations to increase margins
The strong growth of the home improvement industry has been driven in part by the launches of highly innovative products. Profit margins have been shrinking due to the increasingly fragmented and competitive nature of the industry, where the combined market share of the top ten companies did not reach even 40%. The influx of competing brands has resulted in more aggressive price competition, pushing down margins for manufacturers and, in turn, retailers. In order to overcome these challenges and forge a distinct brand identity, manufacturers have capitalized on environmental concerns and advanced technology, launching a multitude of innovative products spanning across various categories in home improvement.
In countries that are prone to floods such as Thailand and India, leading paint companies have introduced a new line of water-resistant paint that prevents flood damage. For example, the TOA Group released its TOA Extrashield Semi-Gloss in 2017. Using ‘breathable acrylic technology’, the product boasts durability, waterproof and stain-blocking features that prevent paint from bubbling and blistering.
Manufacturers of decorative paints have also found a niche in catering to parents with young children, and increasingly health-conscious and environmentally aware consumers. For example, Nipsea Group’s eco-friendly product lines include Nippon Hydro Wood, a varnish that absorbs toxic formaldehyde, and the Nippon Odourless Aircare that contains no volatile organic compounds (VOCs). Such products protect the respiratory health of babies and small children, and have been well-received among households with infants.
Bathroom and sanitaryware products, one of the most significant categories in home improvement, is also pushing the frontiers of innovation. Manufacturers have been investing in smart toilets to address the rising hygiene-consciousness of consumers. In China, Kohler’s Veil K5401-0 can automatically open when the user approaches and expel a stream of water to rinse the toilet. It can also emit ultraviolet light to break down bacteria after usage so that users do not need to clean the toilet. TOTO’s new washlet, the TCF345CS, includes a deodorizing and drying function. Such innovative products still carry hefty price tags, but the experience curve will allow manufacturers to reduce costs and make products more affordable in the coming years.
Targeting new demographic segments
Exploring new demographic segments has offered another source of growth for home improvement companies. Against the backdrop of slowing population growth and rapid ageing in Thailand, leading home improvement retailers such as HomePro and even bathroom specialist retailers like Boonthavorn Ceramics opened showrooms featuring products that improve safety, mobility and convenience for the elderly. Examples are toilet bowls with padded handles, anti-slip flooring, adjustable beds and automatic lighting systems. Such innovative products are currently positioned as premium or ultra-premium, attracting only high-income consumers. Even in developed countries, adoption remained low due to the presence of cheap alternatives. In Singapore, for example, households with elderly members can get slip-resistant treatment to existing floor tiles, installation of grab bars for toilets, and other home improvement products for only 5% of the actual cost by enrolling in the Enhancement for Active Seniors program. Going forward, affordability needs to be addressed in order to drive higher adoption rates for innovative products that target the growing market for seniors.
Apart from targeting the elderly, home improvement retailers are beginning to recognize the importance of catering to female consumers. In the past, male consumers were the primary target audience of marketing campaigns. Yet in recent years, companies have begun to shift focus. In Indonesia, Ace Hardware launched a promotional campaign “Smart Solutions for Smart Women” featuring large discounts exclusively for female members in 2016. In India, Asian Paints also targeted the female audience with social media campaigns featuring exciting home décor projects. Such moves took place because manufacturers recognized the role of women in the financial decisions of the household. They were also part of the companies’ agenda to promote DIY by showing that home improvement projects are not arduous tasks that even women can perform easily.
Appealing to millennials
Apart from catering to the rapidly ageing population and large base of female consumers, home improvement retailers are attempting to actively generate interest among millennials by appealing to their desire for authenticity and new experiences. Millennials in Asia Pacific have not been immune to the global ‘maker’ movement currently spreading through social media, which is characterised by shifting preferences for hand-made and personalized products. This has led a growing number of consumers to embark on do-it-yourself projects as an outlet for creativity and self-expression, crafting handmade items ranging from small decorative accessories to furniture pieces such as table lamps and kitchen tables.
Home improvement retailers in Japan and Singapore have capitalised on the burgeoning interest in crafting by establishing ‘maker spaces’ – shared workspaces equipped with hardware tools and manufacturing equipment where like-minded individuals can gather to craft, collaborate and share knowledge. For example, Japanese retailer Tsukuriba opened a workshop space located in the upscale residential areas Futako Tamagawa and Kichijoji, while Home-Fix The DIY Store in Singapore opened a maker space with a workshop, prototyping lab and electronics rooms.
These maker spaces are crucial for driving engagement in do-it-yourself projects in Japan and Singapore, where many live in apartments without sufficient space and suitable tools for more advanced projects. In addition, the preference for ‘do-it-for-me’ rather than ‘do-it-yourself’ in Asia also means that the nascent do-it-yourself community has been slow to develop, as few possess the technical skills and knowledge required. To assist DIY first-timers, Home-Fix The DIY Store offers carpentry, metalworking and basic safety courses for working with power tools. The retail concept of maker spaces is crucial for building a strong relationship between retailers and millennial consumers, driving higher traffic into physical stores and deepening customer engagement by turning the relationship from ‘customer’ into ‘collaborator’.
Strategies for the digital age
Brick-and-mortar home improvement retailers are now feeling the pressure from online retailers as consumer purchasing habits shift in favour of online and mobile channels. Online sales of home and garden products in other Asian Pacific markets is forecast to rise at a faster pace than Japan due to a young population, growing middle class, rising internet connectivity and multiple payment options, all of which are favourable for the growth of online retailing. The bulk of online orders are clustered in the major cities in the developing Southeast Asian markets, with time-strapped young working consumers making use of the logistics infrastructure offering same-day delivery services to save time and avoid traffic congestion.
The advent of internet retailing poses a significant threat to the traditional home improvement industry. China, in particular, is a hotbed for online startups with innovative business models. Newcomers Tubatu.com and Jia.com are disrupting the home and garden industry and placing pressure on traditional retailers. Jia.com is an online platform that provides group buying services for renovation, construction materials, home furnishings, appliances and other products, shifting demand away from brick-and-mortar home improvement retailers.
Yet the larger threat by far is Tubatu.com, a third-party platform that matches consumers with construction and interior design companies. The company also has its own online shopping website selling construction materials, home improvement products, furniture and household items. Tubatu.com requires all its projects to use materials and products sold on its online platform, directly competing with home improvement retailers who offer renovation and installation services.
The reasons behind its success are simple. Tubatu.com addresses customer pain points simplifying the search for a trustworthy contractor and ensuring high standards of quality. By requiring that all companies declare prices, designs, materials and construction time, it addresses the lack of transparency faced by consumers and allows for easy comparison. In addition, Tubatu.com offers an insurance service to guarantee users that the standards of the finished project will meet expectations. These services are instrumental to its success in China, where counterfeiting and fraud is rampant.
Although internet retailers may pose a threat to brick-and-mortar retailers in the home improvement industry, it can also be an opportunity for retailers that adopt savvy digital retailing strategies. Despite struggling in China and recording nine consecutive years of losses, B&Q’s Chinese operations finally turned a profit this year due to its tie-up with Alibaba’s Tmall platform in 2015. With a purely physical retailing strategy, B&Q could only reach out to a limited pool of consumers clustered in the vicinity of its outlets. By adopting an online strategy, B&Q was able to trim costs and reach out to a wider customer base.
Looking to the future
Home improvement in Asia Pacific is set to be highly dynamic and the fastest region for growth over the next five years due to the bullish housing market, innovative product launches and the shifting demographic landscape. However, the culture of do-it-for-me is deeply entrenched in the mindset of the Asian Pacific consumer. While maker spaces and other experiential retail strategies can help to generate interest in a niche segment of consumers, the real challenge is for retailers to create compelling reasons for consumers to continue visiting physical stores, and to drive a wider change in the way consumers approach home improvement projects. To do so, retailers must make home improvement easier, more convenient and more accessible by equipping consumers with the necessary skill sets for do-it-yourself projects. Furthermore, internet retailing will be a major force revolutionising the home improvement industry. Retailers must be prepared to invest in both online and offline channels to create a seamless shopping experience in order to keep pace with the digital retailing trend, or risk being supplanted by more agile competitors.
*10 selected Asian markets include China, Hong Kong, India, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
*Published in “Diamond Home Centre”, September 2017