Inflation Surge in Home and Garden:Passing Costs Forward (Gaps by Sector)

December 2022

Challenges for the home and garden industry in 2021 and 2022 included unreliability in supply, with demand vastly exceeding supply, causing shortages and thus cost spikes. Following Russia’s invasion of Ukraine, the challenge in the short term is the ability of companies to pass on increasing costs in a market where demand has turned soft. This report looks at the materials cost pressure categories have been subjected to, which sectors passed most cost forward into the retail market, and why.

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This report comes in PPT.

Key Findings

There is a lesson to be retained about passing costs forward whenever the opportunity allows

Some product categories absorbed in their margins more than half of the cost of materials inflation in 2021/22, often with a view to temporarily and partly cushioning supply chain partners and consumers from full shocks. With 2022 demand changing from booming growth to decline, the difficulty in passing delayed cost rises on has ramped up, raising questions about everyone being able to seek win/win outcomes and the strength of business models.

Defeated by victory – the advantages of being in a booming sector have led in some cases to a margin crisis

There were other factors at work; the cost waves in wood gave earlier warning versus metals of how serious this inflation period was going to be, and exposure to shipping inflation also mattered. However, the clearest motive visible in categories that passed costs forward rigorously as soon as demand allowed was a sense of vulnerability. Profit lines cushioned by factory scale gains during 2020/21 did not feel the true margin urgency until later in the crisis.

One in three companies (half in Western Europe) cannot yet see when their supply chain issues will be resolved

83% of home and garden companies were at least moderately harmed by supply issues in the 12 months to August 2022. Some categories, such as homewares and home furnishings, are tracking to return to full availability, but home improvement is not expected to recover until 2024, and gardening may not yet have reached the peak of disruption. In Europe, particularly, there are companies that see no end in sight for their supply problems.

Passing costs forward is expected to improve in 2023, but a demand drop is widely anticipated

The industry is expecting an 8% increase in the cost of production in 2023, due to energy trends, and anticipates passing that through into its own pricing better than in 2022, and in some cases raising prices over this level, attempting to recover previously lost margins. This is linked to a widespread view that demand is going to drop by more than 4%, and any current terms sales growth seen in 2023 will come purely from anticipated price increases.

This is one of three linked reports published Q4 2022 on inflation surge in home and garden
Key findings across the “inflation surge” reports in home and garden
The many layers of global inflation
Commodity impact: Inflationary cost pressure varies with exposure to different materials
Assumptions and calculations driving the home and garden inflation projection tool
2022 home and garden inflation trends to 8% overall, but material cost pressure drives 14%
Furniture inflation trends to 10% overall in 2022, with material cost pressure driving 13%
Floor coverings inflation trends to 9% overall in 2022, this is fully aligned with material costs
Textiles inflation trends to 5% overall in 2022, with residual material cost pressure driving 6%
Tools inflation trends to 10% overall in 2022, with residual material cost pressure driving 19%
Paint inflation trends to 6% overall in 2022, with residual material cost pressure driving 18%
Cookware inflation trends to 8% in 2022, with residual material cost pressure driving 14%
Mattress inflation trends to 3% in 2022, with residual material cost pressure driving 9%
Garden equipment inflation trends to 8% in 2022, with material cost pressure driving 19%
It is not about severity: The two extremes experienced the same overall material cost rises
Visibility of early spikes could be a factor; some sectors started 2021 with costs below 2020
How early in the crisis brands could see how bad this was going to get is also a factor
The clearest indicator: Decision makers felt their business was vulnerable going into H2 2021
The cost pass-through rate in furniture is healthier than in bedroom textile products
There are evident 2022 issues in passing cost forward in home improvement and gardening
Homewares is mixed for passing on costs with products exposed to metal prices faring worst
Deconstructing inflation drivers for home and garden
There is a strong and painful lesson about passing cost through when you have the chance
Defeated by success - the impact of booming versus declining demand on margin missions
Understanding the context for price negotiations has rarely mattered more than it does now
This report looks at passing cost forward; it is one of three lenses for inflation surge in 2022
The scope of the home and garden inflation projection tool and ongoing intentions

Home and Garden

This project has a strict focus on sales to consumers only. Trade and professional sales are excluded. Home and garden refers to gardening, home improvement, homewares and home furnishings.

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