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.
This report comes in PPT.
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.
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.
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.
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 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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