Despite persistent competition, the housing market's upturn will support industry growth
Los Angeles, CA (PRWEB) October 22, 2012
As with other industries that depend upon the US construction markets, the Lumber and Building Material Stores industry has been hit hard by the economic recession and the subprime-mortgage collapse, which brought new construction across all markets to a near standstill. According to IBISWorld industry analyst Andrea Alegria, “The industry depends mostly on the residential markets because most industry sales come from professional contractors and homeowners, who purchase industry goods for residential construction.” Over the past five years, significant declines in housing starts and remodeling in the United States have caused demand for lumber and other building materials to plummet. Consequently, industry revenue has declined at an average annual rate of 6.1% in the five years to 2012.
Over the past five years, particularly unstable lumber prices have burdened industry firms. Lumber accounts for about 65.4% of sales, and prices have been volatile. “This trend has made it difficult for retailers to anticipate future spending and control costs,” says Alegria. Furthermore, the industry has also experienced intensifying competition, especially from home improvement stores, which offer the added convenience of one-stop shopping and lower prices. The industry has faced falling profit margins; IBISWorld estimates that profit has declined from about 3.1% of revenue in 2007 to about 2.1% in 2012. Falling margins have caused many operators to either exit the industry or consolidate over the five-year period. The number of enterprises has declined at an average annual rate of 2.0% to 38,936 in 2012 from 43,008 in 2007.
The Lumber and Building Material Stores industry exhibits very low concentration of ownership. The industry is highly fragmented, with no single operator having more than 5.0% of market share. The majority of industry businesses are privately owned, and they successfully supply the local demand in their communities. To this end, close to half of the industry's players in 2012 are estimated to be nonemployers, which are owner-operator businesses that do not have any hired employees. Even among businesses with hired workers, 69.1% of enterprises are expected to have fewer than five employees, while only 14.7% is estimated to have more than 20. In recent years, many of these small operators have merged with other players or exited the industry, increasing concentration. This trend has mainly occurred because of falling industry profitability, as the housing downturn significantly reduced sales and prices of inventory goods remained volatile. In the five years to 2012, the number of firms is expected to decrease 2.0% annually to 38,936. However, improvements in the economy will likely encourage new firms to enter the industry at an average annual rate of 2.3% in the five years to 2017. Although industry consolidation will increase in the next five years, it will still remain comparatively low.
The housing and nonresidential construction markets have been slow to recover. Housing starts picked up slightly in 2010 but showed sluggish growth in 2011. Nonresidential building construction remains burdened with high office vacancy rates and a cautious business environment. As population growth and pent-up demand drive up housing starts, and improved economic conditions boost demand for repairs and renovation projects, sales of industry products will grow steadily. IBISWorld projects industry revenue will grow 7.6% to $100.8 billion in 2012, driven by an increase in total residential construction spending and improved spending on home improvements. In the five years to 2017, industry revenue is projected to continue its increase as the housing markets stabilize and new construction spending follows population growth and spending trends.
For more information, visit IBISWorld’s Lumber & Building Material Stores in the US industry report page.
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IBISWorld industry Report Key Topics
This industry consists of stores and dealers (e.g. lumberyards) that retail building materials such as lumber, hardwood, stones and brick. This industry also supplies cabinets, floor coverings, roofing materials, electrical and plumbing goods, doors and windows to the construction market. The industry does not include home improvement centers, paint and wallpaper specialty stores, or hardware stores.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com