Heightened competition and rising purchasing costs have cut into profit margins.
New York, NY (PRWEB) July 04, 2014
The Canadian Lumber and Building Material Stores industry has fared significantly better than its US counterpart over the past five years. Industry operators were not affected by the prolonged decline in demand for building products that decimated so many US lumber and building stores during the recession. The Canadian government rescued the construction sector from the recession with stimulus money, reviving demand for many of the building products used by contractors. Furthermore, the Bank of Canada helped by slashing interest rates, making it more affordable for developers to obtain financing. As a result, industry revenue has achieved steady average annual growth over the past five years, including growth in 2014 alone.
While the industry escaped the recession relatively unscathed, building materials operators have faced a number of more fundamental challenges over the past five years. According to IBISWorld Industry Analyst Will McKitterick, “most lumber and building materials are relatively small operations who face fierce competition from big-box companies in the Home Improvement Stores industry (IBISWorld report 44411CA) and the Hardware Stores industry (IBISWorld report 44413CA).” Companies in these external industries are able to leverage their large size to achieve economies of scale. Big-box stores can save on purchasing costs by buying in bulk, passing their savings down to consumers. “Heightened competition and rising purchasing costs have cut into operators' profit margins and forced a number of smaller operators to merge to remain competitive,” says McKitterick.
The Lumber and Building Materials Stores industry has a low level of market concentration. The Lumber and Building Materials industry is expected to continue to grow over the next five years, although at a slightly reduced speed. The governor of the Bank of Canada has commented that the housing market is headed for a “soft landing,” meaning the much-feared housing market bubble is unlikely to pop. Nevertheless, this cool down in the real estate sector will subdue demand for new housing, reducing demand for lumber and building materials. Furthermore, though it is difficult to forecast the Bank of Canada's monetary policy, the overnight rate is expected to moderately increase over the next five years. This would raise interest rates to rein in borrowing, further reducing demand for new housing. As a result, private contractors will demand less industry products, slowing revenue growth to an average annual rate over the next five years.
For more information, visit IBISWorld’s Lumber & Building Material Stores in Canada industry report page.
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IBISWorld industry Report Key Topics
The Lumber & Building Material Stores industry retails 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 centres, 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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