The hardware industry in Spain

The Alimarket magazine has presented in 2016 a new study on purchasing groups and hardware stores in Spain. In the published note, they inform that the hardware cooperatives and purchasing groups sold 3755Million € in 2015, with growth of 4.7% and achieving a market share of 36% of the total Hardware Market that includes DIY Homecenters, and specialized Industrial and Construction supplies.

I think it is worth paying attention to this study, not only because it confirms the good moment of the sector in Spain but because, along with some other information, it also points that the sector may be at the beginning of a growth cycle that extend several years. I think this time there are objective reasons for optimism.

An overview of the construction sector

First, let’s see where we come from, in 2007 the Txema Elorza´s Foundation estimated the total hardware market in Spain, in 12.000 Million euro business. This market size, happened at the same time that the peak of activity in the construction sector, when more than 647,000 homes were completed, according to the Spanish government official statistics, and it was the last of the boom years in our sector and in general of the Spanish economy.

 Source: Ministry of Development. Government of Spain.

After 2008, the bursting of the property bubble produced 2.7 million unemployed only in the construction sector, damaging not only the hardware industry but the global economy. Since then, in Spain, the construction sector has been constantly decreasing, reaching in 2012 its minimum values.

However, the positive fact is that in 2015 the construction sector has not destroyed more jobs, even it has created a modest 28,100 new jobs in the full year, additionally residential construction has stabilized at about 50,000 housing starts a year, a number that is clearly insufficient in the medium term, in a country of over 45 million inhabitants, as proof that this number it is still much lower than in the 90’s, before the bubble.

 Source:Ministry of Development. Government of Spain.

The effect on the hardware industry

It is not realistic, expecting to return to the levels of activity of the bubble years, but if it is reasonable to expect a sustained medium – term construction increase that will benefit the hardware industry, allowing the sector, at least, sustaining the growth that we’re watching since 2014. But, being important, this is not the only thing to be considered in order to understand the growth potential of the sector.

In the difficult years of the crisis, the market for housing rehabilitation and reform has performed much better than the new building activity, helping the DIY related distribution taking market share from construction specialist or generalist hardware stores. In my opinion, that probes that DIY itself, as an activity, still has great potential in Spain. Perhaps this is the reason for the significant expansion of large specialized chains in DIY whose commitment to the Spanish market seems clear, seen their plans for new openings in the coming months. According to the study published last year by DBK specialized DIY distribution, led by Leroy Merlin, billed in Spain about 2600 million euros with growth of 6.8%. It is reasonable to expect that investments of the big chains grow the DIY market, bringing the average expenditure of Spanish DIY consumer from 180 € a year to nearly the 600€ of the European average consumer, which, again. The whole trend of DIY and the investments planed by the big retailers will have another positive effect in the hardware industry.

A final element to be considered is the index of industrial new order entry (IEP in Spanish) prepared by the National Institute of Statistics, which in January announced a positive variation of 1.9% in the total of 2015. This figure is even more positive if we dig into categories, as the industries with the highest growth rates are, repair and installation of machinery and equipment + 15’0%, and also manufacture of electrical equipment + 11’9%. Both figures are speaking about increased industrial activity either via of increased capacity or via of cost reduction. In any case, it is expected that the pull of an industry, that it is important consumer of tools and accessories, will boost the results of industrial supplies, once more, we find another element to sustain sector growth.

In summary, I think we can say that the hardware industry in Spain has clearly overcome the crisis and that we could expected that growth of around 5-6% which we have seen in 2015 will be maintained and even improved in the coming years. It’s a good time to invest on a market that has proved more robust than many thought, that has been able to face the crisis and now shows an interesting growth potential. Although of course, that growth will not be equal for all, that will not be worth the old recipes and strategies of each of the actors involved will determine who takes the bigger piece of the cake.