First published by Investor.ge.
According to a report by investment bankers Galt & Taggart, Georgia has a booming DIY industry worth $2 billion and more. This is part of a $3.4 billion construction market that grew 29% last year in its renovations sector. Although, as is the case worldwide, retailers continue to guesstimate the percentage of customers who do the work themselves rather than hire workers.
According to a study by the US-based research group Global Market Insights, refurbishment is a “lucrative” business, but not as lucrative as Georgia’s growth rate. Research Dive, a US-based research group, estimates the global annual growth rate to be over 6%. It forecasts that the DIY sector could reach $1.3 trillion within a few short years. It forecasts that the Asia–Pacific region will grow at a rate of 3.9% per year, while the Americas will grow at a rate of 4.5% annually between 2021-2027. According to ANGI, a US market research firm, US homeowners will spend an average of $10 341 on home improvements in 2022.
DIY boomed during the pandemic, driven by household economy and boredom. According to US research consultants, the Freedonia Groups during the pandemic 39% of consumers reported that instead of just sitting on the sofa watching Netflix, they worked on home improvement and renovating projects. In the US, many households added swimming pools. In Georgia, however, due to the increasing number of tourists and immigrants, they have focused on adding rooms for rent or listing their homes on airbnb.
Post-pandemic DIY boom
The global shortage of workers, coupled with the rising costs of materials, has led to record-breaking DIY revenues. According to the US HomeAdviser site, a DIY project could save you up to 80% compared to a contractor.
Galt & Taggart claims that in Georgia, the soaring prices of materials and products “reflect a high dependence on imported goods,” which reached a record high in 2022. Prices were stabilizing by September last year, although metal prices, while down 10%, were still 63% higher than January 2020. Wood products were also 67% more expensive, and plastic was 44% more expensive. Analysts at the investment bank TBC Capital estimate that early this year, construction costs rose by 21% over a year ago.
Unlike in the US or Europe, where DIY store groups are listed on stock exchanges, this highly profitable sector is not accessible in Georgia because it is privately owned. Galt & Taggart’s forecasts place the sector’s growth between 5% and 10% per annum over the next five-year period.
Profit margins in the Georgian home improvement sector are significantly higher than those of their international counterparts. Galt & Taggart, which published the latest financial results in 2021, states that the margins for the renovation industry increased from 7.5% to 12,9%. For the specialized DIY companies, it increased from 14.1% up to 18.3%. Comparatively, the margins for Asian and European DIY shops rose from 6.8% up to 9.6% during the same period. The cash flow of Georgian companies was strong enough for them to reduce their debt levels significantly.
Georgia’s DIY retailers
Gorgia is the leading DIY retailer in Georgia, followed by Modus, Bricorama and Domino. Galt & Taggart has named Jaoken as one of the leading DIY retailers in Georgia. Other names include Demas, Zodi and Kapelis.
It is not surprising, given the attractiveness of the market, that a number Georgian construction material and specialists suppliers have “started expanding operations, shifting to DIY retail format”, states Galt & Taggart naming Nova as an example.
TBC Capital expects consumer spending to grow by 15% annually in 2023. The expenditure of migrants is also expected increase. It is estimated that 115,000 migrants will spend $1.7 billion in this year, compared to $1.1 billion last year. The German economic group GET forecasts that the immigrant share in GDP will be 3.2% by 2023, up from 2% the previous year. This is based on their average monthly income, which is $2,300, according to a CRRC study.
TBC’s forecasts for 2023 show that the rise in rental prices will be 53% and a 21% increase in sale prices. After years of an average price of just over $6 per sq. meter, the price soared to $13.2 last year, fueled largely by immigrant demands. Georgian rental yields, which reached their highest level in history and were the best in the region in March, offer a higher return than other international savings media.
Georgian retailers do not seem to be concerned about the DIY marketing dilemma of whether to target male or female customers. This is a major concern for retailers in Europe and America. At least in the larger outlets, it seems that they stock everything related to a home/guesthouse and its fabric, from builders’tools to paint, polishes, seeds, plants and furniture to barbeques, lightbulbs, sanitary ware and tiles. The till is the guide for retailers, but anecdotal evidence from Georgian shop assistants indicates that women are increasingly visible.
In the US and Europe surveys and analyses show that “93%” of women have completed DIY projects. According to US consultants Empathy Research “49%” of women said that they really enjoy doing DIY projects, but 57% believed that salespeople don’t believe they are knowledgeable about DIY because of their gender.
External trade
The DIY boom in Georgia is more than just a way to expand retailers. Local production of renovation materials is also increasing. While imports are rising at a rate of 4.5% annually (the first nine-month period of 2022 recorded a $1.6 billion number), the local production has been increasing. According to Galt & Taggart’s analysts, the figures were up 18% in 2021 at $291 millions in total, but only 18.9% of the total demand. In 2021, the production of wood products also increased. The overall share of local products for furniture and lighting was 27% and for household appliances it was 5%. Wires and cables is the category with the lowest dependence on imports – local products accounted 53.6% of demand.
Even overseas, the sector is thriving. Galt & Taggart reports that exports of materials and home improvement goods reached $168 million during the first nine months in 2022. The recent growth rate has been 4.9%. The largest volumes of exports have been to Armenia ($65million), Turkey ($21million) and Azerbaijan($20million), but other destinations include France ($6million), Italy ($3million) and the US$3million, and these appear to be mainly furniture sales.
The current high interest rate environment and high material prices are not expected to slow down this sector’s growth. Galt & Taggart prudently suggests that the only remaining risks are a sudden reversal of migration trends and geopolitical conflict. There is no sign of the former at this time.
By Sally White, Investor.
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