As we settle into the second half of 2019, it is a great time to look back on the industry’s performance and outline our expectations for the remainder of the year. At the beginning of 2019, we anticipated wholesale growth, and as we expected, our customers delivered favorable results through June on both volume increases and improved product turn. While numbers were strong overall for the first half of the year, June saw a sales slowdown. This downturn will be one of a few trends we monitor closely for the health of dealers throughout the remainder of the year and into next season’s stocking cycle.
Macroeconomic Conditions, Impacts on Industry
The economy’s persistent strength and growth over the last year and into 2019’s first half has provided a solid foundation for lawn and garden industry performance. In addition to more favorable weather patterns this year, strong employment and consumer fundamentals are helping drive purchase activity.
The low interest-rate environment has also positively impacted the industry, helping to keep carrying costs down. Even against this positive interest-rate backdrop, it is important that customers remain focused on limiting expenses by optimizing practices for customer-facing, inventory management and payments systems. Specifically, improving turn and lowering aged equipment is key to helping dealers and original equipment manufacturers (OEMs) in this endeavor.
Another area to watch in the second half of the year and beyond is long-term demographic trends. For instance, we believe the overall number of individuals between 23 and 39 years old should bode well for the housing market, given that many of them are purchasing new homes, and the generations older than them are now in position to purchase their second. Naturally, a housing demand increase will help drive outdoor product equipment sales from both new homeowners and those looking to take advantage of the market and present their homes to potential buyers in top shape.
Despite the first-half success, the industry has faced some headwinds, particularly with tariffs driving up equipment costs. It is a balancing act for our OEM customers to determine how much added cost to pass along to the end user, especially when expenses are driven up continuously throughout a season. All stakeholders along the supply chain must monitor and manage appropriately the ongoing and constantly evolving U.S.-China trade conflict.
Challenges, Opportunities Moving Forward
As we move out of selling season, an ongoing challenge for dealers will be how to manage their inventory levels for the remainder of the year. Inventory management is a key discipline for healthy dealers. Dealers must identify slower turning products and their associated carrying costs and look critically at inventory as it ages to 360 days and 540 days. Currently within our portfolio, we are experiencing lower levels of aging in both categories.
Looking ahead, we see an opportunity in the market with battery-powered equipment. Battery equipment sales for hand-held equipment are increasing, as more homeowners become receptive to the concept and, in certain instances, landscapers are using them to meet noise-abatement and emissions standards. Although the larger cutting equipment is still dominated by traditional power, this will continue to evolve with technology improvements, and added regulations.
Off the backs of a strong economy and low interest-rate environment, 2019’s first half was a strong one for the lawn and garden industry. OEMs and dealers have become more strategic about their product offerings, channels, financing, and inventory management. Despite some economic uncertainty, as we look to the second half of the year and into 2020, we believe the industry is poised for steady, incremental growth. Continued focus on product turn will help the channel remain healthy.