A Closer Look with
Non-Residential Construction Stays Hot
One of the bright economic spots for many distrib- utors in 2014 was the strength in the non-residen- tial construction market — and many economists
are predicting the same for this year.
As just one example, a recent economic report from
Wells Fargo Securities Economics Group showed private
warehouse spending for last year jumped a whopping
48.6 percent and is expected to rise again in 2015.
E-commerce was cited as just one reason for the accelerated growth in warehouse spending.
A company like Amazon is changing almost every aspect
of the supply chain as it expands its reach to a growing share
of the population by placing fulfillment centers close to the
consumer, the report says, noting that Amazon has about 75
fulfillment centers in the U.S. and another 15 underway.
Wells Fargo also estimates that there will be growth in
institutional and commercial building; those markets have
been slower than others, like manufacturing building, in
2014. The company predicts structure investment spending
to increase five percent this year and eight percent in 2016.
“Underpinning this forecast is continued improvement
in commercial and industrial outlays, but we also expect
institutional building to post a positive reading this year,”
the report said.
“Commercial construction is expected to continue its
solid momentum with office, warehouse, and hotel post-
ing another round of double-digit gains in 2015.”
And the year is starting off fairly well.
Non-residential construction starts, a good leading
indicator for outlays, spiked more than 40 percent in
February following a weak reading in January. For starts,
manufacturing building soared during the month, partially due to a large project in Texas. Activity in this part of
the country continues to “hum” along, the report said.
Institutional starts also jumped in February, rising 20
percent, with educational and healthcare facilities seeing
the largest gains.
For some distributors, like HD Supply, the non-residential market makes up a significant amount of sales.
“We took a cautiously optimistic view on non-residential
in early 2014 and we saw measured strength built throughout the year,” said Joe DeAngelo, chairman and CEO of
HD Supply in a conference call with analysts following the
company’s fourth quarter and year-end earnings report.
“The majority of (HD Supply’s) construction and
industrial’s priority 15 districts are now performing well
across the country. We believe that non-residential, which
represents about 23 percent of HD Supply’s fiscal year ’ 14
sales, should continue to be a solid market in 2015.”
HD Supply is also optimistic about residential construc-
tion. “Residential is showing characteristics of a moder-
ated but prolonged recovery. The spring selling season
is a key data point for residential, especially given the
weather difficulties of the past few months,” he said.
The company had 60 of its branches partially or totally
closed because of the severe weather and snow storms
that covered much of the country.
Some economists predict strong pent-up demand for
projects later this year because of ones that were stalled
in January due to the terrible weather.
HD Supply is looking for that rebound as it continues
building on its excellent Q4 2014. HD Supply’s revenue for
its construction and industrial business was $337 million, a
14 percent gain. For fiscal year 2014, revenue for construction and industrial was $1.5 billion, up 15 percent. Growth
initiatives contributed $21 million and $107 million for the
fourth quarter and full year, respectively.
One of the reasons for the increase in sales was strong
walk-in traffic at 25 of its branches, accounting for about
50 percent of total branch sales.
“What we do is we position those locations to be very
successful and take the heavy stuff out of our yards and
get it to the job site,” DeAngelo said. “But most importantly, it’s also on the way to the job site so that the crews
can come in. If you think about it, the pick-up truck for
the contractor is the on-site vending machine.
“Our job is to keep that vending machine full, so as
we’ve refreshed all of our stores, we’ve created that retail
insert that has all of the product that are consumables on-
site. Our job is to make sure that not only we deliver with
excellence, but we attract people to come in and be able
to fill their on-site vending machine.”
For 2015, HD Supply is forecasting residential construc-
tion to increase mid to high single digits, non-residential
construction to increase mid-single digits, power and water
infrastructure to be flat to up low single digits, and the MRO
market to remain stable, increasing one to two percent.
These specific end market estimates imply an approximately
three to four percent 2015 market growth for HD Supply.
Jack Keough is contributing editor of Industrial Distribution.
He can be reached at firstname.lastname@example.org.