Backlogs Grow, Business Remains Solid
Member ratings were remarkably positive in the latest NKBA /John Burns Kitchen & Bath Market Index (KBMI) release, despite continued concerns over the cost of materials and overall inflation and supply chain disruptions, and skilled labor shortages.
The record 900 industry professionals who participated in the survey assigned an overall rating of 77.9 for the industry. Although this is a bit down from the previous quarter’s 82.1, keep in mind that any score above 50 signifies expansion.
Current business conditions were the lowest in over a year, with an 8 point drop (77 vs. 85) compared with the previous quarter. Despite the challenges and some trepidation about the economy, respondents gave the future outlook its highest rating since the first quarter of 2021. Additionally, anticipated industry sales growth for 2022 was revised upward to 15%, a substantial increase over the previous forecast of 9%.
What’s behind the optimism? For one thing, backlogs keep growing, ensuring strong business momentum well into 2022. In fact, 54% of designers reported higher backlogs in Q1 2022 compared with Q4 2021. Meanwhile, one in four building and construction firms have backlogs extending beyond six months, while one in three manufacturers have backlogs extending out 10-plus weeks.
Despite growing challenges, members rate the future industry outlook highest in a year; 55% said the scope of their average project had increased in Q1 versus the same period in 2021, while only 7% reported a decrease. Nearly twice as many retailers also noted a shift toward higher-priced products.
The survey also revealed the absolute necessity for flexibility. More than 6 in 10 are substituting products due to lack of availability or higher price-point, with refrigerators and cabinets being the two most challenging items to replace. More than 4 in 10 designers have abandoned foreign brands in favor of domestic brands during the past year as brand loyalty wanes. Consumers are increasingly shopping online for both price and availability, forcing designers and retailers to adjust their business models. Meanwhile, over 40% of manufacturers have discontinued product lines – half permanently – to focus on better selling lines that will allow them to maintain margins.
The kitchen and bath industry is not immune to growing economic concerns despite being nimble. Two-thirds of those surveyed said inflation impacted their business, a 7% point increase over the previous quarter. And nearly half of those surveyed in the building and construction segment expect demand to decrease if costs continue to grow at the current pace. Rising prices force many to decide how much of a price increase can be passed along to clients without losing them while still keeping an eye on margins.
Labor costs aren’t helping. Overall, 3 in 4 respondents across segments report offering higher salaries to retain and obtain the skilled labor they desperately need. Often these wage bumps are substantial, with the average around 18%. Time will tell when and to what extent outside forces will impact the kitchen and bath industry, but for now, it remains among the most resilient of businesses.
Robert Isler is a Market Research Analyst at National Kitchen & Bath Association. He develops macroeconomic and industry survey analyses for nearly 14,000 member companies comprised of manufacturers, designers, showroom owners, and specialists across North America. He also disseminates reports on current and anticipated trends within the $158 billion kitchen and bath industry.