Changing Business Dynamics Within Design

Robert Isler

Designers are facing obstacles that were practically non-existent for much of the past year. Ratings by kitchen and bathroom professionals in the recently released second quarter NKBA/John Burns Kitchen & Bath Market Index (KBMI) study reveal their concerns. Although the overall index of 68.6 remains comfortably within expansion territory, it is decidedly below the 75.4 assigned by designers in Q1. The gap is even wider for near-term sales expectations, 62.1 vs. the previous 78.0.

The KBMI is a quarterly gauge of current and future market conditions within the kitchen & bath industry. A total of 719 industry professionals participated in the study from these four primary sectors – Design, Building & Construction, Manufacturing and Retail. Results of critical measures are compared with the previous four quarters to identify industry growth/decline patterns. The report also explores the latest market shifts and provides valuable insights into each segment’s ever-changing challenges and opportunities.

Business conditions are cooling as the KBMI, and its three component measures all registered sizable declines from Q1. The index for anticipated future conditions was particularly concerning, which recorded 61.8, a sharp drop from the 78.6 reported last quarter. Rising prices are taking their toll, with the cost of materials and inflation identified as the top two industry challenges. Supply chain issues are now the third-ranking concern as there is a clear pattern of sales deceleration across all segments. Both Construction and Manufacturing experienced their fourth consecutive quarter of lower yearly gains.

Among the most significant concerns are shrinking project sizes and price points. Both had been on the upswing for quite some time. Coming out of the COVID shutdown, homeowners had more savings, were anxious to remodel due to greater time spent working from home, and with interest rates hovering near record lows while home values vaulted upwards, it seemed the ideal time for a significant remodel. In fact, in the Spring and Fall updates of last year’s Market Outlook, high-spend projects led all other price ranges with growth expectations well above 20%. That was then. With inflation and interest rates climbing, homeowners who aren’t postponing are often scaling back. Only 35% of designers report the size and scope of current projects higher than a year ago, a sharp drop from the 55% the previous quarter. Meanwhile, twice as many in Q2 as Q1 says the typical price point of materials and finishes requested is lower year-over-year.

Previously, among the most pressing challenges for designers was how to tackle projects promptly, as the flow of orders easily exceeded the ability to fill them. As supply chain issues work themselves through and demand begins to soften, backlogs are coming down. Only 25% of designers report backlogs of five or more months in Q2, vs. 34% in the previous quarter. As designers face higher pricing from suppliers, they must continuously grapple with how much to pass along to clients without losing them. The Q2 KBMI report indicates that prospects are increasingly exploring in-store or online options rather than going directly through their designer.

Again and again, respondents spoke of the challenges of high material costs, a falling stock market, and uncertain economic conditions. So how are designers dealing with these issues? One said, “We are value-engineering our existing projects to help keep clients on budget and prevent postponements.” Others were more specific: “I am looking at ‘non-name brand’ solutions that are more cost-effective and available,” or, “We are changing wood species, simplifying finishes, and reselecting countertop materials that give the same look at a more reasonable price.” Still, another echoed what many must think: “I’m trying to sew up existing projects as quickly as possible before budgets completely run out.”

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.

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