Everyone, it seems, is looking for something to believe in these days. Optimism has been hard to come by these past few years, particularly in the kitchen and bath industry. The unstable economic climate has left consumers wary of spending money on anything, forget big ticket items that clearly fall into the purview of “luxury” rather than “necessity.”
But while the fallout from the recession continues to reverberate throughout our industry, there appear to be signs that things are getting better. That’s according to a new Kitchen & Bath Design News survey, which polled more than 235 kitchen and bath dealers about the impact of the recession, the current outlook, future plans, perceived growth areas going forward, and their plans for recovery.
The results of the survey paint a picture of an industry still struggling, yet slowly but surely beginning to shift gears from “hold” mode to “planning” mode – and, in some cases, even to growth mode.
There’s no question that the economic drop off of the past few years has been nothing short of devastating to a great many kitchen and bath professionals. Fewer customers, fiercer competition, more price-conscious consumers, smaller profit margins, and, in some cases, layoffs or even business closings have all dramatically altered the landscape of the kitchen and bath industry.
So it probably comes as no surprise that, when asked about their view of the economic impact over the past 18 months, the response was dismal. Of those polled, nearly one-third (30.3%) rated it as “very severe,” with another 31.5% rating it as “severe.” Some 27.5% said the impact was “moderate,” while a mere 9% saw it as “minimal,” and only 1.7% said it had no impact on their business at all (see Graph 1).
These sentiments were mirrored by the comments respondents made. Several dealers said they’d gotten through the last few years barely clinging by their fingernails, and many cited struggles not only with the obvious challenges – loss of home equity, tighter credit conditions, rising unemployment/job instability, and the consumer confidence crisis – but also with growing competition. This competition came from many sectors including Internet retailers.
The good news, though, is that as bad as it has been, most agree that it’s slowly getting better. In fact, nearly half of all survey respondents (47.2%) said they are already seeing some improvement, while another 12.2% noted that they are seeing a lot of improvement already. Of the remainder, 21.7% expect to see improved conditions later this year, and only 18.9% don’t expect things to get better until 2011 (see Graph 2).
Increases for 2010
Equally telling were projected increases in both the number of complete kitchen and baths they expect to sell in 2010 compared to 2009, and in the prices of these projects. Those surveyed said they sold an average of 25.4 complete kitchens and 16.3 complete baths in 2009 – yet they expect those numbers to increase to an average of 32.9 kitchens and 20.5 baths in 2010 (see Table at right).
And these numbers also don’t reflect the growing number of partial remodeling projects that dealers and designers are taking on in an effort to find new profit opportunities and customers. In fact, the survey showed that dealers view partial remodeling jobs or “refreshening” projects as the biggest potential growth area right now, with those polled saying they expect that nearly one-quarter (22.6%) of their projects in 2010 will be partial jobs, compared to 16.3% in 2009.
Project prices cited by those surveyed reflected a slow but growing trend toward recovery as well, with average kitchen prices inching up slowly from $35,486 in 2009 to an expected $38,072 in 2010. Likewise, the price of a bath project is projected to increase from $14,035 in 2009 to $15,406 in 2010, according to those surveyed.
The ancillary effect of these more optimistic projections is that kitchen and bath dealers are finally moving away from the “cut everything to the bone” philosophy. They are beginning to look at restoring some of the resources cut in the last few years, as more stable conditions allow dealers to begin to invest in their firms again.
In cases where they had to make cuts due to the recession, 45% of those polled are planning to restore marketing/advertising dollars in 2010, and 38.1% are planning to restore staff (see Graph 3).
Trade show attendance was another area that suffered cuts by firms struggling with the tough economy in recent years, but more than one-fifth (20.6%) of dealer respondents have or are planning to restore budgets for trade show attendance in the coming 12 months. Likewise, some 19.9% plan to restore educational offerings, and 3.8% planned to restore other services and benefits.
Still, kitchen and bath dealers seem to be more wary about adding full-time staff right now; most said they are instead either adding part-time help or increasing hours for existing part-time staff.
Time for Growth?
Over the past six months or so, dealers and designers surveyed noted feelings of greater stability and optimism. Still, it might seem premature to be talking about growth just yet.
That hasn’t been the case for a significant portion of those polled, who aren’t just talking about growth, they’re already planning for it. In fact, some 40.2% said they are planning to expand the number of displays in their showroom over the next 12 months, compared to only 3% who plan to decrease their displays (see Graph 4).
Additionally, 38.8% are planning to add new lines to their showrooms over the next 12 months, while 16.3% expect to change out existing lines and 23.8% said they are planning to do both (see Graph 5).
And it’s not just the showroom where growth is taking hold; dealers are also projecting several key product or project growth areas. The biggest of these is the partial or kitchen/bath “refreshening” project; more than half of dealers queried cited this as a growth area (see Graph 6).
As one explained it, “There was a time when we wouldn’t have touched the partial jobs, but now, we’re using them to pay the bills…and finding that we’re making good connections through these jobs. People are doing more of the ‘stage remodeling,’ and by getting them at the first step, we have a better chance of them coming back to us when they’re ready to do the bigger jobs.”
The second biggest growth area noted by dealers was green or eco-friendly design (see related Guide to Sustainable Design supplement), which was cited by more than one-third of all survey respondents.
As one dealer stated, “This is the only thing that’s growing for us right now. I can’t get them excited about cabinets or a new whirlpool, but green has such a buzz going on right now, and my clients seem to be responding to that. I think there’s a guilt factor to spending money, but investing in energy efficiency and products that promote healthy living is guilt-free!”
To supplement their income or increase day-to-day cash flow, some dealers and designers have begun offering consulting or design-only services. One dealer noted, “It’s not what I really wanted to be doing initially, but it’s fast money, less stress, and it really helps with cash flow. Plus, some of these people who start with DIY projects or hire a guy from the neighborhood who works out of his truck end up becoming clients when they realize how complex the process really is. You have to be open-minded in this day and age; that’s the only way you’re going to grow.”
Other growth areas cited included closet systems (23.1%), home offices (21.3%), outdoor living spaces (20.1%), laundry rooms (20.1%), Universal Design (16%) and online product sales (6.5%).
Still, despite some positive signs, many of the challenges remain daunting. Internet competition has increased dramatically according to those polled, with more than half (51.8%) citing this as a real competitive threat (see Graph 7).
One dealer noted a bath project he designed where the client bought all of the products online – right up to and including the vanity and tub. “It’s frustrating to spend hours with clients in our showroom, and then have them buy products online at prices cheaper than what we are paying,” he lamented.
And the Internet isn’t the only source of competition that’s gotten tougher. In an increasingly value-focused society, many dealers said they are struggling to compete not only with big box chains, but also with the huge influx of cheaply made imports that “look good enough that people won’t realize the quality issues until it’s too late.”
Financing issues and fears about the impact of government regulations were also cited as concerns by many of those surveyed.
Then there are ongoing issues with designer fatigue, depression and the constant battle of dealing with consumers “who figure they can browbeat you down in price because of how the market is.”
As one dealer explained, “Things may be getting better, but I’m almost too worn down to care. The customers want everything for free. I am working six or seven days a week just to keep my doors open, and the constant pressure has taken the joy out of this job for me. You can say rationally that it’s getting better, but I still feel like there’s no light at the end of the tunnel.”
Yet other dealers are finding hope in the changes going on right now, and many are adapting with myriad strategies. Some are refocusing product lines, pumping up service and taking on more partial jobs, while others are getting more involved with green, putting in place better qualifying processes or increasing personal networking.
As one dealer concluded, “I feel like I’ve been at a standstill for many months. Now I’m finally beginning to see positive changes. The hardest part is reacting to them and using them to create some upward momentum…the last two years have forced me to rethink my whole business. For a while that was just paralyzing, and now I feel like I’m coming out of a cocoon. The industry may have changed, but I believe that it still has a place for good, creative design professionals who listen to clients’ needs and help them realize their dreams.”