Designers are optimistic going into the second half of 2023 despite reporting a lower KBMI.
By Elisa Fernández-Arias
Key Takeaways
- Designers most upbeat out of all segments
- The segment reported sales grew 1.4 YOY
- They also reported decrease in Q2 KBMI rating
Despite a decrease in their Q2 KBMI rating, designers were the most upbeat out of all K&B industry segments, according to NKBA’s Q2 Kitchen & Bath Market Index (KBMI), a quarterly report on current/future kitchen and bath industry demand as well as issues and challenges facing industry professionals.
Designers’ overall 57.8 rating is down from 61.6 in Q1, reflecting the slower growth reported across the industry. The rating was at its lowest level since the COVID-induced recession of 2020, which is in line with the ratings from other industry market segments from the Q2 survey– builders, retailers and manufacturers.
Designers’ rating for Current Conditions declined to 51.5, from 57.0 in Q1, while their rating for the Health of their segment also fell, down to 65.2 from 67.0. Additionally, their rating for Near-Term Conditions decreased to 66.2 from 67.6. This compares with an overall industry KBMI rating of 56.1.
Designers – along with builders – rated demand as most resilient. And the overall design segment feels optimistic about the second half of 2023 and full-year 2024. Even though designers’ Q2 KBMI rating declined, it’s still an indication of growth as any rating above 50 indicates industry expansion.
A Slowdown, but Near-Term Expectations Positive
Designers reported slow growth in Q2, with year-over-year sales growth of only 1.4 percent. A significant slowdown in design firms’ residential K&B projects is due to higher lending costs and overall higher prices that are negatively impacting consumer discretionary spending habits. Project completions in Q2 slowed to a year-over-year growth of 1.3 percent, down from 1.8 percent in Q1. Additionally, leads have declined for more than one-third of designers.
Still, design firms reported a nearly three month backlog of projects, which helps insulate them against the current slowdown and gets them through Q3 2023. They also expect new leads to offset project cancellations, with 45 percent of firms expecting the usual fall pickup in Q3-Q4. Designers expect a 4 percent sales pick up in Q3, the highest projection among all market segments.
Trends and Solutions
Designers reported a shift in customer segments’ spending habits, with price-sensitive customers downgrading while those with higher incomes are looking to upgrade to higher quality materials and finishes. A larger share of designers (42 percent) indicate that their customers are unfazed by higher pricing, compared to the previous quarter (33 percent). It may also explain why designers have more pricing power, with 7.5 percent being the average upper limit of a cost increase versus the industry average of 7.0 percent.
Design firms also reported clients’ continued shift toward higher quality products and services. Some clients are even choosing to reduce project size or scope rather than reduce quality and many clients are opting for higher quality materials regardless of cost. There’s also been an increasing divergence in the size and scope of design projects, with 41 percent getting larger (up from 36 percent in Q1) and 21 percent getting smaller (up from 17 percent in Q1).
Designers also reported that an increasing number of projects are hybrid in nature due to rising costs, with customers becoming more hands-on and doing partial work to save money. These types of projects will be a persistent trend, according to designers, with some already adapting to this shift by facilitating collaboration.
And homeowners are choosing to remodel instead of move. “People are choosing to renovate their existing spaces/homes instead of buying a new home and relocating, due to the current economy,” said an interior designer based in Texas. “Many clients are focusing on adding resale value to their current property and choosing materials that will add value and interest for potential future home buyers.”
Optimism Looking Ahead
While design firms faced challenges in the first half of 2023, nearly half (47 percent) expect higher revenues for the full year, while only 28 percent expect lower revenues. Designers also predict sales to increase by 6.8 percent compared to 2022. And 48 percent expect higher revenues in 2024, with only 13 percent forecasting a decline.
These forecasts are in line with the rebound that the K&B industry as a whole expects for 2024.
Design firms say K&B project deferrals exceed cancellations, and pent-up projects will bolster demand in the second half of 2023 and into 2024. Renewed optimism for the coming year is consistent with homeowners’ high levels of home equity and the increasing numbers of older homes (20-39 years) in need of a design “refresh” in coming years.
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