By Elisa Fernández-Arias

Despite a decrease in their Q2 KBMI rating, manufacturers are the most optimistic about 2024 out of all K&B industry segments, according to NKBA’s Q2 Kitchen & Bath Market Index (KBMI). The Index is a quarterly report on current/future kitchen and bath industry demand as well as issues and challenges facing industry professionals.

Manufacturers’ overall 53.9 KBMI rating is down from 58.4 in Q1, reflecting the slower growth reported across the industry. The rating is at its lowest level since the COVID-induced recession of 2020 and is in line with Q2 ratings from other industry segments – designers, builders and retailers.

Manufacturers’ KBMI rating for Current Conditions fell to 44.7 from 52.8 in Q1, while their rating for Near-Term Conditions declined to 63.9 from 65.8. Their assessment of Industry Health was nearly flat, at 65.6, slightly higher than the 65.0 reported in Q1. 

Facing the Challenge of Chilled Demand

Higher interest rates and prices have chilled customer demand in the manufacturing segment. Consumers tightened their Q2 spending, resulting in a decline in both sales and orders. Orders for K&B products fell to -1.0 percent year over year, while sales were -1.3 percent year over year.

To offset higher prices, manufacturers reported that they are offering rebates, consumer incentives or builder discounts. They are also increasing minimum order quantities, streamlining marketing materials and opening lower-cost sales channels.  

One bright spot for manufacturers is that capacity constraints are minimal. The manufacturing segment has seen six consecutive quarters of capacity improvement, with the majority (86 percent) facing no significant constraints in Q2. Slower activity has allowed manufacturers to catch up on backlogs. And lack of capacity constraints frees up manufacturers to meet demand and reduces overall lead times for most products. Lead times for refrigerators and cabinets, however, still exceed two months. However,  the good news is that lead times will continue to decline as demand eases.

A Positive Outlook for the Future

Despite declining Q2 sales, manufacturers look to brighter times ahead. They expect sales to improve in the near future, rising by 1.2 percent in Q3; to some extent this optimism reflects a seasonal pickup that typically happens around the fall, as consumers travel less relative to summer months, according to the report. This rise in sales is expected to lead to growth of 2.3 percent for full-year 2023.

And manufacturers are feeling even more positive about next year, so much so that they are the most optimistic of all segments expecting a rebound in 2024. Six of 10 expect their revenues to grow in 2024, an indicator that the current slowdown will be short-lived. Only one in 10 expect their 2024 revenues to decline. “As the economy becomes more stable, we are hopeful that business will continue to prosper,” said one manufacturer. “We have found that the K&B remodeling sector has slowed down a bit but believe 2024 will pick right up.”

And manufacturers are ready to meet the coming demand for kitchen and bath products. Expecting renewed growth in 2024, around 71 percent reported that their current infrastructure is equipped to handle the surge in remodeling demand – or that they intend to increase their capital expenditures to align with that future demand.

Click here to download the full report.

Retailers reported lower YOY sales in Q2, which will slightly improve but continue to be soft in the rest of 2023 and 2024.

By Elisa Fernández-Arias

Retailers reported a sharp drop in sentiment in Q2, according to NKBA’s recently released Q2 Kitchen & Bath Market Index (KBMI), a quarterly report that examines current/future kitchen and bath industry demand as well as issues and challenges facing industry professionals.

Retailers’ overall 54.9 rating is down from 67.5 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 those from other segments surveyed — designers, builders and manufacturers.

However, retailers stand out because their drop of nearly 13 points is greater than the declines relayed by builders, designers and manufacturers. Additionally, retailers’ KBMI rating is lower than all segments’ average 56.1 KBMI rating. Even though retailers’ Q2 KBMI rating declined, it’s still an indication of growth as any rating above 50 indicates industry expansion.

The decrease in Q2’s KBMI rating is primarily due to the significant drop in retailers’ Current Conditions, 44.8, down from 67.1 in Q1. Other components were relatively flat, with Industry Health at 66.3 from 67.1 and Future Conditions at 69.5 from 69.6 — which indicates optimism about the future.

Sales and Foot Traffic Down, but Traffic High Quality

Consumers are price shopping online, often ordering directly from websites versus visiting stores in person, contributing to the retail segment’s low demand for kitchen and bath products. Retailers reported sales fell 3.3 percent year over year as foot traffic declined. Foot traffic was down an average 8 percent and represents further weakening, year over year, from the quarter-over-quarter decline of 5 percent reported in Q2 2022.

Higher prices for K&B products is a pain point for consumers, according to the report. This has cooled purchasing, contributing to the drop in sales. Retailers reported that the cost of many of these products increased year over year, and that these gains were in the low double digits – for example, mirrors, shower units, hardware, and cabinets all saw an 11 percent cost increase in Q2 compared with the previous year. Eventually, these increases were passed on to consumers. 

However, there is a silver lining for retailers: existing store traffic is higher quality, according to the report, meaning that those customers who did shop were committed to making purchases. This may be due to the fact that not all consumers are impacted by high prices. While some are demanding lower-grade/lower-cost products, wealthier customers are unfazed. About 23 percent of retailers say that kitchen and bath customers shifted to lower quality and cost options quarter over quarter in Q2 2023 from Q1 2023; about 27 percent reported that on average consumers gravitated toward higher-end options.

Wealth, income and pricing trends are at the root of this divergence. Around 77 percent of retailers who cited customers downgrading blamed higher pricing and strained budgets. Additionally, nearly half of retail professionals who reported that more consumers were upgrading attributed their behavior to wealth and lifestyle improvements. However, one in five of these professionals said upgrades were due to first-choice products not being available.

More good news is that retailers’ inventories are more balanced: after several quarters of drawdown, 71 percent of retailers say inventory levels are now stable — so they are now more aligned with current demand.

Low, Slightly Improved Sales Expected for the Future

The retail segment expects sales to improve in the near future, rising by 2.3 percent in Q3. To some extent this optimism reflects a seasonal pickup that typically happens around the fall, as consumers travel less relative to summer months, according to the report. This rise in sales will partially offset the impact of lower sales earlier in the year, leading to flat to negative revenue growth for full-year 2023 — in contrast to the growth expected in the other segments.

Retailers expressed concern about what lies ahead in 2024. In the context of the cautious optimism felt across the K&B industry that there will be a rebound next year, retail professionals are the most cautious. About 62 percent expect flat or declining revenue next year, with only 38 percent calling for higher revenues.

Designers are optimistic going into the second half of 2023 despite reporting a lower KBMI.   

By Elisa Fernández-Arias

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.

Click here to download the full report.

The Index is at its lowest since the 2020’s COVID-led recession, but the K&B industry continues to be fundamentally strong.

By Elisa Fernández-Arias

NKBA released its Q2 2023 Kitchen & Bath Market Index (KBMI), a quarterly report that examines current/future kitchen and bath industry demand as well as issues and challenges facing industry professionals. In the face of unpredictable economic conditions, this report is a valuable resource that provides historical context and insights that can help businesses make future decisions.

Key takeaways from NKBA’s recent KBMI report include:

• The kitchen and bath industry slowed in Q2 2023 as higher interest rates and product/ material prices deterred many homeowners from spending money on their home.  The KBMI Index rating is now 56 out of 100, down from 62 reported in Q1 and at the lowest level since the COVID-led recession in 2020. A rating above 50 still indicates industry growth, however, the growth that the industry experienced in Q2 was driven by price only.
  
  
• All four segments are impacted by softening demand, but not to the same degree.  Kitchen and bath activity slowed in Q2, especially among retailers and manufacturers, while designers and remodelers fared better due in part to backlogs. The ratings for each segment’s current market conditions are: Manufacturing, 44.7; Retail Sales, 44.8; Building and Construction, 50.9; and Design, 51.5.
  
  
• K&B pros expect 4.9 percent full-year sales growth for 2023, based on their expectation of raising prices by about 7 percent.  This indicates that any growth will be nominal—from price increases alone—while project/order volumes will be flat or negative for 2023. Once again, the sentiment for this measure varies widely by segment. K&B builders/remodelers are most optimistic, reporting high single-digit revenue expectations for 2023 (9.6 percent), while retailers are expecting flat-to-negative growth of -0.4 percent.
  
  
• The K&B industry remains fundamentally strong despite the cooldown in demand.  Solid industry fundamentals are evidenced by the fact that pros rate their segment as “strong” (65.2 out of 100) and, perhaps more importantly, they continue to pass off rising costs to maintain margins. The majority of KBMI respondents (86 percent) cite flat or higher margins, up from 83 percent in Q1. 
  
  
• The 2023 outlook is still positive, fueled by pent-up consumer demand for remodeling.  Fortunately, current market conditions have not dampened optimism for 2024. Half of all K&B pros are expecting higher revenues next year. Manufacturers are the most optimistic, with 60 percent predicting increased revenue. Retailers, in contrast, remain more concerned, with only 38 percent expecting revenues to rise next year.
  
  
• Worries about a recession are fading as inflation recedes, but the industry is now focusing on a structural problem that is more concerning: labor scarcity.  The availability and cost of skilled labor is now the top concern of K&B firms, especially when it comes to meeting the approaching boom in demand. Firms have reported addressing this issue by maintaining staffing.
  

The Q2 2023 KBMI report includes more data by industry segment – design, manufacturing, retail sales and building/construction – than ever before.  To download the full report, click here.

Still, challenges remain due to clients’ tightened budgets and fear of economic uncertainty.

By Elisa Fernández-Arias

Despite recording a flat Q1 KBMI rating, designers seem more optimistic about business when looking ahead. Indeed, this sentiment was in line with the overall positive shift for all market segments – designers, retailers, builders and manufacturers – coming out of the first quarter of 2023.

Designers reported a 61.6 KBMI rating, barely up from the 61.1 recorded in Q4 2022. This compares to an overall industry rating of 62.4 in Q1 2023, up from 61 the previous quarter.

Despite the lackluster overall rating, however, designers reported a major upswing in quarter-over-quarter ratings for industry Health and Future Conditions, two of the three components that make up the KBMI.  

Designers rated Health at 67 for Q1 2023, a significant jump from the previous quarter’s 63, and slightly higher than the overall industry rating of 66.6. They rated Future Conditions at 67.6 for Q1 2023, an even bigger increase from the 58 reported in Q4 2022, and only slightly lower than the overall industry rating of 68. As for Current Conditions, designers reported a rating of 57, a drop from the previous quarter’s 61, and lower than the overall industry rating of 59.

Sales Slow, but Projects Pacing Ahead 

Designers reported that sales grew 1.7 percent in Q1 2023, similar to the 1.8 percent gain across all segments. Nevertheless, this was a drop from the year-over-year sales growth of 6.2 percent in Q4 2022 and 2.4 percent in Q3 2022.

Despite the sales slowdown, designers reported that projects were moving forward without delay and pacing better than in Q4 2022. About 70 percent of designers reported canceled or postponed projects in Q1 2023, down from 80 percent in Q4 2022. The canceled or postponed projects were due to economic uncertainty, according to 45 percent of designers. Designers also noted that their affluent clients were still moving forward with work – softening the financial impact of cancellations and postponements.

As for project size, 46 percent of designers said the average Q1 2023 project measured the same quarter-over-quarter. They reported that consumers were hesitant to expand the scope of kitchen and bath projects in a high-inflation, high-interest rate environment.

Around 56 percent of designers reported that backlogs were about the same on a quarter-over-quarter basis, a 12-percentage point increase from designers who reported that backlogs were about the same quarter-over-quarter in Q4 2022. In addition, designers said the demand for kitchen and bath design services has relatively stabilized in Q1 2023 compared to Q4 2022.

Lead Growth, but Budget Challenges   

‘New lead’ volume increased in Q1 2023, according to 37 percent of designers, a healthy increase from the 23 percent who reported the same in Q4 2022. This uptick in project demand was stronger than anticipated, however, 43 percent of designers expect  ‘new lead’ volume growth to remain flat in Q2 2023.

Designers also reported selecting brands based on cost as opposed to brand preference or aesthetics. In addition, 75 percent of designers said they continued to substitute brands for sinks, followed by mirrors (71 percent), shower units (69 percent), refrigerators (63 percent), faucets (58 percent) and lighting (58 percent).  Designers noted that they were selecting brands based on cost-to-consumer since consumer budgets are tight, and lesser-known brands offer more affordable solutions. 

Additionally, designers reported opting for lower-price products and materials to help clients stay within budget. Other strategies that helped: providing clients with factory-made instead of custom-made options, and offering products that were aesthetically similar but of lesser quality than their luxury counterparts.

About the KBMI

The KBMI report is conducted quarterly by NKBA and John Burns Research and Consulting to examine the overall state of the K&B industry, current conditions and challenges as well as future expectations. The Q1 2023 survey netted over 800 responses from NKBA members in four main industry segments — retailers, designers, builders and manufacturers. 

To download the full report, click here.