Industry ‘Prepared’ for 2023 Downturn, KBMI Finds
Kitchen and bath industry executives are “prepared” to weather an economic downturn amid a lack of confidence in the U.S. economy, according to the latest in a quarterly series of Kitchen & Bath Market Indexes conducted by the National Kitchen & Bath Association and John Burns Real Estate Consulting.
According to the NKBA and John Burns Real Estate Consulting, the fourth-quarter 2022 KBMI posted a rating of 61.0 on a 100-point scale, down from 63.2 in the previous quarter. The finding was based on a January survey of nearly 500 NKBA members across four industry segments: design, building and construction, retail sales and manufacturing, report sponsors said. Ratings above 50 indicate growth, while ratings below 50 indicate slowing activity.
The KBMI revealed that surveyed industry professionals reported a 5% sales increase on a year-over-year basis in the fourth quarter of 2022, a steep decline from the 12.1% growth that was reported 12 months earlier.
56% of those polled said that fourth-quarter profit margins were steady —a reflection of project modifications and price increases—and that most expected first-quarter 2023 sales to tick upward, despite increasing risks and industry headwinds. 31% of those surveyed said they expect positive 2023 full-year revenue growth, although slowing demand “is concerning” for the latter half of 2023, the report found.
Among the KBMI’s other findings:
- Labor shortages are extending average project timelines, causing a growing number of consumers to cancel or postpone their kitchen and bath projects.
- Industry professionals say that a shortage of labor is hindering their ability to complete existing projects, and overall labor costs are making it more difficult to maintain margins. Kitchen and bath industry professionals are also confident that persistent project backlogs will help offset slowing demand in 2023, although economic uncertainty “keeps everyone cautious.”
- Kitchen and bath professionals report that many clients are reducing their project scope, and opting to break large projects such as whole-house remodels into smaller, more affordable ones. Projects $50,000+ are most at risk for cancellation or postponement.
- Waning pricing power for discretionary projects will weigh on profit margins if industry professionals can’t successfully raise prices. Kitchen and bath industry professionals reported a 9% cost increase from vendors in 4Q22. Industry pros plan to raise prices by 10% on average in 2023.
- Mitigation strategies are being employed to “risk-proof” businesses amid the uncertain backdrop. For example, building and construction firms with high new-construction exposure report they are diversifying into the remodeling space, while designers and retailers are tapping into new markets with more favorable fundamentals.
National Kitchen & Bath Association (NKBA) is a non-profit trade group that promotes professionalism in the kitchen and bath industry. Established in 1963 as a network of kitchen dealers, it has evolved into the premier association of designers, retailers, remodelers, manufacturers, distributors, fabricators, installers and other industry professionals.