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The National Kitchen & Bath Association’s most recent NKBA/John Burns Real Estate Consulting Kitchen & Bath Market Index (KBMI) shattered records by a healthy margin, scoring an overall rating of 79.8 out of 100, proving that the industry is still on fire.
NKBA and JBREC have been reporting on the momentum of the housing markets and remodeling industry since the fourth quarter of 2018. KBMI measures the current strength of the industry, expectations and challenges facing four major member sectors — design, building and construction, manufacturing and retail sales.
The overall kitchen and bath score of 79.8 is well into growth territory since anything above 50 on the 100-point scale indicates expansion. This also marks the highest score since the inception of the index. Other indicators were equally encouraging. The health of the industry was 8.2 out of 10 compared to the previous 7.1 reading in 2020’s fourth quarter. And the score for current conditions was 78, an astounding 18 points higher than the 59.8 just one quarter earlier.
Future outlook rounded out the four indicators, with the 82.4 reading well above the 72.7 from fourth-quarter 2020 when members were last asked to quantify where they believed their businesses were headed.
Broken out by segment, a clear pattern emerged. Manufacturing scored highest for three of the four variables, while design was last among all four. However, each was well above its 2020’s fourth-quarter scores, with manufacturing blowing away its previous levels.
Key Factors for Improvement
Several key factors continue to add to this positive momentum. With the worst of COVID-19 likely in the rear-view mirror, people are again opening their homes to designers and workers, ready to move forward with projects that were paused for far too long. Significantly, one in three designers noted that clients are now requesting higher-priced products and finishes.
Retailers are experiencing that same customer shift. The trend is likely because quick-fix, pandemic-driven DIY projects have run their course and are now being replaced by serious makeovers to accommodate new lifestyles. This is evidenced by reported pipeline extensions and a renewed desire by homeowners for professional involvement.
One in three designers also noted that clients are requesting pricier products and finishes, with those in retail sales reporting a similar pattern. Feedback suggests this is largely due to changing lifestyles brought on by the pandemic becoming permanent, with increased time spent at home. Homeowner needs have changed, and many are willing to pay more for their comfort since they are in it for the long haul.
“There is growing optimism in the industry with COVID-19 becoming less of an obstacle, owing to the rapid vaccine rollout,” notes NKBA CEO Bill Darcy. “We are encouraged to see the index reach a historic high and look forward to continued growth as homeowners opt for larger, more upscale remodels.”
As members see less of a negative impact from the pandemic on their businesses, they reported a near-double-digit sales growth of 9.7 percent on average in 2021’s first quarter, compared to the same period in 2020.
As for future sales and overall industry health, bullish demand and consumer confidence continue to fuel a positive outlook. While still in healthy territory, design firms have the lowest rating of the overall industry, at 76.1. The building and construction, retail sales and manufacturing segments soared, at 83.8, 82.2 and 86.7, respectively.
And overall, the industry pushed full-year 2021 expectations for sales growth to 13.4 percent, up from their rating of 10.7 percent in fourth-quarter 2020.
Along with all the positives, there are some challenges facing the kitchen and bath business as well, particularly regarding the supply chain, labor and escalating prices. The following trends are expected to impact homeowners and the industry through the balance of this year:
• Members see larger project scopes as homeowners invest in whole-home reconfigurations and luxury finishes.
Designers also cite permanent work-from-home lifestyles as a catalyst for the consumer shift to high-end, higher-priced materials and finishes, with designer firms reporting a 61 percent increase in the average size of projects.
• The main obstacle for members is sourcing affordable materials, as delays and price hikes make it difficult to maintain profit margins. More U.S.-based sourcing could be likely as import delays and pricing become more severe, and firms are sourcing outside their approved vendor list to accommodate customers.
Appliances have been the most difficult products to source, with 51 percent of designers reporting difficulty sourcing refrigerators, ranges/stoves and dishwashers.
• The majority of firms are increasing labor rates to maintain current staffing levels and bolster recruitment efforts. Still, these increased costs aren’t expected to deter demand as consumers are eager to remodel their primary bath and kitchen spaces.
Notable challenges and opportunities for the kitchen and bath market include:
• More than half of designers (55 percent) report no project cancellations or postponements in the first quarter, but 45 percent note material shortage and product pricing are starting to affect project timelines.
• As vaccination rates climb, consumers are more comfortable shopping in person, with more than 50 percent of retailers reporting growth in foot traffic in first-quarter 2021 (compared to 35 percent in fourth-quarter 2020).
• Nearly half (45 percent) of retailers continue to report a shift in price-point, with 70 percent shifting to higher prices. Despite price surges for some products, consumers are still opting to pay for high-end products and finishes. Refrigerators and ranges/stoves see the highest price climb at 12 percent and 11 percent, respectively.
• About two-thirds (60 percent) of manufacturing firms reported average lead times of 6-plus weeks in the first quarter of 2021, a drastic increase from 2020’s fourth quarter (36 percent reporting 6-plus-week lead times). And 78 percent of manufacturers have severe capacity constraints at this time, a rise from the prior quarter (23 percent) due to extended lead times on raw materials and significant freight delays.
• With the surge in remodeling demand, 67 percent of building and construction firms report a backlog of 3-plus months and of that, 21 percent have a backlog extending through 2021.
• With the pandemic affecting many industry professionals, the already-strained labor market continued to dwindle. In response, more than 60 percent of companies said they’ve increased labor rates to retain current staff. Of the companies reporting labor-rate increases, almost half report increasing them between 10 percent and 19 percent.
Additional details and the full NKBA Q1 Kitchen & Bath Market Index are available in the NKBA store under Market Research Reports (https://bit.ly/3zhi9zp).
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