Staying the Course

Many kitchen and bath dealers seem to be turning a deaf ear to reports of a sluggish building sector, and for good reason: 2007 was a robust year, and despite the current challenges, many are optimistic about 2008, predicting increases in everything from number of jobs planned to showroom size.

Indeed, while few can deny the rocky economic climate, only a relatively small minority of dealers seem to be contemplating cuts in staff, showroom size or costs. Rather, most are planning to stay the course, while focusing on refining their business strategies by rethinking their product mix, enhancing their marketing efforts and strengthening partnerships with allied professionals to help grow their business while focusing on their core competencies.

That’s according to a recent survey of kitchen and bath dealers and designers, the majority of whom expressed a surprising optimism for the year ahead.

The newest Kitchen & Bath Design News survey, which polled more than 235 dealers and designers from across the country, examined business practices, planned changes in overall business strategies and budget concerns for 2008.

While those surveyed agreed that the market has become increasingly competitive, most were focused on creative growth opportunities. Marketing, creating profitable partnerships and upselling individual jobs were key components of many dealers’ 2008 business plans, and while streamlining operations remains a priority for many, the focus seems to be on growth, not cuts.

Changes

As so many jobs start off in the showroom, it seems a natural place to begin making changes for the new year. And here, again, the biggest change planned was growth oriented, with more than 30% of survey respondents saying they plan to expand their showroom space in 2008 (see Graph 1).

Even those who aren’t planning to expand their showroom itself say they are likely to expand the displays in their existing space, with nearly 60% reporting plans to expand the number of displays in their showroom in the year ahead (see Graph 2).
Product diversity is always important, and in an increasingly competitive market, this becomes even more critical. For that reason, many dealers feel that cutting back on product lines is counterintuitive, even during more challenging times. Perhaps that’s why 41% of those surveyed expect to make no changes to the number of product lines they carry, while another 22% say they are planning to add to and change their products lines (see Graph 3).

Of course, while some adopt an “if it’s not broken, don’t fix it” attitude, others are using this time as an opportunity to rethink their entire product mix, with more than a quarter of respondents reporting that they will change their product mix in the coming year to shake up their current showrooms and attract new business (see Graph 4).

“This is the time to use change to light a fire under those who are on the fence about remodeling,” says a Texas-based dealer respondent. “Changing out the vignettes or the appliances or some of the cabinets has gotten us renewed interest in the past.”
Costs were, as always, among the principle concerns cited by those surveyed, and streamlining business is clearly a priority for many dealers.

“We’re reining in our overhead this year,” reports a Minnesota dealer, who noted that trimming the fat is always a good strategy, and particularly smart after a long period of growth, during which it can be easy to end up with some wasteful habits that were missed in the past because business was just too busy.

Another dealer in Georgia agrees: “We’re trimming our expected profit margins due to the softening economy, so the first thing we have to take care of is the cost of our overhead expenses.”

But despite concerns about the economy, only 38% of those surveyed responded that they would seek to reduce costs in 2008, while 32% were not going to change their spending habits at all, and another 30% say they’re opting to “wait and see” how the events of the year will play out for them before pledging to make a move on costs (see Graph 5).

Additionally, according to the survey, dealers are expecting to sell over 20% more complete kitchens in 2008 than they did in ’07, increasing their business from an average of 43 kitchens last year to an expected 52 kitchens in 2008. Similarly, dealers surveyed reported that they had sold an average of 22 complete baths in 2007, and expect that number to climb to 25 baths in ’07 – an increase of nearly 15% (see Graph 6).

Dealers are expecting to see increases in the price of a complete installed kitchen remodel in 2008, up to an average of $44,368 per kitchen, compared with $40,442 in 2007, a change of approximately 10%. The average installed price for a bath in 2007 was $16,323, and dealers predict they will see that number climb to $19,267 in 2008, a mor ethan 15% increase (see Graph 7).

As one dealer notes, “In a slower economy, you have more time to spend with individual clients, which makes it easier to upsell jobs because you can really personalize them to meet their needs. People always will pay more for something that’s personalized for them.”

Marketing Maneuvers

Marketing has long been regarded as a tried-and-true way to increase traffic and win customers in a tight market. This is particularly relevant today, with some 40% of surveyed dealers reporting increased competition compared to a year ago.
As a result, one common trend among dealers and designers appears to be the reimagining of how their firms market themselves to potential customers, with an emphasis on increasing their visibility and store traffic.

To stay competitive, notes one survey respondent in Florida, “We are seeking new advertising opportunities to raise our profile this year.” That could be the Internet, TV, magazines, newspapers, an increased Yellow Pages presence or something else entirely.

A dealer in Colorado is planning a more grassroots approach: “Word of mouth has always been a key to our success, so we’re looking at how to further promote ourselves that way, including cold calling previous customers.”

But whatever the method, a good number of dealers are planning to increase their marketing investment to ensure that business stays strong, with nearly a third (30%) of surveyed dealers reporting plans to spend more marketing dollars in 2008 (see Graph 8). Indeed, despite pressure to cut costs, only 12% of dealer respondents say they are planning to cut their marketing budget this year, with another 58% indicating that they will make no change to that line on their budgets.

Another dealer from Illinois agrees: “We’re trying outlets that were previously less important to us, like our Website. We’re working with an outside Web builder for the first time to bring more traffic to our site.”

Even those who are not increasing their marketing budgets are looking for more creative ways to market themselves, including participating in designer showhouses, getting involved in community activities, hosting classes for homeowners and/or the trade, hosting charity benefits and more.

“The economy is forcing us to get creative about how we make that marketing dollar go the furthest it can,” one respondent asserts. “More than ever, it’s become all about thinking ‘outside the box.’”

Networking

Despite the optimistic tone of those surveyed, there remains a frank realism among dealers about the impact of the continued housing drop off and the adjustments their firms have to make as a result. “Focused,” and “streamlined” were common buzzwords among those surveyed when asked about how they plan to change their business models to reflect the softening economy.

Additionally, cooperation will become a key element to many dealers’ business models in 2008, the survey showed. In fact, the vast majority of those surveyed noted that mutually beneficial relationships with allied professionals will continue to be essential to performing well over the course of the next 12 months. This is not only because it creates added profit opportunities, but because it allows dealers and designers to streamline their businesses and focus on their core competencies.

“It makes more sense for our firm to focus on what we do well, and refer our clients to contractors who can serve them for [products and services] we don’t handle,” says one New England-based dealer. In fact, 80% of dealers surveyed report that they work closely with general contractors, while 66% collaborate with interior designers, 63% work with custom builder, 43% work with architects, 19% work with cabinet shops, 10% work with tract home builders and 1% work with other allied professionals (see Graph 9), the survey revealed.

“Working with people who are as good at what they do as we are at what we do ends up creating a lot fewer headaches than if we’re wearing ourselves thin trying to do it all on our own,” a dealer in the Pacific Northwest explains.

“Being able to offer start-to-finish packages makes you more attractive than if you’re a ‘one-trick pony’ who can only do the layout or the cabinets or the appliances specified,” reports a California-based dealer. “The economy’s tight and we’re all after the same jobs – we just can’t afford to be the firm that only goes halfway.”

Internet Impact

Is the Internet friend or foe? Dealers surveyed offered mixed feelings about the subject. Just over one quarter of those surveyed viewed the Internet as an expanding threat to their profits, while 18% felt that it was “likely to be a threat in the future. “

“On the one hand, it can educate your clients about what they want and don’t want,” reports one North Carolina designer. “But too often, the Internet is the source of price disputes.”

A New York-based dealer agrees: “It’s all about price [on the Internet]. They leave out the synergy between the client and the designer – they don’t realize how important that relationship is to a successful design, and part of that is having someone with a thorough understanding of products and their specs. It’s not just about going on the manufacturer’s Website and guesstimating.”

Some dealers report that the challenge from the Internet ends up motivating them to reposition their business to good effect. “DIY sites drive us crazy because they provide a skewed look at remodeling, but we think by putting up what we can do on our own Website and promoting ourselves as a tool of convenience for the customer, we will win out with the kinds of customers we want to deal with,” a dealer in Washington state reports.

However, a majority, 56%, felt the threat from the Internet wasn’t likely to affect their firms this year. In fact, many dealers report that the Internet has actually provided them with an expanded opportunity to advertise, network and rethink their marketing strategies.

“Not only can we provide an in-depth view of what our firm’s all about, but we can also have a look at what the competition’s doing,” explains an Arizona-based dealer. “Redoing our Website has become the project for ’08.”

Overwhelmingly, dealers surveyed remain optimistic and say that, though the economic outlook is changing, the best option for them is to “hang tight.”

“Stay the course,” advises one New Jersey-based industry veteran. “It’s worked for us for over 30 years.”

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