Smart Growth

While the boom of the past few years may have leveled off a bit, the kitchen and bath industry continues to be strong and vibrant. Indeed, kitchen and bath dealers are projecting nothing but growth for the coming year, with many announcing plans for increases in everything from the size of their showroom to their profit margins.

Likewise, in 2007, dealers are expecting to see impressive increases in the number of kitchen and bath projects they do, average kitchen and bath prices, number of showroom displays and even number of outlets.

This is according to a recent survey by Kitchen & Bath Design News, which polled more than 240 kitchen and bath dealers across the country about their business practices and plans for 2007. While many of those surveyed cited a variety of different methods for increasing business, the vast majority of dealer respondents employed a “smart growth” philosophy – not just focusing on increasing the number of customers, but rather by “upselling” individual jobs, paying closer attention to profit margins and maximizing and solidifying partnerships with other allied professionals to create a greater number – and diversity – of business opportunities.

More of Everything

According to the survey, dealers are expecting to sell nearly 25% more complete kitchens in 2007 than they did in ’06, increasing their business from an average of 42.4 kitchens last year to an expected 52.8 kitchens in 2007. Similarly, dealers surveyed reported that they had sold an average of 23.1 complete baths in 2006, and expect that number to jump to 28.8 baths in ’07 – an increase of some 24.7%.

Additionally, dealers are expecting a dramatic (nearly 20%) increase in the price of a complete installed kitchen remodel in 2007, up to $38,930 compared to $32,575 in 2006 (see Graph 1). As one dealer explained it, “It’s not about raising prices as much as getting the most out of each job you sell – adding those extra amenities that are too good [for clients] to resist, keeping a close eye on our profit margins and providing customers with enough options to make them want to invest more to have things they really want.”

Bath prices, too, are on the rise, with the price of a complete installed bath remodel expected to jump from $14,722 in 2006 to $16,663 in 2007, according to survey respondents. “The bath is a hot-growth area right now,” noted one dealer, who pointed out that both powder rooms and master baths are both seeing increased demand right now.

But while increased business is always good news, even better news for kitchen and bath dealers is that profit margins are also projected to increase in ’07 – up to 35% from 32.6% in ’06 (see Graph 2). “This is so important,” said a Midwest-based dealer respondent. “In the past, we’ve grown the number of jobs [we do], but not our profit margins. So even though we were working a lot harder, we didn’t end up increasing our bottom line as much as we would have liked. We now realize that paying closer attention to our profit margins is every bit as important as getting the jobs…both are going to be key to our success in the coming year.”

Agreed another dealer in Florida, “Profit margin is one thing we can control to a large extent, regardless of what the economy does. As costs escalate, and with more competition, we’re watching the bottom line more closely than ever, and we’ve come to realize that by increasing our profit margins, we can do the same number of jobs and still see a good growth year.”

Showroom Growth

Of course product has always been one of the biggest drivers in the kitchen and bath industry and, as a result, dealers who showcase a diverse array of products and designs often increase their chances of making the sale. As one survey respondent explained, “This is a see and touch and feel industry, so the more I have on display, the better my odds are of closing the sale.”