All About Profit

All About Profit

By Barbara Capella Loehrr

But, while improving profit margins tops dealers' list of key issues impacting their firms, the list also contains some interesting surprises.

For instance, home center competition and finding new customers traditionally viewed as major issues among kitchen and bath dealers only came in fifth and sixth on the list of top issues, respectively. Retaining key personnel, on the other hand, was the cited as the second biggest factor impacting dealers today.

These were the findings of a recent survey conducted by Kitchen & Bath Design

Interestingly, finding quality personnel which, along with home center competition, was cited as the biggest dealer concerns in a similar survey done a mere two years ago was one of the least frequently mentioned issues in this year's poll, coming in only in ninth place on dealers' list of most critical issues.

However, the increased focus on retaining key personnel suggests that kitchen and bath dealers may have addressed the problem of finding and training good help by investing in existing employees, and are now more interested in keeping those team members on staff, rather than wading into the employee job pool and starting over.

Sixth on the list was finding new customers, followed by finding unique products, developing new services and training of staff.

As one dealer explained it, "When the big boxes first came out, they were all we could think about. Now, they've proven to have enough flaws that our type of clients really aren't as interested in going there because the service isn't there, it isn't personal enough. On top of that, the market is good, so there are plenty of customers for everyone, and that shifts our priorities to keeping up with products and taking care of our clients so that they'll be satisfied customers who will come back in the future, and give us referrals."

A Growing market

When asked to share their views on market conditions, dealer respondents were overwhelmingly positive: Some 45.7% of those surveyed said they view the market as representing "enormous opportunity," while another 44.3% said they see the market as offering "modest opportunity." By contrast, only a mere 10% said they believed market conditions indicate reason for caution (see Graph 2).

In a similar vein, some 44% of kitchen and bath dealers surveyed said they believe their profit margins are improving, while 39.5% saw them remaining the same, and only 16.5% believed their profit margins to be declining (see Graph 3).

"We're selling more than ever, so why don't we have any money?" lamented another dealer.

When asked to compare their profit margins to industry averages, the majority (69.4%) believed their profit margins were probably in line with industry averages, while 15.8% believed their profit margins to be above industry averages, and 14.8% believed their profit margins to be below industry averages.

"But we have to do better than that," a Midwest dealer insisted. "Average isn't good enough. Because if we're doing average now when the market is good, what will happen to us when things go downhill?"

Indeed, many dealers cited the strong market conditions as a good wake up call, since it made them realize that there were internal problems that needed to be fixed. As one said, "In the past, we blamed it on the economy, when we weren't making our margins. Now we know it's us. Profit leaks, errors. This is helping us learn so we can truly take advantage of the strong market."

Dealers were also asked to rate supplier services in several categories. When asked to compare service received from suppliers with the level of service dealers received five years ago, the result was something of a draw: 29% said services are better now, 29% believed services were better five years ago, and the remaining 42% thought services were about the same (see Graph 4).

In the area of product availability, 54% of dealers surveyed said that the products they want are generally available in a reasonable amount of time. Some 6.9% said they the products they want are not generally available in a timely manner, while 39.5% said it varied by supplier (see Graph 7).

Similarly, a little more than half (54%) said orders are generally received in a timely fashion, while 6.5% said this is not the case, and the remaining 39.5% noted that it varies by supplier (see Graph 9).

Another key area of supplier services involves suppliers' willingness to provide exclusive representation for key products in dealers primary trading area. When asked how they fared with this, nearly two-thirds (63.5%) said that they were, indeed, supported with exclusive representation for key products in their primary trading areas, while 36.5% said they were not (see Graph 10).

Dealers also had the chance to evaluate distribution channels, with 72.5% of those surveyed indicating that they believed there to be adequate distribution channels for the kitchen and bath products they most wanted (see Graph 6).

Are today's dealers technologically challenged? Many of those surveyed seem to think so, with nearly half (45%) stating that they view keeping up with and implementing new technology as "a serious challenge" (see Graph 5). Another 47% said they saw this as "a modest challenge," while 8% believed it represents "no challenge at all."

"You just do what you have to do," said one dealer located in the Northeast, who claims to have been through "countless numbers of design software

programs to find one that worked for our needs," and who is currently learning Web site design because "we outsourced our Web site, and the more I look at it, the more I realize that nobody is going to love or represent our business as well as we can do it."

Still other dealers seemed concerned about the increasing level of technology in everything from design software to online ordering specs.

Said one, "I'm getting buried by this stuff. I don't understand it, I feel like my computer is obsolete before I even learn how to use half of the features, and I can barely handle a cell phone, no less a PDA. And now everyone wants to do everything online. I'm very worried I don't think this business is supposed to be about technology. Design is about aesthetics, about art. I think sometimes that gets lost because everyone is trying so hard to be high tech. And I'm afraid by trying to keep up, we will lose what we do best, which is create beautiful designs."

On the issue of e-commerce, however, kitchen and bath dealers surveyed seemed less concerned. Only 25% of respondents said the believe they are now or will soon be competing for business with e-commerce, while the majority (51%) said they are not and don't expect to be competing with e-commerce firms for business. Another 24% said they unsure about this, with several stating that the dotcom bust of several years back has convinced them that e-commerce will never be a serious threat, even if it does become a minor factor in the kitchen and bath industry.

"You can buy a faucet online, but let's face it, you're not buying a whole kitchen that way," a dealer in the deep South added. "You need the visceral experience of seeing and touching it. And the online experience can't give you that, even virtual reality can't give you that. You're talking about people's homes, it's personal. They're not going to settle for computer-generated images for that."

Sometimes, dealers' greatest concerns revolve not around getting business, but being able to handle it properly when they do. Indeed, a number of dealers cited "keeping all the balls in the air" as the biggest challenge facing their businesses right now.

"We struggle with finding extra hours to keep research current, explore new possibilities and maintain our sanity!" exclaimed one dealer, who believes that success in a strong economy "is all in the balance."

"It's just different challenges," another dealer concurred. "My biggest concern is being able to handle the number of clients walking in the door in a timely manner, to keep them interested and excited about the project, and not driving them to go elsewhere."

"Being busy is hard, too," a dealer on the East Coast agreed. "People think it's great, the market is good here, and yeah, it beats not having enough business. But you get overworked, errors happen, everyone is stressed out, and sometimes you end up bringing in less money than you were making when you had fewer jobs and more time to do them right. There's no time to train and supervise personnel, or double check orders because of the backlog, and customers can feel neglected if they don't get the personal attention they want. It's a battle to do it all, do it right, and make people happy. And it's expensive when you don't."

Customers' expectations, too, have risen, according to dealers, many of whom feel this exerts additional pressure on them to have all the answers. "They've seen it on the Internet or on HGTV, so we better know about it, otherwise they perceive us as not knowledgeable even if it's a product that just came out! They also know more about prices from shopping at home centers, but often, they don't have accurate information [but think they do]. This can be a real challenge," said a West Coast-based dealer.

While personnel shortages seemed less of an issue than in years past, problems finding good installers were still frequently cited by dealers. "This is the one area where you can never find quality help, and if you find them, it's hard to keep them," stated one dealer, who has recently hired a full-time installer "simply because it was the only way to guarantee consistently good installation work. We can't afford this, but we had to find a way. Poor installations can put even an otherwise great design firm out of business!"

Several dealers also cited the rising cost of health benefits as a major concern for their firms. "We try to keep our key personnel by supplying comparable benefits to the big-box companies. But as a small business, that's difficult, especially since the costs continue to skyrocket, particularly with health care and insurance," one dealer noted.

Other key concerns cited included:

  • Addressing seasonal business fluctuations.
  • Having enough capital.
  • Controlling inventory levels to minimize carrying cost without sacrificing delivery time.
  • Keeping errors to a minimum, both with design and orders.
  • Getting work completed on time.
  • Free estimates and other practices that imply a designer's time isn't worth anything.
  • Clients in 2004 who still think of prices in 1950s terms.
  • Investing too much time in the business at the expense of having a personal life.
  • Needing to exceed customers' expectations in order to keep referrals coming in.
  • A need for more industry training about product safety, product features and general product knowledge.
  • Unrealistic customer expectations, for instance customers who want custom quality cabinets at stock prices.
  • Homogenizing customer service standards throughout the operation (particularly an issue with large firms and turnkey or design/build firms).

Of course, it's always important to keep perspective. As one dealer responded, when asked what was the most significant business issue that kept him awake at night, "I sleep like a baby. It's important to care about what you do, but you also have to keep it in perspective. No one is going to die if the product does not arrive on time or complete." KBDN