Thought leaders discussed the tremendous changes hitting all sectors of the business and how they impact the user experience at the annual State of the Industry panel. By Dianne M. Pogoda

 

Seismic changes are rocking all facets of the kitchen and bath world. At the 2019 State of the Industry panel at KBIS in Las Vegas, four esteemed industry experts concurred that these changes are to be embraced and used to enhance the end-user’s experience. Keeping the customer happy might not be a staggering concept, but it is more critical than ever in the face of all these business changes, compounded by external factors like the frenetic gyrations of domestic and international politics and economies.

Moderated by Melissa Francis, Fox News/Fox Business anchor, panelists Dr. Markus Miele, executive director and co-proprietor of Miele Group; Kevin Murphy, chief executive officer of Ferguson Enterprises; Nick Fink, president of the Global Plumbing Group at Fortune Brands, and Mark Stoever, chief executive officer of software firm 2020, discussed the skilled labor crisis, the fast-paced revolution on the technology front, the impact of digitalization and more.

Twists of the Economy

To begin, Francis asked the panel for their assessment of the economy. They agreed that while conditions in the remodeling sector are still strong, there was somewhat of a slowdown overall in the fourth quarter of 2018.

“In the last quarter of the calendar year, the investment community seemed to want to walk us into a recession — but it was refreshing to balance that conversation by talking to real customers,” said Murphy. “We got a totally different perspective — well north of 70% of our customers still expect growth this year.”

Fink added that underlying demand is still quite strong, so while there was a pause in the economy at the end of last year, he expects the positive cycle to continue for some time. His company’s figures support the notion; he said the group’s revenues grew 9.4% last year to about $1.9 billion.

Lending an international perspective, German-based Miele said the economy is cooling down a bit, but not to the point of recession.

“We still have a lot of countries registering sales increases, but looking at the political landscape — with Brexit, for instance — it’s not so easy to judge where we’re headed,” he explained. “But right now, we’re still in good shape.”

Stoever pointed out that his firm also had a strong year. While he didn’t see a slowdown in consumer demand, there was a blip among designers who wanted to make sure the economy was going to be what they’d hoped for. “But we’ve seen a pickup already in 2019,” he said.

The Impact of Tariffs and International Trade

The economy naturally led into a discussion of international trade and how looming tariffs affect the business model.

Miele said that having manufacturing facilities in different parts of the world — Germany and China, for instance, allows the appliance giant to switch production back and forth as needed, for specific markets, just to anticipate the tariffs. “The underlying principle of uncertainty is, of course, if you don’t know what’s going to happen, you don’t know how to react,” he said.

From the showroom perspective, Murphy noted that Ferguson’s wide array of products are impacted in different ways, from steel pipes to HVAC, water heaters, faucets and the like. His strategy is maintaining great communication with business partners, the building community and trade professionals to minimize surprises as much as possible. This is key to providing a good experience for customers throughout the process.

“The tough part about tariffs and rapid price increases is what it does to productivity and working capital,” he explained. “You have to bring in a tremendous amount of product to take care of customer commitments already in the system. Renegotiating pricing based on when delivery happens is a real productivity drain. It will be nice to get this behind us.”

Skilled Labor in Crisis

Turning to the well-documented shortage in skilled tradespeople, Francis asked the executives how they are dealing with these issues and helping their customers. Much of the solution lies in building awareness of career opportunities in the skilled trades, they said, because having the right people with the right training to design, build and install projects directly affects customer satisfaction.

Fink said Fortune has funded a scholarship with City Colleges of Chicago for the trades in plumbing, HVAC and woodworking, which is helping reengage young people. “This is a great career, the fundamental economics of it are solid,” he said. “There’s going to be demand for housing for a long time. The intersection of traditional trades and technology is the skill that the next generation is going to need. And this taps into American entrepreneurialism — some of these businesses are not small. Some of our plumber partners have 500 vans – highly successful, mid-size businesses. And we need to tell this story collectively.”

Francis interjected that the K&B industry is one of the rare sectors that has “a fantastic job for everyone, whether it’s being a software engineer or working with your hands, if you’re interested in the Internet of Things, if you’re an artist and want to design — whatever your passion is, there’s a fantastic job in this industry. So how do you get the message out?”

With the industry’s severe attrition — for every five workers who leave, only one enters — Stoever said a whole new way of marketing what this industry is about is needed. “I’ve seen this happen in many in other industries. Whenever a consumer revolution happens, there’s a lot of confusion around what the jobs of the future will be. We’ve all heard the stat that somewhere between 50% and 80% of the jobs in 2030 haven’t been created yet. It scares anyone who’s trying to send a child to college! So, for us, it’s about explaining that we can reclaim these good jobs with high-quality pay, a sense of creativity and a legacy. Whenever you have in-demand skills, you will find high-paying jobs.” 

The Sea Change in Technology

On the consumer side, dramatic leaps in technology are impacting the way kitchens are used — now as family hubs, merging with the living areas and not just for food prep. On the manufacturing side, technology is affecting all links in the supply chain: manufacturing, business operations, sales, marketing and customer support.

“A designer in the kitchen space has much more to think about than space limitations for appliances,” said Stoever, noting much of the tech is still quite new, so consumers come with curiosity, but there’s not a huge demand— yet. “Consumers want to know that whatever they’re investing in will last and adapt. As when all new technology starts to emerge, it takes a while to work out the kinks. Smart-home technology started with temperature control and security, now we’re moving into comfort and leisure.”

Addressing concerns about technology and security, the panel said there’s a generation gap.

“For the generation that grew up with smartphones and connected devices, [tech products] are going to be a standard, not a ‘nice-to-have,’” said Fink. “And they accept that there’s going to be a trade… that [collecting] data, as long as it’s anonymous data, is part of the process of improving the goods and making them better and better.”

As an example, he cited the company’s new Flo by Moen, a leak-detection and shut-off product that can save a house from a catastrophic leak or save water from a leak a homeowner may not even be aware of. This is a brain, an algorithmic learning product that gets better by sharing information and learning how homes work.

The critical issue is communicating the consumer benefits of new products or technology. Fink said, “We joke that our litmus test is ‘the internet of useful things.’ There are a lot of things out there, but do they drive a consumer benefit that’s really useful? Once they do, that’s a tipping point. People can’t ignore the benefit that these products bring.”

Once a technology catches on, it becomes transformative for a company, and requires a shift in mindset and willingness to hire people with new skill sets. “Now we’re writing firmware [software that controls a device’s specific hardware], building electronics and supporting digital devices,” he added. “We weren’t doing that five years ago. So, we have to train our people, our customer support needs people who are fluent in firmware, apps and digital devices, from install to troubleshooting — even if it means troubleshooting the customer’s Wi-Fi. Having the ability to do that completely transforms a company, and if you don’t get out ahead of that before launch, and be able to support it, you can really let people down.”

When a company hires people with a completely new level of abilities, those people come into the business and renew it with fresh perspective and a burst of energy, he added.

Murphy said Ferguson regularly asks its manufacturer partners about how the connected home is developing, to be sure they carry the right breadth of product across all categories and provide the right support after that sale, to ensure the user experience is more unified and that consumers feel comfortable with their purchase.

“But there’s something bigger at play in terms of productivity,” he said. “We’ve got to use technology to increase productivity in the construction industry. We haven’t seen a tremendous amount of productivity gains in construction. We created a corporate venture capital group last year, Ferguson Ventures, which looks at technology start-ups engaged in in construction productivity. We’ve started to invest and learn about how we can accelerate that and take some of the burden off the labor shortage and drive productivity and standard-of-living increases in construction.”

Among the functions are how to make building information modeling more efficient, staging projects and bringing efficiency to that process. And then there’s the trade professionals themselves — how much time they’re spending on running their business versus being on the job helping to install. “So, we’re involved with software as a service platform to help them run their business better, procure product better and spend more time on doing install work and less time on back-office functions,” he added.

Stoever said the industry is also moving into a phase of technology innovation that’s less about making sure things don’t break, and more about how to stay ahead of expectations. “For instance, each time you talk to a home assistant, you increase your expectations of what it can do. That’s happening across all technology, and we’re going to get so far ahead of what we expect these devices to do, that potentially we will be letting our customers down because we’re not keeping up with it. Focusing on what’s happening today in this rapidly changing tech environment is a defensive strategy. We have to be on the offense.”

The Impact of Digitalization

A subset of technology is the digital revolution’s transformation of all aspects of the industry.

“It’s not only the products with apps installed, it’s also in smart manufacturing, which is coming on very strong, and in marketing as well,” said Miele. “We use a lot of digital tools in marketing. This is a big revolution, and a field where creativity and software comes together.”

Additionally, the consumer’s purchasing journey has morphed into an omnichannel experience, and the executives concurred that it’s imperative to understand what purpose the different channels serve.

“Almost everybody is online at some point in the journey, and almost everybody is also in a brick-and-mortar showroom or store at some point,” said Fink. “This tells us that buying has become an omnichannel experience … We have to meet the consumer where they want to go. But you have to understand what each social media channel is for, and tailor the communication to each. On Instagram, consumers might be looking for visual inspiration, while on Twitter, they might be looking for more of a purpose-driven message, about a product’s water conservation, for example.”

And along with the exponential influence of social media channels comes a loss of control over the brand image. “We no longer own and tightly control the brand,” Fink noted. “We collectively own the brand with the consumer, it’s built by the dialogue we’re having with the consumer, and what consumers say about us — ratings and reviews — driven through social media. Telling your story and staying true to it is at the core of what a brand is about. And bringing it to the consumer in a way that’s easy to consume, design and understand, without losing what makes them so special, is really the secret sauce.”

Francis asked about how to protect the brand, particularly at point-of-sale, and how to keep pricing even in an omnichannel environment.

Miele offered that the most important strategy is to be consistent in messaging. “You have to tell the same story, maybe from different angles, but it has to be the same story at each point of communication. And this is quite challenging because you have to think about what medium to use and what angle to use in that medium. Customers have to believe in your authenticity.”