Key Takeaways:
- Cost of materials and cost inflation are the top two K+B industry concerns;
- Members expect to raise project prices an average of 13 percent this year;
- The majority of members are accepting lower margins or finding ways to cut their cost basis rather than pass full increases to customers.
By Robert Isler
Rising costs are a major concern among NKBA members, but a mixture of flexibility and ingenuity is helping to make the situation more tolerable. Cost of materials and cost inflation, identified as the #1 and #2 challenges facing the K+B industry according to the recently released second quarter NKBA/John Burns Kitchen & Bath Index (KBMI) study, have supplanted supply chain disruptions as top concerns. Customers relentlessly continue to postpone projects or scale them back as they face both inflation and rising interest rates.
K+B industry professionals report that costs in Q2 2022 were 11 percent higher than the previous year. To compensate, they expect to raise their prices an average of 13 percent full year based on their increased vendor and labor costs. Not all within the industry are opting to take this route, concerned they will be pricing themselves out of jobs. While 41 percent are passing along costs to clients to maintain margins, 29 percent are reevaluating pricing or accepting lower profitability to gain a competitive edge. Another 27 percent are changing product purchasing decisions to lower their cost basis. This can be accomplished any number of ways. For instance, one respondent has been suggesting stock cabinets to clients to save on both costs and lead time. Another sources local suppliers and has been changing protocols to maintain affordability. Cutting back on finishes and fixtures to maintain the overall scale of the project has also proven to be effective.
We just sold a large house with 4 different kitchen cabinet brands, allowing us to stay within budget.
Flexibility is key. Offering prospects a high, medium and low-priced option, carefully explaining the pros and cons of each has been the winning formula for one. Another uses fewer accessories and cuts back on floor plans to keep costs in line. Clients are more likely to buy-in to a plan and accept compromises if honestly explained. One bathroom designer regularly substitutes lower-cost tiles to balance for the spike in faucets, toilets and other items as a way to maintain a project’s price. A builder found a unique solution to keep costs down, noting “We just sold a large house with 4 different kitchen cabinet brands to stay within budget.” When all else fails and pricing compromises aren’t viable, a potential solution is to aim for a different target audience. “I’m shifting my business towards high-income households that are willing to pay a premium for products,” offered one respondent.