Key Takeaways:
- The Q1 KBMI was 62.4 compared with 61 in the previous quarter
- Future Conditions rating was 68, the highest in 12 months
- Retailers’ KBMI of 68 was the highest rating among segments
By Elisa Fernández-Arias
The uptick of the recently released Q1 2023 KBMI reversed the declining trend in 2022, reflecting a positive shift in sentiment among kitchen and bath professionals. The Q1 KBMI of 62.4 was slightly better than the 61 reported in Q4 2022, according to the NKBA/John Burns Kitchen & Bath Market Index (KBMI), a quarterly rating of the industry’s health on a scale of one to 100.
This positive shift was a result of the improved ratings for Health and Future conditions, two of the three components that make up the overall index. Health rose to 67 from 62 in Q4 2022, while Future Conditions jumped to 68 from 57 — the highest rating in 12 months, demonstrating a significantly more confident outlook. Current Conditions, the only one of the three components to decrease, fell to 59 in Q1 2023 from 61 in Q4 2022.
Future Conditions jumped to 68 from 57, the highest rating in 12 months, demonstrating a significantly more confident outlook.
K&B professionals surveyed for the Index described the Health of the industry as “strong” despite a cooldown in demand, and, in rating Future Conditions, they reported being cautiously optimistic about Q2 2023 sales performance. The fact that the ratings for all three components remained above 50 indicates that the market is still expanding. The overall KBMI has not been below 60 since Q2 2020, at the onset of COVID-19.
Ratings by Segment
The quarterly KBMI measures the health of the market by surveying more than 800 NKBA members in four segments: designers, manufacturers, builders, and retailers. Among the segments, retailers were the most confident with an overall index rating of nearly 68, followed by builders with 64. Designers came next with 62, and manufacturers were last, with an index rating of slightly over 58.
In addition to having the highest index rating, retailers reported a rebound for all three KBMI components: Health came in slightly over 67, up from the previous quarter’s 63; Current Conditions were just over 67 compared with 60; and Future Conditions jumped to nearly 70, up from nearly 57. Retailers also said YOY growth of 1.5 percent was better than anticipated.
Industry Outlook
K&B industry professionals reported a modest 1.8 percent YOY sales growth for Q1 2023. Despite this slowdown, they have experienced steady demand in affluent areas that generally have been more resilient to higher prices. Additionally, 60 percent of industry professionals said margins remained flat in the quarter, indicating that profitability remained stable. They also predicted a 4.3 percent increase in Q2 sales over Q1, while forecasting a 7.2 percent YOY sales growth.
K&B professionals predicted a 4.3 percent increase in Q2 sales, while forecasting a 7.2 percent YOY sales growth.
Meanwhile, fear of recession was the top concern of K&B professionals as the Fed continues to push rate hikes and inflation remains above historical norms. However, half of those surveyed (up five percentage points from Q4 2022) are confident their business can withstand an economic downturn. Coming in second was the availability and cost of skilled labor – the top concern in the previous quarter. Cost of materials, cost of inflation and availability and cost of professional employees rounded out the top five concerns.
There is some good news, however, when it comes to the expected impact of the economy on K&B. Industry pros said that prime remodeling years are in full swing for smaller renovations, with high borrowing costs and interest rates making upgrading-in-place more attractive than new construction. In fact, only 8 percent of building and construction firms reported Q1 cancellations on small projects under $8,500.