Kitchen & Bath Remodeling: Market Moderation

Perhaps the most complicated outlook for all the remodeling segments is for kitchen and bath remodelers. First, we need to make a distinction between types of kitchen and bath specialists. There are those who offer quick-turn jobs like cabinet refacing and one-day bathroom upgrades. These are strong businesses but are more akin to the replacement and home improvement sector of the remodeling industry. The second type of kitchen and bath remodeler is a firm who does major remodels of those critically important rooms in a home. These firms are remodelers where more than 50 percent of their revenue comes from designing and/or building baths and kitchens often including new cabinets, new faucets, new fixtures, new surfaces and new appliances. Major remodels of these two rooms drive a very large portion of the owner-occupied, discretionary remodeling industry.

During the pandemic, kitchen and bathroom upgrades and remodels were high priority items for consumers. With all members of a household suddenly working and living together, any inadequacies of these two rooms in a home were magnified. And while demand for cabinets and cabinet hardware as well as appliances and faucets spiked, the supply-chain crisis elongated timelines dramatically. Even now, more than two years after the lockdowns ended, and many returned to offices, back orders for appliances and other products remain an issue for kitchen and bath remodelers.
Among the broader group of kitchen and specialists, including those who narrow their services to replacement kitchens and baths, the outlook for 2023 revenue is extremely strong, up 12.3 percent, survey data from this year’s TOP 500 reveals. But among those firms offering major kitchen and bath remodels, the outlook is for slow growth and a flattening of demand in 2024.

“While the first quarter was still hot, new leads have slowed considerably in the second quarter and now into the third quarter,” said Justin Larrison, co-owner of Small Carpenters at Large, an Atlanta-based design-build firm that ranked No. 466 this year. “We expect leads to continue to slow into the next year, down to pre-pandemic levels.”

Taking a longer term view here is important. On one hand all the business generated during the pandemic was positive. It drove revenues higher for the firm. On the other hand, his team of nine has been working very hard to keep up with demand. A more normal pace of business will give the company the opportunity to focus on internal operations and to “invest” in their people.

“This might sound a little selfish, but we’ve been so busy in recent years trying to keep up with demand, that we haven’t had enough time to spend on improving our systems, processes, etc.,” Larrison said. “We are already seeing pockets of time show up as we begin to slow down, and we are looking forward to taking a breath and utilizing that extra time to reinvest in our company and our employees.”

Rob Booher, owner of Booher Remodeling Co. in Indianapolis, is seeing a dynamic playing out similar to the one described by Larrison. Booher, whose company is ranked No. 281 on revenue of $7.9 million, says his company is tracking 1.5 percent higher than in 2022. Booher said his firm has experienced a slow-down in leads, a slowdown he “expects will continue well into 2024.”

“We feel this due to the fact that there are still many consumers who have not realized the actual impact that inflation has taken on our industry over the last three years,” Booher said.

Booher’s perspective on a potential pullback by consumers as the higher costs associated with a major kitchen or bath remodel become clearer is bolstered by the most recent reading of the U.S. Remodeler Index, which is produced by Qualified Remodeler and John Burns Research and Consulting. The recently released report tracking second-quarter results estimated that project completions for major remodels such as kitchens and bathrooms will slow to 1 percent growth in 2023. Furthermore, the report highlighted an emerging and growing impact of higher costs and higher interest rates on the ability of clients to embark on major remodeling project.

“Homeowners are delaying, downsizing and downgrading remodeling projects in response to elevated interest rates and financing costs,” the U.S. Remodeler Index report said. It cited a finding that 34 percent of remodelers said their clients were “delaying or pausing projects.”

Some of the kitchen and bath remodelers on this year’s TOP 500 are seeing their job sizes and job scopes stay very large and even increase, which is making up for an overall decline in leads.

Gregg Biche, president of Quality PM Inc. in Delmar, New York, said that while lead flows at his company are down a significant 15 percent year-over-year, job sizes are holding strong and growing. “The quality of the leads we see coming in is better this year,” Biche said. “We are getting less of the very small project inquiries, which we do very little of anyway.”

In 2022, Biche’s company completed 45 jobs on $5.1 million in revenue. For the rest of 2023, Biche sees an opportunity to focus on internal improvements and hiring more people.

“Our focus for the remainder of 2023 is to continue to streamline our design process. By streamlining, we will get projects through the design process quicker and ready for production in less time,” Biche said. “To accomplish this goal, we’ve been growing our design team. This has allowed us to make our process more efficient while continuing to provide a very high level of detail for the production team and ensuring our clients can access as many options as needed.” QR