Kitchen and bath industry professionals are feeling more positive about the future, according to the Q1 2023 NKBA/John Burns Kitchen & Bath Market Index (KBMI), a proprietary index gauging the economic health of the kitchen and bath industry. 

Released in May 2023, the report indicates that all four industry segments of the kitchen and bath (K&B) industry — design, building and construction, retail sales and manufacturing — that took part in the survey had an optimistic outlook for the future.

The Q1 KBMI was 62.4, up slightly from the 61 reported in Q4 2022, which indicates a reversal in the declining trend seen in 2022. This reflects a cautiously optimistic shift in sentiment among kitchen and bath professionals. This was mainly the result of the improved ratings for Health and Future Conditions, two of the three components making up the overall index. Health rose to 67 from 62 in Q4 2022, while Future Conditions jumped to 68 from 57.

The Future Conditions rating was the highest in 12 months, demonstrating a significantly more confident outlook by those surveyed. In fact, K&B professionals surveyed described the health of the industry as “strong” despite a cooldown in demand — in addition to being cautiously optimistic about Q2 2023 sales performance. 

Current Conditions — the only one of the three index components to decrease — fell to 59 from 61 in Q4 2022. However, the ratings for all three components remained above 50, indicating that the market is still expanding. The overall KBMI has not been below 60 since Q2 2020, at the onset of the COVID-19 pandemic. 

Optimism About the Future Is Up 

Out of the four segments, retailers had the highest KBMI rating of nearly 68. Builders followed with a rating of 64, then came designers with 62 and, finally, manufacturers with slightly more than 58. The ratings of individual segments in the KBMI — similar to the overall industry-wide KBMI rating — were driven in large part by improved ratings for Health and Future Conditions, two of the three components making up the overall index.

•  Retailers. The most confident of all four segments surveyed in the Q1 2023 KBMI, retailers gave an index rating of almost 68 out of 100. This rating was up from a little more than 60 in Q4 2022, reflecting a significantly brighter outlook.

In addition to having the highest index rating, retailers also reported a rebound for all three KBMI components. Health rose slightly to 67 from the previous quarter’s 63, Current Conditions were slightly more than 67 compared to 60 and Future Conditions jumped to nearly 70 from 57.

•  Building and construction. Builders gave the second-highest Q1 2023 KBMI rating, providing an index rating of 64 out of 100. This rating was only slightly down from the rating of nearly 65 provided in the previous quarter.

This drop was due to a lower rating for Current Conditions, which was down to 60 from 67 in the previous quarter. However, builders’ rating for Future Conditions was significantly higher compared to the previous quarter, up to more than 70 from 62. Additionally, their Health rating was up to more than 67 from nearly 63 in Q4 2022.

Additionally, 44 percent of building and construction firms expect an increase in new leads for K&B projects in Q2 2023. Building and construction firms had a better-than-anticipated first quarter this year, spurring confidence in new business for the next quarter.

Firms also reported a backlog of 3.7 months for projects. Building and construction firms have enough work to get through the first half of 2023 and expect new leads in Q2 2023 to supplement project cancellations. However, firms are cautious about the future economic outlook as most projects in backlog are smaller in scope.

•  Designers. Although designers recorded a flat Q1 KBMI rating of 61.6, which saw a slight increase from 61.1 in Q4 2022, they seem more optimistic about future business prospects. Despite the lackluster overall rating, designers reported a major upswing in quarter-over-quarter ratings for industry Health and Future Conditions.

Designers rated Health at 67 for Q1 2023, a significant jump from the previous quarter’s 63. They rated Future Conditions at 67.6 for Q1 2023, an even bigger increase from the 58 reported in Q4 2022. As for Current Conditions, designers reported a rating of 57, a drop from the previous quarter’s 61.

About 43 percent of K&B designers reported expecting “new lead” volume growth to remain flat quarter-over-quarter. While this would not be an improvement, it does mean they did not expect a decrease in the upcoming quarter.

•  Manufacturers. Manufacturers provided a Q1 KBMI rating of 58.4, a negligible change from the previous rating of 58 they provided in Q4 2022. However, like other segments, their ratings for Future Conditions and Health were up.

Their rating for Health was 65, up from slightly above 61 in the previous quarter. They rated Future Conditions at nearly 66, a significant increase from the previous quarter’s rating of 51. Their rating for Current Conditions was down to barely under 53 from the rating of narrowly above 58 in Q4 2022.

Industry Sales and Future Implications

Industry-wide, second-quarter sales are expected to increase 4.3 percent on a quarter-over-quarter basis. Driven by a stronger-than-expected first quarter, kitchen and bath industry professionals enter Q2 2023 with cautious optimism. However, the researchers conducting the study felt that 4.3 percent is overly hopeful and recommended using this as a directional measure for Q2 2023 performance. 

Additionally, 60 percent of K&B professionals say margins remained flat in Q1 2023 on a year-over-year basis, indicating profitability has remained stable. Industry experts have been able to pass on rising costs to maintain margins. Furthermore, input cost deflation is expected in the latter half of 2023.

Around 42 percent of the kitchen and bath industry expects full-year 2023 sales to be higher than in 2022. Much of the industry, however, is less optimistic, with 58 percent reporting flat/declining year-over-year sales. However, there is good news for K&B pros in affluent regional areas such as Washington, D.C., and parts of Texas, where demand is expected to hold throughout the year.

Based on year-over-year projections, industry sales are predicted to grow by 7 percent in 2023. The stronger-than-anticipated sales performance in Q1 2023 has instilled confidence in the industry, fostering expectations of high single-digit sales growth for the year. Solid backlogs further support sustained growth throughout the year.

Market Conditions and Future Impact 

On average, consumers can expect to pay 9 percent more for kitchens and bathrooms in the 2023 fiscal year. Industry experts expect to raise prices by 9 percent on average in 2023, offsetting cost increases and protecting margins. 

K&B professionals cited fear of recession as their top concern, but half of respondents, up five percentage points from Q4 2022, said they are confident their business can withstand an economic downturn. Overhead reductions and strong backlogs gave industry pros increased confidence in their respective businesses to combat less-than-favorable economic conditions. 

Other top concerns included the availability and cost of skilled labor (previously the primary concern reported in the previous quarter) as well as costs associated with materials, inflation and availability, and professional employees.

One silver lining resulting from inflation and the current state of the economy is that more consumers are staying put in their homes and remodeling. The higher interest rates have made upgrading-in-place more attractive than new construction. 

The NKBA/John Burns Kitchen & Bath Market Index quarterly study examines current and future market conditions, monitoring industry professionals’ ever-changing issues and challenges. The K&B professionals who take part in the survey represent all four industry segments — design, building and construction, retail sales, and manufacturing — and are also asked to compare the performance of the current quarter to the previous one. 

The Q1 2023 survey netted more than 800 responses from NKBA members in these four main industry segments. Visit the NKBA website to download the full report (https://bit.ly/3oZyesS). 

Elisa Fernández-Arias is a business writer at the National Kitchen & Bath Association.