Kitchen & Bath Market: Kitchens and baths offer add-on business opportunities and good returns, and are often the starting point of home renovations – November 2024

By Jennifer Bardoner

The most recent Leading Indicator of Remodeling Activity (LIRA) anticipates that the renovation market will grow to $477 billion next year, and kitchens and baths are typically the first spaces to be touched during a remodel since they offer the greatest return on home values and, arguably, quality of life. While the LIRA predicts a 1.2% uptick in overall home renovation and maintenance spending through Q3 2025, FEI senior vice president Brian Penabad reports that its contractor members focused on the kitchen and bath area are forecasting a 3% to 5% increase next year. The segment offers opportunities for diversified retailers to increase ticket sales and revenue as existing homeowners turn to updates in lieu of entering the housing market, which has seen prices and interest rates ratchet up.

ADD-ON BUSINESS
In promoting CCA’s Kiba Studios kitchen and bath add-on business to all its flooring retail members earlier this year, Jill Lombardo, CCA vice president of kitchen and bath retail, reported that the segment is a $50 billion industry.

“Our goal is to add $1 million in cabinet sales to our bottom line every year,” says Laura Rosborough, who transitioned part of her Cleveland, Ohio area Carpet One store to a 1,200-square-foot Kiba “showroom within a showroom” two years ago. “CCA projects it will take anywhere from three to five years to start maintaining those kinds of numbers in a showroom our size.”

Those kinds of additional offerings help retailers capture other components of customers’ home projects, driving up ticket prices across the board. 

“At this location, close to 40% of my business is cabinets, and we’re selling everything else that goes along with it, so it brings all my numbers up,” Katelyn Hansen says of her Somerset, Massachusetts CarpetsPlus Colortile store. “I don’t think I’ve ever sold just a cabinet and nothing else. I’m always getting at least a countertop, hardware or flooring sale along with the cabinet.”

In some cases, those extended offerings help dealers get the sale, period. Kitchen and bath renovations are complex and include many different components, and consumers tend to prefer to do everything with a single retailer, especially if it’s one they trust.

“Being in business as long as we have, we are fortunate to have many repeat customers, and I can’t tell you how happy they are when they realize they can do a whole project under one roof,” says Cindy Braunstein, kitchen and bath manager for National Floorcovering Alliance (NFA) member Worldwide Wholesale Floor Coverings, a 33-year-old flooring and countertop dealer in central New Jersey that added cabinets and vanities five years ago. “And being able to lay the cabinet doors out with the flooring selection, backsplash and countertops is such a help to our clients.”

Rosborough agrees, noting that “customers do not want to go to a flooring store, a cabinet place and a different place for their hardware, faucet and sink.” Her showroom went from not offering any kitchen and bath fixtures to including cabinets, countertops, shower doors, closet systems, lighted mirrors and hardware. “As long as they know we are competitive against the local plumbing store and our competition, they are happy to do it under one umbrella,” she says.

And for kitchen renovations-which offer some of the highest ticket prices and margins-most agree that cabinets are the starting point, opening up the potential client pool for diversified flooring retailers.

“Many times, we were talking to flooring customers, and they were out shopping for cabinets, and it would be natural for them to then get a countertop,” says Raby Home Solutions principal Ralph-David Raby, who added countertops and cabinets to his NFA-member showroom in Albuquerque, New Mexico 12 years ago.

Hansen tells of a client who came in for hardwood flooring and ended up spending an additional $52,000 on cabinets, which ultimately accounted for more than 60% of the sale.

SPENDS AND MARGINS
A basic kitchen refresh starts around $15,000, though many kitchen projects come in much higher, averaging $40,000 and up, often to $100,000 or more. Bathroom renovations generally start around $10,000 but can easily jump up to $50,000 or more depending on the finishes and scope of the work, with many homeowners seeking to replace tubs with walk-in showers and create a spa-like environment.

Though it comes with a host of headaches and increased liability, retailers willing to take on the role of general contractor can drive up their bottom line by as much as 30% to 60%.

“We’re finding that bathroom installation is costing more than the actual products,” says Rachel Sandor, kitchen and bath designer at Rosborough’s Carpet One store, adding that while some DIYers may feel comfortable hanging kitchen cabinets or putting down LVT, they are more reluctant to take on the extensive plumbing and tilework typical in bathrooms.

And, for the consumer, the ease and comfort of having a single source for everything from products to install is even greater when such complicated work is involved.

“Dollar for dollar, it is kitchen and bath remodel that brings in the most dollar volume and is the most profitable,” says Bill Feinberg, president of Allied Kitchen and Bath in Fort Lauderdale, which, in addition to selling millions of dollars of product annually, routinely does contract jobs that cost hundreds of thousands of dollars. While competition can drive down product pricing, he explains, quality craftsmanship carries inherent value.

Penabad says it’s easy for FEI’s contractors to make 40% to 50% margins on the kitchen and bath retail remodel side, and Feinberg averages 40%. Raby, the only other dealer interviewed who is a licensed general contractor, reports that his margins for contract work are around 30%. He is also a digital fabricator of countertops, which now offer his biggest margins, both due to his ability to handle the work inhouse as well as the specialized service he provides with guaranteed vein matching. He notes that is not something typical of small operations-which many fabricators are, making countertops less lucrative for most dealers since they carry more overhead and often have to use subcontractors for the fabrication of the countertops they sell.

“You’re lucky if you get 25% on countertops, because you will get all these mom-and-pop shops that will sell it out the door for nothing,” Rosborough says.

Most of the retailers with whom we spoke report that cabinets have similar margins to flooring, around 40%. Though, as Rosborough points out, “Rachel will sell a $30,000 kitchen more often than I’ll sell a $30,000 flooring job.” And it is common for flooring to get “cheapened out” to accommodate for budget overages elsewhere, as flooring is often one of the last parts of a project.

With the average kitchen having ten to 15 cabinets, according to Penabad, and a larger footprint, kitchens are more profitable than bathrooms for dealers. However, most houses have more than one bathroom but just one kitchen.

ACTIVITY AND OUTLOOK
Liz Crow, Shaw’s vice president of innovation and design, estimates that kitchens and baths account for roughly 25% of the remodel market, with kitchens typically the most popular project. However, inflation has dampened demand.

“During the pandemic, you couldn’t get cabinets fast enough, and the volume of kitchen renovations was enormous, oftentimes more than we could handle,” says Braunstein. “Then things started to taper off with the rise in interest rates.”

Raby also notes, “Historically, we have experienced soft retail business during election years,” though he says his kitchen and bath business is flat this year, whereas the residential flooring market is down overall.

“According to the Kitchen & Bath Market Index, the numbers have remained within a couple points of each other (56-54) for the first two quarters of this year,” reports Hallmark Floors president Drew Mittelstaedt, citing the National Kitchen and Bath Association’s quarterly report. Ratings below 50 indicate slowing activity. “The market appears to be in a holding pattern, not really going up or down. People seem to be waiting on the sidelines in hopes of interest rates dropping further.”

With the median price for a brand-new entry-level home between $425,000 and $450,000, according to FEI Group president Graham Howerton, he believes the waiting game could be a longer play before we see truly meaningful growth. The housing and remodel markets are entwined, he explains, as people generally do home improvements before they sell and right after they buy a house, but the lack of affordability is sidelining many would-be buyers and keeping existing homeowners from moving on.

“Lower interest rates will create some activity, but any thought that a couple of interest rate cuts are going to all of a sudden propel the single-family new construction market into some other stratosphere, I don’t think is accurate,” he says. “Affordability is a much bigger issue. Interest rates are, of course, part of that, but until the entry-level home price falls below $450,000 at a 6% interest rate, the market is going to be a little stagnant.”

As such, affluent customers-with cash on hand-currently comprise most of the remodel market, helping transition demand to better-end goods. And those who are taking on projects, even with less disposable income, are doing so to improve their lifestyle, not so they can put their house on the market, which is also driving up ticket prices. Patrick Warren, vice president of dealer sales and showrooms for Daltile, reports that while the ceramic producer’s kitchen and bath business is up by low single digits, the higher end “has definitely been the shining star,” offsetting losses in the mid to lower end of the market.

“Consumers who are doing full remodels today are not as focused on budget as they are on getting the design they are looking for, driving interest in higher-end backsplash options, wide-plank wood flooring, light fixtures and luxurious veined quartz countertops,” says MSI team leader David P. Raymond II, adding that MSI recently launched programs focusing on its Q Quartz countertops with both FEI’s Kitchen and Bath Alliance and CCA’s ProSource members that have added Kiba. “The shift in consumer demand in the kitchen and bath space has driven up average selling prices while other channels are experiencing strong downward pressure on pricing,” Raymond adds. “Increased spending is tied to a number of factors, including inflation and the continued influence of the pandemic on the importance of a well-designed home.”

DESIGN CONCEPTS
The pandemic brought an increased focus on the home as a personal sanctuary, and with the housing market essentially locking many homeowners in place, they are customizing their spaces.

“The customers we’re working with now really want to build their dream kitchen,” Braunstein says. “They want quality. They want to design their kitchen or bath to have all the special things they want for themselves, so it’s definitely increasing our tickets and the investment they’re making in the space. We work with them closely, coming up with solutions they need that they maybe didn’t have in their existing kitchen. People want to have an island they can sit at, coffee bars, more storage.”

Crow notes that when consumers work with a design-build firm instead of just a general contractor, project spending can be “significantly higher.” To help their retail customers, Daltile, Emser and Shaw offer complementary personalized design services for consumers, and MSI’s online platform includes a stylizer and look books that show how its flooring, countertop and backsplash options can work together. Warren reports that shoppers who can virtually see a product in their room are five times more likely to purchase.

All of the retailers we interviewed offer customized design services for their clients, and Braunstein stresses that it’s important to have an experienced kitchen and bath designer on staff. “Kitchen and cabinet designs are very intricate, and eighths of an inch can be a huge deal,” she explains.

Rosborough notes that Sandor’s designs have swung several jobs in their favor, including one for which Sandor secured a picture of the client’s most prized piece of art and designed the kitchen around it, even including it in the renderings so the client could see it in the space. “It’s those kinds of things that differentiate Rachel from some of the competition,” says Rosborough. “You’re not going to get that kind of service from big boxes or lumber yards.”

While flooring is not typically the starting point for a kitchen remodel, it is often included. Generally, the same flooring is desired throughout the main living areas. Wood looks remain the most popular visual, but while solid and engineered hardwood are going into higher-end homes, those with smaller budgets and/or pets are generally opting for LVT. However, Rosborough and Braunstein report that laminate is seeing an uptick thanks to its thicker construction and recent enhancements.

To offer those with older homes a practical way to seamlessly blend their spaces when performing updates, Shaw Floors is releasing a new collection that mirrors traditional 3/4” solid red oak flooring; Traditions will offer the hardwood market’s top five stain colors in both a 5”x48” resilient and engineered wood format.

In bathrooms, porcelain is still prized for its unmatched performance against water, though LVT is also an option. While kitchens and baths are similar in terms of trends, says Warren, “People get a little bit creative with their bath, whether it’s wallpaper or stylized designs for the tile on the floor or backsplash.”

Shaw will be placing a heavy focus on porcelain with its forthcoming launches. “We have a really robust mosaic and wall tile program, and we have focused on making sure it’s on-trend and trend-forward,” Crow says.

TRENDS
With the personalization of spaces, Crow says there’s an “overload of trends,” though there are some broad ones. Palettes are generally warming up, moving away from stark whites and greys toward creams and natural wood tones for those seeking a clean look, which works well in open-concept homes.

Mittelstaedt notes that, “overall, the calmer tones are easier to decorate with and provide a beautiful and timeless environment.” Hallmark is adding two new styles of French oak cabinets to its Talisman collection, which he says tie in beautifully with the European oak flooring options popular today.

“Warm neutrals and earthtones, elegant marbles, light and medium wood tones continue to gain popularity in flooring,” reports Kathy Greene, director of brand strategy and communications for Emser.

Crow says quartz countertops, which today’s consumers prefer, are warming up to include honey colors and brown tones. Those shifts ultimately impact flooring and cabinet trends, since the various components combine to create either a complementary or contrasting aesthetic.

“It’s either/or: light and bright or dark and moody,” Braunstein says, noting, “Dark and moody is definitely coming into play in all parts of the home.”

To create a cozy vibe, homeowners are incorporating shades of green, says Sandor, and since their countertops are more neutral, “people are getting braver and doing more fun backsplashes,” she adds.
Greene points to fun geometric shapes, artistic prints, ethereal color effects and textured tiles.

Similarly, in bathrooms, “bold prints in marble and mosaic tiles are dressing up bathroom spaces,” says Emily Holle, MSI’s director of trend and design, adding, “We are seeing huge success with large-format tile. 24”x48” is the new norm.”

Copyright 2024 Floor Focus 

Related Topics:FEI Group, National Flooring Alliance (NFA), Mohawk Industries, Carpet One, Shaw Floors, Daltile, Shaw Industries Group, Inc., Coverings