Experiencing Too Much of a Good Thing

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The year 2021 was a record one for many kitchen and bath showrooms and a year that most would not like to repeat. While sales may have set records, the volume of business put a strain on almost every aspect of showroom operations. Many showrooms reported record sales at the expense of record profitability. 

The global pandemic redefined how most Americans work, entertain, exercise, relax and live. As a result, home remodeling skyrocketed. Angi’s The Economy of Everything Home Report found that Americans spent a record-breaking $379.9 billion in 2021 on home improvements. The spending reflects a paradigm shift in how Americans view their home and invest in it. According to Angi’s Chief Economist Mischa Fisher, “Pre-pandemic, people were motivated to work on their homes for a return on investment or other financial incentives. Now, they’re prioritizing projects that help their homes better suit their new normal,” which includes a focus on enjoyment, functionality and lifestyle.

Overwhelming Demand

In the last two years, the demand for new kitchens and baths has been so great that it overwhelmed the entire industry. For the first time, perhaps ever, major cabinet manufacturers placed moratoriums on new business and new accounts because they could not adequately serve their existing customer base. For manufacturers and showrooms, unprecedented demand disrupted cash flow, operational efficiency, employee training, recruitment and retention, job cost accuracy, supply chain fulfillment, customer service, ordering, employee satisfaction, infrastructure and almost every other aspect of showroom operations. 

“While sales in 2021 may have set records, the volume of business put a strain on almost every aspect of showroom operations.”

Many kitchen and bath showrooms found that the rapid growth experienced forced them to improvise. Operational systems were compromised. Pressure increased to hire additional staff in one of the most challenging employment markets in recent history, and many showrooms could not find the staff they needed. Showrooms were so busy managing their current volume of business that many did not have time to prospect for new sales. 

Such was the case for Tom Caruso of Caruso Cabinets, in Avon, OH. “A challenge we faced in getting product out the door was that our remodeler and builder clients could not complete their jobs quickly, causing our warehouse and systems to burst at the seams,” he reported. “It did not make sense to prospect for new business because we were spending 100% of the time juggling the business that we had.”

The unprecedented demand illuminated inefficiencies in showroom operations that may otherwise have never been noticed. Warehouse space management was one operational area that many showrooms found taxing. In the case of Bath, Kitchen and Tile, an industry leader in factory-direct kitchen and bathroom product supply in the Mid-Atlantic region, the company had to lease four additional warehouses. 

“Last year was chaotic,” explained company owner Richard Campbell. “Our focus was to help our clients maintain their business, which we did at the expense of profitability.” Campbell is not dissimilar to many showroom owners who will bend over backward to meet their customers’ needs, sometimes to a fault. 

He continued, “Maybe, in the beginning, we were more helpful than we should have been, but our goal was to keep our customers happy. Workarounds became the standard operating system. We learned that we needed to improve the consistency in which we serve our customers and ensure that warehouse processes and communication systems are aligned.”

Material Challenges

The number of price increases issued in 2021 made the difficult problem of inventory management even more taxing. In a typical year, manufacturers will raise prices only once. In 2021, price increases were issued three and four times as manufacturers found their costs increasing faster than their ability to raise prices. Showrooms were forced to accept delivery of cabinets that they may not be able to install for four or five months because of either labor or materials shortages or both. Leasing additional warehouse space to house inventory eats into profitability, especially for many showrooms that did not anticipate the additional expense. 

Showrooms faced with storage challenges reached out to their customers to determine if they could accept delivery of products, understanding that it could take several months or longer before installation could be scheduled. Some showrooms found that their customers were willing to do so, especially if it meant not having to pay higher prices to have products delivered at the time they are needed as the result of ongoing price increases. 

Caruso developed an innovative incentive plan to help move product by offering his team bonuses for shipping product out of the warehouse within 45 days. “The bonus paid significant dividends. It created an awareness among our team that inventory needs to move in a timely manner and enabled us to reward our team for helping to solve a problem.”

Williams Distributing, a full-service distributor of kitchen and bath cabinetry, hardware and plumbing products in the Great Lakes region, noted that set aside kitchen orders have increased more than ever due to long lead times, product shipment delays and skilled labor shortages prior to when cabinetry and countertops are needed. Williams estimates that its space devoted to kitchens stored longer than 30 days increased at least 50%. The company has incentivized its sales team twice in the past six months to find ways to get customers to take older product.

Moving inventory out of a warehouse during periods of rapid growth also highlights the importance of communication. In many showrooms that cater to builders, the salesperson or operations team gets a notice when the products are needed. However, in the past two years, that has become more difficult because of numerous job delays. Bath, Kitchen and Tile addressed job delays by juggling and pivoting inventory in its warehouses. Product specified for a delayed project was reassigned and delivered to another that was ready for delivery.  

The Hiring Dilemma

Finding and retaining best-in-class talent also has become more difficult for showrooms. Showrooms would have been better able to accommodate the tremendous growth they experienced if they could find additional team members. However, most showrooms report that the hiring environment is extraordinarily difficult. More than 47 million Americans voluntarily quit their jobs in 2021, reports the U.S. Bureau of Labor Statistics. The result is that many BKBG Shareholders and manufacturers can’t find the labor necessary to grow their businesses, let alone efficiently manage the business that they currently have. 

The Great Resignation is not an anomaly, write Harvard Business School professors Joseph Fuller and William Kerr. While COVID may have caused more people to quit their jobs in greater numbers, Fuller and Kerr found that, since 2009, Americans have been leaving the labor market in greater numbers every year. 

They attribute the decline in the number of American workers to the following factors:

  • Retirement – In 2021, older workers retired at an accelerated rate and did so at younger ages. 
  • Relocation – It’s a misnomer to believe that skilled workers left their jobs in major metropolitan areas for more rural and/or affordable locales. Fuller and Kerr found that overall movement rate in 2021 was the lowest in 70 years, and those who did move disproportionately moved locally.
  • Reconsideration – Many workers, especially women, are reconsidering their jobs because of the need to care for family members. A recent study found that 33% of women are contemplating leaving the workforce, changing jobs or reducing hours. In many cases, this is not a decision of choice but a necessity to take care of family members.
  • Reshuffling – Workers are seeking greener pastures and higher wages in greater numbers. They are not necessarily leaving the workforce, as evidenced by data from the Economic Policy Institute, which found hiring rates exceeding quit rates in many sectors. This has caused many businesses to increase wages. McDonald’s minimum wage ballooned from $11 to $17 an hour and the company offered better benefits. The lowest-paid worker at Bank of America makes $25 an hour. Walmart has agreed to pay full college tuition and books for all associates.
  • Reluctance – Health concerns associated with COVID-19 are additional reasons employees are leaving the workforce or changing their work habits. A Pew Research study found that 64% of workers are not comfortable returning to the office, and a Harvard study found that 36% of workers will look for another job if they can’t have the option to work at least part of the time from home.

Kitchen and bath showrooms have not been insulated from these factors, especially reshuffling. It has become a necessity to assist showroom staff in achieving a work-life balance and, in many cases, up the ante. At Custom Kitchens in Richmond, VA, the company has increased the semi-annual bonuses paid to team members and expanded the number and frequency of corporate team-building events. 

Wage inflation is real and is not going away in the immediate future. Showrooms can expect to increase wages by 15% to 20% to attract and retain talent to remain competitive. 

The silver lining to explosive growth experienced by showrooms and the industry in the past two years is that it has forced businesses to become laser-focused on operations, improve their communications across all facets of their business and perhaps most significantly, learn to say no. 

Caruso summed up the sentiments of many. “If someone comes into my showroom and the first question asked is, ‘what’s my discount?’ that’s not my customer.” ▪

Tom Cohn serves as exec. v.p. of the Bath & Kitchen Business Group, the nation’s largest shareholder-owned kitchen and bath group purchasing organization. Named as a 2020 KBDN Influencer, Cohn also is founder and president of Cohn Communications, a multidisciplinary association management and marketing firm headquartered in Washington, DC.

The post Experiencing Too Much of a Good Thing appeared first on Kitchen & Bath Design News.

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