How Your Business Might be Affected by the Coming Downward Trend

Woodworking news just reported last Friday that cabinet sales were up 20% in May overall but the quantity of cabinets being manufactured had decreased by .8%. That followed April’s number which showed only a .6% increase on cabinets being built. The interesting part of these numbers is showing that the increase in sales is mainly due to the on-going price increases that everybody has been experiencing.

Here are some other recent stats that help support the idea that the downturn is here and will most likely continue into the foreseeable future.

Take a glance at the latest inflation rates numbers. May 2022 was up 8.1% which was the highest rate in 40 years. Bam!

That was followed by the June number at 8.3% and MTD for July is 8.8%! That’s crazy town stuff!

The Feds raised rates in May by 50 basis points, 75 BPs in June, and it’s estimated that they will pile on another 75 in July. I am pretty sure that they will be hitting it again in September to try and slow down inflation. This obviously has pushed up Mortgage Rates to double what they were running just months ago. So, what does all this mean for the future of the Kitchen & Bath Dealers? Every slowdown we have experienced has brought a shift in market share. This one won’t be any different. In fact, I think we will be seeing a much larger shift than ever before based on the changing models that have been entering our industry.

So, let’s go ahead and break them down into 3 different groups.

I like calling the top dogs, “The Pie Eater Group” – They are here to take market share. These folks get it and will continue to improve their models and experience at least 10%+ growth during the slowdown.

Here’s what they might look like – A full or part-time online sales model. This channel has continued to grow at the fastest rate, and I don’t see that changing in the future. The fact is, they are continuing to find ways to improve the customers’ on-line experience and it’s showing in their growth. Who didn’t see that coming??

Bricks and Mortar Dealers in this Group have been making some strides forward too. Here are some of the attributes you’ll find in the way they do business. They have integrated systems (not the Frankenstein version), coupled with processes that are being configured by a process improvement methodology. (Traction, Manage to Lead, Six Sigma, etc.) Their systems and processes are the foundation that will drive the success of these companies. The KPIs will look something like this:  high productivity that has GMPP at 200K + because their business runs efficiently, their margin erosion typically will run under 2% because they have metrics that will show where the problems lie, and their closing ratio will be over 50% on average due to a large amount of referral business they get. (Raving Fans baby!)

Lastly, their ROS will run 10%+ which will allow them to reinvest in the business which is so important these days. All of this will help them attract and retain talent because it’s a well-run machine. These cats are hungry, and they will certainly be focused on eating a larger share of the pie than others.

Now on to “The Fork in the Road” group – This makes up a large majority of dealers. There is a wide array of Dealers in this group because they live in the middle section of the bell curve. Their range of growth will be anywhere from a 20% drop in sales up to 10% growth.

They have been spending most of their time dealing with the business at hand and not much time working on the business.  Here’s a look inside the middle of the road businesses:

They have fragmented systems that don’t talk with each other. Most of their processes have cobwebs on them and must be re-examined and changed to improve performance. If they had KPI’s, (and that’s a big if) they might look like this:

GMPP $125K-$200K

Margin Erosion at 2.5% or higher (some even over 5%). Ouch!

Closing ratios running 30-50%

Return On Sales between 3-9%

Here’s the big question they face as the fork in the road lands on their doorstep. The path on the right side has a well beaten trail that hasn’t changed much over the years. They will continue to use their current model and will start seeing a decline in sales of 20% or more. The ones that decide to go on the path less travelled, well they will need to start pulling up their britches and get to work on their business. The first 2 things they better have on their checklist is a good system and a method to improve processes. Without these in place, you can’t produce the important metrics that you will need to guide your company. Good starting point huh? Enough said…..

Lastly, we have what we call “The Jury is out Group” – they consist of the businesses that may or may not survive this next downturn. The only way they typically react to something like this is to cut expenses enough so they can make it. That might not work this time. I truly wish you the best of luck because you may need it.

So, what now? I encourage you to start a list as soon as possible that will outline your vision and strategy moving forward. Don’t go at this alone. Everybody needs input from others as to where to start and how you can get things moving forward. Keep in mind that change in an organization is the hardest thing to do. Everybody knows how things run now and are comfortable with that but this could also be the kiss of death. Sorry to be so harsh but sometimes that’s what it takes.   

The fact is, that any time there is a disruption the market, it can be very exciting and scary at the same time because it’s all new ground. Get energized along with your team and make it fun! It’s going to come anyway so get ahead of it and enjoy all the improvements you will be making!

Call or e-mail me if you need any help. Thad

PS – I always love to hear feedback!

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