The Cabinet Pricing Crunch

The Cabinet Pricing Crunch

The battle between cabinet manufacturers for market share is heating up!

By: Thad Whittenburg

Let’s look at the 2 main factors that are taking place in the Kitchen and Bath Industry. First and foremost, are the two price increases on imports in less than a year due to tariffs.  Although some importers held part of the first one, almost all of them came out with a 10% increase that began June 1st. (anti-dumping fees still to be determined later this summer)

Secondly, let’s look at what’s happening with the higher end of the spectrum. I think we are all aware of Wood-Mode closing a few weeks ago along with CWP shutting down in February. The fact of the matter is that high-end custom cabinets have been on the decline for some time and will continue in that direction for the foreseeable future. This is also having an impact on higher end semi-custom products that are losing market share.

What does all this add up to? A more intense battle for market penetration between cabinet manufacturers that now find themselves in the same space.

So here is the million-dollar question. What should be their next step? They are going to need to separate themselves from the pack to grow market share. I recently spoke with a cabinet manufacturer that mentioned the only way to take market share was through promotions and strategic pricing for their dealers. Basically, buying it. While I am a firm believer that the path to gaining a larger piece of the pie does include pricing, it’s certainly not at the top of the list nor is product. (Yes, product) I’m sorry that this may sting a little but let’s face it, who has a product that no one else has?   One of the answers to gaining market share is training which costs a fraction of what lowering margins does. Why companies don’t invest more in this for their people and their customers is certainly a mystery to me.

My thoughts, in order of what I feel is most important are listed below:

  • Culture – This is the HOW (Honest, Open, Willing) of being able to move initiatives forward. Without this, and a strong commitment to embrace change, you might as well stop reading now. I know that change is hard, but it seems like a lot of companies have made it their mission to move as slowly as possible. Please look around you and notice that the market place is only accelerating in terms of change. Bottom line, do you want to be the disruptor, or do you want to be disrupted?
  • Outstanding Customer Service – Waypoint grew at an amazing rate not based on their product offering, but on how they serviced customers. (Kuddos to Mark Kovich and Todd Sabine for being the driving forces) This includes problem resolution. Instead of stating policy and making their customers jump through hoops, they took care of things quickly. Ease of Doing Business is also part of customer service. Quoting, ordering, delivery, re-ordering, etc. should all be frictionless with their customers. I know manufacturers are big on orders being placed on their own site but how does this help the dealer track product, cost, and delivery within their own systems?  Why not set up a true EDI program and help put your dealers in a position where they can use it?
  • Affordability – Here are some quick facts from some recent articles I’ve read:
    • Historically 30 – 33% of people purchasing homes are first-time buyers. That number is now moving to 40%.
    • Starter homes are taking a larger share of new homes being built. This means lower cabinet specs for homes.
    • Millennials are now spending 17% of their income on education, health care and rent compared to 12% a decade ago so they are more price conscience when it comes to these types of purchases and for good reason.

Manufacturers will need to drive down the cost of building products by gaining efficiencies through technology and process improvements to meet the needs of both builders and consumers alike.

  • Resources – How many cabinet companies are providing their dealers with tools to help them grow and take market share? Why would they do this, you ask? Because if your dealers are growing, you are too. This strategic partnership should include teaching your sales reps to be more of a resource. Not only for product training and problem resolution but areas that include the customer experience, sales, marketing, financials, and anything else that they would need to help their business thrive.

The bonus round – FUN – yes, I said fun! Why is this so important? Most American companies are experiencing a 25% engagement rate from their workforce. A manager told me recently that it was time to get out the cattle prod to get his people moving. This makes me wonder why they aren’t motivated. 😉A quick look at Norway may be the key to the answer. The 2018 Winter Olympic team just won 39 medals (beating the American record) with only 5 million people in the country. How? They start teaching children at a young age that the most important thing is enjoying themselves. When did work have to become an almost joyless endeavor? Surely, we can break that stigma. I bet if we injected a lot of fun and energy into our workplace, that people would be much more open to embracing change than resisting it. As always, thanks for reading and I look forward to hearing from you. thad@kbglobalpartners.com

 

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