Economic concerns combined with ongoing labor and supply chain issues are leaving cabinet manufacturers with a cautious outlook for 2023 of flat or small gains compared to the year prior.

The latest KCMA Trend of Business Survey from the Kitchen Cabinet Manufacturers Association shows sales in January rose 6.5% compared to 2022 figures for the month, with custom sales up 22.3% and semi-custom up 13.2%, but a drop in stock sales of 25.6%.  Cabinet quantity also decreased in January, down 14.4% compared to 2022. Overall, estimated market sales for the month were $1.4 billion, with a projected cabinet quantity of 3.5 million. Participants in the monthly report include stock, semi-custom, and custom companies whose combined sales represent approximately 75% of the U.S. kitchen cabinet and bath vanity market.

The remodeling sector is expected to produce the largest gains, according to the National Kitchen & Bath Association’s (NKBA) recently released Kitchen & Bath Market Outlook Report. Even in the face of the economic downturn – increased prices due to inflation, supply chain issues, and limited availability in materials – many homeowners are moving forward with remodeling plans, NKBA reported. However, it will not be at the same levels in 2021 and 2022, as medium-scale remodels are forecast to decline by 18% in 2023. Single-family rentals will account for 13% of all kitchen and bath remodeling spending – $8.5 billion out of $66.7 billion – in 2023.

Guarded optimism by FDMC 300
The FDMC 300, an annual ranking of the largest wood products producers in North America, saw sales for those in the cabinetry and home storage segment, reach an estimated $15.8 billion in 2022. Overall projections call for 2023 sales to be relatively similar.

“We do not expect sales in 2023 to exceed that of 2022 because in our market new home construction has come to a grinding halt in Q3 and Q4 due to increased interest rates,” said Corey Laurysen, vice president of Sales & Service at Laurysen Kitchens Ltd. (#212). That said, he added, “We do anticipate 2023 to be a good year overall because we anticipate we could see a shift in our sales mix to more retail and renovator sales in lieu of our new home construction sales.”

Laurysen continued, “We are building a new manufacturing facility that will increase our overall capacity therefore we anticipate that 2024 will be excellent for our company. We have had to turn down work in recent years due to capacity limitations on our current facility, therefore we will be looking to take on more contracts with our ability to produce more.”

John Gahm, president of Kitchen Kompact (#125) also anticipates 2023 sales to remain the same. “Due to the current economic headwinds, we believe that 2023 will be challenging; we anticipate 2023 sales to be flat.” For 2024, Gahm added, “It's hard to tell given the current economic conditions.  The market appears to be softening quite a bit, at least so far this current year.  Assuming the softening is short-lived, we would anticipate 2024 sales to be positive year-over-year.  However, if the current economic conditions extend well into 2023 and into 2024, we anticipate a challenging 2024, at least the first half of 2024.”

A well-developed domestic network has kept Kitchen Kompact from experiencing supply chain issues during and post-COVID. “We felt very fortunate to have long-standing domestic suppliers who made sure we had the material that we needed to continue building products every day,” Gahm said. “We have always believed that it is much more important to have great relationships with our trusted domestic suppliers than anything else.  It is during the tough and challenging times that these relationships will pay off in abundance. That proved to be true during the last three years. We ordered materials and supplies, and they were delivered with very few problems.”

MasterBrand (#3) ended the 2022 fiscal up 15% with net sales of $3.3 billion but remains guarded in its projections for 2023. In its latest report, the company noted year-over-year net sales performance will be impacted by a lower backlog at the beginning of 2023 than in the prior year due to strong service and delivery in 2022. “As we progress through 2023, we are focused on driving growth and cost savings by leveraging our uniquely flexible operating platform,” said Andi Simon, executive vice president and chief financial officer. 

"We expect significant adjusted EBITDA margin improvement in fiscal year 2023 versus current levels as price realization better matches inflationary impacts, we improve costs through productivity initiatives, and we increase our production levels as staffing improves," said Scott Culbreth, president and CEO of American Woodmark (#12), at the company’s 2022 fiscal year-end last April. With three-quarters in the books for fiscal 2023, that strategy appears to be working; the company reported a Q3 net sales increase of 4.6% to $480.7 million, compared with the same quarter of the prior fiscal year. American Woodmark reported growth in the builder and independent dealers and distributors sales channels during the third quarter and growth in all sales channels during the first nine months of fiscal 2023. Net sales for the first nine months are $1.6 billion, a 16.9% increase over 2022.

Industry challenges
Along with a slowdown in new construction, the top challenges facing the cabinet industry continue to be the economy/fears of recession, workforce-related issues (lack and affordability of skilled labor), material availability, rising prices, and competition from low-cost imports. 

“Obviously, the current economic headwinds are a big concern for most manufacturers,” Gahm noted.  “The tough labor situation continues to be a huge concern.”

Also, he added, “Imported cabinets are continuing to make their way into the domestic market.  Some of these imports are coming in legitimately, however, we believe that quite a bit of the imports are coming in illegitimately via transshipment and evasion from China.”

“Our biggest concern for 2023 and 2024 are interest rates,” Laurysen said. “We do hope they start to come down and we start to see new home sales increase again. We also see that many of our current homebuilders are drastically reducing their pricing or offering larger incentives to customers to buy. We are starting to see builders looking for price reductions and savings where possible, but we have not seen any reductions in price from our suppliers so how can we expect to reduce our costs? 
“Along with the interest rate hikes we are seeing the cost of living increase dramatically, therefore labor rates are also on the rise,” he added. “Finding good labor is also a big concern for us.”

“With regard to the industry in general, I would say labor is a huge issue that is not going away anytime soon,” Laurysen continued. “There is an opportunity in our industry for all of us to be more active in our local colleges and trade schools. We need to try and nurture the next generation....We need to steer them in the direction of wood manufacturing and to show them that this industry is more than just a job – it’s a career!”

Growth opportunities 
Dealer network and market expansion are among the methods often cited for growth.   

“I think a big opportunity for our company is our dealer network,” Laurysen said. “I believe everyone is struggling to find good installers and/or service technicians so we need to look at ways to increase B2B sales. Once our new factory is completed, thus giving us increased capacity, I see us working harder to expand upon our dealer network and expansion in U.S. markets.”

Market expansion is also on the agenda for Kitchen Kompact. “Opportunities for our company include gaining market share in areas of the market that we currently do not reach,” Gahm said. “We are looking to change our product mix to get more in line with what consumers are purchasing. We are also looking to get into some areas of the market that our current distribution doesn't reach.”

Looking at the big picture, “Opportunities for our industry include sticking together as an industry to continue to fight the unfairly imported cabinets from China. This is one of the most important issues our industry faces today,” Gahm added. “Our industry needs to continue to band together and fight for the 200,000 jobs that exist because of the products that we build.”

Strategies for success
We asked Laurysen and Gahm to share a strategy for success. Here’s what they had to say.

• “Continue to build those relationships with your employees, suppliers, and customers,” Gahm said. “Relationships are the key driving force behind any successful business. Without them, success will be hard to come by.” 

• “Constantly look for ways to improve your processes. The best companies are the ones that are forward-thinking and who are proactive rather than reactive,” Laurysen said. “It could be something small but if it makes someone’s job easier, safer, more efficient and/or more productive, then it should definitely be reviewed. Like they say, ‘Watch the pennies and the dollars will take care of themselves.’”

About the FDMC 300
For more than three decades, the FDMC 300 annual report has tracked the largest manufacturers in North America, including those involved in the cabinet, residential furniture, contract furniture, architectural millwork, retail fixtures, fenestration, home organization, components and other secondary wood products producers, ranking them by sales. The FDMC 300 (WoodworkingNetwork.com/FDMC-300) is published in February, with news and updates posted throughout the year.

More than 100 cabinetry and cabinet-related firms are included in the 2023 FDMC 300 and ranked according to reported sales and estimates by Woodworking Network and other sources where figures were not available. For information on the FDMC 300, email [email protected].