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Smarter Business Planning in Inflationary Times

“A problem is a chance for you to do your best.”

—Duke Ellington

You heard the rumors, then found out they were true. As of February, lumber prices have nearly tripled from what they were at the beginning of last year. There’s no doubt the figure will continue to fluctuate, but one thing is certain: inflated lumber prices are here to stay for the foreseeable future. So what can you do to work around them?

How inflation factors in

As the lumber industry slowed last year in the wake of the stay at home order, the demand for it increased since thousands of people chose at that time to make improvements to their homes. From May through September of last year, the residential building industry saw its largest increase in lumber pricing since it was first recorded in 1949.

Inflation normally hovers around 2-2.5% annually. This inflation factor is usually during ideal market conditions, as a little bit of inflation can trigger production and consumer spending. But it can get worse quickly.

One thing to note is that people are saving 30% of their income these days as compared to only 7% pre-pandemic. The closest comparison to the effects of the inflation we’re seeing in lumber prices now are the record high gasoline prices drivers paid during the first half of the 80s during the “oil glut.”

Another inflation indicator is that, while the stay at home order has been lifted in most sectors, mill workers are still staying home because they’re earning a competitive rate on unemployment.

Who is getting hit the hardest and what are the indicators?

Since the majority of kitchen remodeling jobs require hardwoods for cabinetry installations, design firms, by a large margin, have not been directly hit with enormous lumber pricing increases. Since the lumber market shifted, it has been independent building contractors who are being hit the hardest during the pandemic.

Since contractors work primarily with softwoods for constructing housing frames, their job costs are skyrocketing even while their budgets are staying the same, resulting in lower profits. The wood used in homebuilding is nearly triple the cost in today’s market. Homebuyers may have to curb their projects until lumber prices simmer down.

The nature of the problem is a supply shortage. More resources, such as lumber and installation hardware, are needed to meet the demand for the product. Without the logging industry operating at full capacity, there is not enough wood in the mills to furnish the buyers’ need for it.

Adaptability is success in the new market

Currently, there is no end in sight for the lumber price increase. It’s still going up, and one can only speculate on exactly what the outcomes for the kitchen and bath remodeling industry will be. We’ve been hearing from SEN members that most firms will increase their prices by 10% – 15% in the next three months to counter balance dollar inflation.

The good news out there among kitchen and bath design firms is that business is booming, but there’s a rockier path to getting existing jobs completed and new jobs retained.

The SEN Design Leadership Team speaks to dozens of our members each week and we’re hearing that home investments are steadily high. Buyers are canceling vacations to keep their home renovation plans intact!

While home investment inflation will continue to be strong likely into next year, Americans are still projected to spend $158.6 billion on kitchen and bath remodeling projects in 2021.

Smart planning in inflationary times

Things will likely become more difficult for small businesses before they get better. The good news is there are things firms can do to work smarter during these difficult, inflationary months.

One good rule of practice for times such as these is to keep possible, future obstacles in mind. For instance, since we’ve seen that lumber has been expensive and scarce for the past year, and the end of the pandemic is not yet in sight, it’s reasonable to speculate that four months down the road there could be an eight week hold time on treated lumber.

Speculating on industry changes is effective to the point firms are mindful of how they do business now. Since prices will probably continue to go up for the foreseeable future, ordering wood materials as early as possible for retained jobs is advised. However, it does not guarantee the buyer will save money.

There are several potential workarounds that add up to doing smarter business.

  1. It’s best to let potential buyers know, during the interview process, of the current industry changes such as lumber price increases, cabinet delivery delays, or any of the other inconveniences kitchen and bath design firms have been seeing lately, as they may not be aware of these circumstances. This gives them a good reason to retain their preferred dealer firm as early in their investigation process as possible.
  2. Pre-purchase wood for jobs requiring extensive remodeling. It supports the rationale for a 50% deposit upon signing the agreement. Owners might even consider increasing that deposit amount to 60%.
  3. Firms should put an escalation clause into their contracts. If the cost for wood goes up by a certain percentage, like another 10%, homeowners must recognize the need to pay more for the renovation portion of the job. Use an escalation clause moving forward for the foreseeable future.

These days call for those of us in the kitchen and bath industry to adapt to the demands of rapidly changing times by modifying the way we engage prospects in the sales process, and the time we budget for job completion during these uncertain times.


—Shannon Blair, SEN Design Group