After a fourth quarter where health and optimism reached their highest levels in the history of the index, the first quarter 2020 Kitchen & Bath Index (KBMI) shows the significant impact coronavirus (COVID-19) has had on the industry. The National Kitchen & Bath Association (NKBA) and John Burns Real Estate Consulting's KBMI found respondents rated the pandemic's impact on business as 8.08 out of 10. The Q1 2020 KBMI posted a reading of 41.0, more than 40% below the reading of 69.8 in the fourth quarter. Any reading below 50 indicates negative growth in the industry.

Respondents rated the health of the industry as 4.1 out of 10, significantly down from the 7.2 rating in Q4. Additionally, respondents rated current market conditions as 46.9 out of 100 and future market conditions as 19.8 out of 100, largely due to the uncertainty of COVID-19.

Professionals listed economic uncertainty and fear of a recession as their primary current challenges, both stoked by the outbreak of COVID-19. In recent KBMI reports, the cost of materials, availability of skilled labor, and labor costs were the top three concerns among professionals. In the first quarter of 2020, those three factors ranked as professionals' seventh, eighth, and 11th most pressing concerns, respectively.

Despite the strong impact of COVID-19 on the kitchen and bath industry in the first quarter, the Q1 KBMI provided some indication that a recovery is likely to come in the near future. Even though nearly 70% of kitchen and bath projects have been impacted by the crisis, the majority of these were postponements as opposed to cancellations, according to the KBMI.

“The first quarter of 2020 brought unprecedented change—not just to our industry, but the economy as a whole,” NKBA CEO Bill Darcy said in a news release. “We know that many kitchen and bath businesses, especially smaller ones, are hurting, and we hope that this report and its findings provide insights on how their fellow industry members are responding."

The KBMI is based on online survey data from NKBA members across three metrics: the respondent's last quarter sales growth compared to the same quarter in the prior year, expectations for the next quarter's sales compared to the same quarter in the prior year, and the respondent's view of the overall health of the industry.

On average, those surveyed for the KBMI reported a 2.8% decline in sales in the first quarter compared to the same period in 2019. The small margin in decreased sales can be attributed to strong January and February sales, offset by poor sales in March, once the effects of COVID-19 began to spread across the United States and impact businesses. Manufacturing and retail firms reported minor sales increases in the quarter, 1% and 0.3% year-over-year, respectively. Despite the small margins of decline in the first quarter, respondents project total sales in 2020 to be down on average 13.7% compared to 2019.

Around half of building and construction firm respondents reported that 20% or less of their active projects remain on schedule. A third of such firms said 60% or more of their jobs are moving ahead as planned. Manufacturer respondents reported operating on average at 52% capacity. One in four retail sales companies indicated closing their showroom due to COVID-19 guidelines had the biggest impact on their business. Design-firm respondents predicted that shelter-in-place orders may lead to long-term gains in the space, with more homeowners becoming interested in renovation projects. Among design firms, one quarter of respondents said demand for future remodeling projects is either higher than before the crisis or unchanged. Design firms forced to close their brick-and-mortar stores have turned to technology, including e-design and virtual consultations, that may benefit business in the long-run.

Data from John Burns Real Estate Consulting indicates that cancellation rates are stabilizing, after bottoming out at 14% in early April. Interior remodeling jobs, such as kitchen and bath projects, tend to have a lower cancellation rate than exterior work. For peak earners, defined as the cohort between the ages of 45 and 64, interior cancellation rates are below 10%.

When asked when they expected the economy to return to normal, nearly 70% of respondents predicted an economic recovery and a rejuvenation in demand for their services by September. A quarter of respondents said they were unsure if conditions would improve until at least 2021.

The Q1 2020 KBMI report represents survey responses from 736 manufacturers, retailers, building and construction companies, and design firms who are members of the NKBA. The COVID-19 impact portion of the survey garnered 679 responses.