houzz state of the industry -...

© 2016 Houzz Inc.

2016 HOUZZ STATE OF THE INDUSTRY U.S. Residential Renovation and Design January 2016

Houzz.com

© 2016 Houzz Inc.

Big Ideas •  Firms bullish about 2016: The vast majority of professionals are bullish about 2016

and expect revenues and profits to grow in line with 2015. Many expect to support

revenue growth by greater investment in marketing efforts, bringing in larger-budget

projects, and increasing prices •  2015 revenue growth for most, yet more moderate: 2015 was a year of revenue

growth for nearly three-quarters of residential businesses on Houzz, in line with 2014.

30-37% of companies across the industry groups reported high-double-digit revenue

growth (15%+) in 2015, compared to 34-45% in 2014

•  Rising business costs hurt the bottom line: Over half of companies reported rising

business costs in 2015, driven largely by the rising cost of employees or

subcontractors. More than a quarter of companies added headcount in 2015 •  Concerns about costs and labor shortages persist: Top challenges facing

businesses heading into 2016 include managing consumer expectations and budget

concerns, rising business costs, and shortages of employees or subcontractors

2

© 2016 Houzz Inc. 3

2015 in Focus 4-11 Outlook for 2016 12-17 Business Characteristics 18-20 Methodology 21 Appendix 22-27

Contents

© 2016 Houzz Inc.

2015 IN FOCUS

4

© 2016 Houzz Inc.

Majority Report Substantial Revenue Growth

ANNUAL RATE OF REVENUE GROWTH IN 2015 AS REPORTED BY FIRMS (%)

5

Nationally, two-thirds or more of companies, irrespective of industry group, reported revenue increases. Moreover, the annual rates of growth are in the 10-14% range for 15-21% of firms, and another third of firms experienced growth rates exceeding 14%. Furthermore, Houzz industry research from mid-2015 revealed that over two-thirds of firms experienced gross revenues returning to the pre-recession ‘normal’ levels in 2015.1

12%

15%

12%

13%

14%

8%

12%

17%

19%

18%

16%

15%

16%

24%

5%

5%

6%

8%

5%

3%

9%

11%

9%

13%

11%

13%

19%

10%

19%

17%

15%

15%

21%

17%

15%

15%

17%

16%

16%

18%

15%

11%

20%

18%

20%

21%

14%

21%

18%

Architects

Interior Designers

GCs/Remodelers/Builders

Design-Build

Specialty - Building & Renovation

Specialty - Landscaping & Outdoor

Specialty - Decorating

<0% 0% 1-4% 5-9% 10-14% 15-24% 25%+

1 See slide 26 in the Appendix for additional information.

© 2016 Houzz Inc.

More Moderate Growth Rates vs. 2014

COMPARISON OF FIRMS (%) REPORTING REVENUE INCREASES AND 15%+ RATES OF GROWTH IN 2015 AND 20141

6

A similar share of firms reported revenue increases in 2015 as in 2014, yet a smaller share of firms in nearly every professional category in 2015 experienced high-double-digit growth relative to 2014. The median firm in each professional category reported a growth rate of 10-14% in 2015, identical to 2014.

Positive Revenue Growth 15%+ Rate of Revenue Growth

2015

2014

1 See additional information on 2014 findings in U.S. Houzz 2015 Barometer Highlights.

35%

34%

35%

37%

31%

36%

30%

41%

45%

34%

36%

34%

42%

41%

Architects

Interior Designers


Design-Build




71%

66%

70%

70%

71%

76%

64%

66%

66%

67%

62%

75%

77%

72%

Architects

Interior Designers


Design-Build




http://info.houzz.com/rs/houzz/images/Houzz2015BarometerHighlights.pdf

© 2016 Houzz Inc.

FIRMS (%) REPORTING REVENUES BELOW, AT, OR ABOVE EXPECTATIONS IN 2015*

Revenues Meeting or Exceeding Expectations

7

Consistent with a majority reporting revenue increases, over two-thirds of firms feel that 2015 revenues met or exceeded their initial expectations, with one in ten reporting that revenues were significantly above anticipated figures.

5%

9%

7%

7%

6%

5%

8%

23%

26%

26%

28%

24%

21%

32%

30%

31%

34%

30%

34%

35%

26%

31%

23%

26%

26%

27%

30%

23%

10%

11%

7%

10%

8%

10%

10%

Architects

Interior Designers


Design-Build




Significantly above

Somewhat above

About same

Somewhat below

Significantly below

© 2016 Houzz Inc.

57%

59%

56%

57%

58%

67%

59%

62%

66%

61%

57%

66%

72%

62%

Architects

Interior Designers


Design-Build


Specialty - Landscaping &


Profit Growth for Most, Yet Falls Short of 2014

FIRMS (%) REPORTING CHANGE IN PROFITS IN 2015

8

Over half of companies reported that profits increased in 2015 relative to 2014 across all industry groups. However, the proportion of companies reporting an increase in profits in 2015 is approximately 5 percentage points lower than in 20141 for nearly all industry groups. Similarly, there is a 7-14 percentage point gap between those reporting revenue growth and those reporting profit growth in 2015 for nearly all industry groups.

18%

18%

20%

18%

17%

14%

20%

25%

23%

24%

26%

25%

20%

21%

57%

59%

56%

57%

58%

67%

59%

Architects

Interior Designers


Design-Build




Decrease No Change Increase


2015 VS. 2014 PROFIT GROWTH

2015 2014


© 2016 Houzz Inc.

Cost of Doing Business Increased

FIRMS (%) REPORTING CHANGE IN THE COST OF DOING BUSINESS IN 2015

9

Over half of the firms in each category reported that the cost of doing business increased in 2015, with those in the construction sector reporting the most widespread cost increases (76% among general contractors, 74% among building and renovation specialty, and 70% among design-build).

3%

5%

4%

4%

3%

6%

7%

38%

42%

20%

25%

23%

28%

36%

58%

54%

76%

70%

74%

67%

56%

Architects

Interior Designers


Design-Build




Decrease No Change Increase

© 2016 Houzz Inc.

Labor Drives Cost Increases

TOP 3 DRIVERS OF THE INCREASE OF THE COST OF DOING BUSINESS AS REPORTED BY FIRMS (%)

10

#1 Cost Driver #2 Cost Driver #3 Cost Driver

Architects Employee wages or benefits (55%)

Office equipment/software (42%)

Advertising/marketing (37%)

Interior Designers Advertising/marketing (49%)

Product or materials (44%)

Employee wages or benefits (37%)



Subcontractor fees (55%)


Design-Build Product or materials (64%)

Subcontractor fees (53%)





Business insurance (37%)




Business insurance (38%)

Specialty - Decorating Product or materials (58%)

Advertising/marketing (55%)


Employee wages or benefits are one of the top three drivers of the cost of doing business across all professional categories. Other commonly cited cost drivers are advertising/marketing, products or materials, subcontractor wages and fees, and business insurance.1

1 See slide 24 in the Appendix for additional information on cost drivers.

© 2016 Houzz Inc.

Many Expanding Staff in 2015

FIRMS (%) REPORTING CHANGES IN THE NUMBER OF EMPLOYEES IN 2015*

11

Over a third of companies in the construction and the outdoor sectors added headcount in 2015, in line with 2014 hiring,1 adding either 1-2 employees (16-24%) or 3+ employees (14-16%) Hiring was less common among architecture, interior design, and decorating-related specialty companies (20%-27%), also in line with 2014 findings.1

2015 VS. 2014 EMPLOYEE GROWTH

27%

20%

37%

37%

35%

33%

24%

21%

23%

32%

40%

38%

32%

34%

1

2

3

4

5

6

7

2015 2014


5%

5%

10%

9%

7%

8%

6%

68%

75%

53%

54%

58%

60%

70%

21%

17%

24%

23%

21%

16%

18%

6%

3%

14%

14%

14%

16%

6%

Architects

Interior Designers


Design-Build




Shrank by 1-2 Employees No Change

Added 1-2 Employees Added 3+ Employees


© 2016 Houzz Inc.

OUTLOOK FOR 2016

12

© 2016 Houzz Inc.

61%

73%

68%

73%

69%

78%

78%

57%

59%

56%

57%

58%

67%

59%

Architects

Interior Designers


Design-Build




Firms Bullish on 2016

COMPARISON OF FIRMS (%) EXPECTING INCREASES IN 2016 REVENUE AND PROFIT RELATIVE TO 2015 ACTUALS

13

The majority of residential companies on Houzz expect revenues and profits to increase in 2016. In fact, even more businesses expect increases in 2016 relative to the actual 2015 outcomes. Architects are the most conservative among the industry categories, with expectations more in line with 2015 actuals.

Revenue Increase Profit Increase

Expected for 2016

Reported for 2015

67%

79%

74%

78%

78%

81%

81%

71%

66%

70%

70%

71%

76%

64%

Architects

Interior Designers


Design-Build




© 2016 Houzz Inc.

Double-Digit Growth Remains a Common Expectation

EXPECTED ANNUAL RATE OF REVENUE GROWTH IN 2016 AS REPORTED BY FIRMS (%)

14

Half or more of companies in every industry group expect revenues to grow by 10% or more in 2016. With the exception of architects, over a quarter of companies (28-35%) expect revenues to grow by 15% or more, roughly in line with the 2015 actuals (30-37%). Significantly fewer architects (22%) expect to sustain 15%+ rates of growth in 2016 (vs. 35% reporting these rates in 2015).

6%

4%

5%

6%

6%

3%

4%

27%

16%

20%

17%

16%

16%

15%

6%

5%

6%

6%

6%

5%

6%

14%

15%

15%

16%

18%

19%

15%

26%

25%

24%

20%

27%

26%

26%

12%

20%

18%

20%

16%

16%

21%

10%

14%

11%

14%

12%

15%

12%

Architects

Interior Designers


Design-Build




<0% 0% 1-4% 5-9% 10-14% 15-24% 25%+

© 2016 Houzz Inc.

Firms Expanding Marketing Efforts to Grow Revenue

TOP REVENUE GROWTH STRATEGIES AS REPORTED BY FIRMS (%), AMONG THOSE EXPECTING REVENUE GROWTH

15

Among the more than two-thirds of companies who expect revenues to increase in 2016, half or more plan to further invest in marketing (50-70% across industry groups). Over a third plan to bring in larger-budget projects (39-54% percent), increase their prices (37-49%) and/or improve customer experience (35-47%).1

#1 Growth Strategy #2 Growth Strategy #3 Growth Strategy

Architects Bring in larger-budget projects (54%)

Increase marketing/sales efforts (52%)

Increase prices/mark-up/margins (41%)

Interior Designers Bring in larger-budget projects (58%)


Improve customer experience (42%)


Bring in larger-budget projects (51%)



Design-Build Increase marketing/sales efforts (62%)


Improve customer experience (47%)




Improve employee productivity (44%)





Specialty - Decorating Increase marketing/sales efforts (70%)

Bring in larger budget projects (42%)

Offer new products/services (39%)

1 See slide 25 in the Appendix for additional information on growth strategies.

© 2016 Houzz Inc.

25%

25%

40%

46%

43%

39%

25%

28%

21%

38%

38%

36%

33%

25%

Architects

Interior Designers


Design-Build




Expecting Increased Costs, But Still Hiring

COMPARISON OF FIRMS (%) EXPECTING INCREASES IN 2016 BUSINESS COSTS AND NUMBER OF EMPLOYEES RELATIVE TO 2015 ACTUALS

16

Half or more firms in each professional category expect the cost of doing business to increase, although not as many as those reporting actual increases in 2015. Hiring is expected to stay more or less in line with 2015 practices, with design-build and building specialty companies more bullish on hiring in 2016 relative to other industry groups and their own 2015 experiences.

Business Cost Increase Employee Increase

52%

53%

65%

66%

67%

63%

50%

58%

54%

76%

70%

74%

67%

56%

Architects

Interior Designers


Design-Build




Expected for 2016

Reported for 2015

© 2016 Houzz Inc.

Concerns About Costs & Labor Shortages Abound

TOP 3 BUSINESS CHALLENGES HEADING INTO 2016, AS REPORTED BY FIRMS (%)

17

Companies in nearly every industry group cite managing consumer expectations and budget concerns, rising business costs, and shortage of employees or subcontractors as top business challenges heading into 2016.1 In relation to the labor shortages, Houzz research from Q3 2015 found that finish carpenters and general laborers were in shortest supply in 2015.2

#1 Challenge #2 Challenge #3 Challenge

Architects Managing consumer expectations (39%)

Consumers - overly concerned about costs (37%)

Difficulty hiring/being understaffed (25%)

Interior Designers Consumers - overly concerned about costs (45%)

Managing consumer expectations (39%)

Shortage of subcontractors (27%)


Increased cost of doing business (37%)

Shortage of subcontractors (35%)


Design-Build Consumers - overly concerned about costs (38%)











Specialty - Decorating Consumers - overly concerned about costs (42%)

Difficulty finding prospective customers (31%)


1 See slide 23 in the Appendix for additional information on business challenges. 2 See slide 27 in the Appendix for additional information on labor shortages.

© 2016 Houzz Inc.

BUSINESS CHARACTERISTICS

18

© 2016 Houzz Inc.

5-Year Plan to Expand and Grow for Most

2015 BUSINESS CHARACTERISTICS AS REPORTED BY FIRMS (%)

19

Most residential renovation and design companies on Houzz are mature small businesses with one or more part-time or full-time employees (beyond the owners), with plans to expand and grow in the next five years. The size of revenues, and the size and number of jobs, vary greatly by the industry group.

$25K to $2M+

average job size

10 to 5K+ jobs

per year

$500K to $4M+ annual

revenues

With employees

(beyond owners)

10 to 30+ years in

existence

Plans to expand in the next 5

years

Architects 65% 75% 21% 63% 68% 47%

Interior Designers 55% 72% 28% 58% 57% 61%

GCs/Remodelers/Builders 60% 78% 65% 81% 68% 64%

Design-Build 71% 78% 69% 82% 74% 68%

Specialty - Building & Renovation 19% 90% 48% 82% 68% 64%

Specialty - Landscaping & Outdoor 37% 91% 38% 69% 64% 64%

Specialty - Decorating 13% 84% 24% 61% 60% 58%

© 2016 Houzz Inc.

Diversified Customer Base & Services

2015 BUSINESS CHARACTERISTICS AS REPORTED BY FIRMS (%)

20

While services to customers in existing homes are naturally most common among residential renovation and design companies, on average, a fifth or more projects originate from new custom homes. In addition to their core services, some companies offer custom fabrication services or own a retail outlet or a showroom/design center.

Average Share of Projects/Jobs by Home Type

Additional Services Offered

Existing homes New custom

homes New for-sale

homes Retail outlet or

showroom Custom

fabrication

Architects 57% 37% 7% 3% 1%

Interior Designers 77% 18% 6% 9% 14%

GCs/Remodelers/Builders 66% 26% 8% 8% 7%

Design-Build 76% 19% 5% 15% 11%

Specialty - Building & Renovation 76% 18% 6% 27% 19%

Specialty - Landscaping & Outdoor 77% 19% 5% 2% 1%

Specialty - Decorating 74% 18% 9% 22% 27%

© 2016 Houzz Inc.

Methodology

The Houzz U.S. State of the Industry study is conducted annually among the companies on Houzz. The study represents views of companies on Houzz that offer services primarily related to residential renovation and/or design. The study was fielded December 9, 2015 – January 11, 2016. N = 3,528 (438 architects; 718 interior and building designers; 742 general contractors/remodelers; 406 design-build firms; 531 building/renovation specialty firms;1 305 landscape/outdoor specialty firms;2 388 decorating specialty firms.3)

21

1 Building/renovation specialties include replacement contractors (e.g., carpenters) and product installers/manufacturers/resellers (e.g., cabinetry). 2 Landscape/outdoor specialties include landscape architects, designers, and contractors; outdoor replacement trades (pavers); and outdoor product installers/manufacturers/resellers (e.g., pools and spas). 3 Decorating specialties include interior decorators and providers of window coverings, furniture and accessories, lighting, upholstery, and other decorating-related products.

© 2016 Houzz Inc.

BUSINESS CHALLENGES IN 2015

23

TOP THREE CHALLENGES AFFECTING THEIR BUSINESS IN 2015 AS REPORTED BY FIRMS (%)

Architects Interior

Designers

GCs/Remodelers/

Builders Design-Build




Consumers - overly concerned about costs

37% 45% 34% 38% 31% 35% 42%

Managing consumer expectations

39% 39% 30% 31% 24% 26% 21%

Increased cost of doing business

22% 19% 37% 35% 37% 30% 25%

Difficulty hiring/being understaffed

25% 15% 30% 32% 34% 37% 13%

Shortage of subcontractors 17% 27% 35% 31% 17% 20% 13%

Difficulty finding prospective customers

24% 25% 14% 16% 17% 19% 31%

Increased business competition 12% 16% 17% 15% 20% 22% 22%

Weak/uncertain national economy

13% 14% 13% 12% 16% 9% 20%

Increased popularity of DIY 9% 24% 7% 8% 10% 7% 21%

Weak/uncertain local economy 12% 10% 11% 9% 14% 12% 15%

Increased building regulation 24% 4% 13% 10% 6% 9% 1%

Difficulty collecting payments 12% 7% 7% 6% 8% 6% 6%

Tight business lending 4% 3% 5% 5% 5% 2% 1%

Other challenges 7% 9% 5% 9% 8% 11% 10%

© 2016 Houzz Inc.

COST DRIVERS IN 2015

24

TOP THREE DRIVERS OF THE INCREASE IN THE COST OF DOING BUSINESS IN 2015 AS REPORTED BY FIRMS (%)

Architects Interior Designers

GCs/Remodelers/





Product or materials costs 15% 44% 59% 64% 62% 50% 58%

Employee wages or benefits costs

55% 37% 50% 49% 50% 63% 36%

Advertising/marketing costs 37% 49% 27% 30% 35% 36% 55%

Subcontractor costs 18% 29% 55% 53% 27% 27% 20%

Business insurance costs 28% 20% 37% 33% 37% 38% 22%

Office equipment/software costs 42% 28% 8% 6% 9% 16% 16%

Office lease/utilities costs 28% 21% 8% 9% 16% 11% 16%

Legal/accounting fees 13% 15% 7% 6% 7% 8% 9%

Permitting requirements/fees 6% 5% 13% 12% 5% 7% 0%

Licensing fees 9% 3% 4% 4% 4% 4% 4%

Other costs 8% 6% 5% 7% 7% 8% 8%

© 2016 Houzz Inc.

REVENUE GROWTH STRATEGIES IN 2016

25

Architects Interior Designers

GCs/Remodelers/





Increase marketing/sales efforts 52% 57% 50% 62% 61% 57% 70%

Bring in larger budget projects 54% 58% 51% 52% 39% 48% 42%

Increase prices/mark-up/margins

41% 42% 44% 44% 45% 49% 37%

Improve customer experience 39% 42% 42% 47% 41% 44% 35%

Improve employee productivity 37% 23% 42% 45% 44% 45% 20%

Hire new employees/staff 29% 23% 39% 37% 39% 39% 22%

Offer new products/services 21% 30% 19% 25% 35% 20% 39%

Partner with other businesses 23% 29% 16% 19% 20% 32% 32%

Open new stores/sites/facilities 1% 6% 5% 6% 8% 3% 6%

Offer loans/financing 0% 2% 2% 7% 8% 3% 2%

Other strategies 1% 5% 3% 3% 3% 5% 4%

None - I expect growth with no new efforts

4% 2% 5% 2% 2% 5% 3%

TOP 2016 REVENUE GROWTH STRATEGIES AS REPORTED BY FIRMS (%), AMONG THOSE EXPECTING REVENUE GROWTH

© 2016 Houzz Inc.

FIRMS (%) REPORTING GROSS REVENUES AND PROFITS BELOW, AT, OR ABOVE PRE-RECESSION ‘NORMAL’

26

Over two-thirds of firms are reporting that gross revenues and profits so far this year are at or above levels they considered to be normal before the recent recession. Furthermore, a fifth to a quarter of firms are reporting that revenues and profits are significantly above the normal levels, while a quarter to a third are reporting that they are somewhat above normal. This sentiment is relatively consistent across all industry sectors, although there is significant regional variation (see Appendix).

Revenues & Profits Back to ‘Normal’ for Most

Significantly above

Somewhat above

About same

Somewhat below

Significantly below

8%

12%

6%

9%

11%

11%

17%

16%

16%

17%

19%

21%

17%

17%

20%

19%

13%

16%

32%

35%

36%

36%

33%

32%

25%

20%

21%

19%

24%

20%

Specialty: Landscaping/Outdoor

Specialty: Building/Renovation

Design-Build

GC & Remodeler

Designer

Architect

10%

12%

7%

10%

12%

12%

14%

16%

16%

16%

17%

18%

17%

17%

21%

20%

16%

18%

33%

35%

32%

34%

28%

27%

26%

21%

24%

21%

26%

25%

Specialty: Landscaping/Outdoor

Specialty: Building/Renovation

Design-Build

GC & Remodeler

Designer

Architect

Gross Revenues Profit (Net Income)

Findings from Q2 Renova2on Barometer

© 2016 Houzz Inc.

MODERATE-TO-SEVERE TRADES/LABOR SHORTAGES REPORTED BY GCS, REMODELERS, DESIGN-BUILD*

27

Consistent with past Barometer findings, GCs, remodelers and design-build firms that specialize in home renovations report moderate-to-severe labor shortages across a wide range of specialized trades. Carpenters are reported to be in the shortest supply across the U.S. (cited by 45% of firms), followed by framers (25%), tile (22%), and drywall (21%). Over a third of firms (36%) also report moderate-to-severe shortages of general laborers. In general, trade/labor shortages appear to be most prevalent in the Midwest and least prevalent in the Northeast.

Shortage of Building/Renovation Trades & General Labor

*Percentages reflect proportion of GCs, remodelers and design-build firms who reported moderate-to-severe shortages of specialized trades and general laborers.

6%

10%

10%

10%

11%

18%

18%

19%

19%

19%

19%

21%

22%

25%

36%

45%

Other

Siding

Roofer

HVAC

Flooring

Cabinetry

Painter

Electrician

Masonry

Plumber

Concrete

Drywall

Tile

Framer

Laborer (general)

Carpenter (finish)

Northeast Midwest South West Carpenter (finish) 43% 54% 39% 46%

Laborer (general) 25% 43% 36% 37%

Framer 15% 33% 23% 29%

Tile 18% 22% 18% 28%

Drywall 15% 22% 18% 25%

Concrete 10% 22% 23% 19%

Plumber 15% 19% 18% 22%

Masonry 14% 17% 22% 19%

Electrician 12% 21% 16% 25%

Painter 11% 20% 19% 21%

Cabinetry 11% 22% 17% 20%

Flooring 9% 14% 8% 13%

HVAC 11% 8% 10% 12%

Roofer 8% 11% 8% 14%

Siding 8% 14% 9% 10%

Other 5% 8% 5% 7%

Nationally

Findings from Q3 Renova2on Barometer

houzz state of the industry -...

Documents