Houzz released its 2019 State of the Industry Report today, and the overall message of it centers around cautious optimism.
Of the interior design firms reporting, 49 percent said they had a good outlook for 2019, and 28 percent said they had a very good outlook. Only 20 percent had a neutral outlook.
Now Houzz surveyed other building and architecture firms — you check out their answers in Houzz' longer report here — but we're going to dive into the interior design firm answers and unpack their answers.
Here's how interior design firms are feeling about 2019 — the ups and downs — and what their answers might mean.
Conflicting views
The answers from interior designers told a somewhat conflicting outlook on their businesses and the economy in 2019. While many expected profits to rise, they also expected all of their costs — product costs, advertising, subcontracting — to go up as well.
On average, interior design firms expected to grow revenue by 9.4 percent in 2019. That's not a bad number, but in 2018, it was 11.1 and 11.3 in 2017. A total of 74 percent of design firms said they expected revenue growth in 2019, and 70 percent said they expected a profit increase. Only 6 and 9 percent respectively said they expected a decrease. On the whole, those are some pretty optimistic numbers.
Now here's where it gets tricky. When asked for their expected change in demand year-over-year in 2019, 68 percent of design firms said they would improve, meaning there would be more of a demand for their services than last year. Only 10 percent said they would see a decrease. Houzz then asked what change they expected to see in their local economies, and only 23 percent said they expected improvement with 16 percent saying they expected their local economies to worsen. The remaining 61 percent do not expect a change. On the national level, 38 percent of firms said they expected the national economy to worsen, with 15 percent expecting improvement.
Design firms' expectations mirrored other firms' expectations. So if firms expect their local and national economies to worsen, then why do they still expect that the demand for their businesses will grow?
The Houzz report also found that among interior design firms:
- 41 percent of firms expect labor costs to worsen. Only 5 percent expect an improvement.
- 56 percent expect product/material costs to worsen. Another 18 percent expect product/material availability to worsen, and 14 expect it to improve.
- 60 percent of firms saw a year-over-year increase in the cost of doing business.
- The average rate of revenue growth reported by firms dipped to 7 percent in 2018, declining each year since 2014 (10.5 percent).
- And finally, 35 percent of firms surveyed said managing consumer concerns about costs was their biggest challenge.
So costs are going up. Firms expect that the economy is going down, and yet design firms remain pretty optimistic about their profits and demand for 2019.
Why so optimistic?
There could be a few reasons why design firms remain optimistic amidst their rising costs.
It may be that these firms raised prices for services late last year to offset some of these costs and found that clients didn't seem to mind the price hike. Though this information was gathered between December 10, 2018 and January 10, 2019, it may be that design firms surveyed knew about upcoming projects and their expected profits from them.
Word-of-mouth marketing, always voted one of the best forms of marketing from interior designers, might have spread and gathered business for these firms. Knowing what projects were on the horizon may have impacted their answers.
Nino Sitchinava, Houzz Principal Economist, said interior designers were among the more optimistic of those surveyed for this report, but they're still concerned about the national economy (likely reacting to tariff concerns), which she says is why designers have lower expectations 2019 than in previous years.
"That said," Sitchinava adds, "the majority of interior designers do not expect their local economy to change year over year (61%), likely explaining a positive outlook for revenues, profits and demand for services."
Interior designers, what do you think of Houzz's finidings? Share with us in the comments!
