Industry Description
The cabinet & vanity manufacturing industry in the US manufactures products primarily made of wood or wood coverings (NAICS 337110). These products include kitchen cabinets, bathroom vanities, and countertops. These products are then distributed to wholesalers, contract outfitters and home improvement stores.
The following are some basic characteristics of the cabinet & vanity manufacturing industry:
- Cabinet & vanity manufacturing industry has a combined revenue of $18.4 billion, with a growth rate of 0.9% in 2017-2022
- There are approximately 16,000 businesses as of 2022
- The cabinet & vanity manufacturing industry employs approximately 344,000
Industry Trends
The cabinet & vanity manufacturing industry has low levels of market share concentration, with the top four industry players comprising approximately 29.8% of the industry revenue in 2022. Small players are independently operated and owned in one or more states with less than 10 employees, while the biggest players have multiple locations across the US with more than 10 employees. Some key external forces influencing the industry are (i) customization, (ii) eco-friendliness, and (iii) smart technology integration. Each of these is described in further detail below.
Customization is a growing trend in the industry because products tailored to consumer’s tastes and storage requirements are in high demand. Customized product sales are only becoming more and more popular due to this high demand. Custom sales and semi-custom sales grew 22.3% and 13.2% respectively in January 2023 compared to January 2022. Players may differentiate themselves by providing customized dimensions and features to each consumer. Customized products may also help smaller players compete with larger players due to them having lower unit prices.
The growing concern for environmental preservation has led to several regulations concerning the protection of the environment which applies to the industry. The Federal Water Pollution Control Act and the Comprehensive Environmental Response, Compensation, and Liability Act are two primary pieces of legislation overseeing this industry. Industry players must deal with these regulations and a lot of regulations to follow, including rules on releasing pollutants into the air and water, how long chemicals may be stored, and what happens to the byproducts after they’re no longer needed. In response to these changes, there has been a significant rise of “green” industry players and an increase in the demand for eco-friendly, ethically sourced products. Sustainable materials and waste reduction are two examples of eco-friendly techniques many industry players should embrace.
The production of cabinets and vanities incorporating smart technology is gaining popularity because consumers yearn for items incorporating cutting-edge innovation into their everyday lives. With the rise of “smart” home devices, the kitchen has become a focal point for innovation and the industry is positioned accordingly. Current existing smart technology already turns a kitchen countertop into an interactive touchscreen and allows consumers to browse the internet. The existing smart technology already has use cases beyond residential homes such as restaurants, hospitals, and hotels. Consumers may be hesitant to embrace smart devices because of privacy concerns due to internet connectivity, but it should be expected to become a big part of this industry as it has in others.
The industry is a dynamic and developing one, driven by significant trends such as customization, eco-friendliness, and smart technology integration. Consumers are developing a preference for customized products which fit their own needs. Environmental regulations have led to a shift in product development techniques and a rise in demand for eco-friendly products. Smart technology is becoming more and more popular in this industry, as it has for many other home product industries, and should be expected to become a big part of it. Industry players anticipating these market trends and adjusting themselves appropriately have a better chance of succeeding.
Key Performance Metrics
In evaluating cabinet & vanity manufacturing, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:
- Production rate
- Warranty claims rate
- Raw material cost per unit
- Inventory turnover
- On-time delivery rate
- Client satisfaction and retention
Industry Organizations & Publications
The following organizations publish useful information:
- Kitchen Cabinet Manufacturers Association
- National Kitchen & Bath Association
- Cabinet Makers Association
- Woodworking Network
Guideline Information: Private Purchase Transactions
Most cabinet & vanity manufacturing are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held cabinet & vanity manufacturing is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of cabinet & vanity manufacturing:
- Revenue multiple between 0.23 and 0.86 times
- Gross profit multiples between 0.36 and 1.65 times
- EBITDA multiples between 1.6 and 7.9 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most cabinet & vanity manufacturing are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded US cabinet & vanity manufacturing are:
- Masco Corporation (MAS) – $10.8 billion market capitalization
- Patrick Industries, Inc. (PATK) – $1.5 billion market capitalization
- MasterBrand, Inc. (MBC) – $992.1 million market capitalization
- American Woodmark Corporation (AMWD) – $826.5 million market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 4.9 times and 13.1 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Cabinet & vanity manufacturing are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.