Looking Beyond the Headlines
For 11 years, I was the managing director for the Kansas City Manufacturing Network, which provided educational and networking opportunities to the region’s manufacturing company owners and managers. While I have moved on from that role to better focus on my research business, I am still passionate about the makers, doers and builders that underpin a vibrant economy.
I was recently contacted by a reporter asking me about reaction to a story that the region had experienced a net job loss of 1,900 manufacturing workers. I could not help but note that this fact in isolation does not necessarily make a headline in and of itself, without taking the context of the bigger picture into account.
First, manufacturing is not monolithic. Manufacturers in this region produce products as diverse as the heat resistant bag holding your rotisserie chicken, to the components used in the manufacturing of the automobile you drive. Federal Reserve Bank of Kansas City’s September Manufacturing Survey reported that nearly 34 percent of regional manufacturing contacts indicated that their number of expected employees for 2019 was higher since the beginning of the year, while 25 percent had lowered expectations for 2019 employment levels. Tariffs, global uncertainty and declining capital expenditures in some sectors have hurt some, while others report continued strong order volume and growth.
Second, the demographics of the manufacturing workforce are rapidly changing. A July 2019 study, The Aging of the Manufacturing Workforce: Challenges and Best Practices, published by the Manufacturing Institute, notes that as of 2017, nearly one-quarter of the sector’s workforce are age 55 or older. Almost all (97 percent) survey respondents in this study report being aware of the issue, and the vast majority (78 percent) indicate that they are very or somewhat concerned about this change. Workers shed in one sector are often quickly absorbed into other more vibrant sectors as looming retirements are gutting the production floor in many plants.
Labor analysis by Mid-America Regional Council in January 2019 concurs. The region has seen greater employment growth in manufacturing than the US as a whole every year since 2014. However, this sector employs fewer workers under the age of 25 relative to the metro average, while those 45 to 54 are the most over-represented. Opportunities abound, but students are not aware of them. K-12 schools aren’t fostering critical skills, and skilled workforce programs struggle to fill seats in classrooms. A series of student surveys and focus groups showed that 93% of the region’s students had little or no information about jobs or opportunities in the skilled trades.
Yes, in manufacturing, like in many industries, shift happens. Durable goods sectors are vulnerable during economic downturns. Automation is taking some jobs, but more are being created. Shortages of programmers and maintenance technicians are common, and automation advances have made many advanced manufacturers competitive with overseas suppliers, bringing jobs back to the US, or keeping those that would have been otherwise lost. Despite well-publicized employment declines of the last 2 decades, the US employs 16.4 million workers who produce 18% of the world’s manufacturing output, valued at $1.867 billion. This output is second only to China, just over $2 Billion in output, produced by 128 million workers. Obviously, US manufacturing is much more productive. So yes, the region’s loss of 1,900 jobs is concerning, but certainly, don’t write off our region’s manufacturers.
I recently was asked if I could specifically locate insight on how a customer segment made purchase decisions in the interior design industry. I call these kinds of projects ‘fetch’ projects and typically, I don’t do them. Why? Because fetch has no context. In 25 years of doing research, I have found that the best insights come from a broad, complete picture how that insight fits into a bigger picture. I call this process the ‘Research Funnel’
In the case of the customer purchase decision, I started with the broader industry measures. Interior design is a fragmented market. There are no 600 pound gorilla firms, no public companies, and even typically reliable sources vary in the number of designers currently working in the field. Typically, insights are fuzzier in such markets, and smaller, nimbler firms can change rapidly, so keeping a pulse on trends is more important vs slower to change markets with large public companies. Nationally, the average count is 57,000 designers, but this also varies significantly from state to state. This number has grown steadily since the recession, indicating both growth in the industry, and growth in competition. At a first glance, the primary drivers are new construction, and remodeling, both of which are in growth mode, but several sources note that growth is slowing, and varies by region.
The other driver, less mentioned, is consumer confidence in their own design choices. There is a segment of the population who will always hire a designer – for status, expedience, or to ensure that their space conveys their personal or corporate brand. But the design industry, like many others, is changing due to online competition, supply chain changes, and new technology. Growing competition, arises from retailers moving upscale with more sophisticated design resources (RH, Crate & Barrel), offering complimentary design services (Ethan Allen, Pottery Barn, West Elm), and emerging new-age internet etailers and services (Wayfair.com, Havenly.com). Some furniture manufacturers are dabbling with going directly to consumers, with new 3D visualization technology that allows customers to virtually place pieces in their home. Mass merchants such as Home Depot are offering design assistance, either online or in person. Bottom line, these changes are helping customers feel more confident in their ability to make design decisions.
National surveys of designers indicate cost pressures and shrinking margins. In a market where pricing pressures are also increasing, leading designers have increased emphasis on marketing, especially marketing the value that they bring to their customers. An effective design process ensures that the space works for the intended need, avoids costly changes later, and increases overall satisfaction with the space. As services like Pinterest, Instagram, and Houzz spawn lookalike interiors, upscale clients will increasingly look to designers to create one of a kind environments, and specialized services. Some even handle the entire moving process, from designing the new space, to coordinating the move, so the client just has to pick up the keys and walk in to a completely furnished and unpacked residence.
However, even among the top-tier wealthy clientele segment, there are differences by generation. Millennials tend to value convenience, and a focus on experience rather than things, relative to other generations. A survey by Furniture Today noted a host of factors that their respondents consider when looking to hire a designer – with Service, Experience, Reputation and Cost cited by 80% or more respondents. So perhaps, “How do wealthy prospective clients make the decision to hire a designer?” is a simple question. But the answer, like most questions, is complicated. The broader context matters.
Why Do I Need a Researcher?
When my daughter was a teenager, you know, those years when they know everything, she remarked, Mom, with Google out there, why would anyone need to hire you? I initially laughed, but she had a point. Most of us have become pretty adept at finding information on the fly. But when it comes to critical decisions in your business, sometimes Google can be equal parts friend and enemy.
- There’s confirmation bias. Whether we realize it or not, we tend to gravitate towards information that confirms what we are already thinking. Sometimes, bringing in a 3rd party with no opinion can uncover angles you had not previously considered.
- There’s overload. A generic search can literally produce over a million results. Are the first 10 the most accurate? For business information, there are a plethora of sources that are more targeted and accurate than what Google, or any search engine, chooses to show you in the top results. It’s a start, but certainly not the best way to gather quality data.
- There are inaccuracies. In a recent project, 5 sources gave 5 different estimates for the size of the industry. Which one is correct? Sources matter, and digging into what assumptions are behind the estimates, forecasts, and projections helps provide deeper understanding and proper context.
- There’s time. “I have too much free time”, said no one ever. Business changes with increasing speed, and keeping up is always a challenge. Temptation to do a quick review and move on can mean incomplete or incorrect information, which can create blind spots that can cost you both time and money.
If you are facing questions, and need answers, you can go it alone. But if you are looking for an objective perspective, need to save time, or just not sure which direction to go, a researcher can save you both time and money.
What are your assumptions?
Whether you are a city planner, a CFO, or a company owner, you likely have developed plans based on a future state. The way we look at the future from a financial, or allocation of resources standpoint, is primarily based on what our assumptions of what the future will look like. Sometimes, the traditional wisdom bears further examination.
Take the often quoted assumption that Millennials are not home buyers. This assumption was central to a housing study commissioned by the city of Lee’s Summit in 2017. However:
- Highline, a real estate marketing firm conducted a housing survey of Kansas City Millennials, published in the Business Journal on January 3, 2018. Five years from now, the majority of respondents want to live somewhere other than Downtown, with many saying they would be looking for neighborhoods in suburban areas that are safe and have good schools. Seventy-four percent said they wanted to buy, not rent, their next place.
- Locally: The South Kansas City Alliance surveyed future workers at the planned 290-acre Cerner campus at Interstate 435 and 87th Street to find out what future workers there would like to see. The survey garnered roughly 600 responses, with two-thirds of those respondents age 35 or younger. Of the respondents:
- 66% currently own their single family residence
- 75% expected to be living in a single family home in the next 5 years
- 41% responded that they were ‘very likely’ to move within the next 5 years, and of those respondents, 69% expressed interest in a home that was either new or less than 10 years old.
Cerner anticipates employing 16,000 workers at the South Campus by 2026.
Even if there is growing demand for multi-family in the metro, Lee’s Summit is not an island. Part of demand assumptions need to factor in location preferences and what else is offered throughout the region. Highline’s Millennial Housing Preference study in 2019 asked both renters and homeowners where they wanted to live next. The five most popular neighborhoods for renters, in order, were the River Market, Midtown, Brookside/Waldo, the Crossroads and the Country Club Plaza. Study authors note that Older millennials are starting to age out of renting and looking to buy, something that bucks the larger, national narrative about the generation.
Fannie Mae’s Multifamily Metro Outlook for Kansas City in 2018 noted 130,000+ rental units in the Metro, with 6200 more under construction, 12,700 in the planning process, a total increase of >10%.
The 2019 Outlook for the first half of 2019: 7,700 units underway and 10,000 units in the planning stage. While Fannie Mae notes this increase as ‘modest’ 7,700 units in a conservative estimate of 130,000 existing units, this represents an almost 6% increase in capacity. According to Mid-America Regional Council, the region’s net population growth from 2016-2017 was only 1.1%, or a 20,000 person increase. A 2019 release notes that the Kansas City metro area added 16,392 new residents from 2017-18. How many of those are prospective renters vs owners? The increases and decreases vary a lot from area to area – from 6800 new residents in Kansas City, MO, to a net loss of 59 residents in Raytown, MO. Location matters.
Fannie Mae’s report also provides data from 3 sources: CBRE-Econometric Advisors, CoStar and Reis, Inc. All 3 sources – different totals, different absorption, vacancy and completion data. All 3 sources are credible. Why the differences? Assumptions. In order to really understand the numbers, it’s important to look at your information sources’ assumptions behind their data, as they always will influence the results.
Bottom line: Even if you have credible data, from a credible source, don’t assume you have all the answers you need when making a decision. Make sure you also understand the assumptions behind the data you are relying on, if you truly want to make an informed decision.