April 2, 2019 |
According to industry publication Interior Design the top 200 US interior design firms received $722m of fees from the hospitality industry in 2018. This sector was by far the biggest fee contributor, dwarfing residential, commercial, education etc, and it is forecasted that hospitality fees will further increase by 10% in 2019 to $792m. If their fees are increasing by this amount then it can either mean that there is more demand for their services, that their prices are increasing or most likely, both.
Whatever the reason for this increase in fee contribution, this figure is twice the forecasted increase in consumer spending on hospitality in the same period. The industry research firm Technomic reported that consumer spending in hospitality has risen at a compounded annual rate (CAGR) of 5% in the same period. These findings, which are supported by research from both CBRE and Deloitte, have also shown that the CAGR in spend has been reasonably steady at 5.5% since 2011.
So in the most basic terms, investment into hospitality design is growing at twice the pace of the increase in consumer spend in the same sector over the same period.
So what will this mean for the future of hospitality design? Is the current boom in design systematic of today’s consumer who is looking for immediate gratification? We discussed the changes in food in a previous article on style over substance and perhaps this over-investment in interior design is just another piece of the same jigsaw.
Like anything, there comes a time when market forces start to take over, egos are checked and purse strings are drawn tightly shut as the expected returns on investment vanish. Whilst global inflation is expected to peak this year at 3.83% and then start to slip away over the next few years, the CAGR of spend in hospitality is forecasted to rise to 6.3% between 2019-2023 according to Statista. So whilst the market continues to grow in revenue terms, the number of competitors will also grow giving the consumers more choice.
As this increase in the market dynamics goes in some way to explain the exponential growth in the fees of interior designers, it does not necessarily mean that expensively designed brands will gain proportional market share. In fact, I would go as far as suggesting that a bell curve showing design fees and consumer spend would be inverted.
The reasoning behind that statement is that an over-investment in interior design will lead to the death of the brand simply because the aesthetics get in the way of the operations. Consumers are looking for value and will choose a brand that provides a great plate of food, a great drink in modest surrounds and not the other way around. If you sacrifice operational space for vanity then be prepared to close your doors for there is a fine line between design and doom.
There is no evidence to suggest that another chandelier will add to revenues and interior designers still believe, in the main, they are designing a living room when they approach the design of a restaurant. The only reason that they are not designing a living room is because the fees in that space have diminished only to be replaced by hospitality. But the design mentality remains the same.
So whilst the interior design industry remains buoyant and may well remain so given the forecasted growth of the hospitality market it is important to mark caution at this point. If you continue to base your fees on aesthetics alone then you will be the architects of your own downfall.
March 13, 2019
January 24, 2019
December 28, 2018