Design 101: The Influence of Economic Conditions On Design
Written by Andrew Luketic & Corey Klassen
Updated Dec 6, 2023
We are sure that many of you have come to understand that there are many factors at play with our supply chains and the economy. The last few years have provided many different examples into how intertwined they can be. Yet the global pandemic seems to have been made a distant memory as the 2023 comes to a close. As we look into 2024 with fresh eyes we might ask what will be the new challenges on the horizon.
In terms of plain economics the changing interest rates and short term housing policies across the globe will affect Q4 for 2023, as well as Q1 & Q2 of 2024. The practical facts related to this mirror our recommendations for a sustainable project. Where a better investment in homes is to renovate and improve what you have. Buying new just got more expensive to finance. This is also when people who were born earlier than 1975 will recount the history of how high interest rates can really go. Our advice will always be the same, to design and build for the long term. There is more we can discuss to break this down further.
At Articulated, we make a conscious effort to break down a project journey into phases so the client can understand the factors that will affect the initial goals set at the outcome of a design. This is a process that is based upon over 400+ successfully completed projects. Which means that we can be up front with our clients in the design phase as to what factors will be at play during the construction phase of their project. Meaning that the design phase will come at the lowest cost in relation to the project. It will potentially have the most impact to it as well if time, quality research, and careful planning are a part of this phase as it would with a qualified interior designer. They can sometimes save a client from making costly mistakes and recommend more cost effective options backed with certification and testing data. It is this phase that prepares for the most expensive part of the project and where changes in design can add significant costs.
At Articulated we like to be ahead of these types of questions and help clients make solid decisions, as this is what they are paying for. Housing is an important factor in Canada and there are many ways we will see it politicised. At the heart of the issue is the fact that many levels of government did not invest into housing for over 3 decades. There is not one party at fault here. Yet there are policies happening in Western Canada that can make good economic sense. Like the BC government incentives for creating rental housing in spaces where illegal suites might already be as well as optimising structures for additional suites, and housing density for target areas. It will be an interesting journey Canadians navigate and negotiate in this next phase of our country’s growth.
The updated sections relate to the year to come, and into 2024. The quick notes version is:
Sustainability will be a focus of our dialogues as it not just about the environment. It is also about long term value, and the prudent use of quality heavy wearing finishes and materials.
Renovating existing residential properties will be what a number of household will do as it is more prudent than refinancing a new mortgage.
Since the start of the COVID-19 Global Pandemic, supply chain issues have affected all of us from early runs on toilet tissue paper shortages in February 2020, to a 24 week wait on countertop materials because demand has increased suddenly as we all start to live with COVID-19. It’s not just about circuit boards and labour disruptions, these issues revolve around our closely intertwined global marketplace and we are going to attempt to unpack the conditions we help navigate at Articulated. Fortunately the chaos of 2020, 2021 and part of 2022 are behind us all. Covid 19 will continue to affect the globe and provide some small supply chain issues. There is no crystal ball that can tell us which industry will be hit, but the news from Asia does indicate there will be potentially a few.
So lets dive into some current factors at play.
Stability w/Price Adjustments
As we review the past 3 years there were many elements that affected pricing, like tempoary ocean freight surcharges. Yet now price of services seems to be changing as labour costs evolve in relation to inflation and an aging population. There is demand in different ways and they will affect our projects differently. Suppliers and businesses that were over-extended due the global pandemic will affect our potential growth and stability as a region in unexpected ways. Strategic planning will always be paramount to success, and some businesses are already positioned for this. Construction sites are a hot bed of strategic planning, as the good ones make it look “like we are watching a choreographed ballet”. Choosing the right project partners has never been more important. We always recommend working with fully insured experienced contractors who are qualified. They know their costs, and get the job done right the first time when they quote the “real” price of what a project might cost.
“Greed-flation” is another factor affecting the base costs of goods. The peak happened in the summer od 2023 but we will see at the industry conferences and events in Q1 of 2024 whether this has any lasting effects.
Canada recently released that the rate of inflation is 5.7% - a 30 year high. But, what does this really mean for Articulated and our Clients? Well, inflation rate is a broad measure on the average cost of living and it adjusts higher when demands for goods increase because supply does down. Aside from not being able to afford as much as we like, this is directly related to our economic recovery from the COVID-19 Global Pandemic and should not be a surprise to anyone. What is surprising, however, is that some suppliers have issued price increases by upwards of 35% on some products since March 2020. This depended upon the region of the world where the product was manufactured. As we also have some vendors imposing a temporary ocean freight surcharge of 10-18% (mainly the Pacific Ocean). We calculated this increase as compounded, meaning there may have been 4 increases in 2020 and 2 in 2021, which result in a substantial cost increase.
Update Sept 27, 2022: Finally these temporary surcharges have all removed for orders placed in Fall 2022 or later.
Update January 25, 2023: Currently prices are being changed to compensate for current supply chains that have been simplified after two years of disruption. Since the fall 2022, some vendors are lowering prices as they now have existing inventory they are managing. Some vendors have experienced higher costs and are adjusting for those costs. 2023 will continue with vendor price adjustments to reflect their position in relation to supply chains, changing costs, and product supply.
Because Articulated is a business and we sell both products and not just services, this naturally flows down to the end-consumer. This means we have had to invest time in sourcing new vendors which are not affected by ocean freight supply in the Pacific. Essentially, we are finding, more now than ever, that we are being asked to be more inventive with our designs because costs have risen while project budgets have not yet caught up with inflation. We do this through providing recommendations for quality tried and tested products that will provide long term value to your investment.
Update April 25, 2023: The term “Greed-flation” has been a part of the news cycle for 2023. It is not just about grocery prices. Each sector of the construction industry has had a wild roller coaster ride in the past 3 years with supply chain issues and labour shortages. We also find that our project partners incurred additional costs to make sure projects maintained their momentum during challenging market conditions. It can be safe to say that costs have changed since before 2020. Yet be reminded that this will be an industry that will endeavour to locate efficiencies and innovate. We encourage our clients to consider being involved in all aspects of their project discussions, this article by Kelly Outram below provides a little context.
5 actions to address inflation in your project
Investing In Logistics
Our logistics networks connect us to our vendors across Canada and the United States through both Railways and Highways. Railways are an efficient method of transportation and will be the area where we will pursue methods to improve transportation efficiency as well as meet sustainability targets. This is because this is the most fuel efficient means of transporting both home furnishings, appliances and construction materials compared to trucks on highways. To be specific there is over a 70% difference in fuel efficiency. It is also an industry which is striving for electrification of their networks in Canada with long range impacts. Prototypes are in a testing phase for the year 2022 and beyond. The Canadian Pacific Railways take over/merger of Kansas City Southern Railways has potential to have long term impact for both Canadians and Americans.
Updates January 25 2023:
Logistics Efficiencies; April 25, 2023 Update
As expected the potential merger of Canadian Pacific Railway with Kansas City Southern Railway is challenging the traditional methods of transportation using LTL trucks on North American highways. It is too soon to see the impact on our current logistics at Articulated. We hope that 6 months from now that we have more to share upon this topic.
How does this affect my project with Articulated?
Over 2021-23 we re-aligned our logistics networks to supply our clients and the different types of projects they bring to us. It took time to anticipate the different locations our projects could be with online design clients across Canada, and reverse engineer what our challenges would be, as well as test them out. The reason the discussion about railway networks above is because we have positioned Articulated and our Clients to benefit from this type of transformation in our supply chains across North America. Which means that we will able to project and meet sustainable targets through this efficient means of transportation. Currently our network only activates the rail transportation corridor across Canada using project partners that specialise in furniture. In addition to this we can use a variety of local providers that use hybrid vehicles to connect our clients with their purchases. Due to the information you see listed above, it can be summarised that it is only the beginning of how these factors can both improve our projects and set achievable targets for sustainability.
The end result of all this research and development in the past two years, is that we now can deliver direct to more than 50% of Canadian households. This means we can work with clients effectively outside our home regions of the Lower Mainland, the Fraser Valley, and the Pacific Northwest. As a design studio we utilise online services to provide value and efficiencies to both our full service and online design clients. Connecting them directly with improved procurement and fulfilment services was the missing piece of the puzzle.
An example of this is how we can now provide bespoke custom upholstery from our workrooms in Western Canada (Using local Canadian sustainable wood sources) to both types of our clients no matter whether they are located in Halifax, Victoria, Toronto or Montreal. We look forward to building upon this in the years to come.
Supply chains are complex
As Canadians, we take for granted that when we want something that it is on a shelf somewhere ready for us to purchase. While we often think of war-torn or third-world countries with empty or no shelves. This does not begin to shine a light on the complexity of our supply chain network and there are a multitude of factors. Many of the full container ships through 2020 were landing in Canadian ports but no shipping company wanted to put empty containers back on the water; and so our ports backed up because the ships weren’t returning full. The blockage of the Suez Canal in early 2021 impacted a lot of timely access to natural stone hard-surface materials like tiles and marbles. In late 2021, British Columbia was blocked off by all road and rail into many areas but mostly the densely populated areas of the Lower Mainland and Fraser Valley due to landslides and flooding. In addition, the Canadian trucker protests shifted the cartage and carry work that those truckers were performing and put stressors on logistics as others had to (and continue to) fill in the gaps.
As mentioned earlier: Fortunately the chaos of 2020, 2021 and part of 2022 are behind us all. Covid 19 will continue to affect the globe and provide some small supply chain issues. There is no crystal ball that can tell us which industry will be hit, but the news from Asia does indicate there will be potentially a few.
With regards to lumber pricing and supply, that is a different story. An article listed below highlights the North American issues where the prices expected for the upcoming year will be the opposite of the past two years. Prices are expected to be more than 30% lower this summer. For Baltic Birch, the most common source material in mass produced furniture and wood products (like big box retailer cabinets) it will relate to the war in the Ukraine. Since Russia is the biggest supplier of this material. We know that some industries, like in flooring, have shifted to sourced in North America materials like spruce wood. It was a method of dealing with earlier supply chain issues that might continue. As the year progresses we will keep an eye on this major North American import.
Updated October 26, 2022 - The Effects of Continued Zero Tolerance In China will have some trickle down effects we will have to wait and see.
Updated December 13 2022 - China’s Zero-Covid Exit And The Potential For 2023 Supply Chain Disruptions
Updated January 24 2023 - North America Softwood Lumber Market Year-End Update: 2022
Duty rose by 300%
In a global marketplace, parts and components are manufactured across the world and generally brought together in North America for assembly and packaging. This is a reality that is very challenging to navigate. In March 2021, the Canadian Federal government responded to Canadian furniture manufacturers requests by implementing 2 new duties. Specifically on upholstered bench-goods for the living room furniture that were upholstered in leather and /or pieces that had a motion component them. Each duty is aimed at the same type of product categories with different duty amounts; China is 300% and Vietnam is 100%. This duty primarily affected companies like Wayfair and IKEA (who manufacture in the listed countries) and other ‘‘big box” e-commerce retailers who are importing furniture from overseas. Officially called the Upholstered Domestic Seating - Dumping And Subsidy (China and Vietnam), the market became unsustainable for home-grown manufacturers, like Palliser Furniture in Winnipeg, MB (who lobbied for this duty), to compete in. Investigators determined that state owned companies were subsidising production facilities and unfairly competing with Canadian manufacturers. Obviously, it is more important than ever to support our local and national economies but there was no warning. In one instance at Articulated, we had merchandise held at customs with this duty outstanding because we had to approach the purchaser about the added costs we were facing during a tense economic period in business. We ended up absorbing the additional fees and removing the vendor from our supplier list because we discovered they were fully aware of the added duty before we placed our order, which shook our established trust right down to the bottom line.
Update January 12, 2023: This trade duty is now permanent. We are proud to support products that are a part of our local Canadian Economy. Our product selections in these furniture categories have evolved to include:
Made in Canada options
Made in the USA Options
Also options made in other manufacturing centres like Turkey and India.
Finish Samples Are Great
Before the Global Pandemic started, we had just begun using Material Bank as a resource to obtain finish samples to confirm our design projects and proposals. We no longer needed to house samples for every brand’s full production capabilities, because they could be ordered and at our doorstep within 24 hours. Not only is this a huge time saver for us and our clients, it hits our bottom line positively by saving on wasted office space areas to house massive quantities of sample materials. This also helps us meet sustainability targets by centralising sourcing our samples and the many ways that Material Bank simplifies our process abtaining samples. However, receiving a cool finish sample is only one part of the problem. This is where our relationship with our product representatives becomes important because over our decade in business we have cultivated a long term relationship with them. Once a product or finish approval is received we have to verify:
Landed costs in Canadian Dollars
Local stocking quantities
Stocking quantities today and in the next 3 months (3 months!)
What quantities are “on the water” and what’s “on rail”
*These are just a start and they change rapidly in relation to market demand. What was ready to order last week is suddenly out-of-stock or backordered for 6 months or more because other firms beat us to the punch.
Our Top 5 Recommendations
Please do not misunderstand, these details we are providing are not a complaint, but the reality of what we are working with in the Studio. Each of these recommendations we have listed below have equal merit.
1. Adjust Your Expectations
Our design process now includes starting our projects a little later than expected (sometimes 30 days) to make sure product is in stock locally and guarantied for our projects. Having your choice of finishes is important in a design, and so is being able to install it in a timely manner. We say this in advance because having to halt mid-construction to wait for a material to arrive can cost your project time and money. This is all about advanced planning which is what we do as a part of our services! So everything happens as smoothly as we can manage it!
*This also goes for appliances. Remember that I mentioned chip shortages: well it is affecting appliance lead times by sometimes an extra 3- 9 months. For example a kitchen remodel that was installed in early Spring 2022 just had their dishwasher installed in mid September 2022. Keep in mind that they got the exact appliance they wanted and it was worth the wait. This is why we recommend planning well in advance for the quality pieces you want. But, also start your project later than you think so that it gives time for your all choices to arrive so they can be implemented efficiently. This will only make your project run smoother.
2. Home Offices & Commercial Real Estate Corrections
There has been an expansion in the ability to work independently from home. Not only is this is a transformation of a part of our workforce it has changed the demand for commercial real estate. Yes there is quite a bit of chatter surrounding the real estate sector just like in 2008. Yet we believe the residential side of the industry is quite solid in Canada due to continuing demand. The industry which will might see some amount of correction is the commercial real estate sector. Over the past 3 years the prices of commercial real estate of only gone up in most Canadian municipal regions. Vacancy rates in all Canadian urban centres in this specific sector indicate that there is a sift but are uncertain as to how this will manifest. This could be that more businesses are operating with a portion of their services offered remotely just we are at Articulated. Maybe a home office is now becoming a common element in North American households. Bricks and mortar stores also figure into this as well as their long term profitability. Many of them have become more efficient with their online capabilities. It is not to say that this market demand is going away. Yet it is interesting that even though demand shifted in the past three years, that the rental prices for commercial real estate continued to climb in a way that is out of alignment with the current listed vacancy rates across Canada.
Commercial real estate is the next shoe to drop.
Our recommendation is two fold and is about investing in planning:
Home offices deserve optimal spaces that are planned for all the activities their require
For commercial spaces it is about the efficient use of space for you and your teams’ needs. Maximising the price per square foot will always be a consideration.
3. Invest In Quality
Sprinkled throughout this article are many reasons to select the best quality finishes and materials that your budget can afford. By quality we recommend that a part of your selections are not just about aesthetics (looks), but also the testing data provided by a quality brand or product. It will communicate the suitability of the selection for the use it is be chosen for. This means you will know how long it is projected to last.
4. Sustainability For The Win
The benefits of sustainable choices are that they work hand in hand with long term economics. Not only does the choice of a client impact the long term potential of a project and their impact on the environment. When products can be re-purposed, have lower carbon footprint, and last longer it means that they are making long term economic choices for themselves, their household and/or their business.
A good example of this is in commercial design: Over the global pandemic many local businesses with high traffic spaces experienced the failure of finishes due to changing patterns of sanitation due to public safety concerns. Basically there was a lot of equipment, barriers, and finishes that were not designed to be bleach cleanable! For our commercial clients with medical and dental clinics we recommend long term finishes that will perform with the current and future needs of their end user clients. In restaurants most of the upholstery, table tops, and plexiglass barriers did not withstand the chemicals they were sanitised with.
Our evolving fulfilment services will add value to our services. They might not be the quickest (add an extra week) but the fact that we use providers that specialise in furniture means that we have a better quality experience for our clients. It also means we are building sustainable solutions on the back end of your project.
5. Function First
At the onset of a client discovery call, no matter whether they are a residential or commercial client, our process will always start with function. We will start with an intake of your project goals and establish what targets you require to meet your functional needs. For a business this means how can we optimise the efficiency of your support staff and your end to end customer experience or journey. For a home, it is just as complex because it is a custom design. Where we look at the needs of your household and how can be account for your style of cooking, the flow of public and private spaces, as well as what efficiencies and storage opportunities we can provide. The later more pretty part is just as important in our design process which is why we work in a range of styles and colours using quality finishes designed to wear. We want to reflect both your needs:
Your uniqueness and style
The goals or reasons for the project in the first place.
How Articulated Can help
Value is not just about our services, it is about the type of products and finishes we recommend that are tried and tested so that they last for the long term. So is the quality of the design work itself which suit the project goals and provide a design solution to your needs. We are conscious of your budget and are fully aware that replacing an underperforming product will have similar labour costs later on.
The current economic conditions favour renovations and improving what is existing. Rather than meeting your needs with a new property and a new mortgage. Renovation design is the foundation of what we built our design studio upon. During times of economic strength, design flourishes and luxury projects seem numerous. While economies are under pressure, not unlike the 2008-2010 economic crashes, design still happens. We as designers just have to be conscious of the goals for your project, provide the solutions, and be inventive with our options. Our decades of experience not only provide efficient advice and processes. Our 300+ projects have also provided years of product alternatives to achieve your vision and inspirations.
We understand that these economic conditions are often out of our control and there is little that Articulated can do to shift the effects of economics on design work, but this is why we have developed our 3 (soon to be 4) different design delivery methods:
Full-service. For projects above $150,000
Online. For any size and budgets above $10,000
Design Palettes. For any type of fully-specified and accessible finishes at $175/download
We do not claim to have all the answers. Our design services rely upon both our expertise, and experience to give you the most relevant independent advice on your project. You might not be aware that when we work on a project there is usually a lot happening behind the scenes to make your project a success. This is also what you are paying for when you hire us, to find added value in the hidden and shaded areas.
Sharing Our Insights
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It’s often difficult for most people to identify their design style.