Outlook for the future of the painting industry

After dealing with labor and material shortages for the last two years, those that managed to survive found themselves in the middle of an unexpected construction boom. Then, to slow inflation, the federal government began raising the prime interest rate. Unfortunately, higher interest rates pushed many potential homebuyers out of the market and caused developers to shelve commercial projects until economic conditions improve. 

Despite the short-term interest rate concerns slowing the economy, the residential and commercial markets will continue to grow as per capita disposable income increases. 

Infrastructure projects, including shipbuilding, roads, and the industrial painting/coating markets, can expect sustainable growth from the passage of massive infrastructure legislation, such as “The Creating Helpful Incentives to Produce Semiconductors and Science Act” (The CHIPS Act)¹ and “The Infrastructure Investment and Jobs Act” (IIJA)².

Technology continues to reshape the industry with better tools and products. As a result, today’s painters are far more productive and safer than ten years ago, and the longer-lasting finishes require less maintenance or repainting.

Before discussing emerging trends and their potential impact, it's essential to understand the current industry market size, key companies, employees, and services.

According to the Bureau of Labor Statistics³, today's painting industry features three distinct service categories based on their projects.

Residential painters prep and paint the interiors and exteriors of homes and residential buildings such as condos or apartment buildings. The residential painter may have to work around demanding tenants or owners and may need to adjust their hours or schedules.

Commercial painters usually prep and paint the interiors and exteriors of offices, businesses, and other nonresidential buildings and structures. Due to the size and complexity of commercial projects available, commercial painting timelines are longer than residential projects.

Industrial painters are responsible for the prep and painting of: 

• large machinery, such as industrial or manufacturing equipment
• vehicles, including trucks, planes, and ships
• structures such as bridges, roads, and water towers
• special coatings to reduce corrosion or deterioration

And industrial painters must generally contain the work area to prevent public exposure and hazardous materials from contaminating the environment.

Painting industry overview⁴

While the revenue and profit numbers for 2017-22 are flat, the painting industry can expect a glossier future.

Projected revenue growth will push industry revenue toward the $38 billion mark through 2027, an increase of $584 million in new revenue for the industry.

After five years, profit margins should grow from 7.1% to over 8.4% by 2027, which translates into $3.38 million in extra profits for painters.

The number of new companies and employees will also increase at the same rate as the previous five-year period. By 2027, the industry can expect another 4,600 companies and ~8,000 new employees to join the painting industry.

Wages will continue to outpace other indicators as many painting contractors pay higher salaries to keep key staff such as foremen, estimators, and supervisors. As a result, wages will make up more than 35% of company expenses by 2027.

Major commercial players⁴

Market share concentration remains low, as the three largest painting contractors hold less than a 3% combined market share. 

Low startup costs are attractive to individuals looking to enter the industry as part of a career change after the “great resignation”, or for other reasons. Industry consolidation remains low, as sole proprietorships and LLCs will continue to dominate industry revenue, operating within specific geographical locations or markets. 

• 74.9% of companies have 1-4 employees
• 13.8% of companies have 5-9 employees
• 6.7% of companies have 10-16 employees

As a result, 88% of industry revenue comes from smaller companies with fewer than a dozen employees.

Market segmentation⁴

Market segmentation is nearly equal between the residential and nonresidential markets, with the non-building sector holding a much smaller market share of the available projects and industry revenue.

Products & services segmentation⁴

Products and services fall into the same three categories that make up the market segments: residential, commercial, and industrial. The main differences here involve the paints or coatings used for each type of application, since most are applied by hand, using brushes and rollers, or mechanically, using power rollers and sprayers.

Industry segmentation by customer⁵

According to Zippia, the chart above breaks down the nonresidential painting industry customers by industry or profession. 

Over 35% of all nonresidential industry customers come from the manufacturing, construction, or retail markets. Another 40% of customers come from hospitality, health, finance/professional, government, or Fortune 500 companies. 

The remaining 25% filter down into the more specialized niches and industries.

As the pandemic issues continue to disappear, many painting contractors are looking toward the future and wondering what to expect. The short answer is to start preparing to grab their share of increased industry growth and profits by leveraging these emerging trends for the painting industry.

Technology

While the painting industry escaped the digital transformation as customers went online during the pandemic, technology is finally catching up with the industry. 

Since companies with 1-4 employees generate 75% of all industry revenue, most painters don't use an elaborate time tracking or accounting program in their business. Instead, basic applications like spreadsheets and word processing programs can handle the job for many painting contractors.

But several customer-facing technology products could save the busy painting contractor time and energy.

• Color and paint matching apps simplify the color matching process for everyone involved, which can add hours back into your schedule every month.

• Interior design apps allow the customer to “see” the finished product before you even order the paint or wall coverings.

• Schedule and calendar apps allow customers to reserve time for consulting, inspecting the site, or even scheduling their project via your calendar.

And technology is also improving the tools and products used throughout the painting industry. Newer paints/stains last longer, thanks to additives that resist fading, streaking, peeling, blistering, and UV protection.

In addition to the tried-and-true airless sprayer, pneumatic, and High-Velocity Low Pressure (HVLP) sprayers can be used to deliver smooth, consistent finishes in less time, improving worker performance on every project.  Increased productivity cuts labor costs and project timelines while boosting profits.

Residential market demands

The residential market represents over 40% of industry revenue and is a major indicator of the health of the painting industry. Higher mortgage rates and inflation have already pushed some potential buyers out of the market, but for how long?

According to CNN⁶, mortgage rates could fall from the current rate of 6.94% to 5.4% by Q4 of 2023. An interest rate drop of 1.5% would allow millions currently excluded from the market to begin house-shopping again. CNN is quick to point out that any slowing or reversal of the inflation rate could result in lower mortgage rates sooner than December 2023.

It’s also no secret that many companies increased wages to attract or keep key employees such as supervisors, department heads, and management personnel. The result of these higher wages is a 3.1% increase in disposable income for many workers, compared to pre-pandemic conditions. Higher incomes, combined with lower interest rates and the low number of available houses, should spark demand for new construction, renovation, and maintenance projects for the residential painting industry.

Commercial market demands

Not to be outdone, recent infrastructure legislation is good news for the commercial painting industry, which relies on nonresidential and non-building projects for revenue. As a result, billions of dollars’ worth of federally funded projects will get built over the next decade.

The CHIPS Act - The official full name of this new law is “The Creating Helpful Incentives to Produce Semiconductors and Science Act.” According to McKinsey & Company5, the primary goals of the $280 billion act are to:

• Bolster U.S. semiconductor manufacturing capacity 
• Catalyze ongoing R & D 
• Create regional high-tech hubs to encourage and foster a larger, more inclusive STEM workforce over the next 10 years.

The Infrastructure Investment and Jobs Act of 2022 (IIJA) includes over $550 billion in new construction projects to rebuild the nation's aging transportation systems and electrical/utility networks. Here is a partial list6 of proposed construction projects and funding that involve the painting industry.

• $110 billion for roads and bridges. Besides construction and repair, the funding also helps pay for transportation research at universities, funding for Puerto Rico's highways, and “congestion relief” in American cities.
• $66 billion for railroads. Funding includes upgrades and maintenance of America's passenger rail system and freight rail safety, but there's nothing for high-speed rail.
• $39 billion for public transit. Funding here provides for upgrades to public transit systems nationwide. The allocation also includes money to create new bus routes and help make public transit more accessible to seniors and disabled Americans.
• $25 billion for airports. This allocation provides funding for major upgrades and expansions at U.S. airports. Also, air traffic control towers and systems would receive $5 billion for upgrades.
• $17 billion for ports. Half of the funds in this category would go to the Army Corps of Engineers for port infrastructure. The remaining funds would go to the Coast Guard, ferry terminals, and the reduction of truck emissions at ports.
• $11 billion for safety. Appropriations here address highway, pedestrian, pipeline, and other safety areas, with highway safety getting the bulk of the funding.
• $8 billion for western water infrastructure. Funding will address ongoing drought conditions in the western half of the U.S. through investments in water treatment, storage, and reuse facilities.

As the infrastructure improvements are completed, local economies can also expect to see an increased demand for commercial and residential construction projects. New or improved transit centers and rail stations will attract new retail outlets, dining, entertainment and other new businesses. Airports and port improvements and expansion will create a need for more parking, traffic control systems, and support industries such as hotels, car rental, and shuttle services. New or improved roads and bridges could open up new areas for residential developments or communities. 

Despite the short-term uncertainty around inflation and mortgage rates, companies in the painting industry can expect to see sustainable growth in the demand for painting services across the residential, commercial, and non-building market sectors over the next five years.

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Sources:

(1) www.mckinsey.com/industries/public-and-social-sector/our-insights/the-chips-and-science-act-heres-whats-in-it
(2) www.investopedia.com/here-s-what-s-in-the-usd1-trillion-infrastructure-bill-passed-by-the-senate-5196817
(3) www.bls.gov/ooh/construction-and-extraction/painters-construction-and-maintenance.htm#tab-2
(4) U.S. INDUSTRY (NAICS) REPORT 23832 / CONSTRUCTION Painters in the U.S. Report by: Arnez Rodriguez | August 2021
(5) www.zippia.com/painting-contractor-jobs/demographics/
(6) www.cnn.com/2022/10/24/homes/mortgage-rate-forecast-2023