Marching to recovery 2/5
Published: 21 March, 2011
This report was first published in Builders' Merchants News December 2010/January 2011 issue.
The National Buying Group is putting together G24 – 24 of its key thinkers in March to shape the future direction which the group will take. According to executive chairman, Allan Durning, “we are going to see a
challenging market over the next three years.”
“The last 10 years some say, have been ones of milk and honey for the building materials sector. Over the past 18 months, however merchants and their respective suppliers have been on a learning curve,” says Mr Durning.
“The way housing regulation has been relaxed in terms of planning tells me there will be hesitation rather than delivery. It might take the industry about 18 months to fully understand where it is going and what this policy means with this loose approach. That will mean less housing numbers for suppliers and merchants going forward into the near term and this, as we know, has always been a key driver for
How will the money markets change? “Will we see a relaxing of tight lending requirements for speculative commercial and retail type projects? The more conservative thinkers concur that the next three years will prove to be challenging. Among these are the CPA and the financial journalists and economists.” Recovery, says Mr Durning, is going to be slow.
He doesn’t believe there will be another double dip, however. “It will be a relatively flat line from the way we were in 2010 to 2011. “By the middle of 2012, business will start to increase, but ever so cautiously,” he predicts.
NBG has been modelling the market, looking at supply and demand and layering up the drivers that are likely to add to the numbers, then looking at the supply that is likely to meet that
“Companies are not making snap decisions,” Mr Durning acknowledges. “By the mid-point of 2012, when we
understand what the measures are, we will know what to do for 2013 and beyond. It’s very much about the ‘here and now’,” is his view. Local merchants have to look at their local spend and their core offering to their customer – RMI, civil engineering, timber or a mixed model. They must ensure that the supply chain is as robust and as properly managed as can be.
“That doesn’t mean dump all of your suppliers,” Mr Durning cautions. “It means working very closely with them to identify opportunities, encouraging them to spend less time with us and more time with the end user generating demand, because we have put our house in order and we need the suppliers to be busy back-selling,” he explains.
Suppliers, he adds, should bring business back to their merchant customers, because in the future, more merchants will be looking at measuring real supplier results.
“Merchants will want to look at the differentiating factors between five of six suppliers that are more or less equal in terms of their offering. What business can they generate? How close are they to their merchant customers? Suppliers cannot be all things to all men,” he emphasises. Shake-ups are anticipated.
There will be polarisation over the next two years, he believes. “The independent sector is in relatively good shape – barring a Russian winter which could be catastrophic.
“We may well see a number of closures by the nationals. It is easier for them to shut branches; independents are in their local community for the long-term.”
“All merchants will be challenged, but independents can change direction more quickly – stocking and de-
stocking. In the national organisations, there are a lot of management decisions to be taken before they can turn around,” he adds.
“Independent merchants are in much better shape now than they were 18 months ago. We’re ready for it
now. We can fight the fight, meet the challenges and be stronger coming through it,” Mr Durning comments.
“The independent sector – through strategic buying groups – must look to its strengths through strategic alliances. Is it time for more change? That is what our G24 will be all about.”
As the Government attempts valiantly to wean the UK off its reliance on public spending, a number of leading surveys, suggest growth conditions are likely to get harder in 2011, as as the industry faces up to the considerable challenges that still lie ahead for the UK.
The fiscal squeeze is set to gather pace, with real cuts in public spending starting to take effect on the economy and one of the mainstays of growth to date, namely re-stocking, looks set to fade as merchants approach their desired inventory levels.
This begs the question where is the momentum for growth going to come from, particularly as the strains on household finances, rising public sector job losses and the level of house prices relative to earnings still remains high by historic standards. House prices remain vulnerable to a general loss of consumer confidence in the near term and potentially higher interest rates in the future.
The opportunities going forward in 2011 and beyond are about getting a bigger slice of a smaller cake and seeing what more can be sold to existing
customers, a focus on getting new customers and where possible, entering new markets.
To stand out in this new tougher marketplace, companies will need to me more agile and adaptive to meeting a more diverse and discerning customer base. Those companies which are prepared to invest in training and development will be looking at the Government’s new ‘Green Deal’, to see how they can get involved and who the their competition will be.
At NMBS, the focus in 2011 and beyond will be to support the independent merchant base and help provide information on new market initiatives and products. The Society is also planning to focus on promoting the benefits of trading with independents and not just suppliers, but also with the merchant’s trade customers.
“There are no easy routes ahead, however we genuinely believe that the although the journey will be difficult, by working in partnership with our strategic suppliers and merchant members, we can grow the independent market share and hopefully help towards growing the size of the market, with a more considered strategy for renewable and energy saving related products,” says managing director, Chris Hayward.
Mark Northway, financial director of independent Scottish merchants Beatsons, believes 2011 will be another year of consolidation within the building industry. “There are signs of recovery with some new housing sites opening up across the country, but the bulk of the trade that we see in the independent sector is being driven by the home improvement market – garage and loft conversions, along with a number of extensions, as people continue to require additional space but cannot or are not willing to secure additional finance to move in the uncertain current climate.
“With the recent failures of Rok and Connaught, coupled with this extreme and early winter weather, I fear that we may well see a large number of business failures in the New Year as many landscapers and small builders have been unable to work on projects for nearly a month.
“In addition, a number of the larger developers have had their staff on lay off for a number of weeks in Scotland since the first snow hit at the start of December.”
Peter Worthington, the managing director of Builders’ Supplies (West Coast) in Lancashire, says: “With a
government agenda for the Big Society which masks public sector cuts likely to have a significant effect on security of employment, and with reduced disposable incomes, combined to the impact of VAT increases, the view from the side of the working homeowning
population isn’t rosy.
“When you consider the time-line of the cuts and the consultation periods, the ‘medicine of recovery’ isn’t taken in one gulp, but over a prolonged period.
“The concern for builders’ merchants must be RMI – which has been the most buoyant area in recent years – suffering from lack of funds in the retail, public, and commercial sectors.
“Add to this the increasing regularity of severe winter weather reducing the trading year, bad debt, and the spectre of increasing prices forever looming, then I feel that the tunnel is longer than we thought or the light isn’t as bright.
“On a positive note our belt tightening of recent years has helped produce better trading results than anticipated, so that all those projects that have been on hold will receive serious consideration this year… we’ll need something to occupy ourselves!”
Neil Hemmington, director of Hevey Building Supplies, one of Northampton’s largest independent builders’ merchants is in no doubt. “There are tough times ahead for 2011 – no-one can be sure of the full impact government cuts and the new 20% VAT rate will have. The weather also seems to be having more of a say these days.
“General consumer confidence is likely to take a bashing and people will feel less wealthy than they have before. The important thing for the independent merchant is to continually seek new opportunities and not just wait for existing markets to pick up.
“2010 was a good year for Hevey and despite the uncertainty we will be looking to push on in 2011.
“Back in October, we opened a new joinery division, which complements our overall offering to the market and has already boosted our competitive edge.”