Creative Builders Merchant Sector – Bucking the Retail ‘Trend’?

According to recent figures from the Builders Merchant Federation (BMF) the consistent growth of the sector, seen in the last two years, is set to continue into 2019. So, whilst consumer spending on the high street continues to decline and big brands continue to disappear is the sector ‘bucking the retail trend’?

It’s fair to say that façade of high street retail has changed dramatically in recent years with the loss of some big-name brands. The news of brands going into administration and store closures continues on an, almost, daily basis.

Already this year we have seen the demise of major retail names such as Toys R Us, Poundworld, House of Fraser and Bargain Booze Owner Conviviality Retail. Even the stalwarts are finding it difficult with the likes of M&S suggesting more store closures.

The reasons are wide and varied from poor economic conditions, through to poor management, poor decision making and the rise in internet sales.

Yet despite the doom and gloom on the high street builder merchants are having something of a renaissance. In 2017 alone the sector grew by 2%.

2018 is set to deliver similar figures with estimates sitting at around 1.7% and that trend is set to continue into 2019.

4 reasons why the sector might be bucking the ‘trend’?

1. Structural changes in the market

The merchant sector remains an important distribution channel in the overall construction market.

However, the merchants’ market has undergone some significant structural changes, with many national operations consolidating and the regional sector expanding their branch networks.

This trend is set to continue. Acquisition is still a major topic in the sector.

In fact, according to Plimsoll Business Intelligence, right now, directors of Builders Merchants companies are looking at approximately 111 highly attractive targets.

However, there are skeletons in the closet, according to Plimsoll, 97 companies have seen their overall value fall by more than a quarter in their latest year. While most other companies have added to their overall worth, these companies need to arrest a worrying decline.

In addition, as a further sign of the intense competition within the sector, 83 companies continue to sell at a loss for the 2nd year running. These serial loss makers are adding to the congestion in the market, often undercutting the rest of the market and driving down profit margins across the board.

The next 12 months represents something of a crossroads for these companies as they face 2 distinct choices; either they operate more responsibly or they run out of cash.

2. Growth in RM&I

Drivers in the residential sector include under-investment in the housing stock in terms of new build requirements and the age of the current dwellings, which has stimulated expenditure on RM&I activity.

Whilst the construction market overall has seen a slight increase there has been a significant increase in the RM&I sector.

Recent figures show growth driven by Timber, up +2.3%, alongside multiple internal product categories, notably Plumbing and Heating (+8.0%), Kitchens and Bathrooms (+3.6%), Ironmongery (+2.1%), and Decorating (+1.2%), all suggesting a focus on home improvement.

Competition from home improvement multiples, continues to impact on the market. However, merchants appear to have outperformed home improvement multiples in recent years and their expansion into e-commerce has offset some of the movement towards the sheds.

The news that UK tradespeople are reporting high levels of work activity in the first half of 2018 with confidence higher than last year is further encouraging.

According to research undertaken independently on behalf of Screwfix, 85 per cent of the plumbers, electricians, builders, carpenters questioned in Screwfix’s Trade Pulse* index, said that as well as working on current projects they also have more lined up.

3. Multichannel Offerings

The world of ‘retail’, whether trade or consumer has changed forever. Whether we like it or not the trade customer now buys for business in the same way as they do for themselves.

Let’s face it the modern tradesman runs their entire business from their mobile phone. They research, they share opinions, they talk to their colleagues and peers. They know what they want, they need access 24/7, on laptop, mobile or tablet.

It’s fair to say that previously the sector has been slow in moving with the times. However, in recent years the merchants have restructured to streamline and enhance their multi-channel offerings – something that some of the retail sector has either failed to recognise or failed to deliver successfully.

4. Customer Experience

It goes without saying that customer service and customer experience are the key factors to success in any industry. However, in the merchant sector we would go as far to say that it is vital. The trade counter is still a focal point. It’s still a venue for conversation, generating business amongst colleagues and keeping up to date with new products and services etc. This in mind it’s vital to have the right people in place. It’s their expertise and knowledge that the customer relies on.

It’s not just about selling, it’s about helping the customer make the right choices, select the right products and allowing them to run their business – it’s about protecting their reputations.

In recent years, we’ve seen the introduction of more formal training programs and apprenticeship activity both from industry bodies and the merchant brands themselves. This bodes well for the industry as the skills base increases.

So, to wrap up; prospects for the merchants’ market remain optimistic, although cautious, with confidence in the continued recovery of the UK economy positive – only tempered perhaps by the uncertainty of Brexit.