For as long as I have been in this sector, the discussion around the prices at which we sell our wares to the general public is that they have been too low for too long. We often compare ourselves to other sectors such as kitchens, vacations and automotive sectors and we often comment about how prices in those sectors have risen with the cost of living over the years.
We know full well up until the last year or so the prices in UK fenestration to the general public have not kept pace. Indeed, in some pockets the prices of some materials were lower than they were decades ago.
That however has been firmly reversed.
A major market correction
The race to the bottom in our sector, especially the residential market, has kept prices artificially low for too long. Rather than selling on price, much of the early days of PVCu was sold on volume at thin margins. Once you start that it’s very hard to work your way back up to more profitable and stable levels of pricing. Therefore much of what happened afterwards has kept our prices lower than they should have been.
Then COVID came and changed everything. From lockdowns to unprecedented levels of demand, the industry has been turned on its head. As we reopened last year we were welcomed by demand from the public way higher than anyone could have thought. This has been great news of course, after all the turmoil we have had to endure since the start of 2020. However, it has been clear that our supply chain cannot cope.
Weekly emails about price increases. Product delays. Quality problems. Lead times extending longer and longer with no end in sight. Deliveries delayed or cancelled. The simple truth of the matter is that in almost all parts of the sector, more is being bought than can actually be made. There is no sign of that pattern changing any time soon. This is our new normal.
The result has been rapidly rising prices. The situation around the world is not helping either. Transport costs are out of control. The situation with global shipping is now well documented, with container prices rising more than eleven-fold in some cases. This has been a particular problem in the composite door sector. There is also a very tight squeeze on raw materials and rising costs. The chemical compounds to produce resin simply cannot keep pace with demand. And as more parts of the world start to open up in the weeks and months to come, that strain is going to get worse. Steel and aluminium prices are shooting skywards, as are prices for almost all other materials. Oh, and two major glass production facilities are about to go to sleep for a while whilst they go through planned maintenance.
As an industry, we are used to the odd price rise here and there. One a year maybe. At the moment they seem to be coming in every week, perhaps more depending on the type of business you run. So the rapid nature of these increases, implemented with only a few weeks notice, is something we are going to have to get used to as the environment we’re all working in isn’t going to change. Indeed as more of the country and the world opens up and demand for raw materials goes higher, it could get worse.
So what should we do as an industry?
Well, I’m not sure there’s much to be done. Installers will keep selling, orders will keep being placed up the supply chain and that is how the wheel turns. The vital point that we all have to be making with the people we’re buying from is that things are going to take a lot longer than normal, there will be hiccups and there is very little that can be done about it until demand drops or there is a sudden surge in raw material capacity which looks unlikely to appear.
We’re going to have to adapt, as we have been doing for over a year. And let’s remember, we’re in a fortunate position. Imagine being a theatre or cinema business right now.
The other point I would make is that as a sector we have to pass on the price increases that are coming down to the end-user, the homeowner. It has been quite clear that over the past year the public is fully capable of stomaching the higher prices. Prices which arguably should have been higher many years ago, but what the industry is now being forced to accept. The public still isn’t fully able to spend their spare cash with regular normality, and restrictions remain in place in many sectors. It makes home improvement works a more attractive option to homeowners looking to spend their disposable cash on something.
According to reporting from Bloomberg, the public in the UK are sat on £150bn in spare cash. That’s nearly an average £8000 per family of spending power. (£150bn divided by 19.2m families in the UK). The public can afford it and are clearly happy to spend it, and I would also wager fully accepting of the fact that the normal process is taking a lot longer than usual.
So whilst suppliers say that these surcharges are temporary whilst the current situation remains and will be removed, I’m not sure that will be the case in the end. Yes, the surcharges might go, but more general and permanent increases may take their place. And if so, then so be it. So long as we all do the correct thing and pass those increases on to the spending public who appear fully capable of affording it, we’ll be fine.
There is naturally a lot of noise when prices go up. We only used to get them once in a while, and then there would be the usual price increase vs customer service argument. But our industry has long needed a huge price adjustment to bring us in line with other sectors, and the pandemic has been the catalyst for this change. We just need to run our companies sensibly for the time being. Be honest about lead times across the supply chain, and pass the increases down. We have been fine for a full year selling at higher prices. We have proven that to ourselves.
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