You can feel the frustration growing. Prices in the fenestration sector have been rising sharply all year, and the New Year looks set to herald a new wave of very steep price increases across a number of different materials.
The sector is frequently taking to social media to vent their frustration at the constant increases. With growing accusations of profiteering, taking advantage of the situation, and the whole thing just being generally ridiculous.
Whilst I totally understand it, and remember we have our own family-run installations business which has been hit just like everyone else, if you take a look at what is actually happening in the marketplace in terms of the cost of raw materials and transport, you’ll know why prices are behaving like they are.
Unprecedented rises across the board
There’s that U-word again. But it is the best one to describe what has been happening over the last year or so in terms of price inflation. Remember pre-Covid when you might get one, perhaps two price increases per year, and they would be in the small single-digits? I remember people used to kick off that!
Those days are long gone. The world has opened up (mostly, if you don’t look at Europe locking back down again) and demand for pretty much everything shot through the roof. Indeed, the level of demand took everyone by surprise, and as a result, the supply chains around the world were unable to service that level of demand. The simple fact is this, more demand with supply not able to meet that demand means higher prices. And that is exactly what has happened. As a result, the prices of raw materials, the stuff right at the start of any supply chain, has gone to the moon, to use a crypto phrase.
Everything that goes into the making of windows and doors has shot up in price:
- Aluminium – up more than 58% at near-record highs, now at over +33% year-to-date
- Steel – the grade that is used in window and door products has seen a rise of around 100%
- PVC – this had risen more than 40% according to the last update I had seen in October, it’s likely it has risen significantly YTD from then
- Glass – nearly every increase this year has been double-digit
Now add in other periphery factors, such as the cost of gas and electricity, transport, shipping, petrol and diesel. Lets put this into some context. Prior to the pandemic you would normally see only a smattering of price increase during a year. Maybe a couple. Those prices increases would be in the low single-digits. What we have experienced is astronomical raw material price increases, which when filtered down through the supply chain translate of increases that look like something in the region of 10-15%, depending on the raw material.
It is unrealistic to think that this can be absorbed by those at the top. Especially when those pumping out profiles are doing so at a few quid per metre. So, these costs get passed down the supply chain. Systems companies pass it on to fabricators, fabricators pass it on to installers. The same process happens in the glass part of our sector.
The advice all year has been for any price increase to be passed on to the client. The one benefit we have had this year is that there has been a huge amount of spare cash sloshing around with the public after months of furlough and the inability to spend normally. They have been able to pay these higher prices quite comfortably. It means that there should be no reason for installers to have to absorb these price increases which would ultimately hurt their profitability.
The other bit of advice that has been given all of this year is to add an extra percentage to the cost of contracts to the end-user. In previous articles, I have advised adding 5-10% to materials prices to shield installers from any unexpected price increase. In most cases that should be enough and will ensure that on contracts already signed with homeowners, the installer shouldn’t lose out. If companies haven’t been doing this and haven’t been putting in contingencies then it’s on them. We have been in this situation all year, we know what we needed to do to protect ourselves.
Back to pre-pandemic levels?
It’s almost impossible to think that prices will return to pre-pandemic levels. Inflation, once thought to be transitory (laughable), is here to stay for a lot longer. Even if demand drops back slightly in the next year, this is almost certain not to be enough to bring prices back to where they were in 2019. We have to get used to price being roughly where they are for a significant period of time.
Take that opinion as you wish, but the fact is that the longer this situation goes on, the more used to it we get. We become more comfortable with prices higher than they were a couple of years ago. We get used to selling at higher prices to end-users, and end-users acclimatise themselves with higher prices too. This is the thing, everyone knows everything is more expensive now, which means we should not be afraid to charge the prices we have to to ensure the profitability of our business.
That also means there cannot be another race to the bottom. We have to learn our lessons about undercutting and ripping the profit out of a sale just to beat the other guy. We know what happens. We know how this works. You sell too cheap, win a few orders, then wonder where the profit has gone when things go quiet and the bills get hard to pay. In an environment where material costs keep rising, as do labour costs, the absolute last thing anyone should be doing is undercutting on price to win business. This is the perfect time for a quality-first business model. Win business based on the quality of the product and service, command a better profit margin and put in place more stable growth plans in the years to come.
This though is UK fenestration, and I am not aware of any time where we have been able to resist using cheap pricing as a way to sell, rather than on quality and service. I do fear that in some parts of the market we will see a return to a race to the bottom. It would be disappointing if we did, as there really is no need right now. The public, although having to grapple with inflation and higher prices across the board, still seem able to pay good prices for home improvements. The question is can our industry hold its nerve and progress from this in a profitable and professional way?
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