I think it is fair to say that 2022 is perhaps not panning out quite how we thought it would.
We knew that the industry was slowing down. We knew that price inflation was becoming a bigger problem. However, the “wall of worry” as some financial analysts like to call it, is stacking up so high, that UK fenestration now faces a very different kind of year than we were all expecting.
Very tough market conditions
First of all, before the perma-positive folk get all agitated, there is nothing to say that this year won’t be without its opportunities. Even during the Great Recession after 2008 there were ways to excel in UK fenestration.
But 2022 seems to be trying very hard to be worse than 2020 and 2021 combined. We even have the incredibly important port region of Shenzhen in China now in a full lockdown due to rising COVID cases there. It means there will be nothing coming out of one of the world’s largest ports for a number of weeks.
In short, UK fenestration faces a very tough market in the coming months. The problems are stacking up:
- Ukraine – the war initiated by Russia after their invasion is a huge distraction for the public. Worries about it spilling over into something worse keep people on their screens and away from more productive matters. The war is also exacerbating already existing problems that will hit most of Europe, including the UK, economically.
- Rising inflation – it is important to remember that we had a soaring inflation problem BEFORE the war in Ukraine began. Inflation was predicted to reach at least 7% in the Spring. That is now expected to extend into double-digit figures. Everything is going up: petrol, diesel, gas, oil etc. It feeds into everything we buy and everything we make. It is the public that bears the brunt of these higher costs, and the UK is expected to face the tightest squeeze in living standards in more than 50 years.
- Real-wage decrease – wage inflation is struggling to keep pace with rising price inflation. In the last quarter of 2021, according to the ONS, UK wage inflation rose 4.3%. In normal economic circumstances that would be great, and would put a decent amount of spare cash in people’s pockets. However, these are not normal circumstances and price inflation is comfortably outpacing wage inflation. It means a real-terms hit to people’s earnings, with predictions of a 2-3% drop in income by the end of the year. If this happens, it would be the worst reduction in living standards in decades.
- UK consumer confidence falls – this one is important to the fenestration sector. According to Trading Economics, UK consumer confidence fell to a 13-month low in February. This is the month before the Ukraine war began. Confidence is key to any market and any economy, so major dips point to problems further down the road. The silver lining for February was that UK GDP bounced back somewhat by 0.8%. This was seen as a bit of a spring back from the Omicron variant.
- Recession predictions – such are the economic headwinds that are coming, a growing number of analysts are now predicting a recession by the end of the year. Yes, we have just had a recession, a record-breaking one, stemming from the pandemic and subsequent lockdowns. The effects of that recession however were insulated from a great deal of the public as the Government were paying millions of people in furlough, and businesses in grants and loans. Any recession this time round will be felt and will be felt hard by many.
I am sorry for the shitlist of bullet points, but these are the real-world realities that we face as a sector right now. The last two years have been an absolute boom for UK fenestration, and we always knew that we had to be grateful for the position we found ourselves in compared to other sectors of the economy that were still suffering from lockdowns.
The outlook, however, for 2022 is one that is very rapidly changing from the last couple of years and we have to be pragmatic and reactive in the face of the very many challenges that we now face.
Adapting to a different market
In my frequent calls with suppliers and installers, in private, they tell me that things have changed. Installers tell me that middle-incomers have stopped spending and that forecasts for this time of the year are not where they were expecting. In public and on social media, people will only ever paint the picture they want you to see. The reality is likely very different.
So, how do we go about taking on this new economic landscape? The good news is that for most of those bullet points above, we know what to expect in the coming months. We know costs are rising. We know interest rates are going to rise. We know that livings standards are going to take a hit. This is knowledge we have in the bank, which means we can proactively plan.
For some comparison, the pandemic was a different challenge. There were many unknowns during that crisis. As an industry, we were unable to plan like we wanted, and this became apparent with the various supply chain problems we experienced. This time is different.
Price inflation will have to continue to be passed on to the homeowner. With the recent rises in commodity prices, I would expect some very hefty price increases on resin, steel and aluminium in the coming weeks. Businesses in our sector won’t be able to absorb all of that, so must pass that on to the end-user.
Marketing must also be stepped up immediately and directly to the consumer. There are a lot of distractions right now. Our industry is now fighting against other sectors and people’s changing priorities on how they spend their hard-earned money. It’s not going to be as free-flowing as the last couple of years. Installers need to get out there on to screens and give some inspiration to potential buyers who are rightly concerned by events out of their control. This is where social media and video content comes into their own. People are constantly on their screens right now, so let’s make sure that we go to where the eyes are and show consumers that investing in their homes, upgrading the looks of their properties and improving energy efficiency is still a top priority for 2022.
Companies up and down the supply chain in fenestration need to start looking at where they can save money. The price increases are going to come and the manufacturing part of the supply chain will seek to absorb what it can. To offset that, businesses need to look at ways of saving money without compromising on their quality and customer service. That is easier said than done I appreciate, but margins have to be protected and streamlining operations is one way to do that.
Installers should also start looking at demographics that still appear to have the flexibility to spend. At our place, we identified towards the end of last year that middle-incomers were stopping spending as freely. Those with families and mortgages, who had benefitted from vacation refunds and furlough money, were no longer spending as they were, and the trend would continue into 2022 as the cost of living crisis got worse. What we predicted is indeed happening. But what is also happening is the wealthier demographic is also continuing to spend. Almost every contract I have signed up so far this year would fall into that bracket. It is proving a good line of business to go down and we will develop that further throughout the year. As a result, we remain on track to reach our yearly targets.
I see our industry, and the wider economy, entering a new phase. We have to view what is coming in a wider context. We have had our boom period, and now I see a much more turbulent period coming up, where companies who have not managed their profits well during the good times will find severe problems. This period could last a couple of years. After a recessionary period, and once we reach a more stable footing, the companies left in our industry when things pick up again will stand in very good stead to benefit from the resulting uplift.
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