In true industry style, the picture of the true state of the market is deliberately murky. If you were to read just the PR, you’d think we’d barely changed from the heady days of 2020 and 2021.
In private, however, the conversations are rather different and point to areas of the sector that could best be described as in distress. So how bad is this downturn really?
Public vs private
The industry appears to have two different conversations with itself going on at the same time. In public, press releases and news articles paint a fairly pretty picture. “No recession here” is the main message you would pick up from them. All is good, nothing to see here.
Yet in private, the conversation is very different. Over the past few weeks, I have had installers reach out to me expressing their concern about how quiet things are. Even fabricators, who are somewhat guarded when they talk to me (for obvious reasons) are unable to deny the fact that things really are going quiet out there.
You can see evidence of this playing out in real-time. Never have we seen the deluge of sales emails hitting our inboxes like we are at the moment. Even before the pandemic, I cannot remember seeing so many sales and promotional emails from suppliers trying to win new customers. It was not that long ago that manufacturers weren’t marketing altogether because of how busy everyone was and they were unable to take on any new clients. How things have changed.
On social media, the frequency of promotional tweets and Facebook posts have rocketed. Both installers and fabricators are going hard on the image-based posts to try to generate interest and create new leads.
There are other methods you can use to garner a feel for things. If you look at The Gazette and search for terms such as “windows” or “glazing”, you will find the rate at which fenestration and construction-based companies fall into liquidation going up. Indeed, looking at the wider economy, there are predictions of around 600,000 small businesses closing this year due to the various ongoing pressures within the economy.
This contrast between the outward-facing image and private conversations has always existed. No major supplier is going to admit out loud that things are going south. That creates further doubt and worry in what is already becoming a stressful time. It does become slightly bizarre however when reality grinds against it.
Understanding the bigger picture
During times such as these, it’s natural to want to compare what is going on now to previous months or years. It gives us a greater understanding of where we’re headed as a sector and what the current state of play might be.
To do so, we can look at industry reports and surveys. But this is something that we have to be careful of in itself. Right now, inflation remains rampant and the price of energy and raw materials in our sector remains high. So, when I read a report that says sales are up compared to the previous year, it is almost always due to the fact that inflation has pushed the price of sales up, rather than it being down to the number of sales increasing.
Take for example some of the recent BMBI reports we have published here. These explain that like-for-like sales are flat or down, but that price inflation is the main reason that revenues are higher. This paints a false picture of growth and doesn’t address the greater question of profitability, which is the only stat that truly matters.
Comparing business levels to 2019 is also a dangerous mistake to make. Many of our companies have invested/borrowed money to facilitate growth to meet the insane demand from 2020 and 2021. Many will have taken out loans at low-interest rates. Those companies are bigger than they were in 2019 and therefore have to maintain at least the same amount of business to keep at the higher levels they are now at. So our sector is now being pinched from both sides. A drop in demand and spending from the consumer, coupled with rampant price inflation and rising interest rates. It means that even a small drop in demand, say 10%, could be fatal to some companies.
So how bad is this downturn going to be? Making a forecast with so many variables is almost impossible. By the time a marketing agency comes up with some kind of prediction it is almost out of date, such is the pace of change of events. I can only go on my gut feeling, based on what I have read and been told by others. For me, this feels like 2008. Not in the terms of a banking crisis, although we do seem to be lurching towards one. But in terms of industry activity, the change in the type of marketing, the steepening drop off in sales and general hesitation from homeowners.
There will of course be pockets of success around the industry, with some companies doing better than others. And it will generally be the more proactive and driven ones that find stability in an unstable market. But I think we will see a rise in the number of casualties this year, with some being acquired by larger competitors as the market consolidates. I believe we are at the start of this cycle and not the end. The inflation, which is the epic hangover from Government stimulus during the pandemic, has supercharged the cost of living crisis. This will take time to settle and there may be more damage to come before things return to some kind of normal.
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