There is no doubt that trading conditions during 2023 are not what they were during the last few years. After being buffeted by intense levels of demand during the pandemic years, inflation and the cost of living crisis have dampened down that high spending behaviour that our industry benefitted from. We are not immune from the effects of this slowdown.
Indeed, a recent tweet from Noble Francis showed that in our sister sector, construction, there has been a sharp increase in the number of construction companies going bust:
Although there is no similar data available specifically for the fenestration sector, it would be a safe bet to assume that our industry is likely to follow a similar path, if it is not so already.
In this case, given the nature of slowing consumer spending and greater living costs, our sector could be in for a period of consolidation.
What do we mean when we say consolidation? Or what does it look like in real terms? Over the next couple of years, we are likely to see the number of companies in our sector, across the supply chain, reduce. This could be a result of a combination of factors. Reducing demand after very strong growth could pull the rug from under some companies that have not planned and run their businesses efficiently.
Mergers and acquisitions will reduce the number of companies further. Larger businesses with money to spend may decide to swallow up some of the competition by purchasing them and merging them into the bigger business. We could see quite a few fabricators go down this route with margins squeezed and demand falling.
We could also see a reduction in the number of SMEs due to owners retiring or choosing to close their doors. I was recently told of a number of small fenestration companies in the midlands that had decided that now is the right time to close both due to their age as well as rising energy costs.
A combination of reduced business activity, retirement, high inflation and expensive material costs are all combining to create a scenario where the industry is likely to see the physical number of companies reduce in the coming couple of years.
You can sense by the tone of the commentary coming out of the sector that aluminium continues to be a source of strength and momentum within the fenestration industry. The number of fabricators adding an aluminium option to their wider portfolio grows regularly. Aluminium systems companies continue to grow their revenues and expand their own product offerings to fabricators.
Even by looking at the marketing content the industry is producing you can see that aluminium is a major focus of the sector right now. As a result, it makes sense to think that aluminium is gradually chipping away at the market dominance of PVCu in the residential part of the market. Not enough to dethrone it in any spectacular way, but enough to make a tangible difference.
The PVCu part of the market is well known to operate on fairly thin margins. The aluminium part of the market is more profitable, which is one of the main attractions for those moving into it. Therefore, any degree of market share for PVCu is potentially painful. Remember, this increase in aluminium is coming against a slowing economic environment. Not recessionary, but grinding to stagnation at the very least.
What we could see is that as the aluminium market continues to grow over the coming five-year period, small fabricators that only produce a few hundred frames per week and mainly in PVCu could see their turnover reduce as a result. The question is whether companies who are already teetering on the edge have the will and ability to diversify and expand their product offering or decide that now is a good time to exit the market.
No matter the cause, I see lots of consolidation on the horizon. Only when the tide goes out do you see who is swimming naked, Warren Buffet once said. As this tide goes out, we’ll see who has managed their money best and evolved at the right time.
To get weekly updates from DGB sent to your inbox, enter your email address in the space below to subscribe:
By subscribing you agree to DGB sending you weekly email updates with all published content on this website, as well as any major updates to the services being run on DGB. Your data is never passed on to third parties or used by external advertising companies. Your data is protected and stored on secure servers.