Economies of gloom

And from the midst of cheerless gloom I passed to bright unclouded day

I’m going to jump about a bit here, so bear with me, gentle readers.

When the market has been this difficult for this long, businesses have to make decisions that serve the best interests of shareholders, owners, customers, employees and, perhaps most importantly, the long-term health of the business itself. In most cases these are decisions that help some of those interests, but by no means all.

There’s an old saying that industries tend to lose more companies on the way out of a recession than on the way in. Over the 30-odd years I’ve been writing about this sector, I’ve seen that proven true more times than I’d care to remember. The slightly unnerving bit right now is that nobody seems entirely sure where we are in the cycle. Are we nearing the exit? Are we halfway through? Have we accidentally wandered into a side corridor and become hopelessly lost? Answers on a postcard.

I was sitting at the NMBS Conference listening to the ever-insightful Dr Noble Francis, Economics Director at the Construction Products Association, and found myself slightly surprised. Not because the presentation was particularly cheerful, you understand. It wasn’t. It was never going to be. But somehow it wasn’t quite as gloomy as I’d been expecting. There were even the occasional flickers of – if not good, then slightly less grim – news peeking through the clouds. Alas, I rather suspect that Dr Francis may have felt that he didn’t want to crash to mood by predicting the number of businesses across the construction industry that will have gone out of businesses by the year end.

The challenges keep on coming. And yes, I’m painting with a fairly broad brush here, but let’s see: we’ve had Ukraine, soaring energy costs, Labour’s first two Budgets, National Insurance increases, minimum wage rises, planning delays, fragile consumer confidence, more energy costs, and, just in case we’d started feeling comfortable, a healthy dose of geopolitical uncertainty. The list appears to be growing faster than most merchants’ overheads.

The housing market isn’t exactly helping. Homes are taking longer to sell in many areas, with homeowners choosing to sit tight rather than brave the upheaval and expense of moving. Less movement in the housing market means less confidence among housebuilders, who are understandably reluctant to accelerate developments while completed homes remain stubbornly unsold.

Yes, there are pockets of activity around the country. Most merchants I speak to report decent levels of footfall and plenty of enquiries. Unfortunately, many also report that all this activity isn’t necessarily finding its way through to the margins. Being busy is nice. Being profitable is nicer. When the two become disconnected for too long, something eventually has to give.

The pressure on merchants, whether independent family-run businesses or large national PLCs, remains relentless. Costs continue their apparently limitless climb skywards, margins are being squeezed from every direction, and competition on pricing remains as fierce as ever.

Those fortunate enough to have deep pockets and substantial reserves may feel reasonably secure. But even deep pockets have a bottom. At some point shareholders may decide their capital could work harder elsewhere.

We’ve already seen examples this year. Fayers Building & Plumbing Supplies entered a pre-pack deal, with some branches acquired by fellow independent Beggs & Partners and the remainder becoming part of UK Plumbing Supplies. Sussex independent Gardner & Scardifield recently opted to close its standalone landscaping branch in Lancing and consolidate the operation at one of its other branches. Then last week, 54-year-old Otford Builders Merchants announced it would close later this year, and begin the process of winding down, despite still being solvent, because the short-to-medium term prospects simply aren’t enough to warrant continued investment. If even businesses in the supposedly relatively affluent South East are struggling to make the numbers stack up, it’s hard to argue that conditions are becoming easier.

So, is salvation just around the corner in the shape of the Government’s much-discussed housebuilding ambitions?

Maybe. They’re certainly admirable ambitions. Right now, though, for many in the industry, they feel a bit like those New Year fitness resolutions that by March have disappeared faster than a cold beer on a hot day.

Still, perhaps that’s unfair. Hope springs eternal and all that.

And on that note, I’ve managed to bring the mood down quite spectacularly. Sorry about that. A slightly more normal service will resume as soon as the economy cooperates. In the meantime, as I’m writing this at 6pm, I’m off to hunt down that cold beer.

Found it.