I’m an optimist. A glass always half full kind of guy. I opened the year with a post on five areas that I identified that could grow the most this year. You can read that post here, to boost your own optimism before you continue to read on.
I’m also realistic. 2017 isn’t going to be cake walk. Our industry will have to face up to a number of challenges if it is to navigate it’s way to the end of this year unscathed. These are the five biggest risks to the UK glazing sector in 2017.
Brexit negotiations
Lets start with the obvious. By the end of March, assuming there are no last minute hiccups, Prime Minister Theresa May is due to trigger Article 50. I don’t see the triggering of Article 50 as the risk. We know it’s coming, it’s not a shock. It’s rather what comes afterwards.
From then, we have two years in which to negotiate our way out of the EU whilst trying to build a new relationship and economic ties with the Union and the rest of the world. How those negotiations go will affect the UK economy this year. If they appear to be positive, moving forward at a good pace, looking as though the UK will come out of it with a decent proposal, our economy, including Sterling, should be OK. We could even see the value of the Pound rise if whispers coming out of the negotiations sound good.
However, it is perfectly possible for those negotiations to hit the rocks. Trying to strike a new deal with 27 other nations is not going to be easy. At all. It is perfectly reasonable to expect that two years might not be enough and perhaps a hasty transition deal might need to be put in place to stop major damage occurring to both parties.
Whether you were a Remainer or a Leaver, we all have to hope that these talks go well. If they don’t, consumer confidence could take a hit, and for those selling big ticket items, like windows and doors, that’s not a good thing.
Further price increases
This one really is linked to the above scenario. Should the value of the Pound fall further during the course of this year, we can expect costs inside the glazing industry to rise, probably more than once. If this happens, we’re going to have a serious question to ask ourselves.
Say for example the Pound falls to $1.15 or even $1.10. These are some predictions from a number of financial institutions. This is another sizable drop from current levels. If this does indeed happen, we can expect a number of UK fenestration companies to jump immediately to raise prices, looking to profiteer from the situation. There will be a portion of the industry who will hold out until the next round of purchasing contracts are ready to go, and then increase prices to their customers.
All in all, prices rises further up the chain always make their way to installers and eventually home owners. The question will then be, how much can be absorbed? Should any of of it be? The better syscos and fabricators will naturally try and take some of it on the chin, but if we see another 10-12 cent drop in the Pound, we won’t be looking at just a couple of percent. It will be in the double digits. They will have to pass it down the supply chain, there is no other option.
At this point, installers will have to decide as to whether to pass it all on to the home owner, pass just some of it on, or take it all on the chin and risk eating away their profit margins.
Donald Trump
Yes, the Donald’s Presidency, which begins in a matter of days, could have effects on the UK glazing market. We’re not talking about things as drastic as war with Russia. Rather, the promise of trade wars with China and other major world players if he doesn’t get his way.
We can fully expect China to completely ignore Donald Trump and fight back against any measures that Trump puts in place. The effects in the global markets and on currencies will be pure volatility. We can expect huge swings one way and another on markets. Currencies will be all over the place. There will be very little calm and even less uncertainty. Businesses and economies around the world, including ours, hate uncertainty. Donald Trump brings a lot of uncertainty to the table.
He’s capable of shocks that could derail all kinds of things all over the world. We just hope his advisors manage to keep him under control, and some takes his phone from him!
By the way, just take a look at the stock markets since Donald Trump’s election. You generally have a bit of a rally after a US election anyway. But this is by far the biggest in a long time. It has now been dubbed the “Trump Rally”. The world is watching to see if the Dow Jones can finally break 20k. The Trump Rally though is also forecast to pop quite spectacularly once the peak has reached. Perhaps soon after hitting the 20k mark. Why does this matter? Pensions, in our case UK pensions of people most likely to buy new windows and doors have their money invested in stock markets. Right now they’re looking pretty rosy. If we see a sharp correction, the value of those same pensions take a sharp decline too. Not good in terms of spending power on big ticket items like new windows and doors.
The youth and skills gap
Say the above three risks don’t happen, and lets hope we don’t, then things look pretty well for the UK glazing sector. We appear to have started red hot from the word go this year, with reports of very high business levels all over the place. If it continues throughout the year, we’re on for a great one. But then we face another issue.
We still haven’t addressed the skills and youth gap not just in glazing, but the wider construction sector. Near the end of last year, there were a number of installers who told me privately that they have had to turn work away in some cases because they have been unable to find the right people to carry out the work. Those companies have lost revenue, the industry has lost revenue, because the infrastructure to support growth in our sector has failed to deliver enough young and skilled people.
If we are to believe the positivity coming out of the industry at the moment, 2017 is going to be even better than last year. But there has been no signs that there is going to be any solution to the industry-wide crisis to plug the skills and youth gap. By mid-summer, when we reach our busiest period, life for installers could be very stressful indeed.
Customer service failure
I got the sense last year that customer service from the rest of the supply chain to installers wasn’t always that great. Lack of communication, poor product quality, late deliveries, indifferent installer support were frequent complaints I saw aired on social media. During 2017, given what we have to face together as an industry this year, our customer service across the supply chain has to absolutely be on the money.
Focus has to go to installers. They need rock solid support from their fabricators when it comes to marketing support, lead generation, product quality, expanded options, deliveries on time and regular communication. Installers need to be able to rely on all of this if they are to do their jobs, in selling their fabricator’s products, properly.
An installer who cannot rely on delivery times, who has constant product quality issues, has patchy communication with their suppliers leads to them being disorganised and putting out fires not of their own doing. This costs them money and takes focus away from selling the windows and doors their fabricator needs.
I think there is much room for improvement on the services front to installers during 2017.
Notable mentions
These are five of the biggest internal and external issues that I believe pose the biggest threat to the UK glazing sector, however there are a number of other issues that are worth keeping an eye on over the course of the year
- interest rates – it’s highly likely that we’ll have another year of historically low interest rates. However, if the economic outlook changes in such a way that interest rates are required to rise, this could send a shock to the economy. Higher interest rates mean higher borrowing costs on loans. Loans that might be used to spend on things like new windows, doors and glazed extensions.
- oil prices – you might have seen pump prices rise over the past couple of months. Some of that is down to currency issues, but a lot of it is also due to OPEC, the cartel of countries producing the most oil, cutting production in recent weeks to try to raise prices. It seems to have worked to some degree. Oil prices do look likely to rise steadily over the course of this year, so expect OPEC’s actions to cause pump, and therefore transport and goods prices to rise too.
- mortgages – this is kind of a double-edged sword. A slowing mortgage market means more people stay at home, which makes those home owners more likely to spend money on improving their current abode. Good news for the window and door industry. Not so much for the housing market. However, if mortgage rates improve, that means more people are moving house. This can work for and against the fenestration sector. New home owners sometimes look at immediate home improvements as they move in, some decide to sit on them as they settle in and let the funds build back up again.
There’s a lot to be aware of this year. Lots of positives but also lots of risks to navigate. Naturally, as an optimist, I hope that we can avoid most of these risks altogether. Lets be realistic though, there’s probably going to be some sort of spanner in the works at some point this year!
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