Sorry to bang the Brexit drum two days in a row, but this is an issue that is going to be big for the window and door industry as we get into the meat and drink of Brexit negotiations, due to start soon.
In the second half of last year nearly every supplier implemented price increases, with installers footing that bill. Some of them were quite hefty, and some were immediate, which looked from the outside like extreme profiteering.
One thing they all had in common however is that Brexit was to blame. The value of Sterling has fallen quite a bit versus the Dollar and Euro, the two major currencies our industry’s imported goods are bought in. So as the value of Sterling fell, it began to cost more to bring those same goods in. Fair enough, that’s how globalisation works.
There is though a potentially massive argument looming in the medium term, and that is if and when Sterling rises back up in value, installers who were handed price rises blamed on Brexit, will be fully expecting those prices to fall back as the Pound gains some value back. And that is an argument I fully support.
Rod for your own back
There is a growing consensus among the business news community and some major financial institutions that the fall in the value of Sterling has been overdone. There is unavoidable political instability in Europe, a UK economy that is still doing OK despite rising inflation, consumer confidence still relatively high and the credit markets are doing fine as well. There is a general commentary that as negotiations start and the political landscape changes in Europe, this will play out well for the UK. As a result, Sterling should rise, with some saying that it could rise to pre-vote levels before negotiations have even finished.
A bit optimistic if you ask me, but happy to be proved wrong!
The problem here is that so many fabricators and suppliers came out and boldly blamed Brexit for the rise in costs they were having to pass on to installers. This sets up an environment where if things start to go into reverse and Sterling travels back north, there will be a very public call from the glazing sector’s installers to their suppliers to roll back those price increases that were firmly blamed on the fall in our currency.
Not an unreasonable request. If something goes up for a particular reason and then that reason ceases to be, it’s logical to expect some regression. Fabricators though have made a rod for their own backs by blaming so squarely Brexit for their price increase problems. It will be very difficult for fabricators to fight off calls to reduce their prices. It will make for an interesting tug of war as installers call for favourable price conditions to help sell more product whilst suppliers will inevitably hold on to those beefed up margins for as long as possible.
Open, transparent and honest
If suppliers were going to come out as a massive group as they did and blame the fall in Sterling for their price increases, it perhaps would have been advisable to also implement an open pricing policy, like Brisant have done with their products.
We live in an age now where we expect those we buy from to be honest when it comes to things like pricing. It perhaps would have decreased future pressure on fabricators if they had also decided to put together a new policy on pricing which was reactive to changes in currency, again, like Brisant did. What that would do then is it would defuse any accusations of profiteering on the back on circumstantial opportunities.
For example, if Sterling rises five cents against the Dollar or Euro, then suppliers could adjust their prices accordingly. If it fell five cents, again, they could adjust as necessary. I understand that purchasing contracts are done on quarterly or a six month basis, but some wiggle room could be built into those contracts to allow for such a pricing mechanism.
The horse has already bolted however, and all this is too late. And it’s likely that, as with fuel prices, prices will take an age to fall back, if they do at all, as and when Sterling starts it’s recovery. Fabricators will want to hold on to as much of the increasing margins for as long as possible, despite installers being hit with those initial price increases pretty damn quickly.
This is something I will be keeping an eye on as Brexit negotiations begin. I believe it only right that if prices have risen because of this very specific reason, then they should also fall back when Sterling conditions improve. If they don’t, then I will be publicly calling on the fabrication family in our sector to explain to installers that if Sterling recovers to pre-Brexit levels or better, why exactly prices aren’t reflecting that.
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Have you ever seen chips come down in price if there is a glut of spuds?
Couldn’t help but think this article was a plug for Brisiant
Hi Fennybot
No plug for Brisant. However, they have won respect from myself and others around the industry for being the only ones to implement a reactive and transparent pricing policy when it comes to currency fluctuations. They stuck their necks out to do it, and are winning praise because of it.
What I think many would like to see is more companies going down the same route. Transparency for those who buy from them, and in return they are protected from the claims of profiteering. It’s a win-win in my book.
DGB
Fabricators will only be able to drop prices if their suppliers – SysCos, glass, hardware etc – do so first.
Most fabricators’ prices aren’t directly linked to exchange rates or commodity prices, as we don’t import or buy raw materials. Consequently our prices are only influenced by those things indirectly.
We can (and do) put pressure on our suppliers to keep prices stable, and we can (and do) absorb some increases ourselves – like the 3% glass increase a few weeks ago. But ultimately price changes usually start at the top of the supply chain.
Hi Mike
It’s a fair point, and yes it totally does depend on the syscos above fabricators to make it happen. I should have been clearer in my posts about that.
However, what I hope is that if and when the Sterling recovery happens, both installers and fabricators put very vocal pressure on the syscos and those at the top of the supply chain to roll back the price increases they blamed solely on Brexit. I don’t hold out much hope for such a thing though!
Thanks for another contribution Mike!
DGB
This is a really interesting and I think you make very valid point. Companies have jumped quickly onto the Brexit band wagon and put there prices up. At The Glazerite UK Group Ltd we made the decision of not having a price increase but of implementing an interim surcharge. This is clearly shown on all of our quotes and order confirmations as a separate value. We have not had a price increase since 2013 and did not want to force one on our customers in 2017 which we feel could be a tough year. But due to our suppliers increasing… Read more »
Exchange rates are a very tricky subject, one could argue a lower £ is better for the UK economy, if we made anything to export of course. I do remember in my A-level economics course (that I left early I might add) that exchange rates are influenced by a number of factors. 1. Government debt 2. Inflation 3. Interest rates 4. Balance of payments (import/export ratio) 5. Political stability. 6. Confidence/investment We are all living in cloud cuckoo land if we believe that this government is doing any better economically than any other party. I’m not a lover of political… Read more »