As I mentioned in my last post, on the odd occasion you get a glimpse of the real state of things when you set aside the PR and news that try to paint a different picture. The Safestyle UK trading update gave us just that.

It wasn’t just the hefty downgrade from the bell-weather company which gave us the first hint, but rather the mention of FENSA data. This is something we don’t often see quoted in the sector itself. I’m not sure why. Perhaps the idea of actual data painting a more accurate picture isn’t always helpful.

Still, FENSA is one of the biggest organisations of it’s type in our sector, so when we do get to see data, it matters.

FENSA: 12% lower

This is the key line referenced in the Safestyle UK trading update:

H1 industry data from Fensa shows that the market for installations is c.8% lower year on year, with Q2 representing a declining trend at c.12% lower.

So, according to the data referenced in this announcement to the markets, year-on-year we are down 8%, with an acceleration of that downturn in Q2 specifically, reaching a 12% reduction when compared to the same quarter in 2022.

For additional context, Safestyle UK report that average order values at the company are down 6.4%, frames per order are down, and H1 closed out the period 22% down on what they call an “unusually strong H1 22”. To further that point, the company also says, which is quite specific detail to include in an interim reporting statement, that:

The challenging market conditions have worsened over the last 5 weeks into July and have adversely impacted order intake volumes which the Board forecasts will be an ongoing trend to the extent the Group’s full year performance is now expected to be materially below current market expectations.

In other words, they are laying the groundwork early for disappointing results later in the year.

Although not as big as they once were, FENSA still has thousands of members. So their data referenced in this trading update can be taken with credibility. With Safestyle being a marker for the volume-based part of the market, and FENSA data reinforcing perhaps what most of us already know, I think we can begin to paint a more accurate picture as to the state of the fenestration market.

Mass volume vs niche

Before we all get sensitive about the obvious, it’s worth remembering that during downturns, often there are winners and losers. In this case, those that are volume-based businesses are going to get hit hard. You can see that by the Safestyle data alone.

Companies that have stuck to a mediocre product portfolio, rely on volume sales with low margins and have failed to identify the changing economic circumstances, I am afraid are going to get a battering. And we need to throw out any arguments that start with “well we’re only back to 2019 levels”. That’s not an argument. That’s an excuse. It’s also poor business sense. Companies have grown since the boom of the last few years and they now need to sustain those new levels.

Reverting back to 2019 levels is serious regression. It means job losses. It means reduced margins. It means defaults and for some, bankruptcy.

However, downturns also present opportunities, and more often than not they are found in new niches. The demographic that spends with the mass-volume type businesses, like Safestyle, are the ones being hammered by the plethora of pressures on finances. So they have shut up shop and gone home. The ones that have not shut up and gone home are the wealthier bracket. I wrote about this last week. You can click here for some insights into that part of the market.

The wealthier bracket like choices. They like options. They like aluminium and they like premium. The ones with money like to spend it, and in my experience over the last 18 months, they have no intention of stopping spending. In fact I sense that they’re even ramping up that spending and making their money work for them in their properties.

It means that for the companies who were alert enough to their economic surroundings, and made the effort to diversify their offering to more than just one crowd, the chances are that 2023 and 2024 won’t be too bad at all. In fact, as weaker and less agile business start to go to the wall, those who have put in the hard yards to update their business will find that as we come out of the other side, lighter in company numbers, their own market share will have grown, profitability will have remained steady or have grown, and that the second half of this decade could be very fruitful indeed.

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