How Builders Merchants Have Adapted To The Economy In 2022

2022 has seen builders merchants facing rocketing energy costs, inflationary pressures on construction projects and a slower-than-planned recovery from the materials shortage.

Government figures reveal that the price of construction materials has increased by +24.1% in the last year. As businesses grow increasingly concerned about the impact of a recession, the Bank of England revealed that construction output growth has weakened as “rising materials costs and labour shortages cause projects to be delayed or cancelled.”

Construction is a key driver of growth in the UK economy, and those in the timber, building materials and hardware industry need to feel as financially secure as possible amid unpredictable inflation.

ONS statistics revealed that construction output increased by +2.3% in Q2 2022 compared with Q1, showing that appetite remains strong. However, total construction new orders fell by -10.4%, in a sign that some clients may be thinking twicxe about building projects due to rising costs.

How has the industry changed following the unparalleled financial impact felt by many businesses and consumers this year? And how do builders’ merchants envision the upcoming winter will affect their trade?

ECI polled builders’ merchants from around the UK to understand what they cite as their biggest learnings from the year so far, and challenges for the winter ahead. How can builders’ merchant software help businesses to contain costs and become better protected?

How has the industry been impacted by rising costs?

The Ukraine conflict has caused stock uncertainty

The impact of the war in Ukraine has impeded the construction industry, with some businesses worrying that the current state of the market is only the tip of the iceberg. Severe disruptions to the UK market have caused vulnerabilities to the supply of some materials that could be crucial for production.

Craig Sanders, joint managing director at Protrade, said:

“We have had years of no major distractions within the construction industry, and it feels like they have all been compounded in the last couple. What we’re seeing unfold in Ukraine has certainly changed the picture, affecting supply and energy costs among other things. The knock-on of that has been significant.

“Projects are getting up off the ground and while things are good right now, I’m not expecting that it will remain as buoyant as we first thought it would be, not until the crisis in Ukraine is resolved.”

Higher degrees of transparency between merchant, supplier and employees

As builders’ merchants serve as the base of knowledge and guidance in an industry facing a number of challenges, success has become even more reliant on the relationship between the customer and business.

Philip Lidgerton, managing director of Building Materials Nationwide, said:

“For me, it’s all about keeping the relationships strong between the suppliers, our team of people, and our customers. What we’re trying to do as a business is be more transparent in terms of where we’re going. I’ve spent a lot of time with team members in the past six months talking about plans for the business, and they want to know what the future is, what they’re investing in, and where they fit in.

“For our business, digital innovation is about bringing the customer into the fold of the company. Everything we do in terms of the website and email marketing is about developing that relationship with the customer.”

BIM is presenting a window of opportunity

The digital evolution of the building materials supply chain has changed the way the construction industry operates since COVID-19. Building Information Modelling (BIM) is helping the sector to work smarter and harness technology to achieve cost-savings.

BIM is a process that ensures all stakeholders can collaborate on a project, using a software platform that integrates 3D modelling, a project library and a data-based approach to construction. As BIM takes its grip, merchants are likely to face more pressure on stock-levels as projects become more cost-driven and dependent on accuracy.

Craig Sanders of Protrade, said:

“BIM systems have changed the landscape entirely. Modular is essentially filling a huge void the traditional method of construction cannot facilitate. In a nutshell, BIM is like an x-ray of a building, that allows you to see under the skin and identify its inner workings. BIM also provides traceability, using barcode technology which allows architects and contractors to identify specific details about key elements of the building.”

What are the biggest challenges for the winter ahead?

Inflation uncertainty

Materials-based inflation is continuing to soar, as the monthly Building Materials and Components Index revealed that the cost for all work increased by +14.5% since January 2022.

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented:

“Business confidence among construction firms, which typically provide a canary in the coalmine for the wider economy, continues to decline and August saw Britain’s builders reduce their orders for materials and scale back recruitment.”

Des Duddy, joint managing director at Protrade, said:

“We’re all geared up for supply chain issues and we’ve got [a lot] of stock, all of which was bought prior to inflationary pressures and allowed us to remain competitive in the marketplace. However, when this stock is exhausted, we will be subject to current market prices - whatever they may be.

“Unfortunately, no one can argue that the price increases seem inevitable - certainly in the short to medium term. While we are not propagating doom and gloom, we have to accept the real and current situation everyone finds themselves in.”

Maintaining a healthy level of stock

Stock management is critical to builders merchants, and with supply chain issues and a volatile economy, merchants may need to take stock of how much material they have to minimise risks and remain as profitable as possible.

Craig Sanders said:

“For us, it’s all about having stock on the shelves. That’s essential for the future of businesses. When you look at inflation levels, they are at their highest level for decades, so having good quality stock on the shelves is far more beneficial than having cash in the bank.

“The construction industry still represents a significant chunk of the UK’s economy and that will continue to be the case should the recession set in. Projects may well get delayed and materials become more expensive, but it will go on.”

A reduction in orders

Government figures show that new construction orders dropped by -12.1% in the second quarter of 2022. As prices rapidly rise in both materials and for labour costs, the sting of inflation has led people to rethink home improvements and other construction plans as the cost of living bites.

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented:

“The industry has now spent two months in contraction territory, with both infrastructure and commercial property construction activity shrinking in August. Housebuilders provided a rare glimmer of light after residential activity ticked up for the first time in three months.

“But the flood of new orders seen at the start of the year is slowing to a trickle. The cooling of demand did ease some of the inflationary pressures though, and input cost inflation has now dipped to its lowest level for 18 months. Looking ahead, most construction firms are busy and order books remain relatively full - but the picture for 2023 does look increasingly grim.”

The Cloud is still a major untapped opportunity

The builders merchants industry is now more technology-driven than ever before, and businesses that are investing to streamline their operations now, are increasing their chances of securing a better market share.

Leveraging the Cloud is also helping businesses to feel more secure and spend their time more efficiently in employee retention, scalability and reducing costly errors.

Craig Sanders of Protrade said:

“An area where we feel many builders, merchants and distribution businesses are lagging behind is in the lack of investment in their IT infrastructure. Modern operating systems and ecommerce platforms drive [ a reduction in] inefficiencies and help with customer satisfaction.

“It’s only a matter of time before businesses wake up to the constraints and limitations of their legacy systems and cumbersome websites. The cloud has changed the information technology landscape and the degree of technical quality that is now available at our fingertips is incredible - but underutilised.”

Chris Fisher, VP of LBMH division, EMEA at ECI commented on the findings from the report:

“The economic landscape is one that many of us have never experienced before. For those in the building materials sector, it’s clear that there’s a lot of concern and uncertainty about the coming months.

“The longer-term picture requires a step change, and the silver lining is the abundance of technology available to the LBMH sector. Digitalisation and the cloud can be your hardest working employee, freeing your team up to spend on strategy. Those who embrace change will be able to feel more secure, invest in employee retention and have the flexibility to adapt as the economic cycle continues to fluctuate.”

Find out how Spruce business management software for builders’ merchants can support your company.