Survey: Builders’ Merchants Share Challenges For Year Ahead

It’s fair to say that the construction industry has had a turbulent few years. A jump in the price of raw materials has created considerable challenges for the sector, as well as the impact of inflation, labour shortages and rising interest rates. What will the upcoming months have in store for builders’ merchants? How will drops in consumer spending affect the industry – and what infrastructure trends do merchants need to be on top of to stay resilient?

ECI polled builders’ merchants from around the UK to find out what they’re bracing themselves for in 2023, and where the opportunities lie.

Net zero goals will have a knock-on impact

The UK is racing to meet its net zero greenhouse gas emissions target by 2050, with the Prime Minister recently creating a new area in government – the Department for Energy Security and Net Zero.

Builders’ merchants will have a critical role in the delivery of low carbon homes - although this may be difficult for the industry to achieve in urban areas, where buildings currently account for up to 60% of overall carbon emissions – according to the World Economic Forum.

Net zero also presents an issue for historic and older buildings – which may not be as energy efficient.

According to Jason Rowley, director at Jason Rowley Ltd, this will mean that owners of older-build homes will already be at a disadvantage.

“Approximately 56% of existing housing stock will need to be retrofitted to meet the net zero goal. This responsibility will fall on homeowners to have their homes retrofitted with eco-friendly, but costly, heating systems.”

Property expert Jonathan Rolande agreed, saying: “Although the problem with (materials) shortages is easing, we expect demand for certain products such as energy efficient boilers and insulation to push up prices.”

To achieve the government’s net zero targets, Jason says the country will have to “rely on new, more eco-friendly builds in the form of the Future Homes Standard and the Heat and Building Strategy.”

The Heat and Building Strategy sets out how the UK plans to decarbonise and significantly cut carbon emissions from the UK’s 30 million homes and workplace buildings – which is no mean feat.

Relying on homeowners to foot the bill for upgrades could be an issue when customers are grappling with rising inflation levels – and may struggle to compromise the short term expense for the longer term benefits.

Peter Jackson, managing director at Jacksons Fencing, commented on how the new legal frameworks will impact businesses:

“Reducing the carbon impact of the built environment remains a top priority, and companies of all sizes are under pressure to enhance their sustainability efforts and reduce their carbon footprints.

“Manufacturers should choose the best species of wood for the project before beginning the crucial design, building and preservative treatment phases. Any sustainability or responsible sourcing certificates will have a meaningful context if all these criteria are met first because the best use has been made of the timber, and a product with a long lifespan eventually results in less deforestation.”

Energy costs will be passed onto material prices

The latest analysis of data from EU member states, Eurostat and the UK Department for Business, Energy and Industrial Strategy has shown that the cost of construction materials has risen by 60% in the last seven years.

Ed Powell, director of Steel Landscaping Co explained how widespread price rises will likely lead to further increases in the cost of materials, machinery and even wages.

“Price rises across the board will increase the cost of materials and increase hiring, machinery and equipment costs, too. These cost increases will likely lead to delays with many projects and impact profit margins.

“Energy price increases will also be a continuing challenge for construction firms, further exacerbated by the war in Ukraine. Manufacturing the likes of brick, steel, ceramics and other important materials requires considerable energy output, and the cost of doing so is passed onto the construction sector.”

Feelings of unease grow around insolvencies

Financial instability remains a cause for concern among others in the trade, too, with fears that a recession will spread to British construction, as customers’ spending power is eroded by inflation, and wages trail price increases.

Craig Sanders, joint managing director at Protrade echoed these thoughts, explaining how the rising costs of running a business is a concern for the year ahead, which “could lead to businesses going into administration if they are unable to pass on costs.”

According to data from Creditsafe, the construction sector represented 18% of all company insolvencies in 2022 – the largest percentage out of all sectors tracked.

Craig continued:

“We feel the biggest challenge in 2023 is the uncertainty and talk of a UK recession. This will undoubtedly lead to a reluctance to invest or proceed with construction projects.”

Investing in builders’ merchant software to automate processes, better analyse data, streamline operations and ultimately, embrace change will be the ones who are best placed to weather the economic downturn.

Despite the need for homeowners to retrofit and revamp their older homes to tackle the climate change crisis, Jonathan Rolande spoke about his concerns for how the cost of living may impact the work people do to their homes:

“Smaller firms will feel an effect as demand from homeowners for extensions and major refurbishment is diminished due to the cost of borrowing.”

Supply and demand continues to be a challenge

One recent survey from the National Buying Group found that the priorities of builders’ merchants and suppliers in the sector are at a “service level disconnect”.

Building materials form the foundations of the construction supply chain, and if you don’t get it right, you can cause bottlenecks to projects, or risk spending out of pocket for items that won’t be purchased.

Ed Powell says: “The COVID-19 spread in China during 2022 meant that Chinese officials have continued to impose stricter border controls.

“This has now largely been lifted, however it does mean a big decrease in exports, which is likely to continue into this year. Basic construction supplies are becoming increasingly expensive, and more challenging to secure, which is why we’ll be monitoring our supply chain processes to ensure we can stay ahead of the curve.”

Over ordering is one of the most common concerns around supply chain and inventory management. But amid many supply chain bottlenecks, running out of inventory which is in high demand could pose even more of a struggle.

Craig Sanders says:

“Despite an easing in the supply constraints of many construction-related projects, a handful of key items are still in high demand with short supply. This often means that projects can get off the ground, but come to a grinding halt, part way through the build.”

With reducing costs being front of mind for many builders’ merchants, a business management software solution can help to streamline operations, and manage your product inventory so you’re purchasing the right items - and have a seamless integration with suppliers.

A shortfall in the labour force

Combatting the industry’s widening skills gap is still a struggle, according to our poll.

Craig Sanders commented: “The lack of a skilled workforce is another concern for the construction industry, with companies unable to fulfil roles within the sector to complete projects. The ageing workforce, with all of the necessary skills, is simply not being replaced quickly enough.”

One report last year found that 750,000 construction workers are due to retire within the next 15 years - and that only 20% of current workers are under the age of 30.

This could cause a net zero skills shortage for the UK and lead to missed opportunities if there aren’t enough people with the relevant skills across the construction trade to retrofit the country’s homes.

As builders’ merchants commit to the net zero task, in the next five years, 350,000 new jobs will need to be filled in the construction sector if the government is to meet its targets.

Tackling the climate crisis is no easy task - and there will always be growing pains with innovation. But by deploying software that reduces project delays, provides full visibility over sales and supply chain, and provides training for the next generation to use technology, builders’ merchants will be best equipped to meet new skill requirements and play their part in making the change happen.

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