Builders merchant market trends

Builder holding yellow sledge hammer in hardware store(last updated July 2019)

What has been happening in the building supplies sector

Demand for building supplies is closely linked to the economy and the housing market. The housing market performed particularly strongly during the early and mid 2000s but cooled sharply in early 2008 as the effects of an economic slowdown began to bite. This inevitably had serious knock-on effects for the construction industry and on demand for building supplies. The number of housing transactions grew modestly from 2013 to 2016 but slumped again in 2017 after the vote in 2016 to leave the EU. Little change is forecast for 2018, for which the number of housing transactions is expected to be lower than 2016 and 2017, and well below the peak achieved in 2007.

Growth in the construction industry slowed during the last part of 2015 and has remained subdued thereafter. New private industrial orders have been falling and growth has been dependent on an increase in infrastructure activity and private housebuilding offsetting a sharp fall in the commercial and industrial sectors. Figures for Q2 2019 in the BMF’s Builders Merchants Building Index (BMBI) report the first negative growth in sales through UK builders merchants since data collection began in 2014.

The level of expenditure on repair and maintenance work in the construction industry has been generally falling steadily since 2015. There is some evidence that this may be offset by an increase in DIY work carried out by householders who find themselves unable to finance major work on their properties. Although the downward pressure on repair and maintenance work affects major firms of builders merchants badly, an increase in DIY work can be beneficial to smaller builders merchants.

Rising energy prices drove up the cost of building supplies during the late 2000s and early 2010s as they affected both manufacturing and transport costs. The somewhat unexpected upturn in demand for construction services which began in 2013 caught the supply chain unawares and led to shortages of some building materials as the major construction giants bought up supplies of certain goods. The situation improved during the mid 2010s as materials shortages eased and a sharp fall in oil prices helped to ease materials price inflation.

Following the decision in June 2016 to leave the EU, the value of sterling fell sharply, increasing the cost of imported construction materials substantially. This, together with construction industry skills shortages that pushed up wages, contributed to a number of construction projects being cancelled and to a fall in new orders. Employment costs rose further because of increases to the national minimum wage and the introduction of the apprenticeship levy from May 2017 (for larger employers). As a result, margins have continued to come under pressure and there is no sign of any improvement in the short term.

The market has become very competitive. Reduced construction output and the increased pressure on margins will mean that builders merchants will need to work hard to keep their customers and to win new business.

The building supplies sector has also been affected by some recent developments, including:

  • the national builders merchants chains increasing their market share at the expense of smaller independents (some of which have been bought out)
  • more competition from DIY retailing chains and online specialists
  • EU regulations requiring construction products to be CE marked - retailers must make sure that electrical equipment carries the CE Mark
  • more people taking advantage of skilled workers from eastern Europe offering cheap building services, boosting demand for building supplies from merchants - although the vote to leave the EU is likely to have an impact on this in future
  • excess capacity in the tool hire sector driving down hire prices and squeezing margins

Keeping up to date with developments

Belonging to a trade association is a very good way of keeping up with developments. The industry is represented by several associations, including:

  • the Builders Merchants Federation (BMF)
  • the Institute of Builders' Merchants (IoBM)
  • the Construction Products Association (CPA)

Subscribing to a trade journal is another excellent way of staying up to date. Professional Builders Merchant includes news, coverage of key industry issues and product information. You can find out more on their website.

Trade shows

You can get a lot of useful information by visiting a trade show for the building industry. You will be able to meet manufacturers and suppliers and plan your future stock buying. The Exhibitions website contains details of trade shows that may be of interest to you.

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