Ryan Johnson, Group Managing Director, Emplas Group, discusses.
What lies ahead for window and door sales and the economy generally, is difficult to call.
Energy costs remain at record highs for business and consumers. On the one hand that’s placing a squeeze on household incomes. On the other, it gives them a reason to invest as savings become greater and payback times are cut.
Inflation which loomed large over the UK economy for throughout 2022, will still be an ever-present force within this year, but peaked at 11% in Q4 2022. Going into 2023 it will continue to put pressure on household budgets but is expected to fall back to 5% by the end of the year [2023].
House price inflation has slowed, but so far warnings of a 20% drop in house prices haven’t materialised. Is a more modest adjustment in the housing market now more likely and what will it do to window and door sales?
Retail is in short, entering a period of significant change as is the window and door supply chain:
UK consumer spending is slowing.
Retail sales fell across the board over the summer, into this autumn and continued into the winter, as consumers have cut back in the face of rising costs. Inflation, expected to peak at 11% and at a 40-year high, is not conducive to spending while high energy prices and higher interest rates, mean real wages are falling. Consumer confidence will be fragile at the start of 2023 but with employment still high and inflation forecast to drop to 5% by Q4 2023 and then 1.5% by Q4 2024, we can expect it to recover by the second half of the year.
We’re in a mature market. Inflation makes things more difficult.
This is reflected in a drop in year-on-year sales of on average 10-15% (Business Pilot). According to Business Pilot year-on-year leads and sales were both down 10% in November. There is an inevitability to this fall. According to the ONS the number of applications made for home improvement works in 2021 rose by more than a quarter compared to pre-pandemic levels. That was never going to be sustained in 2022 or into 2023.
Will the housing market crash?
The forecast for the housing market before the Mini Budget last October was that it was going to cool but not crash. After it, and the Bank of England’s decision to increase rates to 2.25%, the forecasts shifted to a predicted Armageddon for the housing market with a crash of 20% in value. At the time of writing [December 2022] the base rate has risen to 3%. The housing market has cooled with a 1.4% fall in November, although remains in growth (4.4% year-on-year) for the year as a whole. Forecasts for the market in 2023 suggest a softening but a far more modest 5% and not the crash forecast in October. That’s important because it means people will retain equity in their properties, with the potential to release it for home improvements.
The energy crisis creates opportunity
At an upper limit of £3,000 on ‘average household bills’ the Energy Price Guarantee may have pulled homeowners back from a cliff edge but still represent roughly double what they were paying before the 1st April 2022. As it stands, it’s also only a two-year offer so if energy prices remain high, end-users will still face increased costs by April 2024. With new energy efficient windows offering savings of up to £1,400 a year and a significantly shorter payback time, it makes investing in home improvements if you can afford to, make sense.
The people who spend on home improvements still have cash
According to the ONS almost half of the spending on home improvement in the ten years from 2011 to 2020 came from the upper fifth of households by income, with almost 80% of the spend from the top half by income. These are people with money who in the current energy crisis have an opportunity to control their future costs through a moderate spend now.
Being targeted will pay
Baby-boomers born between 1946 and 1965 they, and to alesser degree, Generation X (born 1966-81) have accumulated large amounts of housing equity, through rampant house-price inflation. This has supported a wave of spending that has gradually lifted spending levels within older age groups. With housing prices likely to hold-firm, older people will have greater equity and will be more willing to spend in the year ahead.
Glass is going to be a crunch point
Energy costs create opportunity, but they also create pressure on business. The Energy Bill Relief Scheme which fixed energy prices for business for six-months from October is helping, but it runs out on 31st March this year. Many businesses, including glass suppliers which use energy in high volumes, remain vulnerable. Consolidation in glass supply should be expected and that will make the supply chain fragile.
Upstream activity will continue to attract and be shaped by venture capital
It may feel tougher out there but that hasn’t put off venture capital. Prospects for growth in the commercial sector are appealing for investors who tend to look ahead to the next three to five years. We would be naïve not to think that the influx of cash would not have an impact on the shape of our market. We remain a family-owned and investment-led business, that gives us an increasingly distinct USP from those other large fabricators around us.
Flush has entered the mainstream
We’ve seen massive growth in sales of Flush products from Profile 22 and AluK in the last two years. We expect that to continue to grow as flush products push beyond heritage replacement markets to a far wider range of installations.
A final word on sustainability
We’re working to lower our carbon footprint, streamline our manufacturing processes, use less energy and create less waste throughout our business. We work in the commercial sector and being able to evidence your environmental credentials is a pre-requisite to doing business. We’re seeing that cross over into home improvement. In 2023, it’s not going to define sales but it is going to contribute to them.
