The 2019 Builders Merchants market report from MTW Research has found that building product sales will rise by £400 million in 2019, despite the impact of Brexit on the construction market dampening confidence and investment.
Based on sales from 80% of the industry, the report suggests that whilst growth slows in 2019, opportunities remain healthy with merchants increasingly supplying to a wider range of more specialist contractors. As a result, merchants are adapting their product and service portfolio to cater to these more specialist demands and generate improved margins.
This strategy of adaptation in a challenging building products market appears to be working with MTW finding that profitability rose by £20 million last year and is set to rise further in 2019. However, the report also notes that lower growth in construction and refurbishment activity represents a key threat to those merchants unable to adapt quickly enough to changing market conditions.
Commenting on the findings, MTW’s director Mark Waddy said, “Since our last report, the builders merchants market has deteriorated, though growth continues with 80% of merchants reporting growth in the last 12 months. Our analysis also identified an underlying strength in the market with over 80% of builders merchants having good or excellent credit ratings in 2019.”
The 200 page report found that end users, specifiers and contractors are becoming increasingly sophisticated and knowledgeable in 2019 through the use of the Internet. This is prompting builders’ merchants and product manufacturers to undertake enhanced product development, and offer better support and advice in order to add value and grow profitability. MTW forecast profitability will rise by 22% to 2023 as a result, providing underlying optimism in an increasingly challenging trading environment in 2019.
MTW’s analysis includes product shares with lightside building products gaining share as lower levels of confidence and investment activity impact heavyside building materials in 2019. Merchants are increasingly serving smaller renovation projects in order to maintain revenues in 2019, though some demand growth is emanating from the SME housebuilding market, according to MTW. The report also points to a likely increase in public expenditure offering some impetus for builders merchants following the 2019 Spending Review’s impact on the construction market.
MTW’s analysis of builders merchants financials found that with margins coming under pressure, borrowing has risen rapidly and is set to rise further in 2019. The report suggests that merchants will borrow more than £15 billion in 2019 as market conditions remain difficult and organic growth elusive. By 2020, total borrowing will have risen by more than £500 million, according to MTW.
Nevertheless, despite some short term difficulties, the report forecasts a generally optimistic trading environment in the next few years in a ‘post Brexit era’. MTW identify a number of market opportunities and product sectors which are outperforming the overall builders merchants market at present, with sales set to grow by more than £2 billion in the next few years. The 2019 builders merchants market report is available now from MTW Research’s website www.marketresearchreports.co.uk for £595 or by calling 08456 524324.