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The UK Builders and Plumbers Merchant market was worth over £8 billion at merchant selling prices in 1997, reflecting some recovery from the very low levels experienced in 1992.
Consumer confidence and both new build and RMI work remained low throughout 1992, though 1993 and 1994 showed some signs of improvement. This improvement was, however, relatively minor, with new build showing only marginal gains. Increasing interest rates in late 1994 led to a deterioration in consumer confidence and a resultant reduction in new housing starts, with a negative effect on the building and construction products markets. The Builders Merchants market remained difficult over 1995 and 1996, as a result, with some improvement in activity levels towards the end of 1996, as new housing starts showed signs of increasing.
The situation in 1997 was one of improving consumer confidence, generated by sustained low levels of interest rates, a new Government, lower unemployment levels, windfall gains, and increasing house prices. Successive interest rate rises from the middle of the year (subsequent to the election) have yet to impact on consumer confidence and spending levels.
Private sector commercial/industrial building, the commissioning of various millennium projects and increased levels of housing completions support an optimistic view of the short term future. However, the increased interest rates, lower levels of public sector construction output and the turmoil in the Far East are likely to constrain the market somewhat.
Competition remains intense from the DIY multiples, particularly on RMI work. In particular Wickes and B&Q have positioned themselves towards the 'building' end of the home improvement spectrum. However, DIY multiple growth has reduced and with significant concentration of multiples in the DIY industry, the impact on the merchant is likely to remain similar to current levels, rather than increase dramatically.
Price levels in the merchant industry remain competitive, reflecting the level of competition from other channels, but also from within the merchant industry. Spiralling raw material price rises in 1994 and early 1995 led to increases in wood and plastic goods prices, but with difficult trading conditions not all price rises were passed on, therefore eroding merchants margins. Firmer demand in 1997 is leading to some element of price rises, particularly in building materials, reflecting their low price level in recent years.
The major competitors in this market include Wolseley Centers (who operate Plumb Centers, Builders Centers etc), Jewsons (incorporating Harcros), Graham and Travis Perkins. Many have made acquisitions over the last two years, with Jewson acquiring Harcros the largest transaction. Keyline, Wickes, Hall and BSS are also major merchant operations.
The top eight companies (including Jewsons/Harcros as one) account for 47 percent of industry sales with the balance held by larger regionals and local companies, reflecting the key service offered by merchants - a local supply of a wide range of commodities to a large number of small and medium sized builders and plumbers - a service not always easy to offer from a major organisation.
The share taken by the larger merchants has increased in recent years, reflecting the increasing levels of competition in the market and the failure of many of the smaller independents to remain competitive. In addition, the larger companies have the financial strength to invest in new computer systems for improved stock control etc, thus improving their service and their financial situation.
The major products sold by the merchants include plumbing products, timber and timber products, roofing & insulation products, bricks/blocks & plasterboard along with plaster & cement, heating, kitchens, decorating materials and a wide range of miscellaneous products.
Merchants are of most significance in the plumbing market where they account for a share of approximately 60 percent, compared to their share of the timber products market at 25 percent. They are also of significance in the roofing & insulation market and the bricks, blocks & concrete market. They are least strong in the kitchens market and the decorating products market, which reflects the high level of competition in each of those markets.
This comprehensive report represents a detailed assessment of the market, reviewing major trends, key factors influencing developments and future prospects for the sector. Analysis is both quantitative and qualitative, based on our substantial experience of the building and home improvement markets.
Text © 1998 AMA Research
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