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MP52147

MAPS BUILDERS MERCHANTS JANUARY 1997

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

This report focuses on an interesting and important retail sector, with the generic title of 'builders merchants', being outlets that deal in materials and services aimed at the building and construction trade.

The value of the builders merchants market is estimated at £7.4 billion for 1995 and £7.78 billion for 1996. The market has recovered from a low level of activity in 1992, though 1995 was a difficult year for all those involved in the building and construction industry.

There are around 3,400 outlets trading as builders merchants in the UK. The national groups account for 43 percent of total outlets, and generate 41 percent of total sales turnover. There is still a strong independent presence in this industry, turning over the 59 percent balance of sales, through 2,000 or so outlets. This can be analysed by large regionals and locals, with the larger regional merchants accounting for some 18-20 percent.

The DIY multiples represent a significant competitive threat to the future of builders merchants, as they offer a wide range of building materials, promote their low prices, and introduce new services aimed directly at attracting the tradesman.

The market in which the merchants operate is driven by demand for building work - new construction projects or repairs and maintenance. There are signs that there is a slow improvement in the quantity of new work, though more recently there have been firmer signs of improvements in the new housebuilding sector. Repair and maintenance work is growing more consistently, reflecting the fact that these are often necessary projects.

UK housing completions increased in 1993 and 1994, but interest rate increases at the end of 1994 impacted on the 1995 and early 1996 levels. 1995 housing completions was equivalent to the 1992 level, in terms of private new build. The public sector showed some increase. Estimates for 1996 indicates a slight downturn in completions, though conversely an upturn in housing starts, reflecting the increasing level of consumer demand in 1996. This will feed through to completions in late 1997 and 1998.

The level of property transactions has reduced in 1995 to 1992 levels, in a response to the tax increases at the end of 1994. The 1996 level is expected to show reasonable improvement.

The housebuilding and housemoving markets are key performance determinants in the builders merchants industries, reflecting the merchants key customer base of local builders, tradesmen and small jobbing builders.

In addition to professional builders, some merchants attract the keen and confident DIY consumer. However, some merchants do not benefit from this valuable, marginal business. MAPS commissioned NOP to conduct exclusive consumer research designed to assess which factors are most important to consumers in making purchase choices. The research indicates that key issues of importance to consumers are clearly marked prices, wide product ranges on view, staff advice and assistance, and good parking facilities. These are generally items which work in favour of DIY multiples, rather than the builders merchants, though some merchants are developing their proposition to meet the consumers needs in these areas.

Builders merchants are generally more focused than a few years ago, with the majority targeting the local tradesmen, recognising the DIY business is unlikely to be attracted. In this sense, they are successfully protecting their position against the growth of the DIY multiples.

Other merchants offer a wider range of consumer facilities with kitchen and bathroom showrooms etc., and some merchants have been successful at attracting consumers, though generally merchants will provide a showroom for the tradesman to bring in their customers, rather than purely targeted at the consumer.

The merchant market has been difficult in 1995, though has shown some signs of improvement in 1996. The market is likely to improve through 1997 and 1998 reflecting an increasingly consumer-led building industry improvement, and is forecast to improve by some 30 percent between 1996 and the year 2000. This reflects an improving domestic sector, improvement in commercial building and impact from Millennium projects.

Text © 1997 MAPS

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