Sunshine or Showers?

July 2008

Rocketing oil, food and fuel prices are being felt across the whole of the country. The availability of borrowing has shrunk dramatically and the cost of credit is rising, with further increases on the cards if the Bank of England moves to control inflation. The credit crunch is now being felt by business and the public alike. The impact these factors are having on the UK property market is already creating a significant slow down in residential construction. Making sense of this turbulent climate, Robin Craddock, sales director at Lakes Bathrooms, gives an industry view on what this means for our market and gives his recommendations for how to best survive the storm.

House prices are falling - two and a half per cent down in March according to the Halifax and a five to ten per cent drop is predicted as the best case scenario for the year by the housing minister Caroline Flint. Meanwhile RICS say that the number of homes changing hands has fallen to its lowest level in 30 years. Building magazine reports that housing orders are falling away sharply and anyone that watches the business news will know that many of the biggest residential building companies are facing very tough times. Redrow announced during May that reservations had halved year-on-year and cancellation rates ran above 20 per cent. House building sites in the UK appear to be going into hibernation.

It’s not a sunny picture and will undoubtedly impact the entire plumbing market.

The bad news is clear – less new building will mean less work available. However, with fewer existing properties being bought and sold it may mean that home owners sit tight and invest in improving their existing property. Renovation looks set to continue but with multiple pressures on the consumer’s purse it’s fair to expect price pressure.

Where long term budgets are committed – such as for public sector housing and schools, there’s some potential but there is likely to be fierce competition to pick up the work. Many construction companies may look to turn portions of their stock over to housing associations. Barratt, for example, reported that it has now increased its social housing provision to 18 per cent of output.

With so many factors at play to depress the market it’s now time for every business in the industry to think long term about what strategy will be the survival formula and get fit for the reality of the conditions we face.

That old phrase about preparation preventing poor performance is worth remembering about now. Businesses that survive tough times tend to be those that have prepared and insulated themselves against unfavourable conditions. It’s not quite time to batten down the hatches but it is worth some good basic practice for stability.

Money, money, money

A solid financial base is crucial in the current economy. My advice is to reduce debt and control cost as fiercely as possible now. Good credit control is always important but now even more so.

Borrowing is tough and getting tougher. This is the very time to turn to your suppliers and look for their support to help you avoid unnecessary debt as a factor of cashflow. In straightforward terms you want to reduce stock by getting your suppliers to work harder at supplying whatever you need with the fastest possible turnaround. Although Lakes Bathrooms is a manufacturer we hold around 18,000 units in stock and can supply 95 per cent of our shower enclosure, door and bath screen range across the UK in just 48 hours. That means the retailer and installer doesn’t need to hold stock.

Whenever possible, aim to take payment from your customer when they receive the goods or service and then use the credit terms offered by your suppliers to create positive cashflow. This is the holy grail of business sense and it’s why the supermarkets are super powerful. They have this down to a fine art and it’s why they can operate on thinner margins than most of us and keep profitable through the challenging times.

Thinking of your suppliers, this is also the time to get value from long terms relationships. That’s not to say that you shouldn’t shop around for best value, but having found the best deal for you it’s worth fostering long-term links that offer longevity of support. Communication is key. Talk to your suppliers and make sure they understand your business and what you need. In return you should share with them your expectations and forecasts so they know what they’ll get in return.

Time to work on some marginal advantage. Getting a good margin in business relies on two things; selling at the best price possible and keeping costs under firm control. Given the economic forecast it’s likely that sales prices could be squeezed and margins eroded unless you have a handle on cost. This is the time to take a serious look at fixed costs to get your business healthy and lean.

Spread betting

Knowing what you’re good at doing that well is key to any business and having a clear focus is vital. However, you don’t want all your eggs (or customers) in one basket. Now is the time to think about that and ensure that your business development is focused on getting you the right mix of customers. For instance, the big construction companies are countering the residential slow down by turning to public contracts where budgets are committed. For you to achieve a successful shift in focus like this you need to start prospecting early and aligning yourself to the right partners.

Having said it’s wise to have a mix of business sources, it’s also important to foster loyalty from your core customer group. Think in practical terms what you can do to keep them loyal – make sure you represent excellent value and that they recognise this – and also keep them close. In leaner times there may be more aggressive strategies employed by your competitors. Build up barriers to them taking your business by strengthening customer relationships and ensuring that your name is the one your customers think of first.

When markets contract and demand reduces there is oversupply. The survivors are those businesses that offer best quality, best value and that have some thing better to offer than their competitors. As an example of this, Lakes Bathrooms has just added AllClear® protective coating as standard. This is part of the product and gives the consumer something extra without extra expense. This is the type of best value practice that is necessary to win new business.

In my opinion the current market conditions may do the strong players a favour. Those companies and businesses that don’t have the right models for success will soon start to struggle. It’s possible that the smarter firms and contractors will pick up business, take share from their competitors and see their own revenue grow in advance of the market. That’s what we’re aiming to continue to achieve and it’s a good state of mind for the future. If you’re prepared and positive you can find yourself enjoying both the sun and showers.