Living with Brexit – the UK builders merchant perspective

John Newcomb, Managing Director of the Builders Merchants Federation (BMF), the organisation that represents merchants and suppliers to the merchanting industry, in the UK, spoke to The Hardware Journal about the mood in the wake of the Brexit vote and offered an overview of his members’ concerns.

The Hardware Journal: Could you outline the scale of the builders merchants’ sector in the UK and how the BMF as its representative body has initially responded to the Brexit vote?

John Newcomb: The BMF is now, to the best of my knowledge, the fourth largest construction trade organisation in the UK with 560 member companies and organisations accounting for a collective turnover of £22 billion. Our members include 305 builders merchants and 190 supplier members, as well as a number of trade associations and other businesses linked to the industry. In terms of the builders merchants’ sector alone, our members account for £11.5 billion of the sector’s overall turnover of £14.5 billion. The importance of this sector to the wider society, to home buyers and homeowners, as well as its key contribution to business means that it is vital that our members’ concerns are addressed.

For our part at the BMF, we have been very clear in emphasising to Government the importance of taking into consideration our members’ concerns. We have written formally to the new housing minister, and have initiated a series of informal communications with a range of ministers, ensuring that there is government wide awareness of the key issues from the builders merchants’ perspective. I believe it is in circumstances such as these that a trade representative organisation such as ours comes into its own. Strategically and practically, it’s much more effective to address government with a united and cohesive message. Through the BMF, our members can speak with a stronger collective voice.

How soon do you believe a clear political strategy will emerge?

It is very difficult to comment around political strategy or make definitive predictions about political developments. However, with the summer coming to an end and Parliament returning, we hope that dialogue will develop with an increasing focus and urgency. Having said that, I doubt there will be any clear progress in terms of the emergence of an outline strategy until the end of this year. And, in terms of an actual Brexit, the earliest any action is likely to be taken is 2019.

In the meantime, what is your assessment of the key impacts Brexit will have on the builders merchants’ sector in the UK?

Looking at the question from a supplier perspective, the main issue is currency variation and movements of sterling versus the euro and the dollar. Many of our suppliers are buying materials abroad and already some have noticed price increases creeping into the market. We are hearing of increases of varying percentages and particularly in instances where raw materials are sourced abroad. From the builders merchants’ perspective, the vote has, so far, had little impact. Certainly, there has been no significant reduction in builders’ work which is a crucial demand factor for our members and there has been no noticeable downturn in business across the counter.

The first half of the year growth has been tracking at between 5% and 6% above the first six months of 2015. There was probably a slight slow down in June. We have not received full summer data as yet (at the time of going to press) although initial indications seem to suggest there hasn’t been a dramatic change.

It is difficult to interpret the figures at this stage as, even more than two months after the vote, it is taking time to absorb its full implications. It is possible the figures could be read as indicating ‘business as usual’. However, a lot of our business derives from the Renovation Maintenance Improvement (RMI) sector, and much of the activities in this area are ‘large ticket’ projects which, by their nature, are planned some time in advance, such as landscaping, extensions, and kitchen and bathroom refurbishments. It will take time to see

“Realistically, if we are going to see a significant drop-off in demand, it will be at the start of next year” – John Newcomb, MD, BMF.

if there is a tangible impact on demand. Realistically, if we are going to see a significant drop-off in demand, it will be at the start of next year. In considering how moods can change, it is interesting to see that, in the immediate aftermath of the vote, many of our sectoral stocks suffered quite badly in the beginning but have recovered well since, thanks, in great part, to the quick restoration of a sense of political stability. Overall, so far, we

have not seen any knee-jerk responses or short-term decisions.

Looking at products in the merchants’ yards and on the shelves, what impact will Brexit have at a regulatory level and in terms of packaging marking, etc? Will the British Kite Mark be the key regulatory framework?

There is a big debate surrounding CE marking. Will it stay, will it go or will there be a compromise solution?There is certainly a distinct possibility we will see a strengthening of the role of the British Standards Institute.

The underlying reality is that our industry has long recognised the value and importance of rigorous standards. It is important to remember that the adoption of European standards and reforms were not forced on us. We had a central role in the development of many of them. We have always had strong standards in the UK. The British Kite Mark has retained its integrity and credibility and it could well re-emerge as a core standard. Who knows? We have had discussions with the standards authorities here in the UK and, at present, they don’t know. Until we get clarity for them, we can’t, unfortunately, give our members clarity.

What are the implications of Brexit for UK suppliers and their builders merchants’ customers in the Republic of Ireland?

We are certainly in a period of uncertainty at the moment but our industry has strong, long-standing relationships across the Irish Sea. Whatever challenges have to be faced, the trust and credibility that have been built up over the years will provide a basis on which to find solutions. As two strong member organisations, HAI and the BMF will be able to help generate understanding and awareness of key issues as they arise and will have an important part to play in mitigating any potential adverse impacts of Brexit. It is at times like this that people must belong to a trade body. You do not want to be on your own in negotiating the challenges that lie ahead. Currency variation will be a key issue.

Fluctuations between sterling and the euro are outside of our industry’s control but the knowledge and hard-won experience of many generations of trading between our countries will help in formulating solutions. Pricing is an important component in any transaction but the health of overall trading relations is not based on price alone, but on a range of factors including personal relationships and quality of product and service. Ultimately, these businesses are very resilient and I’m confident their trading relationships will also remain resilient.

The strength of the trading relationship is reflected in the links between our two organisations, which have never been stronger. I am delighted that the HAI CEO will be attending our Annual Conference this year.

While Brexit is uppermost in everyone’s minds, the regular realities of doing business haven’t gone away. How has the sector been performing in the last three years?

We still have a lot to do to get Britain building. We have been averaging about 140,000 housebuilds a year but the actual need is for 250,000 a year. So, while there’s a steady amount of activity, there is still an annual shortfall of over 100,000 houses. We have major problems in relation to the provision of social housing, which has become virtually non-existent. We have a housing crisis and it’s not being addressed. In Wales alone, last year, only 5,000 new homes in total were built.

The big trend in our business is the ever-growing impact of the internet. More and more builders and tradespeople are ordering on phones and tablets. That younger generation is using the phone to do everything. ‘Click and collect’ is what it’s all about now. The BMF has been supporting the builders merchants’ sector by providing extensive training in social media and digital and we see this area continuing to grow and develop.

The last couple of years were good for the builders merchants’ sector in Britain. Growth in the year April 2014 to April 2015 was around 15%, according to our own sales indicators, and April 2013 to April 2014 was around 13% – so double digit growth in both years. To sum up where the sector is at: the mood was optimistic before the Brexit vote and, now, post-vote, it is cautiously optimistic.

OUR PERSPECTIVE

HAI CEO, Annemarie Harte, recently attended a presentation given by Adjunct Professor in the Department of Economics in Trinity College, John FitzGerald, where he gave a medium to long term perspective on the implications of Brexit.

Not surprisingly he said that the effects of the referendum will take many years to play out but assured us that Brexit will have a negative impact on the UK economy with particularly bad impacts for the financial sector, manufacturing of transport equipment e.g. Airbus, Nissan, and will be negative for FDI seeking access to the EU market e.g. Indian investment. As regards the impact of Brexit on the Irish economy he said there were pluses and minuses. It would probably be positive for the financial sector, be negative for smaller firms exporting e.g., food processing, and again with pluses and minuses on FDI. He went on to comment on the top negotiating priorities for Ireland including Northern Ireland, where neither country would want to destabilise through new borders although we may end up with a customs border. He queried whether there could be free movement of people and said building a wall on the island to stop people moving would be unacceptable (and impracticable), so we needed to find an alternative. In summation, Brexit will affect almost every aspect of the UK’s economy including existing business, FDI and new business, the labour market, energy, distribution and inflow could put pressure on construction. Given the far reaching implications perhaps it might be the case that once an ‘exit package’ has been reached with the EU, another referendum takes place for ratification (or not)…