HAI President, Hugh O’Donnell spoke exclusively to The Hardware Journal, in early December 2015, identifying some of the key challenges facing merchants, sharing his views on how HAI can further enhance the value it offers members and outlining the role the Association can play in addressing the issue of rural decline.
The Hardware Journal: You are now halfway through your term as President, at a time when the national economy is showing signs of sustained recovery. How do you see the recovery impacting on the hardware industry in general, and the individual merchant in particular?
Hugh O’Donnell: Regarding the overall economy, most relevant indicators suggest that recovery is relatively strong and gathering momentum. Latest forecasts predict that the Irish economy will expand by circa 6.5% in 2015, more than three times the EU average, slowing to a still strong 4 to 4.5% in 2016. The labour market is improving. The unemployment rate has fallen below 9%, the lowest level since late 2008. Consumer sentiment in November 2015 was at a level not seen since before the economic collapse and is reflected in positive consumer spending trends over the past 12 months (albeit influenced by surging car sales). Favourable external factors (weak euro, low oil price, relatively strong US and UK economies) are helping Irish exporters. Without doubt, at a macro level, the economy is performing exceptionally well and, not withstanding some external risks (Brexit, China slowdown, etc.), the short term outlook is positive.
The second part of your question, specific to our sector, is less straightforward. First of all, while house-building activity has fallen almost 90% from a peak of more than 90,000 units in 2006 and construction industry output has fallen by approximately 70% over a similar period, the level of merchant capacity has not similarly contracted. While none of us likes to see merchants closing and jobs being lost, the inevitable consequences of over-capacity will continue for some time to slow a return to sustainable, profitable growth, especially in the more economically-challenged areas. Secondly, the so-called ‘fruits of economic recovery’, for well-documented reasons, have been felt mostly to-date within the Greater Dublin area. Thankfully, there are some positive signs in recent months that other parts of the country are also starting to experience improved trading conditions, though conditions in the Midlands and West of the country remain challenging. And thirdly, notwithstanding a welcome increase in RMI activity (boosted in part by the introduction of the HRI Scheme in Budget 2014), a healthy hardware sector requires a ‘normalised’ level of housebuilding activity, which is not yet evident. While there is broad consensus that underlying housing demand and demographics necessitate that a minimum of 25,000 units be built annually for the foreseeable future, the recently introduced Central Bank mortgage rules, the consequences of more onerous building regulations, the inflationary effects of building-related taxes and levies, and the inability of builders to access development finance, in particular, are holding back activity. So, I guess I have mixed feelings at this point about ‘the recovery’, though I’m more optimistic than pessimistic.
There is a lot of evidence (including recent HAI research) pointing to a two-speed recovery underway in our sector, with hardware merchants in larger cities and towns experiencing faster growth than those located in more rural locations. What steps do you think HAI can take to mitigate this problem?
As I mentioned earlier, I agree with the overall premise of your question, i.e., that the recovery is not yet evenly distributed around the country. Unfortunately, for rural merchants, there is a certain inevitability to this two-speed recovery – it was always going to be the case that recovery would start in and around Dublin, where the bulk of the population lives, which has the main access points to the rest of the country, and which has the most developed health and education infrastructure. Also, economic activity generally migrates towards the centre and Ireland is not alone in being impacted by rural economic and social decline; think the UK!
However, while regional disparities in Ireland are not unexpected, Government has a responsibility to implement policies to mitigate their impact. To the contrary, totally inadequate investment in rural infrastructure, the downgrading of hospitals, and the closure of Garda stations and post offices, for example, are all undermining the economic and social fabric of rural communities. Furthermore, planning decisions around the country have facilitated major out-of-town shopping developments with ample, free parking (just think Naas and Drogheda, as two examples), encouraging mobile consumers to travel and challenging the economic viability of rural and town centre businesses. At least in the UK, policy efforts are being made to reverse this trend, not so to date in Ireland. Government must look seriously and urgently at policies related to planning, commercial rates, parking and IT infrastructure (especially broadband access) to help stem rural decline. Political rhetoric must be replaced by effective action, though I think most people fear the opposite will be the case for the next 6-12 months in the lead up to, and in the immediate aftermath of, a General Election. Further, the appointment in July 2014 of a Minister for Rural Affairs was welcomed but has had little real impact to date.
So what can HAI do to help? First and foremost, we can partner with other relevant organisations to ensure that key issues affecting rural Ireland – including some specific to our sector – remain prominent on the political agenda, including holding Government to account for implementing the 39 recommendations in the 2014 CEDRA (Commission for the Economic Development of Rural Areas) report. Second, we need to be more effective in making policymakers aware of the large economic contribution of our members, many of whom are located in rural communities, such that HAI’s views and policy suggestions for rural Ireland are taken more seriously; we have recently commissioned an Economic Impact Study to quantify this impact. And third, we need to encourage and facilitate greater engagement with rural HAI members to ensure their needs are more adequately reflected in our policies and lobbying efforts.
What specific objectives do you hope to deliver during your Presidency? And what are some of the Association’s longer term strategic priorities?
The overriding objective during my Presidency is to stem the decline in Association membership, a by-product of the economic tsunami which hit our sector hardest. This is urgent. Without an active and engaged membership, the Association will fail, not only because of a lack of resources but also because it will not be deemed representative. For membership to increase, and acknowledging that everyone expects value for money, the Association needs to be relevant and deliver real, tangible benefits for its members. Encouragingly, total membership numbers increased by 48 during 2015 compared to a decline of 63 during 2014, a signal that both merchants and suppliers of all sizes are responding positively to the efforts being made. For example: HAI’s lobbying during the previous Presidency directly resulted in the establishment in October 2013 of the HRI Scheme (credit for which was unfairly claimed by a number of other trade organisations) and, during 2015, HAI again successfully lobbied for its extension to the end of 2016. I think it’s fair to assume that a reasonable portion of the €750 million spent by consumers to date under the scheme has been spent with HAI members, although the mechanics of the scheme make this difficult to quantify. The HAI Tradeshow in Citywest in February 2015 was one of our industry’s largest and best attended events, both by exhibitors and merchants, and augurs well for the March 2017 Show. And looking forward, on April 6th and 7th, 2016, HAI will host its first ever National Conference in Lyrath Hotel, Kilkenny. With generous support from 10 prominent industry suppliers, this Conference will address one of HAI’s most important objectives – to promote the ongoing professionalisation of our sector. I hope it can become a regular fixture in the Association’s calendar. In fact, in broad terms, “professionalisation” is a theme which will underpin many of HAI’s longer-term efforts and initiatives.
As someone who’s committed to advancement of the industry, what do you believe are the particular strengths of HAI? And where do you see scope for HAI to improve its proposition?
First of all, I think that for any trade association to stand a chance of being effective, three essential conditions must exist – it must be representative of and relevant to its grassroots membership; it must be adequately funded; and it must have a competent Board and management team with a genuine desire to identify and advance members’ (mutual) interests. In the case of HAI, the economic downturn inevitably threatened the first two of these conditions. However, as I’ve already said, fortunes are starting to turn – membership is increasing, we had a very successful Tradeshow last February, our renewed lobbying efforts have begun to deliver tangible results, and there continues to be a very capable and committed Executive Committee and management team in place, all of whom are very focused on implementing a 3-year plan designed to strengthen the value of HAI to our members. In terms of particular strengths, HAI is the only trade organisation dedicated solely and exclusively to promoting the interests of the Hardware/Builders Merchant sector; no other trade organisation has this singular focus or can credibly make this claim. HAI is also somewhat unique in that it represents all levels of our sector’s supply chain – builders’ merchants, DIY retailers, manufacturers, importers and distributors. Regarding value proposition, there is undoubtedly huge scope for HAI to improve and expand its range of service offerings, both professional and social. For example, there is a real need across our sector for regular, credible market data; the retraining and upskilling of staff are key priorities for many HAI members following a significant period of downsizing and retrenchment; and increasing overhead costs provide HAI with an opportunity to deliver useful affinity schemes. These are just a few examples of where HAI can potentially add more value for its members. We are all determined to make further progress in 2016.
Finally, I’d like to add my very best wishes to all HAI members for a happy and successful 2016 and I look forward to seeing as many as possible at HAI’s inaugural Conference in April, 2016 in Kilkenny.
AVOIDING PAST MISTAKES
In his other role as Chief Executive of the Topline Group, Hugh has seen the effects of the economic downturn on business owners and their staff. The Hardware Journal asked Hugh what he saw as some key lessons to take into what we all hope will be a sustainable recovery. I think most of us can be forgiven for not having the foresight to recognise what now seems obvious in hindsight! Very few predicted the speed or severity of the downturn. That said, I agree that lessons need to be learned to avoid a repeat of mistakes made.
HERE ARE A FEW THOUGHTS:
1. Just because you can borrow money, irrespective of how cheap or plentiful it is, doesn’t mean you should. While accessing finance is a challenge right now, we shouldn’t forget that its availability and misuse pre-2006 was responsible for much of the hardship of recent years.
2. Chasing turnover at the expense of profit is seldom a viable, long-term business strategy.
3. Prudent cost control is as essential in good times as it is in bad. A temporary lack of customer price sensitivity is no excuse for a rampant cost base.
4. During good times, try to understand the reasons why you are doing well. Identify the risks to sustaining success when you have the time and money to do so, not when crisis hits.
5. Stick to the knitting. Don’t invest in what you don’t understand. 6. Avoid ‘absent landlord’ syndrome. Business owners need to remain close enough to the business to know what’s going on, even when things appear to be going well.
7. Risk matters. Managing it should be a core business activity, not an occasional reaction to sudden, unexpected shocks.
8. Employ an accountant who has both the commitment and the skills needed to develop a good understanding of your business, not just theirs.