The June Referendum to decide whether the UK should remain or leave the European Union has brought conflicting views as to how it will affect the economy.
There have already been falls in the pound against the dollar and the Euro. There have been varied reports as to how the result of the EU Referendum would affect business and consumer confidence and the UK economy as a whole.
In many walks of life, it is very much ‘business as usual’. In the door and window industry, there has been a mixed reaction from heads of UK companies to the result of the Referendum. One thing that is happening, however, are price increases.
Is it too early for the window industry to react to Brexit?
The double glazing blogger website rightly decided to gauge industry feeling to the Referendum result by carrying out an online poll on Brexit.
It asked a question based on how the window industry saw their levels of leads and enquiries post-Brexit. The results showed that of those that voted (202 votes), 41% said that
leads and sales are where they were before the vote; no swings one way or the other.
Online polls are a great way to engage the wider window industry and get a feel of how businesses view trading conditions in the short and medium term. Business and consumer confidence are paramount. In our view the result of this poll were highly predictable. It also failed to address just how large the fenestration industry is on a national and global scale. You can view the result below, courtesy of the Double Glazing Blogger website.
However, we found several flaws with this survey as well intentioned and important as it was. One key factor we feel was missed.
The lead times and the purchasing process of the window industry were ignored.
The buying process for new window and doors can take many weeks from order to installation.
Most double glazing firms, large and small rarely install their windows and doors immediately. By that, we mean that there is a purchasing process and a lead time until the installation of the new windows and doors. This process will involve:
- Research done around new windows and doors
- Showroom visits and appointments made.
- Final study and decision-making process
- Order placed with cooling off period in place
- Survey carried out
- Material and glass orders placed
- Manufacturing of windows and doors
- Installation booked and carried out.
Everyone that sells doors and windows to the end user will be familiar with the buying cycle from their own perspective. In other words, they may only consider the cycle to have started once a customer has contacted them. In reality, the customer goes through a much longer process of research, awareness and consideration.
The entire process can vary depending upon the nature of the products; how the products are procured and how they will be made will also prolong the lead times. Good examples are timber windows made abroad, high-end bifolding doors made overseas and hybrid windows. These typically would be on a 4-8 week delivery just to receive the goods.
In our view, it was far too early, four weeks after the Referendum result to gauge industry confidence on this basis. We think the 41% that said enquiries and sales volumes were unchanged had not yet seen any direct effect as a result of the Brexit vote. It was simply far too early and nothing had changed.
That view is further supported when you look at the search volumes around “Home Improvements”.
As you can see, if you purely rely on how many people are searching for “Home Improvements” on Google there is nothing going on in June that would indicate that the general population were preoccupied with something else!
The wider economy and job prospects will affect the window industry.
A general assumption is that buyers of double glazing fall into several distinct categories. Let us analyse some of these.
- The homeowner that is capitalising on the increase in property prices and low mortgage rates.
- The young family that will borrow to improve their home investing in the future.
- The property developer that needs windows for their projects.
- Retired people using their savings to fund home improvements.
- Commercial contracts via construction companies.
- Public sector work.
Each of these categories is directly affected in some way by changes in the economy, currency fluctuations and arguably, as a result of the referendum result. Interest rate changes, bank lending criteria and business confidence generally will at some point make future buyers of double glazing evaluate whether it is the right time to buy. Of course, others will proceed with their purchase regardless.
Importantly, we must also consider the millions of future double glazing customers that own or are employed directly or indirectly, with businesses that either trade with Europe, procure/trade from abroad generally and are affected by currency fluctuations. This will no doubt also explain why we are seeing price increases from primary aluminium and hardware providers.
Should door and window prices go up as a result of Brexit?
With some UK companies at the upper tier of the supply chain such as composite door providers, PVCu extrusion businesses and others announcing that they have no plans to increase prices, why are others implementing price increases? Are they being greedy and capitalising on the currency market fluctuations?
The reality of business in the door and window industry is that it is not only multi-faceted but operates globally. These multi-million-pound turnover companies watch their costs on a virtually daily basis. With the pound falling against the dollar and the euro it is a natural reaction for businesses to take fast action. Moreover, here is why.
Doors and windows like it or not, largely come from abroad.
The vast majority of windows and doors sold in the UK have their roots abroad and especialy in Europe.
These businesses are being affected to the tune of tens of thousands of pounds daily as currency markets fluctuate. With few exceptions, most of the UK door and window industry extrudes material and procures hardware from abroad – aluminium more so. Not only that they are owned by or part of a foreign and often European corporation.
Kawneer Systems – Part of Alcoa, 60,000 people in 30 countries
SAPA Building Systems & Technal Systems – Part of Hydro and Orkla. 23,500 employees in more than 40 countries, headquarters in Norway.
AluK Systems – Part of the Italian AluK Group, operating primarily in Europe with eight manufacturing sites.
Smarts Systems – Part of the Corialis Group of Belgium, employing over 1,300 people worldwide.
Schuco International – nearly 13000 global providers, 4,630 employees, operating in more than 80 countries and with €1.430 billion turnover in 2015.
Reynaers Systems – employs over 1,600 people in 40 countries, based in Belgium and turnover in 2015, 360 million euros.
PVCU Systems companies also have a European origin.
Rehau – Based in Germany, more than 19,000 employees worldwide, 41 factories and 16 administrative offices.
Kommerling – Part of Profine international profile group of companies, turnover 700 million euros, 3,000 employees in 22 countries.
Deceuninck – Operates in 75 countries, headquartered in Belgium, employing over 2,800 employees with sales of more than 550 million euros.
Liniar Systems – Part of Flamstead Holdings Group owned by Quanex of Texas, with locations around the world.
Duraflex Systems – part of MASCO Corporation one of the world’s largest manufacturers of brand-name consumer products.
So what about British companies?
Senior Architectural Systems, Synseal Extrusions, Solidor, John Fredericks and others are UK companies some of which some have said it is ‘business as usual’ and others have publicly said that they have no plans to increase prices. The reality is that a huge number of their stock, hardware or accessories are made or sourced overseas. For the aluminium sector, most of the core aluminium profile provided by the above major UK aluminium systems companies is sourced from Europe. Even the businesses that tout themselves as ‘British Made’ source their extrusions and the finishing of these extrusions from abroad to cut costs.
Price rises in aluminium are inevitable therefore businesses it could be argued are correctly reacting in advance to changes in the international currency markets that they are very much a part of. It would be a foolish corporation that decided to absorb the enormous costs it has suddenly found itself facing.
Price increases are never welcomed. ASSA Abloy has said it will increase its prices by 7.5% from August 2016. SAPA Building Systems are to implement a 6% price increase. We expect to see all of the above aluminium systems companies follow suit in the coming months.
The post Are door and window prices post Brexit justified? appeared first on Aluminium Trade Supply.