Neil Cooper-Smith, Senior Analyst at Business Pilot is back with this month’s Barometer.
We are seeing a slowdown. Average window and sales in April dropped 13% on March, while leads dropped by 20%.
It’s consistent with the lack lustre market that we have seen throughout Q1 and something that it is not unique to the window and door industry.
The Office for National Statistics showed that total retail sales volumes fell by 1.4 per cent in April month-on-month on March, a sharper drop than the consensus forecast of a 0.3 per cent decline.
It follows inflation of 7% – the highest rate for 30-years – and the cost-of-living crisis driven by everything from household energy prices, what we pay at the pumps, through to increases in the cost of food and clothing.
This wider context and the figures that we’re seeing from our sector suggests that we’re heading into a period where leads and new business certainly won’t come as easily as they did last year. For, example, Compared to April 2021, sales are down 26%. Leads by almost 40%.
The million-dollar question is, are we seeing a market correction. Are we simply getting back to ‘normal’, or are we on a slide to something far less comfortable and a downturn?
We need to approach the answer in two parts. The first is that compared to last year – and much of the year before it – demand could only go one way. Some form of slowdown was and is, inevitable.
What we’re now seeing may simply be that readjustment.
House prices, for example have never been higher. The Nationwide house price index was up 0.3% in April on March. The rate of annual house price inflation, however, slowed to 12.1% from the 14.3% seen in March, hinting that the housing market may be cooling – or perhaps more accurately, ‘normalising’.
If this is true for the window and door industry and it’s moving back to a to a ‘normal’ state, then in a sense, it’s no great shakes.
Pre-COVID analysts were forecasting sustained growth of around 5% a year. Leads may not drop into your lap but at that level of market activity, they’re certainly there to be won.
Despite the fall recorded in sales and leads, we saw a small uplift in the average conversion rate to 34% last month [April]. Year-on-year average order values were also higher in April 2022 at £5,523 compared to £4,274 in April 2021 – an increase of 29%.
So, we need to wait and watch. Are we seeing a normalisation or will falling house prices accelerate the slowdown caused by the cost-of-living crisis push things beyond a readjustment to contraction?
And it’s a waiting game. We simply don’t know. What we do know is that cash is always king and if you manage it effectively you are far better placed to ride out peaks and troughs.
We’d estimate that year-on-year, materials and operating costs are up anywhere from 20 to 25%, glass, energy, and polymer increases have been, and will continue to be, passed onto installers.
Unless you understand the cost of each job, that’s the real cost, not simply what it used to be the last time you checked, you can’t possibly know how profitable you are. That is something which will catch companies out in a tougher market.
With real time financials including cashflow planning and profitability on each job, Business Pilot can help you see what’s making you money – and where you’re losing it. If you only understand that when you get to your year-end, you increase the risk that it’s too late. Understand it in real time, and you minimise risk and increase margin.