In a previous post I identified that price increases were one of the biggest threats to our industry right now. In a poll, plenty of you agreed. And it looks like we’re all about to be hit with another round of price increases. And they’re not going to be small ones.
I have been reliably informed that companies at the very beginning of the supply chain have begun to implement rather hefty price increases. These are coming from companies right at the very start, the ones that supply the systems companies with the raw materials they need to start making product. Those increases are going to filter down the supply chain fairly quickly. And after taking several price increases on the chin in 2016, this one is going to sting.
This one is also totally unjustified.
No clear reason
The last time price increases were implemented, the drop in the value of Sterling, higher oil prices and the rising cost of production were the main reasons. However, Sterling has stayed at it’s current level within a cent or two against other major currencies for quite a while now. Oil has actually dropped a fair old bit since the last price increase, which means the cost of production is as it was too. So where are these new price increases coming from?
Sterling can’t be blamed this time. Even diesel and petrol costs have been falling at forecourts. It was suggested to me that many will be using current economic conditions to boost their profit margins.
If so, that could present a very tricky argument for suppliers to put forward to their installers. I don’t think anyone begrudges anyone else from trying to make a profit. However, after a series of hefty increases not that long ago, and the economic situation not changing, these will be increases that most installers are going to find unjustified.
Perhaps if Sterling had fallen further, or oil had jumped up another $20 a barrel, or the economy was starting to tank Great Recession style then you could probably understand why prices would need to go up. But the status quo has not changed in real-time economic terms. So from the outside this would look just like profiteering.
A balance that’s becoming tougher
I know that as an installer if one of our suppliers came to us to tell us their prices were going up another 5% and they’re only justification was that they were being charged more by their syscos and there was no other reason, I’d be pretty peeved. Most installers understand that if things outside the industry have adverse effects then it will at some point hit them. If the reason appears to be “just because”, then that’s when things start to turn sour.
But internal industry politics isn’t the biggest issue here. The bigger one is how much of these increases you pass on to the home owner. Generally speaking the economy is still in good health despite Brexit. But inflation is starting to rise and the rate in which wages are growing is stagnating. This means spending power may becomes a little less strong in the coming months. As an industry, is now really the time to be increasing the price of our goods by large single percentage figures?
I am all for charging the right amount. Installers, fabricators and syscos all need to make a decent margin to keep their businesses in good health. But at the same time we have to be sensitive to those doing the buying, namely home owners. We sell big ticket items. Products that only get bought once or twice on average by most home owners. Therefore, home owners are sensitive to price. If our whole industry decides to start passing on these pretty large increases in full, we can expect to see home owners put their window and door purchases on the back burner until either their finances improve or our prices become more affordable.
It’s a difficult balance. We cannot afford as an industry for margins to be eaten away, nor can we raise prices too much that it limits home owners. The frustrating factor for installers will be that these next price increases won’t necessarily come with a reasonable excuse. So when those letters start to land on desks of installers, it;s likely that relationships between installers and their suppliers are going to be a tad strained.
Playing the situation
Where there is a problem there is also an opportunity. I am thinking from the point of view of a fabricator. It’s likely that most fabricators are going to be passing on their price increases in the coming weeks. It won’t go down well. You can bet that some installers who are already at breaking point with their current suppliers might feel as though this is the last straw.
The more opportunistic fabricators out there, prudent enough to see the long term advantage and not raised their prices by as much or at all, could step in. There will be certain fabricators out there who may be proactive enough to approach installers who buy from fabricators who have been raising their prices a number of times in recent months. This would be an ideal opportunity to steal some unhappy installers and boost their own figures in the mean time.
I personally believe competition between fabricators could become very heated in the coming months. The more bullish fabricators out there could market themselves to installers as the ones who didn’t raise prices when others have. They could attract a number of new installers to their ranks to boost their own revenues.
Still, the likely mass reaction to these increases will be to pass them down to installers, albeit at a watered down rate in comparison to further up the chain. The balancing act is about to get a bit more difficult.