“There seems to be a plague of company failures at the moment Danny. Sales are down – we have noticed it at the cheaper end of our product range and orders – but we are also weathering the storm as we have been cautious with debt. What’s your take?”
PJ, Retail Installer, Shropshire
Danny Williams replies to the reader’s letter
UNDER THE INFLUENCE
There have been two very high-profile company failures in recent weeks PJ and I hear rumours about a number of others. Those recent failures are of course UK Windows and Doors Group, and more recently Safestyle.
UKWDG was of course, a large trade supplier and as such will not be discussed or be of interest to homeowners. But the failure of Safestyle has caused ripples and questions about the validity of our industry. Both companies have in common that they sold on low price and both, I believe, were heavily geared. And with any dip in the market – and you have confirmed that you are experiencing lower sales – already stretched margins can quickly turn every sale into a loss.
What distinguishes UKWDG from Safestyle is that the former was backed by private equity, which in our sector at least, seems inevitably to lead to failure. I recognise that some PE-backed firms out there are apparently doing OK, but other, formerly great brands have bitten the dust after the life had been sucked out of them by PE firms that are short termist, demand crippling fees and unrealistic returns, and have little if any commitment towards legacy and the people that work for them. Their attitude stinks. Safestyle, on the other hand, was a one trick pony: whilst it had dumped the gobby wrestler for the more refined former goalkeeper David Seaman in its TV advertising, the message remained the same: we are cheap and we will beat any price. The ads and every element of their marketing and sales tactics planted their marker firmly in the low end. Which coincidentally is now the sector hardest hit by the cost-of-living crisis and with little appeal to wealthier, often older homeowners for whom a loud- mouthed bloke with a cape and even a corny ex footballer, had little appeal.
Today’s most profitable home improvement customers are better heeled, aspirational and knowledgeable homeowners whose drivers are lifestyle led rather than a need to fix knackered windows at the lowest cost.
Although the details have yet to emerge at the time of me two-finger-tapping out this column, I believe that both firms were very heavily in debt. And that, coupled with withering sales of products for which a key USP was price, was always going to see them fail.
For 12 years or so we had the consistently lowest interest rates in UK banking history, which fundamentally changed the way that many – most? – companies did business. Whilst many firms would remain cautious for a few years, once low interest rates became the norm, even the most cautious FD relaxed and allowed his firm to take on debt, because it made sense to do so. Expand now, abandon caution – go for it!
Except me. I never overcame a core fear of business debt, which has pretty much dictated my life since I was a late teenager. It is something that I regret to a degree but overall, it has stood me in good stead. I have never, in nearly forty years of being in the window and door industry, taken on significant debt, other than financing the odd machine. Most of our business investments have been made with cash. My only regret is that I hesitated, for reasons that I will explain, to purchase a large factory around 10 years ago, which by now of course we would have paid off.
However, whilst with the benefit of hindsight that was a mistake, it is balanced by the smugness of being debt free in my business world, and highly solvent. I have not entirely missed out however, as I have a significant property portfolio, but one that placed no burden on the company and which capital exposure could be easily resolved if the brown stuff hit the fan.
My fear of exposure to debt was formed when I was around 19 years old in the
early ‘Eighties when I witnessed my dad’s business, a large plant hire business that also included steel rigging, haulage and other add ons, go spectacularly pop. He ran a tight ship and the purchase of machines was always done using finance, just as it is today. He never exceeded his overdraft, and paid all his bills and repayments on time. But the huge rise in interest rates in the late ‘Seventies and early ‘Eighties to combat inflation, was more than his business and many others could bear. Highly profitable businesses failed, pretty much overnight.
If this sounds familiar, interest rates back then shot up to 17%, dipping again in the early ‘Eighties to 9% but then rollercoastering through to the end of the decade to around 15%. Today, 5.25% is causing havoc to some highly geared companies. Including those that are the subject of this column.
I firmly believe that we will never have the incredibly low interest rates that we enjoyed from 2009 until 2020, although rates will reduce somewhat from where they are now. But whilst watching my dad’s business fail, with the huge consequent impact it had on my family, made me so cautious as to miss out on a decade of virtually interest-free finance, I am now a bit of a smart arse when I witness firms struggling with what to some are ruinously high spikes in repayments.
I love this stuff PJ: I am conditioned to operate in this kind of environment because it is what I was brought up to face, though in a far worse business environment than this. Whilst others were getting fat dumb and happy building up a house of cards that has been blown down far too easily because they had never faced – or had forgotten – the challenges of running a business in which finance was a huge challenge, my caution under the influence of watching how it took my old man apart, has stood me in good stead.
Shame those running UKWDG and Safestyle hadn’t been around then.
* Danny Williams is managing director of Chelmsford based Pioneer Trading and has been involved with all aspects of the windows and doors industry for 30 years. His activities include manufacturing a full range of windows and doors in PVC-U and aluminium, an IGU facility, retailing and commercial contracting.