Challenging markets pose unique problems. Kevin Appleton, the new chairman of Travis Perkins, expects the market to remain tough for at least another 18 months. Lisa Arcangeli reports.
“It’s a tough environment and these days you don’t have to look hard to find a low spot,” says Kevin Appleton, the new chairman of Travis Perkins. “There are some areas which give a reason for optimism. According to whose statistics you take, we are running at 25% to 50% of the required rate of house building if we are just to keep up with structural demand.” He says he knows that there is pent-up demand, purely from a structural demographic point of view.
“Add to that all the things that need to happen for the UK to comply with its commitment to the Kyoto Agreement and everything related to the greening of the environment, and you can see that there are many reasons to expect the mid-term outlook to be positive.”
However, Mr Appleton remains realistic. “It’s all very well to have positive external drivers, and there are grounds for optimism, but they require cash. And at the moment, it’s hard to see where that cash will come from.”
The shift that needs to happen is for a repeat of the recent government loan underwriting scheme. “It was a positive nod in the right direction. Freeing up availability of funding and unlocking demand will start to happen naturally anyway because individuals and companies are de-leveraging,” he says.
“If we wait for these things to happen organically, that may push the 18-month projections further along. That’s why it would be helpful to have some kind of government-backed intervention to free up funds to stimulate the housing market and start the greening of the housing and built estate.”
Travis Perkins is a member of the Construction Products Association and, says Mr Appleton, the CPA is the route through which the national merchant is expressing its views to government and its policy-makers.
"The Government hasn’t got any money,” he says. “It’s a pity that economies are not more like a game of Monopoly, where the money gets redistributed and we can all start again.”
Throughout this period, in-line with the rest of the market, Mr Appleton says the sales that have taken a tumble and been hardest hit have been bricks, blocks, lintels and cement. “Materials that are related to house improvement or renovation are holding up and doing well,” he says.
A beacon of light on the horizon is the Green Deal. In his view, it is a good thing although there is still a certain amount of uncertainty as to its funding.
“It stimulates the market and anything that encourages people to want to do something to the built estate is a positive thing.”
Further challenges for merchants, he believes are the ‘macro trends’ – the rise of the role of the internet and price transparency. “The merchant sector has worked in a foggy price world for a very long time,” Mr Appleton says.
“One of the things TP has been doing over the last few years has been to create better price transparency and comprehensibility for its customers.
“We have been investing heavily in web-based training and the opportunity to work out of hours because the construction industry has to do much more with far less resource. That is why we are seeing smaller to mid-size builders using their evenings to do their materials planning and purchasing.
“One of the macro trends will be whether a merchant can be open 24-hours a day for business. That is one of the challenges we are trying to respond to. It’s all technology based and revolves around the internet,” Mr Appleton says. “And it is a big model change for our business.”
What about charging for deliveries? He admits it is not on TP’s list of top priorities. “Our customers have been used to receiving this as a service for many years. I would hate for us to become like one of those airlines where you get charged for extras. We’re keen that our customers pay a fair price for our products and we see the ability to offer things for collection and delivery as an integral part of our service.”
TP has a strong supplier base in the UK. Over the four months that Mr Appleton has been in his new role, he says he has been “impressed with the quality and the thoughtfulness of suppliers. One of the areas where we will be looking to work with them is on closer integration of the supply chain.
“We’re in a world where there is increasing price transparency and I don’t see that we are going to get back to the 4, 5, or 6% year-on-year inflation-type increases in the next three to five years. So, we have to look at ways to take costs out of the supply chain without removing quality.
“It’s about supply chain innovation, not duplicating efforts and being more transparent with each other about how we can keep costs to an absolute minimum without that having an impact on our customers.”
Taking this global view is useful and Mr Appleton is well placed to lead the changes. His business experience extends across a wide range of industries. For the last nine years he was chief executive of the Lavendon Group, a listed equipment rental company specialising in aerial work platforms from to cherry pickers to scissor lifts sold across Europe and the Middle East.
Prior to that, he worked for over 20 years in transport and logistics. “Merchants at heart are logistical operations that also trade. I think TP does a very good job in this area,” he says.
This article first appeared in the September issue of Builders' Merchants News.