Seismic changes that reshape an industry happen very rarely; and they are, almost always, driven by innovation of one sort or another. Within the last forty years, the UK window industry has seen only two such changes; the first in the early 1970s and the second in the early 1980s.
Let’s wind the clock back to 1969; it was the year I joined the sales department at Alcan. My job selling custom aluminium extrusions to commercial window and curtain walling manufacturers, of which there were relatively few. It’s hard to believe but, at that time, there were no window systems suppliers; windows for new build were single glazed, timber or steel; and PVCU was still something for the future. Aluminium window manufacturers designed their own window profiles and paid aluminium extruders to cut suites of dies that were exclusive to the fabricator concerned. Suites of window profiles were often contract specific and only used once.
At about this time, a fledgling double glazing market, focussing on secondary glazing, was being established. Names such as Everest and Alpine made their debuts and met with some early success, which created a demand from other potential new market entrants. But there was a significant barrier to market entry for many small businesses and entrepreneurs. They didn’t have the design skills to create their own suites of profiles and, although the cost of aluminium die production was relatively low, the working capital required to fund the extruders’ minimum production quantities was significant.
From the extruders’ perspective there was also a problem. The demand from small companies was resulting in a proliferation of profiles and short production runs, which had serious implications for productivity.
The combination of entry barriers and productivity issues was a serious impediment to the growth of the market. However, James Booth Aluminium of Kitts Green in Birmingham was the first to solve the problem. They designed standard suites of dies for secondary windows, replacement windows, residential doors and patio doors; and extruded all four ranges in bulk. The extrusions were held in stock and sold in bar lengths to small fabricators. And so began the supply of window systems in the UK.
This was, almost certainly the first and most important seismic change the industry has experienced in the last forty years. It may seem very familiar today but, at the time, it was a highly innovative new market channel. The major brands, such as Everest and Alpine undoubtedly created product and market awareness but the principle of systems supply underpinned 30 years of market growth by supporting the proliferation of small fabricators and installers.
Very soon, James Booth Aluminium was acquired by Alcan; Midland Extrusions, owned by GKN, set up Scope; and Crittall Hope, then a large commercial window manufacturer established CEGO. These three businesses, more than any others, were responsible for the low cost market entry of the majority of smaller players, which collectively came to dominate the market.
As time went by, the products became better and more sophisticated and solid aluminium frames gave way to thermally broken and thermally clad products, which improved thermal efficiency. The market continued to grow, making room for more and more new entrants; and everyone was happy. Then, as the 70s gave way to the 80s, there came the second seismic change. PVCU arrived. Whereas the first seismic change was based on an innovative new market channel, the second was based on product innovation.
In the late 1970s, Hepworth launched a PVCU window system, under the name of Astraseal. This was actually a German window system produced by Brugmann; and several other German window systems soon started to appear. In the early 1980s HIS launched an all British system, followed by Bowater (Halo) and Spectus. PVCU was now the clear direction of travel; but Alcan, Scope and CEGO all failed to grasp the enormity of the change. At first, they tried to fight it; eventually they realised they couldn’t and launched their own PVCU products; but it was too little, too late. They’d misread the market and paid the price. So the major players that opened up the market in the 1970s were confined to history.
Since that time, we’ve seen the window market grow, almost non-stop, for a period of twenty five years or more. Products have become gradually more sophisticated, as has manufacturing and process; PVCU became the dominant frame material in the domestic and new build sectors; and conservatories became part of the product range. But the structure of the industry and the market channels haven’t really changed very much. A few large brands still account for perhaps 20% of the market; and 80% is in the hands of small and medium sized players, underpinned by the systems suppliers. A few very large fabricators have evolved but this has been largely in response to market growth rather than at the expense of smaller competitors.
The window market, including all of its various sectors, probably peaked somewhere between 2003 and 2008 depending on, which research you read. The domestic replacement sector is saturated and is increasingly dependent on second and even third generation replacements. It’s this sector that fuelled the growth of the entire market; and it’s this sector that is leading the decline.
Decline is inevitable and unstoppable because the boom period of ripping out tens of millions of old, poor quality timber and steel windows and installing maintenance free replacements is over. Second, third, fourth and even fifth generation replacement may occur, as products become increasingly more advanced. But the rate of that replacement is unlikely to be as great as the rate of the first generation replacement, because the benefits of moving, from a rotting single glazed timber window to a double glazed PVCU replacement, are substantially greater than changing from a mark 1 PVCU window to a mark 2 or even mark 3.
During this period of decline, there will be consolidation between some of the major players – Epwin/Latium and Veka/WHS Halo are recent examples. Some of the bigger brands will diversify – e.g. Everest has moved into kitchens. Some major brands will fail – e.g. the original Zenith/Staybrite; although I must hasten to add that the phoenix is a successful, albeit smaller, business. These are not the only examples to date and there are likely to be more in the future. Amongst the smaller players, there will be an increasing failure rate as the weaker ones are squeezed out; its already happening.
When markets decline, the initial rate of shrinkage, tends to exceed the rate at which capacity is taken out; and this puts pressure on prices, margins and profits. However, as the rate of decline reduces and eventually bottoms out, the reduction in capacity catches up and eventually equilibrium is reached; the pressure on price then reduces and businesses can, once again, start to build their margins and strengthen their balance sheets. But, before that happens, the market and the players in it are likely to have changed significantly.
So how will the market have changed? Who will be the survivors? And what shape will they be in?
The truthful answer is that no one really knows. However, we can learn the lessons that history teaches us; we can drive our costs down, our operational efficiency, quality and customer service up; and we can strive to keep our products and services at the cutting edge. Those businesses that succeed in all of this and develop the greatest competitive advantage will survive. Those that fail to do so will not. The critical unknowns are (a) when and at what level will the market bottom out and (b) how great will the fallout be? So the only way of being sure that your business will survive is to ensure that you establish and maintain significant competitive advantage over all of your competitors; and that’s not easy.
A market that has grown almost non-stop for thirty years or more and then goes into decline before eventually stabilising at a level that is considerably below its peak is going to change. That is inevitable. The question is, “will the current players simply be reactive to market pressures and batten down the hatches or will some of them see this as an opportunity and lead a third seismic change as the early systems suppliers did in the 1970s”?
Of the first two seismic changes, the first was a new route to market and the second a major product innovation. Looking at today’s market, there doesn’t seem to be a build-up of pressure anywhere within the supply chain nor do there appear to be any major cost advantages available through new channels. So it’s difficult to see that alternative routes to market offer the opportunity for seismic change.
Looking at product innovation, there has always been a stream of improvements to profile design, hardware specifications, thermal efficiency etc. But these tend to be small steps that provide progressive improvements but not the sort of seismic change that came about with PVCU.
Is there perhaps a new material to supersede PVCU and create a whole new market opportunity? Over the years, I’ve seen many different people and businesses getting excited about all sorts of different composite materials and alternatives to PVCU; but ultimately, such benefits, as there may have been, have been marginal and driven by businesses wanting to find some degree of differentiation. But, if I think back to the late 1970s, when PVCU first appeared, despite the reactions of CEGO, Scope and Alcan, it was blindingly obvious that this was where the market was going; the benefits were so great and the drawbacks so few. Can anyone really put hand on heart and say that about any potential alternative today, other than in niche market circumstances?
This probably means that we have to look at marketing for the seismic change that the industry needs. So where do we look?
Step back; think of the window industry in the context of other building products, home improvement and consumer markets. Think kitchens, bathrooms, heating, furniture, beds & mattresses etc; and think about what, in marketing terms, makes the window industry different. The answer can be summed up in one word: BRAND.
The window industry relies heavily on sales to the consumer; but it has very few major national brands; Everest, Anglian and Safestyle are probably the only three. There are a relatively small number of strong regional brands; and that’s about it. Of course, there are very many small and medium sized businesses with really good reputations in their locality, trading successfully through word of mouth and recommendation. But that is very different from having a strong brand that is associated with specific brand values and achieves a high degree of unprompted recall.
This situation is actually quite unusual. If you have a new central heating system, you could go to British Gas or the local plumber but the boiler itself is likely to be a branded product – Worcester-Bosch, Baxi etc. and the radiators may be Stelrad or Myson. The same is true if you have a new bathroom or kitchen; Twyford, Ideal Standard, Magnet, Poggenpohl etc. But the overwhelming majority of windows are sold on an own brand basis by small businesses that, on their own, don’t have the resources to create and support strong brands. The consequence of this is that the product has become fully commoditised and a large part of the market is, therefore, price driven. Look at the average price per installed frame for the market, as a whole, and compare that with the average installed price of an Everest frame. In reality, the product is “me too” and the fitting, in most cases, is as good by a small company as it is by Everest. Perhaps the Everest guarantee is stronger but that doesn’t justify the huge premium that Everest secures. That premium is due to the brand.
In January 1983, I launched a new PVCU window system into the UK market. It was the “Halo” system; the company was Bowater Halo (now WHS Halo); I was the CEO; and the strap line was “Perfected for Britain by Bowater”. It was one of the first all British window systems. “Halo” was designed as a consumer brand; and our original strategy was to maintain and support the “Halo” brand throughout the supply chain, from extruder to consumer, adding value at each level. Whilst the sales of the Halo product took off and the business was quickly established as a leading PVCU window systems supplier, the branding strategy didn’t work. It was radically different from past practice, the market was growing very quickly, there was very little price pressure and margins were high throughout the supply chain. So the verdict was, “we don’t need it”; the timing was wrong. However, I would argue strongly that today, “we do need it”. Significant added value is unlikely to come through different channels or major product innovation; and that leaves brand as the only other means of achieving it.
The businesses that can pick up this challenge are the systems companies and perhaps the very large fabricators. If some of them have the courage and vision to go to market with their customer and distribution networks centred on a branded product strategy, they will provide added value opportunity at all levels of the supply chain and lift their networks out of the commoditised part of the market. Furthermore, those that move in this direction first will have more flexibility about where they position their brands. The followers will be left looking for the gaps.
It’s this type of development that will create the third seismic change that the industry needs and it may well lead on to the window industry moving closer to the US model, where branded products are manufactured and distributed to the homeowner through home remodelling companies. Other factors also point to this development.
The shrinking market means that many sales and installation businesses that don’t fabricate will be forced to diversify; so, rather than being specialist window installation businesses, they may become broader based home improvement or home remodelling companies, perhaps joining up with small builders as well.
No one can be sure how this will all pan out and there are judgement calls to be made. However, the shrinking market is making significant change a certainty; and those major players that don’t grasp the nettle are likely to meet the same fate as the aluminium systems companies of the 1970s, while those that do will determine the shape of the market in the years to come.