Barry Duncan

The UK building products retail sector has undergone a major evolution over the course of the last couple of decades. The industry today is radically different and still changing, shifting from what was largely a B2B trade supplier model to a significantly more B2C model today. Digital capability is increasingly necessary to enable growth, maintain and improve profitability.  

We have seen that the traditional retail consumer market for builders’ services changed during COVID and moved away from its focus on services for local building companies. The government enforced stay-at-home COVID policy, combined with the increased requirement to work from home, has led to an increased focus on home improvement projects. Groundworks and first-fix materials have seen a consumption increase by the home DIY retail consumer – leaving less stock available for trade customers. This inevitably increased demand within the building supplies sector with some products continuing to experience severe shortages.  

Research tells us that 2020 saw an explosion of demand for materials and timber from B2B and B2C customers linked to the fact that the majority of DIY stores were closed during the first UK lockdown – encouraging large numbers of customers to explore online solutions. The changes brought about by Brexit has also put a strain on building material supplies coming into the UK and contributed to some unprecedented building materials price increases. In mid-2019, The Builders Merchants Federation had reported the first negative growth in sales for UK builders’ merchants since data collection began in 2014. By the end of the third quarter of 2020, after the relaxation of lockdown restrictions and admirable adaptation by many building products distributors, levels of demand for building materials from both trade customers and retail consumers generated an 8.3% increase in sales compared to the prior year. Unprecedented global demand and more expensive sourcing from overseas suppliers has meant price increases, rapidly passed on to consumers, and higher sales figures for the industry over the course of 2021, which has persisted into 2022.  

For many building products retailers this has meant a re-think on what customer-facing “digital services” should deliver to support an online customer base. This thinking goes outside of upgrading the eCommerce platform but leads into customer product support, digital catalogues, supply chain costs, digital marketing, product ranges etc. It has meant a rethink of the building products retailers’ business model and potentially a transformation from a classically analogue, bricks-and-mortar business model to a digitally optimised and more cost-effective business.  

Trade customers and retail consumers alike, can now be much better served by customer-first, digitally-led models that both inform and permit for transparent pricing and information relating to stock availability etc. It is still possible to visit building products distributors onsite, of course, and even enjoy a browse of a chunky, hard-copy catalogue provided by those that still publish such things, but today it is much more convenient to browse the likes of Screwfix, Jewson, Huws  Gray, NTG, IBMG MKM and other brands from the comfort of an armchair or a computer workstation at home. Global management consultancy, LEK, stated in their report last year that just 20% of planned purchases completed by trade customers were carried out onsite, with the majority now completed through mobile, email or desktop avenues of purchase.  

In the following sections we will firstly, describe how Panamoure helps our building products retail clients successfully realise such a transition, and what are the main drivers for this astonishing change to a formerly very traditional wholesale model. Secondly, we consider the growing involvement of private equity investors into a sector that has not previously received much attention 

from the asset class. In the third section we describe what it means for the many thousands of small and independent building products distributors and building services companies that have yet to consider support from a private equity growth partner, digitally transforming or a combination of the two.  

In this report, you can expect to find: 

  • What’s the Problem for UK Building Products Retailers? 
  • Digital Transformation – The Panamoure Roadmap 
  • Scale Through Acquisition 
  • Remaining Independent and Organic Growth 
  • Digital Transformation – Past, Present and the Future for Ambitious Building Products Retailers 
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We are pleased to announce the launch of a ninth pillar in our IT Due Diligence process, which identifies and generates value creation opportunities for private equity (PE) investors. This new pillar is designed to uncover additional levers for growth and drive both immediate 100-day plans and long-term digital value creation initiatives.  

The private equity (PE) landscape has seen better days. M&A activity is down, and exits have plummeted to their lowest point in over a decade, dropping 66% from their peak in 2021. High interest rates have made refinancing debt structures from as far back as 2019 increasingly expensive. As a result, exits are becoming more protracted, and many buyout funds are struggling to offload portfolio companies amid an uncertain environment that negatively impacts valuations. Now more than ever, there is a pressing need to maximise the value of existing portfolios.