2019 Predictions: #1 – Will changes in buying behaviour lead to major changes to the distribution structure?

It’s inevitable that the changes in buying behaviour we’ve seen over the past few years will lead to more changes in the distribution sector, and it’s possible that there will even be further casualties in 2019. The impact of this trend is something we’ve seen in the news almost every week in recent months, in a retail context, but it’s not just a consumer issue – buying behaviour has changed among tradesmen and in a B2B context too.

We’ve known for a long time that online shopping has grown strongly, and that the use of the internet and mobile devices to research and purchase products is on the rise. According to data from the ONS, online sales now account for almost 20% of all retail sales by value (up from around 7-8% in 2011) and most probably a lot more by volume, and there are no signs of this slowing down.

On the contrary, the pace of growth is increasing. In 2017, website sales by businesses with 10 or more employees totalled £279 billion, according to ONS data. This represented a staggering 21% growth rate compared with 2016, and a much higher rate of growth than in the period 2014-2016, when it was between 4-6% per year. Also in 2017, Amazon reported revenues of the equivalent to £8.8bn in the UK, compared with £7.3bn in 2016, indicating a very high rate of growth year on year.

What has changed in the last 2-3 years or so is that almost everyone now has access to mobile data on the go, whether via Wifi or either free or affordable mobile data plans, and that pretty much every builder, plumber and electrician (and even your grandparents) has a smartphone or tablet that can be used to purchase items on the go. This, in combination with the DIY sector suffering a fall in demand due to a generation change, will mean big changes, in particular for those distribution groups with exposure to the DIY retail sector. As an example, Travis Perkins is currently reviewing a number of its businesses, including Wickes, and has said it aims to shift the group’s focus back towards the building trade.

As discussed recently in the third annual BMBI (Builders Merchants Building Index) Round Table Debate, these changes in buying behaviour are having an impact on both manufacturers and merchants/distributors within the building and DIY/ home improvement industry, though some companies have been better than others at adapting to these changes.

Some traditional outlets have found it difficult to compete with those offering online ordering or click & collect options, such as Screwfix or Toolstation, and the ‘pure play’ e-tailers and distributors, which have very low overhead costs compared with those running brick and mortar outlets. The number of online-only firms operating in both the domestic and trade sectors is also growing, with many having direct supply arrangements with manufacturers.

Some merchants have launched or acquired online shops selling to consumers – for example, in the bathroom sector, bathrooms.com is owned by Travis Perkins and soak.com is owned by Wolseley while www.plumbworld.co.uk, which claims to be the first e-commerce ‘pure play’ distributor in the UK bathroom market, is owned by Grafton Group.

This trend doesn’t necessarily have to represent a threat for the merchant sector, it could also provide opportunities to expand distribution networks, broaden customer bases, and – in the case of manufacturers – to deal directly with the customer and achieve cost savings. There is, however, a need to adapt. One problem is that it can be quite difficult to get reliable data on sales through channels outside of the traditional network. If you’re a merchant, you may know a lot about how other merchants are doing, or where your customers are shopping, but do you know how much product goes via Amazon or Ebay to your potential customers?

Get in touch with MRA Research if you’re interested in finding out more. We specialise in benchmarking, customer surveys, distribution and market reviews in the construction sector, and can also undertake surveys of tradesmen to find out where and how they shop.

5 predictions for UK construction and the built environment in 2019

#1 – Changes in buying behaviour will lead to major changes to the distribution structure

#2 – A focus on integration will stimulate a move towards smart homes

#3 – The uptake of offsite & modular construction and prefabricated components will get a boost

#4 – Britain will start to build upwards

#5 – Electric vehicles will become a common sight on UK roads