As part of GI Construction Month, Annemarie Harte, CEO of the Hardware Association Ireland, writes on the current state of the Irish hardware and building materials industry in Ireland and what it needs to thrive into the future.
Hardware Association Ireland (HAI) is the national representative body for hardware/DIY retailers and builders merchants, as well as manufacturers/distributors to the trade. We uniquely represent all levels of the supply chain and include within our membership ranks national and international companies, multi-branch chains and smaller independent hardware businesses.
The total economic impact of the hardware and building materials industry in the Republic of Ireland through research conducted in 2015/2016 is:
– Generates employment of 18,950 (Broken down as: Retail employment 8,380; Wholesale employment 2,510; Manufacturing 8,060)
– Pay bill of almost €586 million.
– Exchequer tax receipts almost €370 million (VAT & Income Tax)
– The retail sector has a VAT exclusive turnover of almost €1.2 billion.
– There are over 1,000 enterprises.
– The dominant enterprise size is small but there are very large manufacturers and retailers.
– Hardware retailers have been slow to develop an online retailing presence.
– Employment is predominantly male.
– Retail employment is mainly part-time.
– Exporting is significant for manufacturers.
The retail side of the industry supports nearly 8,400 jobs and more than €200 million in wages and salaries, and is one of the larger sub-sectors of the wider retail sector in Ireland generally. The wholesale and hardware manufacturing sectors, meanwhile, contribute an estimated further 9,400 jobs and wages and salaries of more than €330 million.
While these levels of economic activity are well down on the industry’s contribution prior to the global economic and financial crisis of 2008-09, the industry nonetheless represents a significant economic sector in its own right, making a substantial contribution to the Irish economy.
The hardware industry in Ireland is dominated by indigenous Irish businesses, and the majority of firms are independent businesses rather than chain-based enterprises. They are therefore important providers of economic activity across Ireland, not only in urban areas but also in local or rural areas.
The outlook for the industry appears broadly positive, driven by growth in consumer spending and an upturn in activity in areas such as construction and housing. At the same time, recovery in the industry may be somewhat uneven, with urban enterprises in particular, faring better than more rural or local enterprises.
Since 2014 the market has experienced year-on-year growth at an average of 10% with confidence amongst retailers and merchants broadly positive. This information is taken from HAI’s business index of over 150 member branches submitting their net monthly sales confidentially to a market research company. However, this growth can clearly be divided by urban and rural experience – urban experiencing double-digit growth whilst rural significantly less.
The growth in the market in this period may be attributed to the introduction of the Home Renovation Incentive scheme in Autumn 2013 which has to-date generated works totalling over €1.5 billion with almost 100,000 works completed up and down the country. This has no doubt acted as a boon in an industry which has experienced an unprecedented collapse in the building of residential housing, in particular, the results of which continue to dominate news headlines.
Threats to the industry, dominated by indigenous business, can be divided evenly between macro external threats and internal threats mainly from increasing employers’ costs and infrastructure.
Amazon, the largest DIY and home improvement e-tailor in Europe, presents an enormous risk to the Irish market. Its capability and strength could cause significant damage if and when it moves into this market with a dedicated presence. Almost a quarter of Irish SMEs have no online presence. This means they have no digital asset or no website or social media presence and no way of engaging with Ireland’s e-commerce market which is forecast to grow to €14 billion by 2021. Also, if consumers build a relationship with British online SMEs, the business may be irretrievable for Irish SMEs. This issue will be exacerbated by Brexit, with Irish consumers migrating to sterling-based websites and travelling across the border for a better shopping experience.
Brexit presents a significant threat particularly to our supplier and manufacturer members and our retailer and merchant border members, as Ireland would be considered the EU member most at risk following the end of the customs union. Customs tariffs and extreme currency fluctuations present a significant challenge in the industry. Manufacturers have gone into the UK market on very tight margins when the Euro/Stg rate was 0.85. They have lost 10% with the change to 0.95 currently, the closer it gets to parity, the worse it gets and makes exporting less viable and could lead to job losses.
The provision of high speed broadband amongst other infrastructural projects not only impacts on members ability to do business but on their preparedness for bringing their business online. Many builders merchants in particular are situated outside town centres and urban areas making them highly vulnerable to being left behind whilst online competition increases.
Furthermore, the minimum wage is set to increase from 1st January 2018, a successive increase in three years, and the PSO levy on electricity bills is set to increase from the first of next month (October). The year-on-year increase in the PSO levy is of serious concern to commercial energy customers, many of whom will be large regional employers. For example, from 2015/2016 to 2016/2017, the total PSO levy cost increased by 21%. The decision for 2017/2018 is that the cost will rise to €496.5m – an increase of 27% on 2016/2017.
Into the Future
In a challenging, uncertain economy with squeezed margins and another batch of threats following hot on the heels of survival from a deep recession that most affected the construction industry, the path forward has to be built on long-term stability and support of our indigenous industry.
Measures such as:
– Supporting our industry by providing best practice information and case studies around ecommerce and online business models to compete against international competition.
– Supporting indigenous companies and working together to protect their business from challenges beyond their control, i.e. Brexit.
– Ensuring business is best prepared for current work practices, i.e. credit management.
– Training and developing staff members to be the best version of themselves in support of customer loyalty.
– Ensuring Government creates a stable business environment in which to operate and reduces the burden of employer costs.
– Ensure that there is a seamless border on the island of Ireland.