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Recession: 10 years on – what have we learnt?

ROUND TABLE

 

Leading figures from the supply and retail sectors discuss the strategies they’ve employed to not only survive the recession but come out stronger….

 

 

 

 

 

 

 

 

 

 

THE PANEL
Left to right: Andrew Laidler, national sales, director, Egger UK; Matt Earle, commercial director, Robert Lee Distribution and Trevor Scott, owner, Rugby Fitted Kitchens

Q&A

Q: What was the KBB market like just before the crash?
Trevor Scott: From 2006 to 2008, we were growing quite strongly and were looking to open a second outlet. We were on a crest of a wave. The recession came as a shock, like it did to everyone else, including the pundits.

Matt Earle: I’d echo the thoughts of Trevor. You couldn’t put a foot wrong. Everyone was placing orders, the housing market was booming, so people were buying new products as well as replacements. It was a good time.

Q: How were things for you as a supplier Andrew?
Andrew Laidler: We were very busy. Egger had invested £120 million in the Hexham site and we had a lot of confidence in the UK. But there were noises about people using their houses as piggy banks, we lost touch with reality. We had the rise of the landlord. Banks were lending money for fun. The bubble was going to burst at some point.

Q: What were the first signs of trouble?
ME: The demise of Northern Rock. We started selling fewer new products and more replacement. The sales figures remained the same but you could see the shift in the types of products being bought. We’ve now invested a huge amount of money on our IT infrastructure to look out for that kind of shift at the micro level.

TS: Yes, Northern Rock was the obvious one, and then the footfall. As soon as things went awry it was a case of batten down the hatches and ride it as best we could.

AL: We deal with all the national house builders, merchants and distributors and in May 2008 we saw quite a fall-off in house-building activity. We were concerned because that dip affects the furniture market with a lag of about four to five months. And sure enough, in November 2008 the market dropped suddenly and our sales decreased by 20% – almost overnight.

Q: One of the reasons it hit so hard was everyone was so ill-prepared. There was a huge issue with credit. Do you keep the lid on that now?
ME: Yes, the right credit is very important to us. We use credit houses like Experian and they were very buoyant. The credit recommendations they were offering were spectacular. Then it was like someone hitting the light switch.

Q: Are you more prudent with money now, Trevor?
TS: Absolutely. As a retailer, we don’t offer credit to our public customers and we never did. In that sense, as long as someone placed an order, then financially we were secure for as long as that order was in process. It was a question of how many orders we had. As we progressed through the recession, we managed to do all sorts of things that kept our market share up, but we were suffering from margin erosion. They dropped by 3% to 4% in five years, and that’s unsustainable longer-term. We did things about it as we came out of recession.

AL: Banks went from free lending to turning the tap off. A lot of manufacturers relied on that flow of money and it virtually killed them. As a supplier to them, we supported a number of them by loosening credit, giving holiday payments, structuring payment plans, etc. We became partners with customers, but it was a difficult and challenging time.

Q: What were the biggest mistakes people made in attempting to deal with the recession?
ME: One of the biggest issues was retaining the same level of trust with long-standing customers. We let them pay a couple of days late, but then it went to a week, then a month, and we had to have serious discussions to allow them to pay it off over a longer term. We didn’t make mistakes, but we had to have some very tough conversations with some very good customers.

Q: Didn’t a lot of suppliers chase volume rather than nurture personal relationships with retailers?
TS: Yes, and we decided to narrow the supply chain and spend more money with fewer suppliers. It made us more significant to them and made us a partner, rather than just another customer. That’s won through in spades and our relationships now were fostered and built off that recession.

Q: So fewer customers, treated better, equals more money?
AL: We had to keep the volume going, but you have to have a customer base to supply. Trevor’s point is fantastic – don’t spread yourself too thinly with your suppliers. Build a partnership.

Q: So what do you do now that you weren’t doing before the recession? What have you learnt from it?
TS: The main thing has been looking at costs and being lean. If you get the marketing right, you can sell yourself to the public just as well today as ever, and make use of social media, etc. But they’re the things you’d have learnt organically anyway.
But the key one is making money. If you’re not profitable, you haven’t got a business. You’ve got to be lean. You’ve got to buy well, you’ve go to keep fixed costs to an absolute minimum and negotiate the best terms you can with your suppliers. We always pay up front where we can to get the best price. That then reflects in the selling price. We can afford to sell for a little bit less, but still maintain margin. It might mean we need more volume to generate turnover, but that’s what we’ve achieved over the past five or six years. We’ve doubled the size of the business since 2011.

Q: What about you, Andrew – as a big manufacturer, what’s the difference in the way you operate now with then?
AL: What you do in a recession is leverage the opportunities. You look at how you can improve things. Could we do things differently? You look at your people, get rid of the bad apples that aren’t adding any value. We listen a lot more, we do employee feedback, we engage a lot more with customers. It helps with the strategy.

Q: How have things changed at Robert Lee?
ME: Margins are always tight and for us – it’s a volume thing. We have to sell millions of pounds worth of stock to generate the cash to run the business. We noticed that with the brands we sell the margin can be very tight, because there are a lot of distributors doing it. What we’ve done is acquire another distributor that had its own brand offering that we could then bring into our own portfolio to try to improve the percentage of own-brand product with a higher margin.
We’ve also spent a lot of money on the IT infrastructure over the past five years to enable us to offer added-value services beyond just distribution. Now it’s about supplying data to customers to allow them to do their job better. They want up-to-date prices, they want to know stock levels without having to phone up, so we’re supplying data files to customers. And how can we help this fastest-growing part of the market – the internet – which is always a touchy subject? We can help them run those businesses. It’s about improving communication with customers.

Q: What lessons has RFK ultimately learnt, Trevor?
TS: We anticipated the end of the recession probably six to nine months ahead of our competitors locally. Relocating the showroom put us in pole position as soon as the recession started to lift. It worked incredibly well. The relocation of our business has done untold good.
But specifically, it was the contracts and developer market that was key. Prior to the recession, we stayed well away from it, because we didn’t want to be put at risk by exposure to builders. But post-credit crunch, and not being able to get insurance, the developers suddenly became clients we could look at. They weren’t expecting to be offered credit, and we weren’t giving them credit. We were just offering them good product and good service and that’s been the single largest area of growth in the past two or three years.

Q: What sort of opportunities has Egger got its eye on, Andrew?
AL: We do a lot more in terms of the private rental sector, student accommodation and hotel work. We also sell interiors, so we’ve completely spread our business. We work with trend forecasting companies too – the futurists. We do a lot of international work as well as looking at future trends.
Product innovation is very important. You need to move forward in a challenging market. If you retrench, you’re going to struggle. You need to think about a more competitive market and what you have to do to get your share of that. You have to continue to innovate.
Digitalisation is also going to be very important and the new generation of social media – how we market ourselves, how we develop our systems. We’ve always got an eye on the future.

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