Can KBB retailers make money from contracts work?

KBB retailers are divided over undertaking contracts work, with some seeing it as an essential part of their business and others regarding it as dominated by a few big players.

We asked the kbbreview100, our think tank of independent retailers for their thoughts on the contracts market. Out of those polled, 63% say that they work with developers

Several retailers stay out of the contracts market completely. For example, Stewart Woodruff, owner of MBK Design studio in Maidstone, will not do any contracts work. He highlights two major off-putting points for many retailers: cash flow and profitability.

Rubina Hughes, owner of Zara Kitchen Design in Berkshire, has had a similar experience with pricing. She said: “We have not had much experience of the contacts market. However, the small number of interactions we have had made us feel that price is the driving force. As a small business, we cannot compete with larger retailers and manufacturers. Also, the terms and conditions are not favourable to the retailer.”

According to Russell Buckley, managing director at Stuart Henry Kitchens in Merseyside, the contracts market is saturated by a few prominent players. He said: “The contracts market is saturated with players like Howdens and Benchmarks. Also, kitchen manufacturers and suppliers like Omega or Symphony, who also supply to the contract market, supply to smaller independents, so we cannot compete.

“I have found developers and the contracts market companies to be unstable, and they demand long invoice payment terms, which means we have paid for the goods from our suppliers before they want to pay us. This will leave us with a severe cash flow problem. In addition, we are a tiny fish in a huge pond, and by entering the contract market, we would be sacrificing our core focus, which is good design for the retail market.”

There are, however, many retailers in the contracts market. For example, John Pelosi of Caldicot Kitchen and Bathroom Centre in south Wales, who only focuses on working with a small number of top developers, so they are not competing with those catering for the mass market.

Pelosi said: “We are careful about what elements of the contracts market we get involved with, limiting our scope to a select few ‘high-end’ developers of just a few units at a time in architect-led redevelopments of existing period buildings or luxury new-builds. We also support a few small-scale local landlords to provide refresh, renew, spares and repair services cost-effectively and responsively.

“All the above are independent individuals and companies we know and trust and who know and trust us. I have no interest in getting involved in significant developments or large-scale house builders. I’ve seen them bankrupt too many small-scale suppliers through the years to want anything whatsoever to do with them.”

Pelosi continued: “We have no particular desire to get involved with significant scale developments – the margins tend to be low, the risks (especially WRT payment terms and non-payment risk) very high, and they can eat management time with limited return and high risk.

“We would consider getting involved in a few more mid-sized developments – the ones too small to be of interest to the contracts departments of our leading suppliers, but larger than the small-scale ones we already target, but only if our suppliers could come to a sensible working arrangement with us and how we manage, share risk and reward appropriately. I genuinely think there is an untapped market here that if one leading kitchen supplier could build a sensible business model that was attractive to small independent studios, it could be rewarding for all concerned.”

Working with small developers is one way to avoid having to compete with the big boys. Martina Landed, owner of InStil Design in Oxfordshire, says that even though only a tiny percentage of her total sales are from the contracts market, it is still a good area for the business.

Landed explained: “Less than 10% of our work is within the contract market, and it is for a smaller developer that builds both residential houses, flats and office buildings. They are good for the business as they give us repeat business.”

Billingham Kitchens in Stockton-on-Tees also work with small developers and recently did a group of six properties and supplied six bathrooms and three kitchens for a local builder. Director Frazer Goodwillie explained his experience: “While the profit is low on the bathroom equipment, the increased spend with suppliers tends to help get better terms and relationships.

“A reasonable margin can be made on the kitchens, and it’s far easier to deal with the builder than a typical customer. It also helps that they’re new-builds, so no unforeseen problems.”

Liam Hopper at The Kitchen Group in London believes that there are countless benefits for taking up some contracts work. One way is that it can help prop up income and revenue, provides decent work in progress for accounting and a differed order book also is valuable for borrowing against.

In terms of working with their suppliers, he says it can help with buying terms or supplier rebates and bring logistics costs down and means he can run a larger installer team.

Over in Rugby, RFK has been in the contracts market for five years and, during that time, it has developed into a lucrative part of the company. Chief executive Trevor Scott said: “We have a dedicated team to look for and develop new business and contracts is treated as a totally separate division to retail. Although due to Covid, there was a dip in growth, we are now back on track to double the turnover of our contracts division within the next 12 to 18 months.

“Contracts for us increases our volume with our principal supply partners and thereby improves our margin due to increased terms or retro bonuses. This reflects in our retail margin, so even though contracts work on a lower overall margin, all in all it’s a win-win situation.”

Scott added: “We mainly supplier SME regional developers who are building small developments or perhaps 10 to 15 properties and are themselves competing directly with the big national builders. They need a point of difference to sell their houses, and our kitchens help to provide that.”

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