A Changing Economic Climate

A Changing Economic Climate

29 June 2018

Not only is the Earth’s natural climate warming up, with the UK feeling the heat over the last week, but some major firms are also feeling the heat of the economic climate. It was recently announced Homebase is considering closing 80 stores throughout the UK, and this has been followed up by an announcement that up to 300 jobs will be cut at Homebase’s head office in Milton Keynes.

Homebase’s rise and fall is testament to an unsteady and unpredictable UK economy, which has caused the closure of numerous high street stores in the UK retail sector. The uncertainty has arisen due to the UK Government stalling in its attempts to get a good Brexit deal, as well as the UK public moving towards renting homes as opposed to owning property.

This thought process that has been adopted by the UK public has filtered into the plant hire industry as PAL Hire is seeing an increase in the number of companies accepting refurbishment and shop-fitting projects, with preference given to hiring equipment for one-off, standalone projects rather than purchasing the plant outright.

The plant hire industry is connected to the retail and housing sectors and shouldn’t be viewed as a standalone with its own rules and believing it is exempt from public decisions.

The problems on the high street go beyond Homebase’s decision to close stores and cut jobs as it’s one of several high-profile companies reducing its workforce, including BT, who will be cutting 13,000 jobs over the next three years, Rolls-Royce, who are expected to cut 3,000 jobs, the majority of which will be in Derby, and House of Fraser, who plans to close 30 stores throughout the UK, including its iconic store in Oxford Street, London. These job cuts could be disastrous for the UK economy, and until we have some certainty regarding the UK’s status post-Brexit, it could get worse.

Why did Homebase get into this position? It had already closed unprofitable stores, but the decision to re-brand Homebase in some areas of the country did not work as expected; however, re-branding is not the main issue. The main issue is Homebase began to reduce its product offering by closing its home furnishing division and if companies wish to stay ahead of the curve they need to be as innovate as possible and offer consumers as much choice as can be found on the internet.

The companies that have yet to be forced into closing stores and reducing their workforce have been introducing concession stores to build partnerships with organisations in non-competing sectors. For example, there are several Next stores with a small Costa Coffee or Starbucks stores in the premises. Homebase decided to remove these concession stands, and it could be said Homebase’s downfall is partly due to its own bad decisions with its staff having to bear the brunt of such a decision.

Given the difficulties major retailers are experiencing, the struggle independent chains and high street stores are under is unprecedented and many believe these chains will be hit hardest simply because of where they sit in our economic structure.

The question everybody is asking is how will companies that are currently reducing their physical footprint, manage to maintain their revenue if they have fewer stores. The answer is simple – improve customer experience. It is an accepted theory that the longer a customer stays in a store, the more likely they are to purchase a product. The decision to focus on rebuilding as opposed to developing has seen a sharp increase in the number of shop-fitting projects available to construction contractors throughout the UK.

For companies such as Next, Sainsbury’s, and Ikea, the common denominator of undergoing large shop-fitting projects designed to improve customer experience is to rebuild their position in the UK market.

It’s the same in Homebase’s case, the goal is to rebuild and to become a staple in the DIY sector; however, with B&Q announcing sales dropped by 5.1% and profits for the year to the end of January 2018 were down by 10%, this may be harder than imagined.

Some commentators within the plant hire industry may be surprised as the trends begin to shift, but at PAL Hire, we’ve been aware of this gradual change in the way of thinking as our Account Management team continuously speak to our clients and understand their business models to tailor our services to their specific requirements.

The public has decided it would prefer to borrow, or in our terms “hire” homes, whether it be short-term or long-term which has, in turn, affected construction companies as there are fewer new build projects. The fewer projects currently available to be completed in the UK, the lower the need to purchase plant machinery which may only be used for a few weeks over a long period of time.

This does not provide any benefit over hiring plant, and in the majority of cases, companies that purchase plant only see the benefit on the balance sheet rather than the purchase ledger. In most cases, it is cheaper and more efficient to hire plant per project.

PAL Hire has been ahead of the curve to ensure its clients get the best possible service, make the most money from projects, and do not get into financial difficulties which, in the current marketplace, could spell the end for high street stores and a few major retailers.

If you’ve recently secured a shop-fitting or refurbishment project and are thinking whether you should purchase or hire plant, give our sales team a call on 0844 288 7265 and they will help you see why hiring plant is best for business.