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CareersSafestyle Report should be a warning, says industry expert
Andrew Scott, CEO of Insight Data, gives his views on the recent Half-Year Safestyle PLC report.
On 27th September Safestyle PLC published its half-year results to 2nd July 2023. Despite an upbeat narrative the results highlighted a worrying position not only for Safestyle, but the industry as a whole.
The company reported a drop in product volume of 15.8% compared to H1 2022, but higher average order values helped mitigate this and turnover declined 5.3% to £74.1m, a half-year drop of £4.2 million.
Safestyle has been impacted by rising costs and although it is pursuing cost reductions across the business, gross profit margins were down from 24.75% to 21.92% and the company reported an underlying loss of £6m for the half-year, or a £6.7m loss after non-underlying items.
Cost per lead rises as consumer confidence drops
According to Chief Financial Officer Phil Joyner, the drop in margins has been largely attributable to rising lead generation costs due to the overall weaker replacement window and door market increasing online search costs. The additional cost-per-lead equates to a £1.5m year-on-year increase.
Rob Neale, CEO of Safestyle PLC commented “The market represented an increasingly challenging backdrop as we moved through the latter stages of 2022 and into 2023.
Market activity has been impacted by rising inflation, which has continued to remain higher than economic forecasters expected, and consequential higher interest rates resulted. This has put even greater pressure on our customers’ disposable income, weakened consumer confidence and increased the cost of providing our market-leading finance products.”
The Report states that the market is currently performing at circa 24% below the July and August levels of 2022, while Safestyle reported 11% year-on-year drop in order intake.
As such, Safestyle believes it’s outperforming the market and increasing market-share.
Safestyle set to battle tough trading conditions with increased marketing spend
The company has committed to several sales and marketing initiatives to increase market share, including a £1.4m brand awareness TV and radio campaign in February/March 2023, and a new website that it hopes will increase enquiry levels.
A key component of the Safestyle proposition is compelling finance products to help fund purchases, particularly critical for maintaining accessibility for larger purchases. However, this has come at a higher cost due to rising interest rates.
Safestyle has reported that their order book ended the period down 22.1%, but the company is actively pursuing a number of efficiency and cost-reduction initiatives.
While it is clear Safestyle aim to grab market share, this would be a larger slice of a smaller pie and thus the company must find cost savings and efficiencies to return to profitability.
However, it is still a smart move – Safestyle has increased its lead generation spend and invested substantially in brand awareness via TV and radio, at a time when many competitors are cutting back. Thus, it would be well placed to capitalise on a recovery and capture market share when macro conditions improve.
However, a word of warning – Safestyle’s cash position has dropped from £8m to £1m and the retailer continues to report trading losses. For Safestyle to achieve its stated goals, it will need refinancing and further investment.
Safestyle Report provides a barometer for the wider industry
Safestyle PLC’s report broadly reflects sentiment across the industry. While some smaller, niche installers are still reporting good demand, especially for some premium products, the wider market continues to experience a significant slow-down, although this is partially masked by higher order values.
Consolidation further up the supply chain means the impact has not been felt equally across the industry. As the number of suppliers reduce, they have benefited from a surge in new trade customers bolstering turnover.
It appears that once again, it is the installer who will face the greatest challenges until the market recovers. The firms who take a longer-term view and invest in their brand and lead generation will emerge stronger, while their competitor will inevitably lose market share or close their doors altogether.
