Housing is Ferguson’s “bread and butter” but with 12 months of consecutive declines in housing starts, it might be a “scramble” to recoup business here, a former manager at Ferguson said. The company’s overall revenues might contract by 5-10%, the expert said, noting however that its diversification might offset some challenges. “Ferguson is so heavy [in] residential that when residential is down it takes everything else in the business to be able to support them.”
Plumbing distributor margins are typically 25-35% and 30-40% for HVAC distributors, but if revenues drop by circa 5%, margins “will probably drop a point-and-a-half” – and this is significant for a USD 25bn company, we were told. The expert sees 2023 as a challenging year for Ferguson overall, saying “margins are likely to suffer… because sales revenue pressure is so high”.
Meanwhile, we heard that given Ferguson’s large physical US footprint, the company has felt threatened by the explosive growth of e-commerce, with the expert discussing the impacts of “Amazonification”. They noted that Ferguson’s acquisition of Supply.com to compete in e-commerce gained the company share, but at a loss of margin.
Ferguson has a strong presence in “all the big markets” as well as smaller ones, but the challenge is that it is not the “number one player”. Preventing it from claiming top place include some customers preferring to support local suppliers and Ferguson’s higher prices compared with other competitors. We also heard Ferguson sometimes loses margin on price increases because increases typically go to OEMs.
Although on the plumbing side the company does compete with larger players, we were told what is noteworthy is the “1,000 little ones that are always out there, nimble, small, adapting, and always chipping away at what Ferguson can’t keep control of”. The specialist said the same likely applies on the HVAC side.
The plumbing distributor business was also described as the “wild west”, with a potentially transforming landscape as “mom-and-pop” shops sell up and VC players consolidate the contractor network. “It’s constantly changing, there’s constantly a vying for space,” the expert said.
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