One in four access control companies have taken a hit on margin to maintain sales levels, analysts claim.
A study into just how desperate to cling on to sales the UK’s top 267 access control companies have become has revealed that a quarter have accepted a reduction in margin or have fallen into loss as a sacrifice for maintaining or increasing sales levels, according to Plimsoll Publishing.
Some statistics extracted from the analysis reveal the extent to which profitability is being compromised as companies’ sales targets come under increasing pressure.
24% of companies are already selling at a loss
17% of companies are losing money for the second year
half of companies’ margins have fallen
25% of companies have maintained sales yet with reduced margins
4.6% is the average margin in the industry
4.7% is the average return on investment.
David Pattison Senior Analyst on the project said: "We have seen how recently the retail sectors, furniture, electrical goods, and clothing have been in the news as companies fight on the high street for consumer spend. We could be seeing the early signs of similar intensity in the access control sector".
A key question, he says, is what is driving this issue? Pattison adds: "As companies become increasingly desperate to win sales or to retain existing customers against aggressive competition, they are forced to "up the ante". By reducing prices, extending special sales terms,
or putting more value into their services, many must take a hit on their margins. You could argue that this is because the customer has so much choice."
The question then, he goes on, is how long can companies survive by "buying" business? Pattison points to low profitability as a long term problem, not a short term one. "Once customers get used to getting better value or paying less,
getting them to increase their spend can often take years. Many companies, although in this current analysis, will not last that long based on their present results."
So will we see some companies fail in the next 12 months? He points out: "It can take between three
to five years for a company to fail; large corporations can take 10 years. Low industry margins and loss making will, more often than not, lead to increasing debts, particularly if the company is expanding and taking on extra costs. Interest payments then further reduce margins. These companies are then forced into extra sales incentives to maximise capacity. High levels of debt and low margins are a recipe for disaster."
The full analysis of the Top 267 UK Access Control companies is aimed, the analysts say, at managers that need to understand their competitors’ behaviour and their commercial decisions. It concludes by separating out the 52 weakening companies whose strategy must change, from the 96 companies that are so fundamentally strong that any downturn in profitability is merely an inconvenience. Copies of the analysis are available for £305 including couriered delivery by calling 01642 626400.
