It has recently been revealed that John Lewis are planning to diversify into house building. Several online articles quote that the High street retailer is predicting that this new revenue stream will account for 40% of their future profits.
It is reported that they plan to capitalise on the current demand for rental properties by expanding into the build to rent market. John Lewis would effectively become the landlords of large rental estates through doing this.
This is incredibly interesting for industry commentators and any businesses that work in construction and house building.
Is the UK construction industry set to become a crowded place in the years to come with businesses from at-risk sectors branching out into demand driven construction?
Business diversification
Just like the fenestration industry in which fabricators are starting to diversify into new materials and new products, we know that many businesses are looking to pivot into other more profitable industries as times become tougher in the UK.
The theory behind why large businesses may start to do this is self-evident. It’s simple, ‘meet emerging demand in order to secure future profit’. The Covid pandemic is changing the world as we know it. Many sectors have been hit very hard with some predicting that lockdown restrictions are hastening the death of the British High Street. This will cause a lot of businesses to evolve or die.
This is an interesting development for the UK construction industry. We already know that the UK government’s commitment to large infrastructure projects will stimulate the construction sector throughout the next 5 to 10 years. However, with large companies like John Lewis pivoting into construction there are several questions that are important to think about.
Here, our industry expert Alex Tremlett attempts to answer these questions.
Will we see more big companies from the retail sector start to pivot into construction?
“High street retailers like John Lewis who own bricks and mortar properties in prime locations are well positioned to pivot into residential construction purely because they own retail space in desirable areas that can either be built on top of or repurposed.”
“This factor is very important. However, most retailers rent property from landlords. This means that they won’t be able to pivot into rental construction. The key factor in this is who owns the bricks and mortar properties.”
“Planning and zoning laws may be also be restrictive or prohibitive in changing the purpose of a property.”
Will companies from other at-risk sectors decide that construction is where the money is at?
“Sectors currently threatened by Coronavirus lockdown restrictions include hospitality, entertainment, leisure and travel. For any businesses in those sectors to pivot into construction they will need two things; the financial security to invest in land or existing property and, the resources and expertise to develop that new area of work.”
“Essentially, if businesses want to derive future income from construction, they will have to initially invest a lot of time and money. It remains to be seen how many businesses in at–risk sectors can afford such a large investment while under financial pressure in the immediate future.”
With big retail and hospitality companies looking to get in on a piece of the pie, do existing construction companies have some new rivals to contend with or is there enough work for everyone?
“I believe that we are a long way away from seeing any significant changes in the UK construction industry. Although John Lewis diversifying into construction is interesting, there aren’t many big companies in retail, travel, tourism or leisure that boast similar assets or resources.”
“Hospitality is the only industry that could pivot into construction. Hotel chains could decide to repurpose some properties into residential developments, but it remains to be seen whether those properties would be fit for the desired purpose.”
“It is true that there is a huge opportunity for businesses from struggling sectors to meet construction demand over the next few years. However, many of them lack the ability to invest in such a resource heavy industry at the moment.”
“In short, existing construction companies shouldn’t feel threatened by businesses from other sector pivoting into construction. Any new rivals will have to heavily invest in such a repositioning of their brands.”
The answers to all these questions will shape the future of construction in this country. Here at Insight Data we are interested to see how John Lewis start to branch out into construction. They may be new pioneers leading the way or an anomaly trying to diversify.
Insight Data have been providing innovative data sales and marketing solutions since 2007. Our knowledge of the construction and fenestration industries has been built through years of experience servicing businesses in those sectors. It is also informed by the industry and prospect data we collect on an ongoing basis.
If you’d like to find out more Insight Data or how we help businesses to get the best customers, talk to us today.
