DSO 1.3 ⇓

DIO 7.0 ⇑

DPO 2.7 ⇓

DWC 2.5 ⇑

Increasing DIO as a result of COVID sales volatility, supply chain concerns and extended lead times drove a 2.5 day increase in DWC.

Retail has continued to benefit from a redirection of consumer spending from sectors adversely impacted by COVID (such as tourism, entertainment, leisure and hospitality) with 95% of the sample reporting revenue growth (11.1% on average).

Further, 86% of the sample recorded EBITDA improvements in FY21, with an average EBITDA improvement 26.6% reflecting the ability to manage fixed costs (albeit largely through stimulus measures such as JobKeeper and rent relief) alongside that revenue growth.

The varied impacts of COVID meant the working capital position of many operators experienced significant volatility throughout the year, ending with a 2.5 day extension in DWC to 41.3 days across the sector (equating to an additional working capital lock up of $1.2bn).

85% of the increased revenue was generated in H1 coinciding with the easing of restrictions, with a greater sell through of inventory through December compared to the prior year. Most operators enjoyed strong cash balances (holding 2.5 times the cash compared to the same time the prior year) assisted by JobKeeper but also due to deferring payments to creditors (including landlords as they worked through rental relief negotiations).

While sales remained elevated in H2, there was a reversal of the H1 working capital trends and overcorrection to beyond prepandemic levels as restrictions eased and consumer confidence soared. Retailers accelerated supplier payments by 3 weeks on average in H2, releasing some of the cash reserves in December.

Faster payments were likely a mechanism to secure and accelerate stock purchases to meet increasing demand, with a week of additional stock on hand at year end (to 112.4 days or nearly 4 months of sales). Concern over global supply chain disruptions leading to some earlier and larger ordering, coupled with new lockdowns in response to the Delta strain both contributed to the year-end inventory balances being higher than 2020.

In response to COVID, 73% of retailers increased their investment in capex (20% on average) with a focus on online capabilities, to reflect the ongoing shift to e-commerce, and investment in supply chain and logistics system upgrades.

The eventual easing of restrictions on the back of community vaccination is likely to see a further reversion to pre-pandemic consumer behaviour and spending habits, which could represent a head wind to the retail industry as consumers have more options to spend their money on, including travel.

View the Retail sector video, highlighting key findings from the 2021 McGrathNicol Working Capital Report.

“COVID continues to cause disruption to logistics globally and to stores in Australia, as well as causing uncertainty and volatility in consumer confidence and spending.”

City Chic Limited
2021 Annual Report


COVID-19 Impact

Net working capital performance

Cash Impact ($'m)*

*A positive cash impact is a “release” of cash from working capital (improvement). A negative cash impact is additional cash invested or “locked up” in working capital (deterioration).

Retail - Financial Year
Days 2020 2021 Change
DSO 17.5 16.2 (1.3)
DIO 105.4 112.4 7.0
DPO 56.9 54.2 (2.7)
DWC 38.8 41.3 2.5
Retail - Half Year
Days H1 2021 H2 2021 Change
DSO 17.2 15.7 (1.5)
DIO 103.0 114.2 11.2
DPO 76.6 55.4 (21.2)
DWC 28.7 40.9 12.2
Best & Worst
Days Best Worst Spread
DSO - 95.9 95.9
DIO 3.0 301.1 298.1
DPO 202.6 13.9 (188.7)
DWC (56.0) 158.9 214.9
International Benchmarking
Days AU Asia EU US
DSO 16.2 17.9 13.2 15.1
DIO 112.4 48.1 44.3 72.1
DPO 54.2 41.3 52.7 54.3
DWC 41.3 23.0 5.5 24.4