Retail

Average DWC decreased with retailers delaying payments to suppliers in response to slower inventory turnover in a challenging demand environment.

Retail revenue growth for the year across our sampled companies averaged 4.5%, which was below the 8% growth reported in FY23. Notably, 39% of the sample recorded revenue contractions in FY24 compared to 24% of the sample in FY23. When considered against a backdrop of CPI climbing by 3.8% in the 12 months to June 2024, and population growth running at approximately 2.5%, the sample’s growth, whilst above the broader sector growth rate of 1.6%, was very modest. ABS retail sales data showed underlying volumes and per capita spend remained flat or declined across most categories.

Compounding the demand issue, rising costs created further pressure on retailers and contributed to an average 0.4% reduction in EBITDA margins across the sample (68% of the sample companies saw EBITDA margin decline in FY24).

The 1.9 day decrease in DWC was driven by a 6.9 day increase in DPO as retailers slowed payments to suppliers to mitigate the effects of a 4.4 day rise in DIO. This represents an average increase in inventory holdings of 9% across the sampled retailers, most likely due to lower-than-expected sell through in the current environment rather than a deliberate decision to hold more stock. Inventory holdings for Australian retailers remains structurally elevated compared to the international counterparts, which is often attributed to Australia’s geographic remoteness.

Looking to FY25, high inflation in a number of non-discretionary spend areas, coupled with interest rates staying higher for longer, continues to subdue consumer confidence (albeit better than a year ago) and present revenue headwinds, despite government cost-of-living relief measures and tax cuts. The opportunity for significant recovery will only emerge with a meaningful reduction in interest rates (and if that does happen there are likely to be other demand factors associated with an economic slowdown to contend with). Margin pressure is also likely to continue as increases in utilities, insurance, wages and transport costs will be difficult to pass onto a consumer looking for discounts, not price increases.