Retail

Small reduction in DWC, with retailers managing slower inventory turnover by delaying payments to suppliers.

Consumers continued to be impacted by cost-of-living pressures in FY25. While ABS retail sales data showed growth, this was driven by grocery and other non-discretionary spend, reflecting pressure on household budgets and limiting retailers’ (particularly discretionary) ability to increase prices. In the face of rising labour and occupancy costs, larger retailers invested in omnichannel platforms and focused on tighter supply chain management and pricing strategies to maintain profitability.

Notably, five of the six largest retailers in our sample delivered EBITDA growth in FY25. By contrast, only 42% of the remaining 24 sampled companies reported higher EBITDA, highlighting the challenges faced by the smaller to mid-sized operators.

From a working capital perspective, average DWC fell by 1.1 days to 41.2 days, which represents the third straight year that the net working capital cycle has shortened. DSO decreased by 0.3 days to 15.8 days, although only 40% of the sample recorded a reduction. The majority of the DWC improvement came from higher DPO (by 4.1 days) as suppliers were paid more slowly. This follows the trend from FY24, where retailers slowed down payments to suppliers to help mitigate the cash flow impact of holding more inventory. DIO increased by 4.1 days to 112.8 days in FY25 and represents an average increase in inventory holdings of 5% across the sampled retailers. Similar to FY24, this is most likely due to lower-than-expected sell through in the current environment rather than a deliberate decision to hold more stock.

International benchmarks indicate that Australian retailers maintain faster collection and payment cycles than their Asian, European and US counterparts (lower DSO and DPO), but continue to carry more inventory than retailers in Asia and the US.

Looking ahead to FY26, consumer and retailer sentiment will continue to be tightly bound to any further movements in inflation and interest rates. This means that effective pricing strategies and careful inventory management will continue to be critical as retailers attempt to preserve earnings and liquidity.