Retail became more inefficient as a sector over the last year, with the headwinds facing the industry affecting more than just the bottom line, according to the 2019 Working Capital Report by McGrathNicol Advisory.

The retail sector was the only sector surveyed to see increases in both average days inventory outstanding (DIO) to 126.1 days and days sales outstanding (DSO) to 22.3 days – as well as an increase in average days working capital (DWC) to 58.4 days. 

This means retailers held onto inventory longer before selling through, while taking longer to collect payment from customers and clients.

“Over half of the retail businesses we surveyed reported an increase in DWC in 2019, as inventory levels increased. Retail is an industry continuing to face headwinds as well as a more demanding customer,” McGrathNicol advisory partner Jason Ireland said. 

“Many businesses are still determining the right inventory holding strategy.”

Despite the macro-economic headwinds and inefficient use of resources, the industry as a whole saw a 9 per cent increase in revenue, with 85 per cent of business’ surveyed reporting an increase. However, the uptick in revenue didn’t translate to a blanket improvement in EBITDA, with one in four of the businesses seeing a contraction in earnings. 

“This suggests that there continues to be pressure on margins and a limited ability for some retailers to pass on cost increases to consumers in a highly competitive environment,” the report said. 

This was exemplified in Flight Centre’s results posted last week, with managing director Graham Turner stating the business had seen profit fall despite total transaction value increasing. 

“Our challenge so far this year has been translating solid top-line growth to the bottom line,” Turner said at the travel business’ annual general meeting. 

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