Australian retailers closing the gap on their international counterparts

15 December 2016

Australian retail sales have shown further uplift in FY16, despite some high-profile losses. Whilst results for many ASX listed retailers varied, overall sales revenue, net profit margin, gross margin and gearing have improved or remained stable, in the face of uncertain economic conditions and increased competition from large international retailers.

BDO’s 2016 Spend Trend report provides an annual health check for Australia’s retail sector by analysing key 2015-16 financial ratios and indicators for 18 ASX listed retailers - including both Wesfarmers and Woolworths, as well as 13 US and UK retailers including Target and Macy’s.

BDO partner and retail specialist John Bresolin said this year’s report saw some promising results, with Australian specialty retailers closing the gap on their bigger international counterparts.

“Australian specialty retailers were the stand-out performers this year, with increases in both revenue and gross margins. Sales revenue saw a significant rise of 8.5% for FY16, an increase of 3.4% on the previous year.” Mr Bresolin said.

In the world of online, Australian Retailers are still trailing their international counterparts as a percentage of overall sales. However, some retailers such as the OrotonGroup, have shown encouraging growth in online sales. OrotonGroup achieved online sales of 12% (of total revenue), an increase in relative terms of more than 50% from FY15.

Oroton’s CEO Mark Newman said as an early mover to online, they now have a mature web store that has been in operation for nearly ten years.

“Our main focus now is on delivering the best service levels we can, from landing page experience to the delivery of the product,” says Newman.

“Our customers have told us that they want to be able to interact with our brand both on and offline so it is important that we allow them to do that and deliver that experience in the best possible way we can” says Newman. As such, Oroton is heavily focused on enhancing the customer experience, both online and in-store.”

According to Mr Bresolin many Australian luxury retailers struggle to enforce a successful omni-channel presence.

“Oroton is a great example of a retailer striking the right balance between connecting with their clientele via digital mediums, whilst still providing a consistent personalised and emotive consumer experience.”

The full Spend Trend 2016 report is available for download at https://www.bdo.com.au/en-au/insights/publications/retail/spend-trend-2016 and includes interviews with the OrotonGroup and GlamCorner.

ADDITIONAL KEY FINDINGS

  • Australian specialty retailers recorded an average net profit margin increase of 4.3% in FY16. Conversely, international retailers saw a fall of 7.8% net profit margin from FY15.
  • Gross margins have remained fairly stable, with the National retailers recording a slight increase of 2.9% in FY16. Australian specialty retailers’ revenue growth was marginally reflected in the gross margins which saw a 0.6% increase. Meanwhile, international retailers saw a decrease of 0.9%.
  • Overall, salaries, rent and marketing expenses as a percentage of sales have decreased, largely due to cost-cutting strategies including cheaper marketing channels and a focus on omni-channel distribution.
  • The amount of time retailers are taking to pay their creditors is reducing on both sides of the world. Creditors are being paid in 61.2 days on average in Australia, in contrast to 51 days for international retailers.
  • Stock turnover for Australian retailers has improved, increasing 3.0% to 53.5 days in FY16 whilst international retailers have experienced a marginal slowdown of 5.2% to 47.5 days.
  • Australian retailers continue to be significantly less geared that their international counterparts, up to 2.5 times less.