Retailers gear up for strong 2016 with marketing drive

Amanda Firth |

08 December 2015

Australian retail sales lifted again in FY15, despite some high-profile losses, as the sector gets ready to leverage ideal consumer conditions in 2016 by increasing marketing investment.

BDO’s 2015 Spend Trend report – released today – provides an annual health check for Australia’s $292 billion retail sector by analysing key 2014-15 financial ratios and indicators for 18 ASX-listed retailers, including Wesfarmers (WES) and Woolworths (WLW), as well as 13 US and UK-based retailers.

According to BDO partner and retail specialist John Bresolin, this year’s report revealed some positive signs for Australian retailers and shareholders, as last week’s hold in interest rates and the lower Australian dollar combine to make shopping locally more attractive to consumers.

“Australian specialty retailers* increased sales revenue by 5.3 per cent (approx. $1 billion) from 2014-15, however this is in contrast to a 9.4% increase by the international retailers,” Mr Bresolin said.

“To help increase their market share and help leverage consumer confidence, Australian retailers boosted their marketing spend by 35.7 per cent in relative terms, including investment in digital marketing to coincide with an increasingly mobile marketplace.

“Many retailers now employ dedicated social media staff or have appointed a digital marketing department to coordinate these efforts, with tools like Facebook, Instagram and YouTube being used heavily in key sales periods such as the lead up to Christmas.”

LUSH Cosmetics Brand Communications Manager Natasha Ritz said the company uses social media to drive engagement, provide fantastic customer care, discuss topical issues, drive brand loyalty and build trust.

“We are moving towards a more omni-channel approach by connecting messaging digitally and in stores, and we are always looking at opportunities to use technology to better serve our customers in whichever way they’d like to engage with us as a brand,” Ms Ritz said.  

“Social media allows LUSH to tell our story, share content and encourage conversation, not just about our brand or products but topical issues and deeper messages, to help build trust and relationships with our customers.”

According to Mr Bresolin, this social media surge amongst Australian retailers has coincided with some encouraging growth in online sales, with many recording significant double digit growth in relative terms.

“However, they still have a long way to go if they are to match their international counterparts, whose online sales represent well in excess of 10 per cent of their total revenue,” said Mr Bresolin.

Crucial business KPI’s such as sales revenue, net profit margin, gross margin and gearing have improved or remained stable, despite uncertain economic conditions and increased competition from large international retailers entering Australian shores for the first time.

However, despite these promising results, the larger international retailers are still outperforming Australian companies in key areas of revenue growth and net profit margin.

The full Spend Trend 2015 report is available for download at http://www.bdo.com.au/resources/publications/retail/spend-trend-2015 and includes interviews with LUSH Cosmetics and IKEA Australia.

ADDITIONAL KEY FINDINGS

  • While Australian specialty retailers recorded an 18.7 per cent increase in average net profit margins to 4.3 per cent – boosted largely by Billabong’s write-downs in 2014-15 – the international retailers still maintained a higher average rate of 5.3 per cent.
  • Australian speciality retailers saw gross profit margins drop 2.9 per cent in 2015, compared to a slight increase of 0.3 per cent for the broader group and 0.6 per cent for international retailers. This would indicate that that local retailers are still discounting in order to gain or in some cases protect their market share.
  • Australian speciality retailers are less reliant on debt-driven investment, with a relatively low gearing ratio of 27 per cent (23 per cent for the broader Australian retail group), compared to 66 per cent for the international retailers.
  • Across the broader Australian retail group, creditors are being paid in 47.9 days on average, in contrast to 59 days for international retailers.
  • Stock is moving more slowly for Australian retailers, a slowdown of 4.8 per cent to 55.5 days for the speciality retail group and a 4.3 per cent drop to 31.9 days for the broader group. Bucking this trend slightly were the international retailers, increasing 0.4 per cent to 45 days in FY15.