Retail stable despite challenges

birkenhead, shopping, shopAustralian 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, according to research from BDO.

Sales revenue, net profit margin, and gross margin have improved or remained stable despite uncertain economic conditions and increased competition from large international retailers entering Australia.

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

“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 per cent increase by the international retailers,” said BDO partner and retail specialist, John Bresolin.

“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.”

BDO’s 2015 Spend Trend report released today analysed 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.

The report found 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, with international retailers maintaining a higher average rate of 5.3 per cent.

BDO also observed that 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.

According to Bresolin, the social media surge among 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 Bresolin.

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