From changes in demand to major supply chain issues and labour market uncertainties, the last three years have tested the innovation and adaptability of businesses. Through a comprehensive retail benchmarking analysis of the past three years, we gained valuable insights into the industry's evolution from 2021 to 2023.
Revenue resilience
The retail sector showed impressive adaptability, bouncing back swiftly in 2021 after the pandemic's impact from lockdowns in 2020. It is well documented that consumers unable to travel redirected their spending into the local retail sector. This was followed by continued growth in 2022 and stability in 2023, albeit with variations across market segments.
Smaller businesses (up to $50m in revenue) that concentrated on products considered discretionary spend struggled with falling revenues in 2023 following robust recovery in 2021. Meanwhile, mid-sized ($50m - $150m in revenue) and larger ($150m+ in revenue) businesses experienced more consistent growth, both with revenue increases of 6 per cent and 10 per cent respectively in 2023. This shows the retail sector’s strength in adapting to shifts in consumer behaviour and economic conditions, as well as the impact of pricing increases passed on to consumers helping offset rising operational costs.
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Bricks and Mortar stores outperformed other channels with 11 per cent year-on-year sales growth in 2023, reflecting consumer preferences towards physical shopping, prompting retailers to rethink in-store experiences. Additionally, top performers achieved 18 per cent revenue growth, showing the importance of effective product selection and efficient inventory management to maintain profitability amid rising costs and workforce challenges. These top performers are 15 companies in our analysis that have the largest annual growth in net profits after tax for 2023.
Profitability and cost management
In a changing market, navigating profitability demands agility and foresight. Average gross margins remained relatively stable over the last three years, reflecting an industry-wide awareness of direct costs and proactive management through pricing increases. Smaller businesses demonstrated higher gross margins at 50 per cent, compared to 44 per cent for mid-sized and 47 per cent for larger companies in 2023. This stability underscores retail resilience in maintaining profitability when faced with operational challenges.
In line with this, many companies are re-evaluating store footprints to reduce costs and improve productivity. Efforts include space optimisation, minimising labour requirements, and using physical space for experience-based services to attract customers back into stores.
Employee expenses
The labour landscape underwent significant changes, with a sharp increase in demand and concurrent shortages, alongside an increase in minimum wages by 5.75 per cent from 1 July 2023. Despite these market fluctuations, retailers kept employee expenses as a percentage of revenue relatively consistent year on year. This is largely due to pricing strategies to adjust for increased labour costs.
Alongside this, retailers embraced innovative talent retention strategies, leveraging flexible work arrangements where possible and training to help attract and retain talent.
Considering the wage increases in 2023 and a potential additional increase this year, workforce optimisation and process improvement are crucial to drive employee productivity and ensure business success.
Inventory management and supply chain optimisation
Inventory turnover days increased across the industry from 2021 to 2023, as retail and distribution businesses adopted cautious strategies to address supply chain disruptions. These challenges prompted a departure from the ‘just in time’ model to a more resilient ‘just in case’ approach, with investment in diversification and a focus on strengthening supplier relationships. Businesses focusing on supply chain enhancements reaped benefits such as reduced lead times and improved product availability.
Alongside this, investment in technology and automation became essential for operational efficiency to build a supply chain ecosystem more resistant to market fluctuations.
Debtor and creditor dynamics
Efficient management of receivables and payables was crucial during the pandemic-induced uncertainty. This reinforces the old adage that ‘cash is king’.
The average debtors and creditor turnover days remained relatively consistent year on year from 2021 to 2023. Despite an increase in revenues and increase in inventories. This indicates management prioritising receivables management, to preserve cash reserves, and showing the dynamic nature of financial management during uncertainty.
Outlook
As the retail and consumer products sector looks to the future, emerging technologies, data-driven insights, and innovative business models are key to seize opportunities for growth and resilience. By adopting a customer-centric approach, improving operational efficiency, and building collaborative partnerships, retailers can set a direction towards a future shaped by innovation, adaptability, and lasting success.
For more information into how your business benchmarks against your competitors, please reach out to our team of experts today.
About the data
The data is largely extracted from audited financial statements for businesses operating in the Retail and Consumer Products industry, including distribution businesses, the majority being Grant Thornton clients. All data has been aggregated to ensure no individual companies are identifiable. There is an element of judgement applied in the analysis, including adjusting the averages to exclude any major outliers.
