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Shifting sales period impacting retailer margins

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MEDIA RELEASE: The upcoming Click Frenzy, Black Friday and Christmas sales will be the most telling trading period for retailers in more than a decade, with many potentially unable to move stock as the traditional retail calendar shifts post-COVID, according to HLB Mann Judd Sydney risk advisory partner, Todd Gammel.

According to Mr Gammel, discounting has been brought forward into November, impacting margins for Spring and Summer stock.

“Historically, fashion businesses that had working capital issues from poor performance could bounce off the back of a good spring that could then fund the following Summer and Winter, creating further momentum for the business.

“Coupled with severe supply chain issues however, a bringing-forward of the sales period will mean some of these businesses will now have excess stock, which will very soon be considered old stock once new season collections arrives. As a result, this could lead to an increase in distressed sales or insolvencies.

“The discounting period is now longer and the stock disposal approach previously used for older stock has less impact; customers are more astute in looking for value and discounts,” he said.

Mr Gammel said discounting has traditionally been used by retailers to move slow-moving stock or to drive customers to online offerings and build databases. However, customer attitudes have changed significantly, resulting in increased international competition across categories and customers expecting specific stock offers.

“Retail margins – which have already taken a hit during the COVID lockdown periods of the past 18 months – are unfortunately likely to see this continue for a few months yet,” he said.

Supply chain issues will also continue to have an impact on the retail sector. Supplier preferences, increased transport costs and more uncertain timeframes are collectively putting increased pressure on margins.

“As an example, retailers could access stock from suppliers and manufactures across Asia in a few days. This led to an ability to effectively store stock at the manufacturer until required, eliminating warehouse storage costs and simplifying stock management.

“COVID has impacted supply chains from supply terms to transport and distribution, particularly for supply to and from Asian markets,” he said.

Mr Gammel recommends retailers create a change in their stock ordering approach, and return to older-style ordering for the season in larger batches to ensure stock is in store as its required.

“This will ensure enough stock is available rather than drip feeding stock over time.

“Seasonal-led retailers will also need to consider whether the next season’s investment is worth the risk, particularly if there is residual stock available to fill stores and/ or sell online. Transport-related supply issues will like reduce towards the latter stages of the year, but will create headaches for retailers in the interim,” he said.

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HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.

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