FOCUS 19
by MARK RADDAN and BEN TATHAM
S
ighs of relief are being heard in the retail sector. After fi ve years of challenging market conditions, buoyant Christmas trading has roused optimism for a return to
growth. Anticipating an uplift in sales, retail chiefs are rethinking their working capital strategies. They’ve spent half a decade focused on reducing working capital, holding less stock and becoming leaner. Now, they are contemplating how best to capitalise on a changing economic environment in order to gain fl exibility.
Figures for 2012-13 indicate that every pound of sales growth warrants an additional 12 pence in working capital funding . For many retailers, these green shoots of recovery are a cue to start raising fi nance. Businesses that did not fully pare back working capital during the downturn may fi nd that current levels are suffi cient to fund growth; others may look internally for fi nance. Third- party debt, though a useful fall-back, inevitably increases operating risk.
Getting ready for recovery
FIGURES FOR 2012-13 INDICATE THAT EVERY POUND OF SALES GROWTH WARRANTS AN ADDITIONAL 12 PENCE IN WORKING CAPITAL FUNDING.
I don’t believe that it’s a case of throwing out established cash cultures and embracing new philosophies. Instead, retailers need to build fl exibility into their working capital management so they can respond decisively if the upturn comes in 2014, but also hold off if recovery is delayed. For some, this may mean having access to inventory if they need it, but without being overly burdened if they don’t. They are therefore looking more closely at their working capital drivers to better organise their supply chains.
Consider European retailers that are reliant on supply chains in Asia. They’re looking at a minimum three-month lead time from order to delivery. They risk losing out to competitors that have established more collaborative and responsive relationships with their suppliers.
Take, for instance, European retailers that are reliant on supply chains in Asia. They’re looking at a minimum three-month lead time from order to delivery. They risk losing out to competitors that have established more collaborative and responsive relationships with their suppliers.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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WORKING CAPITAL
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