13
Creating Value through Working Capital Cash for Transformation Working Capital Trends in the DACH Retail Sector 2019/20
Creating Value through Working Capital
Cash for TransformationWorking Capital Trends in the DACH Retail Sector
2019/20
PwC
Working capital detailsPreface Executive
summary
Revenue and working capital
trends
Working capital performance
drivers
1 2 3 4 5
PwC
How we engage with
clients
6
22019/20Working Capital Trends in the DACH Retail Sector
PwC
Preface
Welcome to PwC’s 2019 working capital study of the 50 leading retail companies within the DACH Region.
Working capital performance has improved slightly since 2017, despite further revenue growth, while companies are enhancing their focus on working capital and cash flow management. A key driver of year-on-year improvement is an optimised inventory level of approximately - 0.5 days DIO (days inventories outstanding) in the 2018 fiscal year.
One of the most challenging trends in the retail sector is the rapid change in customer behaviour. Customers are demanding a wide variety of products, available (and deliverable) in very short timeframes with fast and efficient return options.
Both traditional retailers and online players are currently adjusting their business models in the face of these changes. Cash investments to move towards online business or store applications are therefore essential. Retailers must continue to optimise their operational processes to minimise their working capital position, and to use the cash this releases for transformation.
The study covers the key working capital trends among the leading DACH retails, in various retail subsectors and at various level of performance. Our analysis has assessed key drivers of the working capital trends, which indicate €2.3bn net working capital (NWC) in the retailers’ balance sheets, and shows how retailers can enhance cash and working capital in a sustainable way.
These improvements are necessary, as EBITDA and EBIT ratios have deteriorated over the last five years and high free cash flow is required to manage digitalisation.
PwC can support you in transforming your business model.
Dr Christian WulffPartner,Retail & Consumer Leader PwC Germany
32019/20Working Capital Trends in the DACH Retail Sector | Preface
PwC
Online retail NWC performance has improved by 5.6% since 2014. The YoY trend also shows an improvement of 0.5%.
DPO performance is stableat +0.1 days YoY. However, performance has improved by +1.3 days over the last 5 years.
DIOperformance has improved by 0.5 days over the last year. The 5-year trend shows a deterioration of 1.6 days.
DSOperformance is stable, with YoY delta of 0.1 days. However, DSO has worsened by 0.7 days since 2014.
5 out of 7 sectors have seen an improvement in NWC days since 2014.
Food and hypermarketsNWC performance has deteriorated by 1% since 2014. The 5-year trend shows stable development.
Overall NWCYear-on-year (YoY) performance improved by 0.5 days. The 5-year trend shows a fall of 1.0 day deterioration.
22 of the 50 companieshave shown a negative NWC performance trend since 2014.
€2.3bnof NWC is tied up in balance sheets of the 50 leading retail companies.
Executive summary
42019/20Working Capital Trends in the DACH Retail Sector | Executive summary
PwC
3,4% 3,3% 3,6% 3,3% 3,3%
0%
2%
4%
6%
250
300
350
400
FY14 FY15 FY16 FY17 FY18
YoY revenue trend and EBIT development in the DACH retail sector
The retail sector has shown overall revenue growth over the last five years
Rev
enue
in €
bn
EBIT
ratio
in %
10
23
17
Number of companies(FY18, split by revenues)
Over €10bn€1bn-€10bnUnder €1bn
€283bn€86bn
€10bn
Revenue distribution of companies(FY18, split by revenues)
Over €10bn €1bn-€10bn
Up to €1bn
+19%
50% increase in
e-commerce sales since
FY14
Revenue trend 2014-2018
Revenues for the 50 leading companies in the German, Austrian and Swiss retail sectors have increased by 19% since FY14. This number has been bolstered an overall sales increase of 3% in FY18.Nevertheless, EBIT decreased slightly over the same period.
10%Lowest growth (min)
in specialitystores
53%Highest growth in
sportswear
52019/20Working Capital Trends in the DACH Retail Sector | Revenue and working capital trends
PwC
€2.3bnrise in
working capital since
FY14
4.9
6.86.1 6.4 5.9
0
2
4
6
8
0
2
4
6
8
10
FY14 FY15 FY16 FY17 FY18
YoY Working Capital trend in the DACH retail sector
Working capital levels have increased over the past five years, but there is still a positive YoY trend
22
Food and hypermarkets8% YoY increase in working capital, with sales growth of 3%
Sportswear7% YoY decrease in working capital,with sales growth of 5%
Wor
king
cap
ital i
n €b
n
NW
C d
ays
Wor
king
cap
ital i
n €b
n
NW
C d
ays
Wor
king
cap
ital i
n €b
n
NW
C d
ays
-10
-8
-6
-4
-2
-3
-2
-1
0FY14 FY15 FY16 FY17 FY18
70
80
90
100
0
2
4
6
FY14 FY15 FY16 FY17 FY18
+35%
-49%
+30%
Working capital performance has deteriorated since FY14, also there was a recovery in FY18.
Over the past five years, an additional €2.3bn has been tied up due to worsening working capital performance. This resulted in an overall increase of 1 days working capital. Key contributors over the period have been an increase of DSO by 1 day and of DIO by 1.6 as well as 1.6 days, while DPO also rose by 1.3 days.
2018 saw a recovery in NWC performance, drive in particular by DIO enhancements.
However, there is still room for further improvement for the leading 50 retailers when compared to the best performers in each subsector and their historic best performances.
62019/20Working Capital Trends in the DACH Retail Sector | Revenue and working capital trends
PwC
NWC days
DPO and DIO performance show positive YoY trends, while DSO has decreased slightly over the last 12 months
4.9
6.86.1 6.4 5.9
13.4 13.5 13.5
14.0 14.1
13
14
49.0
50.8 51.0 51.1 50.6
48
57.5 57.658.3
58.7 58.8
57
59
DPO
DIO
DSO
YoY –0.5 NWC days
YoY +0.1 DPO days
YoY –0.5 DIO days
YoY +0.1 DSO days
NWC performance has deteriorated over the last 5 years.
This NWC trend is driven by the development of DIO and DSO.
Nevertheless, a positive trend from 2017 to 2018 is visible in DIO and DPO
performance, while the DSO trend shows no improvement compared to the
previous year.
22 of the 50 leading retailers have increased their NWC ratio since 2017. More than 45% of NWC deterioration comes from the food and hypermarket
sector, which still has a negative working capital ratio.
FY14 FY15 FY16 FY17 FY18
72019/20Working Capital Trends in the DACH Retail Sector | Working capital details
PwC
-10
0
10
20
30
40
50
60
-100 -50 0 50 100 150 200 250 300
Rev
enue
s (b
n)
NWC days
The DACH retail sector has a wide NWC performance variance
Working capital performance
DPO
DIO
DSO
Days
3 2211
52 13381
38 8053
0 1206020 40 80 100
Median
Upper quartile
Lower quartile
The working capital performance range shows high variances across the retail sector, with an overall median of 43 days working capital.
The sector’s business model is mainly B2C, which typically creates low days receivables (DSO) and higher days inventory (DIO). These are the main drivers of the overall working capital performance.
The majority of the retail companies could release a significant amount of cash by raising their working capital performance to the next performance quartile. Inventories in particular could deliver a high cash potential by enhancements in ordering and warehouse processes.
Company (revenue/NWC days)
140
High performance Median Low performance
NWC 9 8643
82019/20Working Capital Trends in the DACH Retail Sector | Working capital details
PwC
-15.4
-5.6
24.7
33.0
43.5
77.6
87.3
-40 -20 0 20 40 60 80 100
Speciality Stores
Food & Hypermarkets
Online Retail
Home Retail
Department Stores
Sportswear
Apparel, Accessories and Luxury Goods
Average net days working capital by retail subsectors
Retail sector working capital performance shows negative YoY development in four out of seven subsectors
Speciality stores
NWC and revenue improved, reaching -15.4 NWC days and €48.7bn revenues (FY18).
Revenue increased by 3% compared to 2017.
NWC decreased by 1 day compared to FY17 due to DPO enhancements and partially offset by worsening DSO and DIO as sector pushes the online sales channel.
Apparel, accessories
and luxury goods
NWC deteriorated to 87.3 NWC days, while revenue increased to €18.5bn (FY18).
Revenue increased by 3% compared to FY17.NWC increased by 2 days compared to FY17 due to less effective inventory management.
NWC days
> 50,000
> 13,000
> 4,500
> 1,800
> 8,500
> 11,000
FY18FY17
No. of stores
Apparel, accessories and luxury goods
Sportswear
Department stores
Home retail
Online retail
Food and hypermarkets
Speciality stores
92019/20Working Capital Trends in the DACH Retail Sector | Working capital performance drivers
PwC
The positive overall YoY NWC trend is driven by specific subsector performance improvements
6494
50
17
78 89 8363
90
51
18
76 8674
0
50
100
135107
35 3770 66
120131103
36 3470 65
126
0
50
100
150
DPO
DPO, DIO and DSO YoY performance by retail subsectors
DIO
DSO
Main NWC impact
102019/20Working Capital Trends in the DACH Retail Sector | Working capital performance drivers
1731
9 1332
8
41
1832
9 13
33
6
41
0
20
40
60
FY18FY17
Apparel, accessories and luxury goods
SportswearDepartment stores
Home retail Online retailFood and hypermarkets
Speciality stores
PwC
The retail sector is going through a phase of transformation driven by changes in technology, consumers and business
Retail companies are facing specific NWC challenges and need to manage them properly:
• Changing customer behaviour demanding greater variety and immediate availability of products
• Increased retail business flowing through e-commerce providers
• Extended DSO due to a high proportion of purchases being made on account
• High expectations and importance of product returns
• Global sourcing vs. near-sourcing
• Seasonality and stock availability challenges together with a demanding customer base
Supplier Warehouse Customer
Quick scan Diagnostics Design Implementation
We can help you to:• Identify and realise cash benefits across the
end-to-end value chain
• Optimise operational processes that underpin the working capital cycle
• Increase transparency and cash performance through data analytics and digital working capital solutions
• Enable rapid cash conservation to support transformation
• Provide insights and support with trade finance solutions
112019/20Working Capital Trends in the DACH Retail Sector | How we engage with clients
PwC
DACH retail working capital Retail contacts and key authors
Our global working capital network
MethodologyThis study provides an overview of the 50 leading German, Austrian and Swiss retail companies following the Capital IQ sectorisation. All calculations are based on publicly available data. The division of subsectors is based on Capital IQ Primary Industry classification (data available for 100% of sample).
Metric Definition Basis of calculation
NWC % (net working capital %) NWC % measures working capital requirements relative to the size of the company. (Accounts receivable + inventories – accounts payable) ÷ sales
NWC days (net working capital days) Indication of the total days to complete the full cash conversion cycle. (Accounts receivable + inventories – accounts payable) ÷ sales x 365
DSO (days sales outstanding) DSO is a measure of the average number of days that a company takes to collect cash after the sale of goods. Accounts receivable ÷ sales x 365
DIO (days inventories outstanding) DIO gives an idea of how long it takes for a company to convert its inventory into sales. Inventories ÷ cost of goods sold x 365
DPO (days payables outstanding) DPO is an indicator of how long a company takes to pay its trade creditors. Accounts payable ÷ cost of goods sold x 365
Rob KortmanPartner +49 170 [email protected]
Christoph SchieckManager +49 160 [email protected]
CanadaJoseph [email protected]
CEEPetr [email protected]
DenmarkRené Brandt [email protected]
FinlandMichael [email protected]
FranceFrancois [email protected]
IrelandDamien [email protected]
ItalyPaolo [email protected]
JapanMichio [email protected]
Middle EastMihir [email protected]
NorwayRobert [email protected]
MalaysiaGanesh [email protected]
The NetherlandsDanny [email protected]
PolandPawel [email protected]
SpainArnaud [email protected]
SwitzerlandBenjamin [email protected]
United KingdomStephen [email protected]
USASteven J. [email protected]
VietnamMohammad [email protected]
Basis of calculations
122019/20Working Capital Trends in the DACH Retail Sector
pwc.de
© 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.All rights reserved. In this document, “PwC" refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
