Retailers face the daunting challenges of managing inventory, staff, storage, shelf space — and, in most cases, a digital storefront — all while gauging consumer demand, which can be seasonal.
On top of that, retail is a hyper-competitive industry. If retailers haven’t got the right stock on hand, it’s as simple as a short drive or a mouse click for a consumer to get what they need from another merchant.
The PYMNTS Intelligence report “The 2024-2025 Growth Corporates Working Capital Index,” commissioned by Visa, found that in general, there is growing interest in, and embrace of, external working capital solutions by middle-market firms, also known as Growth Corporates. These are firms with top lines between $50 million to $1 billion. PYMNTS studied the responses of 1,297 chief financial officers across five global regions and 23 countries, spanning eight industries.
The high-level takeaways are that CFOs and treasurers want relationship-based banking and working capital solutions tailored to their specific industries and needs. For retailers, capital is critical to make the upfront investments in inventory so that it is on hand to meet anticipated demand.
As many as 81% of Growth Corporates used at least one working capital solution this year, up 13% from last year, the report revealed. An index score was created to measure percentage chains from year to year. Retailers and marketplaces, with a 56.4 score, outpaced the overall 52.3 reading, up 7.6% from last year. Europe and the Central Europe, Middle East and Africa regions were higher. The latter region, especially, showed a 26% gain in its overall index score.
However, 40% of retail and marketplace players said there’s a misalignment of the working capital solutions banks offer and what they need, the report found. The opportunity for financial institutions to tailor their products and services to the needs of retailers and marketplaces is significant, given the fact that 91% of companies in the segment said that they will look to use an external working capital solution next year.
Thirty percent of retailers used external solutions to underpin growth initiatives, a metric that was 52% higher than last year. The data showed that across industries, corporate and virtual cards are among the third-most-popular working capital solutions among top performers. They are seen as an efficient option, as they have a built-in days payable outstanding (DPO) extension while paying suppliers earlier. Twenty-two percent of retailers and marketplaces said they see virtual cards primarily as a payables tool.
Supplier relationships are key, given the fact that it is suppliers who provide retailers with inventory. A further 43% of Growth Corporates in the retailing pantheon said they integrated suppliers into their accounts payable systems, and 94% said the integration also led to cash flow predictability, with 46% stating that early payments were a hallmark of those integrations.
Days payables among the top performers in the retail and marketplace segment were 43 days, below the overall 44 days across all industries. The cash flow conversion cycle was 18.6 days, below the overall 24.3 days.
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