ATO benchmarks for clothing stores

The ATO's clothing retailing industry is made up of shops selling clothes and accessories, some of which also take on alterations. For clothing retailers the ATO's key range is cost of sales against turnover, which it considers the most accurate pointer to a store's turnover.

The ATO groups retailers by main activity and leaves out stores whose turnover falls under or over set limits, stores that report multiple activities and stores yet to finish a year of trading as the year opened. Outlying results are removed as well.

Turnover is the store's sales of goods and services, alterations included, excluding GST. Total expenses is every business cost bar the payments made to associated persons, family members among them. Cost of sales is a narrower slice that excludes salary and wages. The ATO treats it as a sound guide to a retailer's sales because the cost of stock generally moves in step with them.

For a clothing store, the garments and accessories bought from brands and wholesalers to sell make up cost of sales, which also sits inside total expenses. Shopfront rent, sales staff wages, card fees, advertising and shop power count in total expenses but not in cost of sales. Labour, rent and motor vehicle shares for clothing retailers sit on the ATO's industry page too.

Each published range is a band of stores bunched around the clothing retail mean in that turnover range. The figures are whole numbers, and the band is neither a ceiling nor a floor. Clothing retailing has turnover ranges of its own, set from the spread of this industry's results.

The total expenses share climbs with turnover, and its band gets tighter at every step. In 2023-24 it matches 2022-23 exactly in the lowest and highest ranges, while the middle band moved down slightly at both ends.

Cost of sales rises from the lowest range to the middle one, then changes little. In 2023-24 its floor keeps climbing while its ceiling is a touch lower in the highest range than in the middle one; in 2022-23 both ends rose all the way. The band narrows as turnover grows in both years. Against 2022-23, the lowest and highest 2023-24 bands fell at both ends, while the middle band widened, with its floor lower and its ceiling higher.

When cost of sales runs above the band, stock is expensive relative to what the store sells. In a clothing store that can trace to heavy markdowns and end-of-season clearance eating into the mark-up, small orders bought at higher prices than chains pay, garments lost to theft or damage, or clothes the owner takes home to wear that are still counted as the store's stock. Sales missing from the books, such as cash sales never rung up, push the share up too, and rent or staffing that is high for the sales volume shows in total expenses.

Below the band, stock invoices may have been coded to a general expense account, or some may be missing altogether. A higher mark-up than other stores, or tight control of shrinkage, also brings the share down. Common recording slips can be ruled out with these checks:

• Every supplier invoice for stock entered, including deliveries that arrive in the last weeks of June
• A full count of garments and accessories on hand when the financial year closes
• Point-of-sale reports agreed to card settlements, cash banked and online payouts

Working from a full financial year's profit and loss, cost of sales over turnover gives the key ratio and the same sum with total expenses gives the other, each compared with the band for the store's turnover range. A part year, a first year, a year when a flood clean-up added an unusual one-off cost, or a store running another activity alongside retail reads differently, because the ATO's bands leave out first-year stores, multi-activity businesses and outlying results. A store earning much of its income from alterations carries less cost of sales against that income, and the ATO points stores with little cost of sales to total expenses.