The Inflationary Effect On The Performance Of The Australian Retail Sector: A Case Study Of Woolworths

Literature Review

Discuss about the Examination on Determinants of Inflation.

Over the time, inflation rate has been playing the most crucial role behind the rise in the general level of prices of goods as well as services in any economy. Consequently, the buyers get less opportunity and thus it has been seen as one of the primary reason of erosion in the purchasing power of money. According to the Economists it can be said that high rates of inflation happens because of extreme development of the money supply (Galí, 2015). The increase in inflation therefore become cause of concern not only the economist but at the institutional level also, organisations are facing difficulties in deciding their strategy to overcome this issue and show a better performance.

The retail industry is taken into account as a mainstay of the economy since this industry subsidises major economic activities in the country. Consequently, such effective industry appeared sound alleviated economies in the world. It has seen that over the decades, the Australian retail sector has been considered as one of the leading contributors towards the national economy (Ashraf, Gershman & Howitt, 2016). According to Australian Bureau of statistics, this retail sector contributes almost 40% in terms of domestic employment and 8.5% towards nation’s GDP (Bhamra et al. 2017).  However, in recent time the practices in this retail sector has been changed drastically. These strategies considerably affects in the arrangement as well as enactment of retail sector in worldwide.

The retail sector in Australia is to a great degree aggressive and alienated owing to the presence of both global and domestic players working all over the nation. To maintain themselves in the seriously aggressive market situation, retail organisations are acquainting imaginative items to meet the changing purchaser requests and enhance their client base. According to the retail business investigation, the competition will furthermore augment down the line considering the involvement of a few new players, price wars, and mergers and acquisitions (Bertay, Demirgüç-Kunt & Huizinga, 2015). The online marketing will assume a key part in the development of the market in the coming a long time with most of the merchants deciding on this retail channel, boosting the Australian retail showcase estimate.

The retail industry in Australia is seeing a pattern where clients are progressively shopping at stores that offer items at low costs. The greater part of the buyers in Australia will shop at discount stores nearer to their home. With shopping going the savvy way, individuals are more into purchasing products as opposed to stocking up on a week by week premise. This has pushed a few little retail arrangements, for example, convenience stores and independent stores to develop in residential areas and rural areas crosswise over Australia (Baddon et al. 2017). Likewise, the pop-up stores are getting to be normal in the market. Retailers, for example, Myer have set up pop-up stores in Melbourne in Southern Cross Station and Sydney’s Bondi Junction to offer basic retail products. Numerous worldwide brands are additionally utilizing this stage to assemble mindfulness and advance a particular item.

Methodology

When organisations are adapting innovative ideas to sustain in the retail market in Australia. The impact of inflation rate acts like blocks in their paths. Under such circumstances, it is thus essential to understand the kind of influence it has on their performance level. It also indicates an analysis of inflation rate on various components of business performance and an estimation of the extent to which the factors are likely to impact the overall market growth.

The aim of this study will be to shed light on current inflationary effect on Australian retail sector performance considering factors like business profitability, Return on equity, earnings per share and operational efficiency of the frim.

The objectives of this study will be:

• To ascertain the relationship between inflation and return on equity as a measure of profitability of Woolworths;
• To determine the extent to which inflation affects earnings per share (EPS) of Woolworths;
• To ascertain the relationship between inflation reported profit of Woolworths;

The research question for this study will be:

How inflationary effect influence the business performance of Australian retail industry?

Considering the objectives as stated above, the hypotheses will be as follows:

Hypothesis 1:

Ho: There is no significant association exists between inflation rate in Australia and return of equity of Woolworths;

H1: There is a significant association exists between inflation rate in Australia and return of equity of Woolworths;

Hypothesis 2:

Ho: There is no significant association exists between inflation rate in Australia and earnings per share of Woolworths;

H1: There is a significant association exists between inflation rate in Australia and earnings per share of Woolworths;

Hypothesis 3:

Ho: There is no significant association exists between inflation rate in Australia and profitability of Woolworths;

H1: There is a significant association exists between inflation rate in Australia and profitability of Woolworths;

While the study will consider the inflationary effect on Australian retail industry performance, the successful completion of this thesis will help them to understand the aspects that prevents them to apply their own strategies to sustain in this cutthroat market. Not only has that, considering the results that will be found for Woolworths will also indicate a trend that other key organisation can also adopt in their strategy while operating in this market place. 

This part includes review of past research works in connection to the association between inflation and business performance irrespective of the industries as well as considering the retail industry. This will help the researcher to find out the aspects that needs to be taken into account while fulfilling the objectives of this study as mentioned above.

The study of Akgündüz  et al. (2015), has shown that it is simpler to distinguish emerging changes in relative costs on both information and yield costs when the general value level is steady than when all costs are going up. Likewise, a high normal rate of inflation regularly includes more noteworthy variations in price level of any products or services. These statements are sufficient verifications to state that inflation influences profitability in different ways either definitely or contrarily by and large. In this context, the study of Yoshino and Taghizadeh-Hesary (2015) further concluded that inflation can influence profitability position of undertakings in four noteworthy ways in this way: Firstly, it changes the cost of assets used to fund the business; furthermore it expands expenses of work, crude materials and the cost of the item; thirdly it influences the assessment bill to be paid; lastly it causes moves sought after levels (Korkmaz, 2015). In this context, the study of Lim and Sek (2015), has shown that most organizations make gauges of the quantity of units of yield to deliver available to be purchased, the worker hours and machine-hours that generation will take and the volume of crude material to be buys. These gauges regarding physical units can be changed over to money streams by increasing the quantity of the things by the proper costs. For this situation the cost of assets to an organization is identified with the level of loan costs (Klachkova, 2017). In light of the way that business is dangerous, the general cost of assets is constantly higher than the loan cost, however vacillates contrarily (fall) or decidedly (ascend) as the financing cost changes.

Data Analysis

There are several studies that have shown that inflation rate influences an economy in different ways, both adversely and decidedly (Vlandas, 2017). Negative impacts of inflation incorporate an expansion in the open door cost of holding cash, vulnerability over future expansion which may demoralize speculation and funds. The constructive outcome of inflation can be seen or seen in its decrease of weight of obligations, both open and private. It similarly keeps ostensible loan fees over zero with the goal that national banks can lessen financing cost when important to invigorate the economy (Jelilov, Obasa & Isik, 2016). Market analysts for the most part trust that high rates of expansion and hyperinflation are caused by an over the top development of cash supply. Be that as it may, cash supply development does not really cause inflation. Chu et al. (2015), talked about the impact of expansion on a very number of financial factors and monetary performing artists or operators in an economy. The talked about factors and performing artists versus the inflationary impact include: National pay, reserve funds and venture, creation, wage or pay workers, worldwide exchange, Debtors/Creditors, adjust of instalments, intrigue and trade rates (Tanted & Khan, 2016). However, some of these are outside the extent of this work, yet we esteemed it important to clarify some of them. In each economy, there are dependably gainers and washouts because of expansion.

This section of this proposal will shed light on the methods that will be adopted while doing this research. In specific, the researcher will mention research methods, data collection techniques, data analysis techniques, the model, etc. will be utilised in thesis paper.

This research essentially related inflation to profitability and operational efficiency of Woolworths. To perform this study, the researcher will rely on secondary data; hence, the Ex Post Facto research design will be adopted by the researcher. The data will collected from secondary sources, primarily from the annual reports of Woolworths over the time frame 2000 to 2017. Further, for return on assets and earning per share variable, the researcher will perform ratio analysis considering the related data from annual reports of the said period.

For the examination of data, standard Ordinary Least Squares (OLSs) will be implemented to a board arrangement of information to test the theories. The indications of the coefficients will be depended upon in portraying the bearing and quality of straight connection between factors while the t-insights and p-esteem were depended upon in deciding the greatness of the impact between inflation, return on value (ROE), income per share (EPS) and operational proficiency of Woolworths.

In order to perform the hypotheses tests, following linear regression model will be used:

Y =	a +  bX + e	(1)
Where:
Y	=	Dependent variable
X	=	Independent Variable
a	=	Intercept parameter (where the regression surface
		crosses the y axis) and is constant
b	=  Coefficient of independent variables
	e=	Error margin

Aspects	W1	W2	W3	W4	W5	W6
Preparation of research proposal
Preparation of chapter 1 of thesis
Preparation of chapter 2 of thesis and draft submission
Revision of chapter 1 and 2 according to the feedbacks
Preparation of chapter 3 of thesis paper
Data collection
Analysis and chapter 4 of thesis done
Final submission

References

Akgündüz, Y., Van den Berg, M., & Hassink, W. (2015). The impact of refugee crises on host labor markets: the case of the Syrian refugee crisis in Turkey.

Ashraf, Q., Gershman, B., & Howitt, P. (2016). How inflation affects macroeconomic performance: an agent-based computational investigation. Macroeconomic dynamics, 20(2), 558-581.

Baddon, L., Ramsay, H., Hunter, L., Hyman, J., & Leopold, J. (2017). People’s capitalism?: a critical analysis of profit-sharing and employee share ownership. Routledge.

Bertay, A. C., Demirgüç-Kunt, A., & Huizinga, H. (2015). Bank ownership and credit over the business cycle: Is lending by state banks less procyclical?. Journal of Banking & Finance, 50, 326-339.

Bhamra, H. S., Dorion, C., Jeanneret, A., & Weber, M. (2017). Low Inflation: High Default Risk AND High Equity Valuations.

Chu, A. C., Cozzi, G., Lai, C. C., & Liao, C. H. (2015). Inflation, R&D and growth in an open economy. Journal of International Economics, 96(2), 360-374.

Galí, J. (2015). Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.

Jelilov, G., Obasa, O. J., & Isik, A. (2016). Impact of Inflation and Unemployment on Economic Growth in Ten (10) Selected Member’s States of Economic Community of West Africa States (ECOWAS)(2001-2014). Advances in Economics and Business, 4(5), 222-244.

Klachkova, O. A. (2017). Modelling the Impact of Inflation on Economic Growth for Countries with Different Levels of Economic Freedom. Economic Policy, 5, 22-41.

Korkmaz, S. (2015). Impact of bank credits on economic growth and inflation. Journal of Applied Finance and Banking, 5(1), 51.

Lim, Y. C., & Sek, S. K. (2015). An examination on the determinants of inflation. Journal of Economics, Business and Management, 3(7), 678-682.

Tanted, N., & Khan, G. (2016). An Empirical Study on the Impact of Exchange Rate and Inflation Rate on NSE Index. AAYAM: AKGIM Journal of Management, 6(2), 27.

Vlandas, T. (2017). Grey power and the Economy: Aging and Inflation Across Advanced Economies. Comparative Political Studies, 0010414017710261.

Yoshino, N., & Taghizadeh-Hesary, F. (2015). Effectiveness of the easing of monetary policy in the Japanese economy, incorporating energy prices. Journal of Comparative Asian Development, 14(2), 227-248.