Hamashbir 365: The Cash Cost Of Moving To Owned Inventory
Hamashbir 365's shift from consignment to owned inventory does improve control and margin, but in 2025 it also widened the gap between inventory and supplier funding and tightened cash flexibility. In a lease-heavy model, this is no longer just a gross-margin story but a funding story.
The main article argued that Hamashbir's move from consignment inventory to owned inventory is the bottleneck that separates better margin from better cash. This follow-up isolates that point. The question here is not whether owned inventory can help gross margin. The question is who funds that move, how much cash it absorbs, and where it comes back to hit the company if sell-through slows down.
The short answer is fairly sharp. In 2025 the gross margin did improve, to 47.07% from 46.60% at the group level and to 44.9% from 44.6% in the department-store business itself. But in the same year selling and marketing expense rose to NIS 338.3 million from NIS 329.9 million, partly because of logistics costs tied to the move from consignment inventory to owned inventory. In other words, part of the gross-margin gain came back immediately through the operating-cost line.
The balance sheet makes the point even more clearly. Inventory rose to NIS 210.0 million from NIS 205.8 million, while suppliers and service providers fell to NIS 169.9 million from NIS 177.1 million. The gap between inventory and supplier funding widened to NIS 40.1 million from NIS 28.7 million, and working capital moved from a NIS 5.2 million deficit to a NIS 6.9 million surplus. That may look cleaner on the balance sheet, but from a cash perspective the meaning is simple: less funding is coming from suppliers, and more capital is staying trapped inside merchandise.
The Margin Improved, But The Benefit Did Not Drop Cleanly To Operating Profit
The company states explicitly that the purpose of changing the purchasing mix is to improve gross profitability, and that as of the report date most of the network's inventory was already held under purchase arrangements. The numbers support the idea that the move is doing something on the commercial side. The group's gross margin improved by 0.47 percentage points, and the department-store segment improved by 0.3 points. At the same time, 172 of the network's 262 suppliers already operate under purchase agreements, versus 88 under consignment and 3 under franchise arrangements. This is not a marginal tweak. It is a structural change in the model.
But it is still not a free margin gain. Gross profit itself fell to NIS 433.7 million from NIS 439.7 million because revenue declined to NIS 921.3 million from NIS 943.5 million. What improved was the margin rate, not the cash profit left behind. On top of that, another cost layer was added: selling and marketing expense rose by NIS 8.4 million, and the company ties that increase mainly to logistics costs from moving from consignment inventory to owned inventory, alongside the establishment of Kenneth Cole Design & Development and the opening of the Malka Sheba store.
| Metric | 2024 | 2025 | What it means |
|---|---|---|---|
| Group gross margin | 46.60% | 47.07% | Up by 0.47 percentage points |
| Department-store gross margin | 44.6% | 44.9% | A smaller improvement in the retail core |
| Gross profit | NIS 439.7 million | NIS 433.7 million | The margin rate improved, but lower sales still reduced gross profit in absolute terms |
| Selling and marketing expense | NIS 329.9 million | NIS 338.3 million | Part of the gross-margin gain came back through logistics and operating costs |
That is the key distinction. Owned inventory can improve pricing power, exclusivity, and control over assortment. But in 2025 it did not show up as a clean move where margin rises and the benefit flows straight into operating profit. It showed up as a trade-off: a modest gross-margin gain paired with heavier operating and balance-sheet burden.
Suppliers Are Funding Less Of The Inventory
This is where the cost usually disappears behind the gross-margin line. The network is still funded by a mix of consignment inventory and supplier credit, but the balance point has moved. At the network level, supplier credit at the end of 2025 stood at NIS 166.5 million, and average payment terms were current plus 71 days. At the consolidated balance-sheet level, suppliers and service providers totaled NIS 169.9 million, down NIS 7.2 million from year-end 2024.
The company leaves little room for interpretation on why this happened. In the board report it says the decline in supplier balances was mainly due to a higher share of import suppliers, whose credit periods are shorter. That means part of the commercial improvement comes with less friendly funding terms. As the network moves further into owned inventory and imports, more of the financing burden shifts from the supplier to Hamashbir's own balance sheet.
In one number, this is what changed: in 2024 supplier balances covered about 86.1% of inventory. In 2025 that coverage fell to about 80.9%. At the same time, the gap between inventory and supplier funding widened by NIS 11.4 million, from NIS 28.7 million to NIS 40.1 million. The move from negative working capital of NIS 5.2 million to positive working capital of NIS 6.9 million should be read through the same lens. It is not just a cleaner-looking balance sheet. It is evidence that the network is self-funding more of its cycle.
That is also the difference between better gross margin and better economics. If suppliers previously funded a larger portion of inventory, then the move to owned inventory may produce a higher margin rate, but it also asks the company to carry more working capital itself. As long as inventory turns quickly enough and price realization holds, that can work. Once turnover slows, the company carries both the goods and the funding gap.
The Real Cash Cost Shows Up Against A Lease-Heavy Model
To read this move correctly, the right lens here is all-in cash flexibility, meaning how much cash is left after the period's actual cash uses, not just after operating cash flow. Through a narrower lens, the business still generated positive operating cash flow of NIS 71.6 million in 2025. But that is not the right lens for this issue, because the shift to owned inventory is precisely about financing flexibility.
Once operating cash is set against the period's real cash uses, the picture is much tougher. The company spent NIS 8.5 million on fixed assets, paid NIS 98.5 million of lease-liability principal, distributed NIS 10 million in dividends, and repaid NIS 13.2 million of long-term loans. Before new borrowing and the minority transaction in Kenneth Cole Europe, that leaves a NIS 58.7 million cash deficit. Only after NIS 25 million of new long-term bank loans, NIS 6.9 million of short-term bank debt, and NIS 9.7 million from the minority transaction did year-end cash finish down NIS 17.1 million, at NIS 48.0 million.
The important point is not to claim that inventory alone caused the decline in cash. That is not what the numbers say. In fact, the inventory movement in the cash flow statement, negative NIS 4.2 million, was far smaller than in 2024. The deeper insight is different: every additional shekel that the company no longer funds through suppliers lands on a model that already spends almost NIS 100 million a year on lease principal. That makes even a moderate working-capital cost very expensive at the cash level.
Outlet Stores Are A Release Valve, Not A Solution
The filing lays out a fairly clear mechanism. The network's policy is to buy products for the short term and directly to shelf, but ahead of holidays and special sales periods it builds higher inventory. When purchased inventory remains unsold and cannot be returned to suppliers, it is sold through the network's outlet stores and or through significant discounts. The company adds explicitly that the larger the excess inventory, the greater the effect on business results.
On one side, there is still some protection. In most cases the network has a right of return to the supplier or supplier participation in clearing excess inventory. In addition, the company says the net expense recorded for defective, expired, or otherwise unsold items that could not be returned was immaterial. So 2025 is not a year of an obvious inventory write-down blow-up.
On the other side, that is exactly why the risk here is economic before it becomes accounting. Once most of the inventory is already held under purchase arrangements, outlet stores are no longer just a merchandising tool. They become a pressure valve for releasing tied-up capital. If sell-through is weak, the cash no longer comes back through the supplier. It comes back through markdowns. And if inventory takes longer to clear, the funding and logistics burden stays with the company.
| Layer | What softens the risk | What increases the risk |
|---|---|---|
| Contract terms | In most cases there is a return right or supplier participation in excess-inventory clearance | Most of the network's inventory is already owned, so not every unit still sits in a consignment structure |
| Operations | Buying is aimed at the short term and directly to shelf | Ahead of holidays and special sales periods the network builds higher inventory |
| Exit channel | Outlet stores and discounts can release inventory | The larger the excess inventory, the larger the hit to business results |
| Accounting | Net expense on damaged or unsold products was immaterial | The auditor flagged inventory as a key audit matter partly because slow-moving and obsolete inventory provisions depend on management estimates |
The key-audit-matter classification matters here. The auditor emphasized that inventory is material and that write-down provisions rely on management estimates and judgment. That does not prove an immediate accounting problem. It does mean the new inventory model carries not only supplier-credit and logistics sensitivity, but also higher estimate sensitivity if merchandise starts to stick.
Bottom Line
This continuation makes the point sharper: moving to owned inventory is not necessarily a mistake, but it is clearly not free margin expansion. In 2025 it did help the gross-margin rate a bit, but it also widened the gap between inventory and supplier funding, pushed working capital into positive territory, and added stress to a cash structure already weighed down by heavy lease payments.
That is also the right test for the next 2 to 4 quarters. If the network can keep the better gross margin without widening the inventory-versus-suppliers gap any further, and without leaning more on outlets and discounts to release goods, then the move to owned inventory may start to create real value. If not, the company will have replaced dependence on suppliers with dependence on its own balance sheet. This is not just a margin question. It is a funding question.
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