Where Did it go Wrong for Dick Smith?

One of the most established names in Australian retailing has gone into voluntary administration. Dick Smith Holdings [ASX:DSH] has been a stalwart of Australian retailing since the late 60s.

Today Dick Smith is a shell of its former self. A ‘last chance saloon’ fire sale of inventory late last year couldn’t keep the company’s head above water. Today, the company has told the market what many were expecting; there’s no more money.

Dick Smith (the entrepreneur) started the electronics company back in 1968. In 1982 he sold the business to Woolworths [ASX:WOW]. Right from the get go, the foundations of Dick Smith (the electronics company) were for electronics hobbyists.

Even today when you walk into a Dick Smith retail store you see all the bits and pieces you would need if you were a hobbyist. There are plenty of more consumer-grade products; TVs, phones, games, etc. But at the heart of the company is the electronics store for the hobbyist.

Therein lies the key difference between Dick Smith and the likes of JB Hi-Fi [ASX:JBH]. JB Hi-Fi distinctly caters to the consumer electronics market, which Dick Smith never really committed to. They just kind of dabbled in it, staying more of a hobbyist retailer. And the declining sales of the company is proof they cater for a market that’s not there anymore.

Even as far back as 2012, when Woolworths decided to sell off the business, the writing was on the wall. If it wasn’t good enough for Woolworths — well hindsight tells us it really wasn’t good for anyone.

The company never went anywhere after listing in 2013. And as 2015 rolled on and sales fell off a cliff, investors abandoned ship. The stock price went from $2.26 to just 20 cents in December.

The company has really been struggling to shift retail stock. For a retail company, that’s usually a bad sign. This all culminated in a ‘clearance sale’ late in 2015, trying to drum up cash to help keep the company going.

As it stands, they didn’t make enough cash, even with heavily discounted products. And now the company is in voluntary administration.

This doesn’t mean 100% of the stores will close. It doesn’t guarantee the end of Dick Smith Electronics. But I have to admit it doesn’t look good from here.

In the current economic climate it’s a long way to climb back. It’s a competitive retail market. And with the ever-impending threat of online retailer Amazon, I think this is the end of Dick Smith Electronics. In the 70s, 80s and 90s there was a clear market for Dick Smith and a strong, loyal customer base. But in the modern world, consumers just aren’t interested in shopping at Dick Smith. It’s a place where only hobbyists go, not your typical shopper.

And when you’ve got no customers, you can’t sell stock. That’s what drives a company into voluntary administration. It’s a shame to see a name like Dick Smith Electronics go down like this. But it’s also a clear sign of the world we live in. 2016 is a different beast to the 90s.

Consumers don’t want to tinker with electronics anymore. The hobbyist market is niche — not big enough to sustain a big retail company. If Dick Smith had gone down a route similar to JB Hi-Fi maybe this would be a different conversation.

But they didn’t. They stayed true to form and didn’t change with the world around them.

While Dick Smith is a big name to fall, there will be others. Which ones? Well, time will tell. But perhaps some of the big names of Australian retailing might be in for further hard times.

Regards,
Sam


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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