Dick Smith Why the once popular retail store was forced To close down forever

Introduction

Dick Smith Holdings Limited was an Australia-wide chain of retail stores that sold consumer electronics goods and a wide range of electronic components. The chain expanded successfully into New Zealand, however not so successfully into several other countries.

Since 2016, online retailer Kogan.com has traded under the Dick Smith brand name in an online-only format, with Australian and New Zealand websites.

A Dick Smith store in full operation

Operation History

Dick Smith was founded in Sydney in 1968 and operated for around 48 years. In May 2016, online retailer Kogan purchased the Dick Smith brand and its online assets, and then on May the 4th Kogan relaunched Dick Smith as an online based technology retailer. The company's creditors then on the 25th of July placed the remainder of the brand in liquidation.

Struggles Dick Smith faced

Dick Smith enjoyed strong sales growth prior to its successful listing on the stock exchange in late 2013. Joe Hayes stated that, "management we're very focused on increasing revenue and generating profability," perhaps with the assistance of expansions and store renovations. It seems as if they felt that they could start to focus on improving the brand's finer details due to their proven success, however it was indeed this sense of safety that ultimately left the company struggling for business. With more money flowing out of the business then in, Dick Smiths expansion plans compromised all its surplus earnings and required significant borrowing. Change in customer preferances also had a major impact on the companies future. "Unchecked" expansion plans allowed major inventory purchasing decisions in 2015. Clearly they assumed that they could keep selling the same products for the same price, however a lack of consideration for constant changes in consumer demand caused major issues for the company. It meant that Dick Smith was carrying too much overvalued stock that was not able to be sold.

Why they struggled

There are a variety of reasons as to why Dick Smith faced so many challenges in its time.

Poor managerial and administrative skills, along with poor record keeping is argued to have been the main reasons for the company's closing.

As it is known, the consumer electronics market is highly competitive, involving rapid changes in consumer demands. In order to successfully compete and keep up with your competitors, you must first analyse the trends in the market and make appropriate financial decisions based on these trends. Unfortunately, Dick Smith got so caught up in its prior success, it took advantage of a perceived time of breathing space, and focused on the aesthetic features of the brand. This ultimately led to the company losing large amounts of money due to poor inventory decisions and managerial skills.

Changes in consumer demand just added to the pressure the company already faced.

Cashflow pressures led to banking covenants being breached that could not be remedied putting the business in an ever deeper hole.

Dick Smith arrogance and laziness in the electronic retail market proves how significant staying on top of your business truly is, and outlines the importance of administrative organisation. These are the very reasons why Dick Smith were not able to continue competing in the retail market.

A Dick Smith Electronics store in Melbourne, Victoria during the liquidation sale

What could have been done diffferently

It's hard to believe that ultimately one poor decision completely destroyed the Dick Smith organisation. If the owners had considered the effects of the decision on the company's future, perhaps the store would still be in operation today. After noticing Dick Smith's successful entry into the ASX and the retail market, instead of focusing entirely on renovating the company and spending large amounts of money, administrators could've have remained grateful with what they had already achieved and perhaps slowly continued the success of the company. The majority of the time, if a company has adequate supply to fulfil consumer needs at a reasonable price, it will do well. Dick a Smith focussed on gaining the most money out of the business while it was successful, and compromised its future. Usually consumers have little care over the way a shop looks if they know that they can get exactly what they need from that shop. Dick Smith could have realised this before making unnecessary decisions, and perhaps could have prevented the company's downfall.

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