HomeOPINIONFamous brand takes a black eye

Famous brand takes a black eye

The group was placed in administration five days into 2016, which has created the legal technicality of the rights of customers for fulfillment of gift cards and undelivered purchases. It could be determined that the creation of a gift card is the actual product delivery, but the issue is also that the purchaser cannot unlock the embedded value.

There are accusations that the private equity owners who bought DSH from famous founder Mr. Smith in 2011 for AU$115 million and flogged it off at a $520 million valuation in 2013 mismanaged inventories and stripped the group of cash pre-flotation.

The Initial public offer was later dubbed “the greatest private equity heist of all time”.

All this from a business that was one of “Australia’s most trusted and well-known brands, renowned for its knowledgeable in-store sales staff, customer service, leading range of consumer electronic brands, convenient locations and competitive prices.” Where did I read that? In the 2013 prospectus.

It said growth would come from four main initiatives: “Growing the store network, expanding our omni-channel offering, driving growth in our mobility category and expanding our private label offering.”

The company had a network of 359 stores across Australia and New Zealand and promised to generate pro-forma revenues of $1.23 billion in FY2014 because it had undergone a significant transformation. Investors found all of this a compelling reasons to part with their money.

By November 2015 with trading weak, stock piled high and a $60 million inventory writedown, only a brilliant Christmas could have stopped bank intervention.

DSH was simply outgunned by bigger rivals. I used to delight in browsing a Dick Smith store. I visited one last week that had a Receiver Sale sign on its window and a For Lease sign on the building, while there were more shoppers 50 metres away at Harvey Norman.  Some sort of industry consolidation may be on its way.

Smiths City enters Auckland

The retail and finance group Smiths City Group is moving to fill the gap in its national store network by entering the Auckland market.

Through its subsidiary Smiths City, it has entered into a conditional agreement to purchase the business and assets of Furniture City and its logistics operation, Lucky Dragon.

Auckland-based Furniture City, has two stores in the Super City, another in Whangarei and a fulfilment and distribution facility. The business also operates an online store.

Smiths will pay $5.85 million before GST and take possession on 4 April. Once Furniture City’s purchase is settled, there will 35 stores nationally in the Smiths’ portfolio.

The balance sheet can readily absorb the new debt related to the deal as the Christchurch-based group was debt-free after it sold its flagship Colombo St store in October 2015.

The October opening of a store in Taupo added 2000 square metres of retail to an existing 63,000 square metres, which showed intent of expanding in the North Island. The Auckland stores are mid-sized, at around 1500 square metres and 2000 square metres. There are some suppliers in common with Smiths and some that differ. There is a finance offer which should fit with Smiths finance base of 55,000 customers.

Smiths’ brand portfolio has consolidated from three brands to one, with the closure of Powerstore operations and the rebranding of LV Martin in Wellington to Smiths City. That brought economies of operation and consistency to national advertising.

Smiths City chief executive Roy Campbell says that with a 30-year trading history, Furniture City is a “well-trusted brand” and the stores will continue to trade on under that name.

“We have a lot to learn about the Auckland market and we will let Furniture City be Furniture City.”

He added that Smiths is conducting a logistics review and the newly acquired Auckland warehouse is a strategic purchase that helps to reposition Smith’s national supply chain.

Smiths City’s half-year operating surplus was halved to $2.55 million, compared with $4.27 million in the same half last year. Both periods’ results were affected by extraordinary items relating to the Christchurch property, as well as “one off restructuring” costs. Operating revenues dipped 2.9 percent to $106.25 million.

The company has said in its half-year review, “A new cloud based logistics platform will enable complete visibility over our supply chain, facilitating better decision making around inventory and reducing the compliance cost of managing the relationships between ourselves and our suppliers.”

The integration of the platform will be complete in March 2016. It says it will see the benefits flow from this date.

This story originally appeared in NZRetail magazine issue 742 February / March 2016

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