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How to avoid making a ‘Dick Smith’ of yourself

  • News
  • April 26, 2016
  • Elly Strang
How to avoid making a ‘Dick Smith’ of yourself

The downfall of Dick Smith was swift, with the company going into receivership on January 4.

A buyer was sought by the receivers but none of the offers were accepted, so receivers begun winding the chain down.

The doors on Dick Smith’s New Zealand stores will shut for the final time on April 29.

Receiver James Stewart thanked employees for their support during the receivership.

“This has been a difficult and uncertain time for them and we have really appreciated their assistance and commitment,” Stewart said.

The entitlements of the 430 New Zealand Dick Smith employees that are soon to be jobless now rank ahead of secured creditors.

It’s expected that the employees will be paid in full up to a limit of $22,160.

Where did Dick Smith go wrong?

Dissecting where exactly the Dick Smith franchise went wrong is challenging.

Dick Smith’s founder said a “hasty and overvalued” market float by a private equity firm in 2013 caused its downfall, while others said its demise was because the brand became irrelevant to consumers.

Massey University associate professor of retail management Jonathan Elms says he believes there were multiple factors going on that led to the chain getting itself in a position it couldn’t come back from.

These factors include:

  • The company was overpriced when it was bought from Woolworths for $A115 milion and then floated on the market for $A520 million by Anchorage Capital. In order to have been able to sell Dick Smith at that price, Elms says the private equity firm stripped a lot of assets out to make it more attractive to buyers. However, this meant it had to buy back a lot of stock to put on the shelves and this overstretched the finances.
  • It bought products that consumers didn’t necessarily want, and it was a costly mistake. The competitive retail market was becoming increasingly fierce with the likes of JB Hifi and Noel Leeming.
  • Consumer behaviour had also changed very quickly, with many turning to online retailers to buy electronic goods.
  • The management team tried to expand the store network in Australia and it cost a lot of money.

Perhaps most detrimentally, Elms says a key issue was that after the brand was sold, it lost its distinctive personality in the market.

Its unique selling points – the face of the brand and its customer service – were forgotten about among the aforementioned issues, he says.

“With all of the things going on beneath the service, consumers were becoming a bit disenfranchised with the business and employees were becoming increasingly unhappy as well.”

In the process of the receivership, Dick Smith was also the subject of much backlash for refusing to honour customers’ gift vouchers or credit notes.

Elms calls this “the absolute nail in the coffin” for the brand’s relationship with consumers.

“Through the refusal to acknowledge or back the guarantees or credit notes, it lost any remaining reputation for the business.”

He says things like trust, goodwill, reputation and mana all extremely important in any contemporary business, and all the loss of those things led to where Dick Smith is – or isn’t – today.

“I don’t think that would’ve been too bad if the marketplace wasn’t as competitive as it is, but the erosion of trust and reputation in combination with all those things is disastrous.”

It’s also important to acknowledge that closures aren’t significant for just Dick Smith as a brand, but for the wider retail ecosystem, Elms says.

Groups like wholesalers, suppliers, shopping centre management and stores located around Dick Smith stores are all going to be negatively impacted on by the physical stores closing.

So, can the ‘Dick Smith’ brand recover?

Dick Smith’s intellectual property was bought by the founder of Australia’s largest online retailer, Kogan.com, for an undisclosed sum.

At the time, customer trust was further eroded by Dick Smith’s receivers advertising the company’s customer databases for sale.

Kogan founder Ruslan Kogan told various media outlets the Dick Smith chain is one of Australia’s most iconic retail brands and he bought it in order to save the brand’s legacy.

Kogan has no plans to rebrand its name and image, so Dick Smith will be run as a purely online model from June 1.

But given the trouble the Dick Smith brand has been in, it begs the questions of whether or not its legacy can actually be salvaged in the eyes of its customers.

Elms reckons that although it’s been damaged, it can recover – but it’ll be difficult.

“Consumers have long memories as well and its going to be a very interesting time to see what happens with Dick Smith’s brand, whether it’s going to be successful just using an online model or whether the damage has been done,” he says.

The cautionary tale for other brands here is when customers’ trust has been lost, it’s very hard to win back, he says.

“They’re going to have do a lot of trust building and damage control to get back to where they were at their heyday.”

​ ​

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