There are fears for the future of Australian technology retailer Dick Smith electronics, as experts warn “it is certainly a possibility” the company will fold.
Stockmarket analysts said the company had moved too far away from its traditional niche market position and that it couldn’t compete with other retailers it sought to match.
On Monday the company notified the Australian Securities Exchange (ASX) that it would cease all trading on its shares. On Tuesday it was placed under voluntary administration.
The announcement revealed that less than two weeks after the lucrative Christmas sales season, Dick Smith was seeking to refinance its debt.
Forager Funds chief investment officer Steve Johnson told The New Daily that Dick Smith had been “in trouble for a very long time”.
“It was in trouble when Woolworths owned it,” Mr Johnson said. “It was made to look temporarily good in private equity ownership but has since gone back to being what it was when Woolworths owned it.”
He also said Dick Smith had not been helped by consolidation and difficulties facing the entire industry.
After going into administration on Tuesday, a statement from the company said its sales and cash generation in December was below expectations, and it had been unable to secure alternative funding.
“Whilst confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period,”the statement read.
“Without this support, there is no option other than to appoint a voluntary administrator.”
It has appointed McGrathNicol as administrator, and will explore all options to allow the company to continue as a going concern, the statement said.
Mr Johnson said Dick Smith stores had moved too far from their traditional position as a niche electronics provider, in favour of the broad product range approach used by Harvey Norman and JB Hi-Fi.
“The biggest reason [for the decline of the Dick Smith brand] is that the product offering is not quite right,” he said.
“When you see an announcement like this it is not uncommon at all for the next announcement to be ‘it’s suspended’ and the one after to be ‘sorry we couldn’t raise equity or do whatever we needed to do to finance the debt and we’ve called in the receivers’.”
A spokesperson for Dick Smith told The New Daily the company could not comment until the trading halt had concluded.
According to a September 2015 survey by consumer satisfaction group Canstar Blue, Dick Smith rated the worst in seven ratings categories against its electronics retail competitors.
It received a three-star rating for customer satisfaction, where The Good Guys received five and Bing Lee, Harvey Norman and JB Hi-FI got four.
Founded by businessman and adventurer Dick Smith in 1968, he sold the business to Woolworths in 1982 and has not owned shares in the company since.
Mr Smith told Fairfax last month he had no insight into why it was performing poorly, but said former Woolworths chief executive Roger Corbett had told him it was due to too rapid expansion.
“He said (to me), ‘Dick, they opened too many shops and that’s what got them into problems’.”
A horror period for Dick Smith stores
The new fears for the Dick Smith company come after it issued two profit warnings in October and November 2015 due to plummeting sales in the lead up to Christmas.
In November it slashed the value of its inventories (its total stock holdings) by $60 million or 20 per cent.
In its statement to the ASX, Dick Smith said it sought the trading halt “pending an announcement to be made in respect of the company’s funding position and debt financing covenants”.
The company’s shares most recently closed at 36 cents, having shrunk a staggering 83 per cent in 2015.
The majority of that fall came after the dire profit warnings of October and November.
The retailer listed on the share market just over two years ago at $2.20 a share, when floated by private equity firm Anchorage Capital Partners (ACP).
ACP bought Dick Smith from Woolworths in September 2012 for $20 million.
Dick Smith lost its place in the ASX 200 index of Australia’s top 200 listed companies last month following the steep share price fall.
Mr Johnson suggested Dick Smith could save itself if it wound back its product offering.
– with ABC