Now Dick Smith is in receivership. Most of the analysis looking at the failure focuses on finance: too much debt, stock write-downs and so on.
All of that is real. Anchorage sold off much of the inventory forcing the new owners to restock at great expense.
Yet it’s not the whole story.
There have also been comments about Dick Smith’s inability to compete against the likes of JB Hi-Fi.
In truth, the entire electronics retail sector is a mess.
Harvey Norman has struggled in recent years. Noel Leeming was losing money when it was purchased by The Warehouse. Before that Noel Leeming acquired troubled Bond and Bond.
None of the companies mentioned here is special or unique. They offer a similar set of products in similar stores. They are, despite expense advertising campaigns and loud claims, undifferentiated.
This leaves the chains with nothing to compete on except price. Which means wafer-thin margins.
How thin? I’m told margins on many of the most popular products are between five and 10 percent.
This focus-on-price strategy also leaves them exposed to competition from online retailers who don’t have the burden of expensive high street rents and wage bills. Someone can always sell cheaper than you.
Dumb, dumb, dumb.
The sad thing is that prior to the float two years ago Dick Smith Electronics was different. It had a distinct approach to the market. You could go into a Dick Smith store and buy a transistor, resistor or capacitor. The shops sold soldering irons and geeky build-your-own-gadget kits.
The clever, clever managers who took over the company dropped all that to create yet another me-too electronics retailer. They described the new look business as “the techsperts”.
This reminds me of advertising guru David Ogilvy who said “don’t tell, show”. He was talking about the art of writing advertising copy, but the logic applies to Dick Smith Electronics.
For years the company demonstrated its geek credentials to customers. All those weird components shouted the message that this was a shop for in-the-know technology buyers. It implied the sales people might know a thing or two about technology in a way that adding the word Techspert to advertising material did not.
Dumping the geek business was stupid. Maybe it wasn’t lucrative, although the success of the Jaycar chain suggests otherwise.
More likely, the idiot marketing types running Dick Smith thought it wasn’t glamorous enough.
As if being in receivership is a fashion statement…