Dick Smith woes could mean Christmas electronics price war

Dick Smith insiders say the company is preparing to launch a 70 per cent off everything clearance sale on Saturday in a desperate bid to get customers through the doors and clear excess inventories.

They said much of Dick Smith’s problems were likely to lie in private label accessories, which would be hard to clear.

Dick Smith also plans to expand its store footprint to compete against JB Hi Fi and Harvey Norman by opening 15 new stores each year in the near term.

Just weeks after revealing sales had been disappointing during October, the retailer on Monday said the trend had continued into November.

In late October Dick Smith announced that NPAT (net profit after tax) expectations for the coming year could be reduced from $5 million to $8 million. We will continue to drive sales, maintain flexibility on gross margin to reduce inventory and improve our net debt position’ said Mr Abboud.

“We remain cautious on the outlook for the Christmas trading period”, he said.

‘Given the non-cash writedown and the uncertain trading outlook, the company is unable to re-affirm the profit guidance previously provided, ‘ he said in a statement on Monday.

An electronics price war is on the cards this Christmas, with analysts saying Dick Smith’s woes are likely to result in heavy discounting, forcing competitors to follow suit over the crucial festive period.

“In our view, the hard competitive environment the company now faces and the rapid deterioration in trading performance means there are now significant question marks over the strategic direction and viability of Dick Smith’s business model in its current form”, the broker said.

Industry profits and margins have been gradually restored over the past three years and the level of discounting has abated, with inflation creeping back into a sector once notorious for 20-per cent plus deflation. Whilst I believe the sharp share price fall is unwarranted, given the non-cash nature of the impairment charge, part of the fall appears to be driven by a lack of faith in Dick Smith’s growth strategy.

JB Hi-Fi and Harvey Norman haven’t been affect as of yet. JB is up around 10% for the month of November and Harvey Norman up around 3%.

Private equity firm Anchorage paid A$94 million for Dick Smith when it purchased the business off supermarket operator Woolworths in 2012.