David RichardsFallout From Dick Smith Hurts CE Industry, For Sale Sign Out At One Distributor
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The fallout from the collapse of the Dick Smith retail chain is being felt at CES as several big brands question the exposure of their distributors in Australia.
ChannelNews has been told that one major distributor of consumer electronic products is already up for sale with several parties having already met with management to discuss either an investment or acquisition. The distributor is exposed due to the collapse of Dick Smith by over $800,00.
Among the Companies who have expressed an interest in the distributor is Harvey Norman.
One distributor who is believed to be exposed for over $7M is Yale Prima who was also involved in a messy recall of cables involving Bunnings. It’s believed that Yale Prima does not have insurance cover on the exposed stock.
Another distributor now under pressure is NSW Based organisation Roadhound who insiders claim is exposed for almost $15M dollars.
Also exposed is Philips and Gibson brands, ChannelNews understands that their product was supplied direct and not via Powermove who has the rights to sell Philips audio products in Australia.
Another brand exposed is Toshiba with one insider tipping that the collapse of Dick Smith who were a major buyer of Toshiba consumer PC’s could accelerate the exit of Toshiba from the Australian market.
Analysts at CES estimate that both JB Hi Fi and Harvey Norman are set to benefit from the fallout with both retailers set to benefit from a surge in first and second quarter sales in excess of $200 Million dollars.
According to sources Dick Smith receivers have already had an offer for the Move Stores and the Dick Smith online operation however there appears to be a problem over the rights to the Dick Smith name being used in a separate online store.
According to The Australian, analysts said the likelihood of a buyer emerging for the business – with 393 stores across Australia and New Zealand – was low, with store closures and industry consolidation a more likely scenario. Morgan Stanley analysts forecast a 9 per cent increase, to $241.2m, in earnings for Dick Smith rival JB Hi-Fi in 2017, while Harvey ?Norman could benefit with a 4 per cent rise to $480m.
Those retailers could suffer in the short term if liquidators move to clear Dick Smith stock, although their bargaining position with suppliers could improve, delivering profitability increases of as much as 20 per cent, they said.
However, several product lines were already unavailable for ?purchase at several Dick Smith stores, with one company insider suggesting a failure to secure bridging ?finance would scupper any chance of trade continuing as normal.
Analysts at Citi suggests the closure of about 100 Dick Smith stores could deliver JB Hi-Fi an earnings uplift of about $19 million in 2015-16.
Analyst Craig Woolford said the closure of up to half the Dick Smith stores was the most likely outcome of the administration “with a new owner taking a business with 25 per cent to 50 per cent fewer stores.”
Mr Woolford said if Dick Smith shut down 100 outlets, which is equivalent to about 25 per cent of the retailer’s 393 store network, its sales base would fall by about 20 per cent.
“We think JB Hi-Fi could capture 50 per cent of sales lost through Dick Smith store closures, this would be $106 million or a 2.8 per cent boost to like for like sales growth,” Mr Woolford told the Sydney Morning Herald.
“We estimate a total EBIT gain of $19 million in fiscal 2016, comprising $11 million EBIT from additional sales captured and $8 million because discounting in the industry reduces by 20 basis points.”
Mr Woolford said JB Hi-Fi would be the biggest winner from Dick Smith store closures because of the geographical proximity of the competing store networks and the similarity of their product lines.
J P Morgan said Dick Smith was likely to consider the closure of unprofitable stores as part of the voluntary administration process as was an exit of its alliance with department store David Jones.
One high profile retailer, who would only talk anonymously blamed Dick Smith’s demise on clever accounting according to Fairfax Media.
“They used every accounting trick in the book, whether you pay for it this year or next year you always pay for it eventually,” he said.
“$1.5 billion worth of value has been destroyed if you add up what Woolworths wrote off in the sale, what the banks are now owed, the debt to unsecured creditors and the float, it’s a $1.5 billion hole.
“And they haven’t built any market share or customer equity.”