Year 12 IB Extended Essays 2017

Research Question

To what extent did store expansion and poor inventory management contribute to the decline of Dick Smith?

Introduction

The Dick Smith Group is an online and fixed retail store that sells electronics throughout

Australia and New Zealand. The company Dick Smith was founded in 1968 and began as a car

radio instalment business, "Alongside the car radio business, Dick opened ‘Dick Smith

Wholesale' which was built to be a playground for electronics hobbyists like Dick himself and

sold a huge array of electronics components to professionals and weekend hobbyists alike"

(Dicksmith.com.au, 2017). From the 80's forward the company began to grow and had sold

60% of the company's working share to Woolworths Limited. Two years later the other 40%

was sold to Woolworths and the founder was no longer involved. January 4th, 2016, Dick

Smith collapses into voluntary administration, and finally, on May 3rd all store locations had

been closed

This company, prior to the collapse, operated from over 390 fixed locations and employed in

excess of 3,000 people. The retail operations of Dick Smith Electronics were largely based out

of high flowing shopping centres such as Hornsby Shopping Centre in Sydney which

Woolworths saw as their main “powerhouse” of sales (ConnectedAustralia, 2009). From this

the factor of high rent and further increases in store acquisition each year caused a high cost

for the company. Furthermore, the locations of Dick Smith stores in Australia were generally

within 100km of the coast and situated in medium to highly populated cities such as

Rockhampton and Sydney. Dick Smith also ran 75 stores out of its 390 in New Zealand which

had the same procedure as the Australian market where they were placed in high flowing

shopping centres in medium to highly populated towns and cities. Moreover, inventory

management within the tech industry is very important as stock needs to be replaced often due

to updated products being available. The fact that Dick Smith had a huge amount of old stock

created issues as they were not able to sell the products unless they ran at a loss, thus creating

negative cash flow in the company which led to the inability to pay costs associated with the

added number of stores. From this it is noticeable to see that store location and inventory

management had a large contribution to the collapse of the Dick Smith Group.

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