Year 12 IB Extended Essays 2017
- Business operations – such as procedures manuals, quality assurance programs,
licenses and permits, competitors in the market, competitive pricing, location,
employee contracts and remuneration packages, and whether or not the industry is
expanding.
- Assets – such as the condition of plant and equipment, correct stock valuation,
reasonable depreciation of assets, and good stock control and management.” (ulton.net,
2016)
Conclusion
Overall, it can be seen that a large part of Dick Smith’s collapse was triggered by its store
expansion plan which in turn created over stock of inventory, leading to inability to cover costs
incurred. The external factor of a rise in online based sales in the consumer electronics sector,
led by JB Hi-Fi and Harvey Norman, made the investment into an expansion of the company’s
market share through the method of increased retail stores for Dick Smith created an instability
in the balance sheet, thus causing manufacturers to place restrictions on orders and banks
denying loans in order to purchase the updated stock. Furthermore, the fact that Dick Smith
only held a total market share of just 9% and secured almost 3x the number of fixed retail stores
that leading player JB Hi-Fi had intended that they had an over investment of stores which
leads to large amounts of borrowing and rent that was not being match by the market share
increases expected throughout the expansion. This plan of store expansion is further
pronounced as a miscalculation of the company as they suffered declining sales throughout the
year of 2016, averaging at 8.8% decrease from the previous year in 2015.
The notion that the consumer electronic market was moving to an online based system meant
that Dick Smith’s expansion plan “ate up all its surplus earnings and required significant
borrowing at the same time as customer preferences began to change and the retailer began to
lose market share” (McGrathNicol, 2016). From this, Dick Smith was holding too much stock
“that was not saleable and was overvalued” which led to “inventory write downs, lease
provisions and other asset impairments” (news.com.au, 2016). Thus, the over expenditure in
retail stores and poor inventory management that lead from this was a prominent reason as to
why Dick Smith Collapsed in the year 2016.
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