Dick Smith crash could mean Christmas electronics price war

Nearly A$90 million was wiped off Dick Smith's market value yesterday after the retailer abandoned its profit forecast as a result of a sales slump. Photo / Dean Purcell

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.

Nearly A$90 million was wiped off Dick Smith's market value yesterday after the retailer abandoned its profit forecast as a result of a sales slump that has left it with high levels of excess stock.

The company operates 62 stores in New Zealand and its director of investor relations, David Cooke, said high inventory levels were a problem on both sides of the Tasman.

"I won't go into what's going to be discounted and how much by, but we're certainly going to have very attractive pricing on a wide range of products," Cooke told the Business Herald.

In a report, Deutsche Bank analysts Michael Simotas and Daniel Wan said the company was expected to move quickly to clear unwanted inventory, which was likely to result in heavy discounting in the wider electronics sector over Christmas.

They said much of Dick Smith's problem was likely to lie in private label accessories, which would be difficult to clear.

"We fear the group will be forced to discount branded hardware in an effort to attract shoppers to its stores, which could force JB Hi-Fi to follow suit," the analysts said.

But Chris Wilkinson, of consultancy First Retail Group, questioned how much "wiggle room" New Zealand electronics retailers had to ramp up discounting in response to Dick Smith's efforts.

"The sector has intensely low margins," he said.

Dick Smith's sales slump has left the firm - which had already slashed profit guidance in October - facing a A$60 million writedown.

Managing director Nick Abboud said yesterday that the writedown and uncertain outlook for trading meant Dick Smith was unable to stand by its previous profit forecasts.

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

Dick Smith shares closed down 57.6 per cent yesterday, at A28c, but have bounced back today, recently trading at A33.5c.

Wilkinson said Dick Smith had suffered from having a "clouded" brand proposition in the minds of consumers.

"It's tried to move heavily into own-branded product, unlike their competitors such as JB Hi-Fi who've leveraged very strongly the manufacturers like the Samsungs of this world," he said.

"Dick Smith's in no man's land and I think they are incredibly vulnerable."

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

The retail chain was floated on the stock market the following year with a market value of A$520 million.

Dick Smith has a market capitalisation of just A$76 million this afternoon.