Woolworths weighs up Dick Smith sale

One of the newest Dick Smith stores opened in Auckland's Queen St. Photo / Dean Purcell

Control of big electronics retailer Dick Smith might change hands after the Australian owner signalled a shakeup this week.

Woolworths flagged a possible sale of its big consumer electronics chain after embarking on an accelerated supermarket opening programme which will add 10,000 new jobs by next July.

Grant O'Brien, new Woolworths chief executive, this week announced a "strategic review" of the Dick Smith chain.

The retailer, which has a national presence in New Zealand, has reported a 15 per cent drop in pre-tax earnings in the past financial year.

O'Brien told the Australian Financial Review last week that Woolworths had three options for Dick Smith. "You can grow and adjust your existing business, make it bigger by acquisition or significant capital investment or you can sell."

Shareholders have been lobbying Woolworths to either expand its consumer electronics interests by taking over JB Hi-Fi, or to get out of the sector by selling Dick Smith to rivals such as JB, Harvey Norman or an overseas chain.

That prompted analyst Mark Wade of Linwar Securities in Australia to question whether Woolworths might simply sell Dick Smith. "Despite many positive changes to the Australian consumer electrical operations, performance has lagged," Wade said.

"The underperformance underscores cyclical and structural industry headwinds, such as digital migration, price deflation, price scrutiny from online and suppliers opening stores.

"In response, Dick Smith will undergo a strategic review to consider all options. Depending on the outcome, that could favour Harvey Norman and JB Hi-Fi," he said.

Francois Smith, Dick Smith's New Zealand marketing services manager, said the business had 70 stores here and was still expanding via new retail premises and new product lines.

"Absolutely, we'll continue on and there have been new stores opened. There are a few new stores in the wind which would be commercially sensitive. We are also refurbishing stores as well, so there's absolutely a growth strategy in place," Smith said, naming the Remuera Rd, Newmarket store, and those in Timaru, Porirua and Napier, as outlets that had been recently upgraded.

Dick Smith had also secured an exclusive arrangement with Amazon over its Kindle hardware, he said.

Woolworths bought Dick Smith from its eponymous founder in two stages during 1980 and 1982. Sales in Australia and New Zealand rose from A$1.4 billion in 2008 to A$1.8 billion in 2011 but earnings before interest and tax have fallen from A$68.1 million to just A$26.8 million and the chain is under extreme margin pressure.

In New Zealand, Woolworths also owns Progressive Enterprises, which operates the Countdown supermarkets.

DICK SMITH
* Founded by Australian entrepreneur
* Owned by Woolworths for 30 years
* 70 stores throughout New Zealand
* Under margin, competition pressure
* Woolworths may sell Dick Smith