Consumer watchdog says Dick Smith customers could get their money back

Dick Smith customers are out of pocket after the retailer went into receivership. Photo / Getty Images

• Dick Smith Receiver says it won't guarantee vouchers, deposits, deliveries
• Consumer New Zealand chief says chargeback offers hope for customers
• Dick Smith founder points finger of blame at private equity firm
•

Out of pocket Dick Smith customers could get their money back, a consumer relations expert believes.

Thousands of people who bought Dick Smith vouchers, paid deposits on products or were waiting for deliveries were left reeling yesterday after the electronics retail chain went into receivership.

The receiver, Ferrier Hodgson, said that vouchers, deposits and deliveries could not be honoured due to the financial circumstances of the company.

Consumer New Zealand chief executive Sue Chetwin said she believed customers who had paid deposits on Dick Smith products may able to request chargeback from their banks.

A chargeback is the term used when a bank debits a merchant's account with the amount of a transaction that had previously been credited.

"There is a non-compliant merchandise clause where banks will consider refunding the credit card deposits so in this case, that has definitely happened," she said. "People have paid the deposit and then the company have said they are not going to supply the product."

Ms Chetwin said it would be worth a try for people to approach their banks and request a chargeback but they would "have to get in quickly" due to time restrictions.

As for gift vouchers, Ms Chetwin said she was unsure whether consumers who purchased the vouchers from the electronics mega-store would be able to request a chargeback from their bank because it was a legitimate transaction.

"There has really been no deception there or fraudulent activity when the transaction was made."

She recommended customers keep their vouchers however as they may be able to redeem them at a later stage.

"If the business is sold, one of the conditions [may be] that all the gift vouchers are honoured then obviously they will be able to use them. Even if the business manages to trade its way out of its difficulties, then I guess they would have to reconsider honouring those gift cards," she said.

The total value of outstanding gift vouchers has not been released.

TSB Bank chief executive Kevin Murphy said the bank would not be carrying out chargebacks on gift card purchases because they are legitimate sales agreed to by both parties at the time of the transaction.

"Chargebacks may only be used when there have been fund transfer errors or there has been evidence of fraud," he said.

Mr Murphy said a chargeback would not be made for a deposit purchase either as this was also a non-fraudulent transaction and was not made in error.

"It's worth noting that in a receivership the status of payments for goods and services is not a bank issue. It is between the client and the company. As a corollary those that paid for a gift card using cash have no rights more or less than those that paid via a bank," he said.

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The founder of the retail chain has blamed the crisis on the private equity firm that floated the chain.

Dick Smith, who gave his name to the chain, said that Anchorage Capital Partners' A$520 million IPO was drastically overvalued and called on those who had made money out of the float to do the honourable thing and guarantee customers' deposits, gift cards and deliveries.

He told news.com.au: "Some of the people who made a fortune out of the recent float, they should pay back those people who've put down deposits. The company could not possibly afford to be that indebted, or have that value on the market."

Private equity firm Anchorage Capital paid A$94 million when it purchased Dick Smith from 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 ($556 million), which had fallen to A$84 million by the time trading in the stock was halted on Monday.

In an online article published last year, an Australian fund manager said Anchorage had funded its acquisition of the business largely through stripping out cash from Dick Smith's balance sheet.

Dick Smith founder Dick Smith blames the private equity firm that floated the retailer. Photo / Getty Images

Anchorage had pulled off "the greatest private equity heist of all time", said Matt Ryan, of Forager Funds Management.

Receivers could struggle to find a buyer for Dick Smith, with the firm's receivership likely to signal the end of one of Australasia's best-known high street brands, says a retail commentator.

A lending syndicate led by HSBC and National Australia Bank appointed receivers Ferrier Hodgson to the struggling electronics seller yesterday. Dick Smith - which operates 393 stores, 62 of them in New Zealand, and has 3300 employees on both sides of the Tasman - has itself appointed McGrathNicol as voluntary administrator.

Yesterday, Dick Smith chairman Rob Murray said December sales had fallen below expectations.

"The company explored alternate funding, however the directors formed the view that any success in obtaining alternative funding would not have been sufficiently timely to support short-term funding requirements and allow the company to order inventory during the next four to six weeks," Murray said.

"While confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period."

Stewart said it would be "business as usual" at Dick Smith while a restructuring and sale process was undertaken.

"We are immediately calling for expressions of interest for a sale of the business as a going concern," he said, adding that employees would continue to be paid by the receivers. But Chris Wilkinson, of consultancy First Retail Group, said he didn't think a buyer would be found.

"The challenge that Dick Smith's had is it's been in a no-man's land since its rebranding - it just completely lost its mojo ... This [receivership] has probably signalled the end for the brand, that's our feeling."

However, competitors including JB Hi-Fi could be interested in acquiring retail sites, Wilkinson added.

Stewart said the retailer's New Zealand business was profitable and expected to be attractive to buyers.

Dick Smith's local arm reported a profit of $1.4 million in the year to June 28, down from $3.7 million a year earlier. Sales fell to $179 million from $199 million.

As a whole, the retailer had net debt of A$41 million as of June 28.

Profit rose 3.1 per cent to A$43.3 million in the firm's last financial year.

Dick Smith shares, which have plunged 72 per cent since the company downgraded its profit guidance in October, were suspended from trading following the appointment of administrators.

The stock closed at A35.5c before going into a trading halt on Monday.

What's hurting Dick Smith?
• A sales slump, which left the firm with excess stock in the lead-up to Christmas that had to be heavily discounted in a bid to bring in cash.
• Tough competition from online competitors, as well as bricks-and-mortar players such as JB Hi-Fi.
• Cashflow constraints and high debt levels - net debt sat at A$41 million ($43.8 million) on June 28.
• The end of support from its banking syndicate, which appointed receivers Ferrier Hodgson yesterday.

Short circuit: Time of Dick Smith's ups and downs

:
• 1968: Dick Smith, a young entrepreneur and electronics technician, opened a car radio installation business beneath a carpark in Sydney.
• 1970s: Interest in electronics and CB radio boom led to expansion.
• 1980: More than 20 stores in Australia and during the decade expanded to NZ.
• 1982: Smith completed sale to Woolworths, there was rapid expansion helped by PC boom and diversification. By late last year there were 393 stores in Australasia.
• 2012: Woolworths sold Dick Smith to Anchorage Capital Partners for less than A$100 million ( $106 million) which the following year launched a A$534 million public listing.
• 2015: Sales growth slowed, huge inventory problems and shares slumped more than 80 per cent.
• Yesterday: Put into administration and receivers appointed.