news Retail giant Woolworths this morning revealed it had sold its Dick Smith Electronics chain to local private equity firm Anchorage Capital, in a move which may help rejuvenate the ailing business and provide a certain degree of employment certainty for its 4,500 staff around the nation.
Woolworths announced its intention to sell Dick Smith in January, following a strategic review of its broader assets finished in November 2011. At the time it also said it planned to close up to 100 Dick Smith stores in the succeeding two years.
“Woolworths Limited (Woolworths) today announced that it has signed a share sale agreement with Australian private equity firm Anchorage Capital Partners (Anchorage) for the divestment of Dick Smith Electronics (Dick Smith). The transaction is expected to complete in late 2012 following satisfaction of customary conditions,” Woolworths said in a media release issued this morning.
“CEO Grant O’Brien announced in January 2012 Woolworths’ intention to exit the Dick Smith business through a restructure and divestment process. The sale of Dick Smith follows a detailed strategic review and restructure of the business which determined that the business was non‐core in the size and context of the broader Woolworths retail platform and focus on maximising shareholder value.”
Under the deal, Anchorage will purchase 100 per cent of the business, including 325 stores employing more than 4,500 people. The initial cost of the deal will be $20 million, with Woolworths noting additionally that it would “potentially” benefit from a future sale of Dick Smith by Anchorage. Private equity firms typically take on businesses which they believe can be significantly rejuvenated through an injection of capital and new management talent – but they usually onsell the businesses after several years – seeing them as medium-term investments rather than permanent investment opportunities.
“Woolworths will now work closely with Anchorage and the Dick Smith team to commence a smooth transition to new ownership and separation from Woolworths,” Woolworths said. “Under new ownership Dick Smith will continue to trade as one of Australia’s most iconic specialty consumer electronic brands.”
In its own statement this morning, Anchorage said the transaction had been “conservatively structured” so that Dick Smith would emerge from the sale with a “strong balance sheet”, “considerable asset backing” and no core debt, with Anchorage also to support the business through additional cash investment and guarantees. Anchorage said it intended to maintain the current network of 325 Dick Smith stores in Australia and New Zealand and “to consider selective network expansion over time where appropriate”.
Phillip Cave, chairman of Anchorage said: “Anchorage is impressed with the underlying quality of the business and sees Dick Smith as an ideal fit for our investment mandate of acquiring established businesses with strong brands that can benefit from Anchorage’s proprietary approach to operational performance improvement. We’re extremely pleased to have entered into the agreement with Woolworths and are confident in the long term success of the business.”
Anchorage has appointed Nick Abboud as Chief Executive Officer, effective upon completion of the acquisition. Abboud has previously been executive general manager of operations at Myer, which went through a similar private equity buyout process several years ago. The Dick Smith Board will comprise Phillip Cave as Chairman and Michael Briggs, a Partner at Anchorage, together with Nick Abboud and Bill Wavish, formerly executive Chairman of Myer, Finance Director of Woolworths and Supermarkets Director of Woolworths.
Commenting on his appointment, Abboud said: “I am delighted to be joining this iconic Australian retailer. Dick Smith is a well regarded brand supported by an experienced team and an excellent national footprint. Anchorage and I see great potential in the Dick Smith business and I look forward to working with the team to fully realise these opportunities.”
It’s fascinating seeing a private equity firm take a look at Dick Smith this way, and no doubt Anchorage views the retail chain as virtually a guaranteed medium-term investment, given that it was able to pick up the company for a song – a mere $20 million (Dick Smith’s last reported annual sales were $1.6 billion), plus what looks like some form of commitment that Woolworths would benefit from any eventual sale of the company.
So, as somewhat of an expert commentator on the consumer and small business electronics sector, what directions would I recommend Anchorage take Dick Smith in, to save this basket case of a business?
My first observation is that Dick Smith sells a bunch of worthless crap. When I walk into Dick Smith in my home suburb, I’m immediately confronted by cheap dedicated digital cameras (which nobody buys any more), printers (which nobody buys any more) and external hard drive storage units (which few people buy). What Dick Smith needs to start doing is re-modelling its stores more along the lines of JB Hi-Fi – because that’s where most people in my generation are buying their gear these days.
Put brands such as Apple, Samsung, HTC, Sony PlayStation, Microsoft XBOX and Nintendo front and centre in the store and entice people in. Expand the video game section, and start competing more with EBGames. You only go to EBGames to buy video games, but if people start walking into Dick Smith to buy video games at a decent price, they’ll start buying other things as well while they’re there.
Fundamentally, Dick Smith needs to realise that it’s not an electronics store any more – it’s a gadgets and entertainment store, and gadgets are lifestyle accessories in Australia in 2012. The company needs to start promoting the hell out of things people want to buy.
Secondly, I would focus a great deal on building Dick Smith’s online business. Try and get as many people to order products through the website as possible. This is something Dick Smith currently does better than major rivals like JB Hi-Fi and Harvey Norman. There’s a chance for Dick Smith to become something like the Amazon of Australia right now when it comes to consumer electronics. The company’s website needs an overhaul to become more personalised, but if Anchorage can do this and also get great same day or next day delivery on ordered products going, it could steal a march on the sector here. It’s the way things are going eventually, so Dick Smith might as well be the first to do it.
Woolworths has a pretty streamlined operation, and barely anyone actually works in Dick Smith stores, so I doubt there’s a lot of costs to be taken out of the business. But I guess Anchorage could try. Any other suggestions?