Behind Dick Smith’s rapid downfall

Petrina Berry

(Australian Associated Press)

What caused Dick Smith’s demise:

* All of the company’s cash reserves were spent on new stores, and the expansion was then funded with bank borrowings

* The retailer was also losing market share, with its revenue growth driven by new stores and sales at low margins

* Its range of products was not consisent with what consumers wanted, leaving a considerable amount of obsolete and inactive stock

* Clearance sales failed to generate sufficient revenue

* The company’s inability to obtain favourable credit terms also impacted on its stock levels, product range and presentation of its stores

*Cash flow pressures eventually led to the breach of its banking covenants

Information supplied by administrator McGrathNicol.


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