Was Dick Smith set up to fail?

As electronics reseller Dick Smith battles to trade after entering voluntary administration, creditors and investors have been left wondering where it went all wrong.

The national chain handed over the reins to administrator McGrathNicol this week after failing to secure short-term support from its banks. The same banks appointed Ferrier Hodgson as receivers and is currently seeking a buyer.

"Dick Smith has been an iconic Australian brand for decades and it's sad to see their demise,” said Ruslan Kogan, founder and chief of Dick Smith rival Kogan.com. “It's a bittersweet situation… It's a sign of the changing retail landscape that has more and more Aussies turning online.”

Forager Funds Management publicly flagged concerns about Dick Smith last year, with investment analyst Matt Ryan writing a blog on 29 October provocatively titled “Dick Smith is the greatest private equity heist of all time”.

The blog accused private equity firm Anchorage Capital of "using all the tricks in the book, to turn Dick Smith from a $10m piece of mutton into a $520m lamb”.

Ryan claimed Anchorage paid only $10 million out of its own pockets then used Dick Smith’s balance sheet and liquidated assets to fund the $115 million acquisition from Woolworths in 2012.

Anchorage then turned its $115 million Dick Smith stake into a public float worth a bumper $520 million, with investors lured by an inflated profit forecast, according to Ryan.

He explained that by the end of 2014, cash flow should have been shaky but was propped up by credit from suppliers. By the end of 2015, the electronics reseller ran out of places to hide, as creditors demanded payment.

“This float... smelled funny from the very beginning. Sorry Dick Smith investors, you’ve been had,” wrote Ryan at the time.

Anchorage Capital declined to comment on the Dick Smith situation.

CRN contacted several major technology vendors - Acer declined to comment on supply relationships while others had not responded at the time of writing. Dick Smith resells a broad range of PC makers, including Apple, HP, Acer, Asus and many more.

McGrathNicol and Ferrier Hodgson were also contacted but CRN was referred to media statements only.

Founder and namesake Dick Smith - who has not been involved in the business since selling to Woolworths in 1982 - told Fairfax Media of his suspicions about Anchorage's half-billion dollar float and said it was a "classic case of people going for quick growth and getting into very quick problems".

"I imagine there is room for three consumer electronics companies, but they need to be well managed," he said.

Foad Fadaghi, managing director of analyst firm Telsyte, told CRN that “retailers in the electronics space have come and gone before” and that the Dick Smith collapse would have minimal bearing on the industry.

“The consumer electronics industry is in relative good health supported by a strong housing sector, small business accelerated depreciation tax changes and improving non-mining economy,” Fadaghi said.

“We expect 2016 to be key year for retailers as many will introduce new products such as VR, smart home and wearables technologies that require hands-on experience.”