Opinion: Dick's price a vote of confidence on e-retail?

Dick Smith has changed hands after a long ownership under Woolworths. This was to no one’s surprise as the business was up for grabs for some time.

What surprised many was the price it was sold for. $20 million! Astonishing given Woolworths had valued the business at $440 million at the start of the year. More astonishing when the business is reportedly making approximately $25 million a year in profit before taxes. Two years of solid trading and you’ve made your money back well and truly.

Also astonishing is the write down of $420 million on Woolies’s books. That is some haircut. I have to say if I knew the final price I would have started making calls.

I’m sure ole Dick would have choked on his (Australian-made) cornflakes (ozeflakes perhaps?) when he read the final price. (What an interesting story if Dick Smith bought Dick Smith? Perhaps they would report it in the Mirror?)

So, are the previous heads of Dick’s, well, dickheads to sell off this profitable business? Some reports say there was too much hassle in management of the store and the return was too modest for 350 odd centres turning over around $1.5 billion.

Or perhaps they looked down the road a little and saw that retailing of computers and electronics was way too hard. JB HiFi isn't exactly lighting up the stars with its current trading. Although do any of you see those yellow bags everywhere like I do? Perhaps it’s my subconscious reminding me to buy more Xbox titles/discount games/gadgets.

In any case the real question here is about computers and electronics as a business, and both retail and online as an industry.

A quick note here. I did once venture into the world of consumer electronics, computers and software, mainly online, but a little on the shelf as well. And it wasn’t too long before I was off chasing other avenues.

It is a mugs game, especially in the digital age where every man and his dog are flogging gear via websites in this unholy race to the bottom. But then again you have guys like Ruslan Kogan smashing it and making cash left, right and centre - he is definitely one of the few winners in this race. For more on this race see Seth Godin’s great article.

Everyone wants everything cheaper, so if you are in the game your margins are squeezed. If you are a retailer your leases are typically going one direction especially if you are in a giant shopping mall. Furthermore, labour costs are quite high - if you can get the right staff, that is.

So margins down, competition up, overheads up. Not such an attractive prospect. Perhaps Woolies got the best it could and wiped its hands? Or perhaps the opportunity for Dickies is to focus on its service game, consolidate more stores and improve its digital strategy past its competitors.

Personally, I see a strong future in this space based on higher volume through bigger range, more population and the move to the digital era. I think Anchorage, the new owners, have nailed this deal. The potential is very strong and the price is just incredible. 

Or perhaps I don’t know Dick…

Geoff Olds is the managing director of Australian solutions provider TechFlare Solutions.