In early 2016, Dick Smith Electronics announced they would be shutting all 363 stores in Australia and New Zealand. For a homegrown brand that grew out of rented premises in a suburban carpark, the closure of Dick Smith Electronics stores has left Australians disappointed to see the demise of a once great local retailer.
As reports around the beleaguered electronics retailer emerged, it became clear that every attempt they made to salvage the business left inventory levels spiraling out of hand. Here’s one example of the bizarre inventory situation: Dick Smith Electronics had 12 years’ worth of batteries in its inventory. When the company secretary was asked to explain the rationale behind carrying so much batteries, he said it was to prepare the company for “higher marketing activity in the lead-up to Christmas”.In truth, they were buying excess inventory in order to offset poor sales.
By buying more products from their suppliers, Dick Smith Electronics would be able to claim rebates from suppliers that they would put into their accounts as profit. As a result of the company’s reliance on rebates to keep the business afloat, buyers started purchasing stock based on supplier terms instead of following consumer demand in order to hit their 'rebates' target.
Poor inventory management played a significant role in the collapse of Dick Smith Electronics. However, a better idea of their inventory data could have helped them avoid overstocking and dead stock. Here are three key metrics similar businesses can monitor to avoid these issues:
While Dick Smith Electronics’ mismanagement of their inventory definitely contributed to their demise, there were other factors at play. It had a larger store network than its competitors, a declining market share, and the brand was unaware of trends in consumer electronics.
Dick Smith, the founder of the brand summed up the fiasco when he said “(As) a consumer electronics business it probably could remain viable with 100 shops. But when you have the utter greed of modern capitalism, when they opened 300 shops… it’s going to go broke.”
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