David Jones will see “benefits” from Dick Smith deal: Credit Suisse

By Claire Reilly

Consumers are set to see more of Dick Smith in the coming months with news that David Jones has signed a Retail Brand Management Agreement (RBMA) with the retailer to manage electronics sales in its department stores.

With David Jones CEO Paul Zahra’s assessment that electronics was an “underperforming” category that has “adversely impacted [David Jones’] sales and profit for a number of years,” the move has been deemed a positive one by industry analysts.

After announcing the RBMA on Monday, David Jones issued a further statement to the Australian Securities Exchange saying it would occur a number of “one-off costs” in FY13 and FY14 in the range of $5 million – $10 million, but that these would be “more than offset by the benefits that flow through to David Jones”.

Analysing the RBMA, Credit Suisse research analyst and retail expert Grant Saligari said concurred with David Jones’ self-assessment, saying the retailer would realise a number of “benefits” from the new arrangement with Dick Smith.

“Electronics has been a problematic category for David Jones (DJS) for some time due to a lack of branding and scale,” said Saligari. “The benefits to DJS will be a reduction in inventory and costs, a minimum income from Dick Smith and DJS will share in the benefits of sales upside.

“Subject to the quality of management by Dick Smith, DJS will benefit from a better product offer for its customers. The RBMA covers televisions, computers, tablets, home office, audio visual and other digital products. It is likely that the deal provides a return similar to other categories within DJS.

“Therefore, the announcement, more generally, serves to highlight a third party value for DJS’ trading space and brand.”

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“Win-win" for store-in-store: David Jones partners with Dick Smith for CE
(Claire Reilly; 12 August 2013)

Dick Smith and David Jones have signed off on a new deal, billed as an “Australian department store first,” that will see Dick Smith operating David Jones’ existing electronics business inside its department stores across Australia.

Effective 1 October 2013, Dick Smith will operate the electronics section of David Jones under the banner “David Jones Electronics Powered by Dick Smith” as part of Retail Brand Management Agreement (RBMA) with the department store. Dick Smith will be responsible for selling products including televisions, computers, mobile phones, tablets and AV products, while the whitegoods and small appliances departments will continue to be operated by David Jones.

Dick Smith is set to acquire David Jones’ Electronics stock, while online fulfilment and some DJs staff will also move over to Dick Smith. In addition, the arrangement will involve coverage for the co-branded venture in Dick Smith’s weekly catalogue drop.

The details of the partnership were outlined in an announcement from David Jones, released to the Australian Securities Exchange today.

“On 1 October 2013 Dick Smith will acquire David Jones’ Electronics inventory as well as the fixture and fittings relating to this category and David Jones’ Electronics front line staff will transfer across to Dick Smith,” the announcement read. “This will enable a smooth transition of this business from an ‘own buy’ model to a RBMA model.

“In addition to operating the Electronics category in David Jones stores, Dick Smith will be responsible for fulfilling all Electronics orders placed on the David Jones webstore via a ‘Drop Ship’ model (where David Jones takes the customer order and Dick Smith is responsible for picking, packing and dispatching the goods to the customer.”

Speaking about the new direction for its electronics business, David Jones CEO Paul Zahra said the department store had moved to distance itself from the “risks” of the troubled electronics category — a part of the business that has been negatively impacting David Jones’ bottom line.

“Our agreement with Dick Smith is a great outcome for both David Jones and Dick Smith,” said Zahra. "It will deliver a broader range of electronics products to our customers at more competitive prices whilst maintaining the David Jones shopping experience.

“Our agreement will also enable us to drive increased foot traffic into our stores and onto our webstore as we leverage the 6 million catalogues issued by Dick Smith each week.

“For some time we have reported on the challenges that our electronics business has faced, including deflation and aggressive discounting,” he added. “This category has adversely impacted our sales and profit for a number of years now.

“As part of our Future Strategic Direction Plan we stated that we would review all of our underperforming categories, Electronics was one such category. Our agreement with Dick Smith enables us to remove the risks associated with this business and preserves our ability to participate in the sales and profit upside that results from combining both our businesses.

“In effect we have transformed what was an underperforming category in our business into a profit contributor.”

Those profits will come in the form of a monthly payment from Dick Smith, representing a fixed percentage of David Jones Electronics sales. The payment will remain the same, “regardless of sales volumes” according to David Jones.

For his part, Dick Smith’s new CEO Nick Abboud — himself the former director of operations at David Jones’ rival Myer — has said the arrangement is a "win-win" for both Dick Smith and DJs.

 “The RBMA entered into with David Jones is the next step in establishing ourselves as a major player in the market and directly links back to our business strategy to be the leading consumer electronics retailer in Australia and New Zealand,” he said.

 “Forming strategic partnerships with like-minded companies is integral to our growth strategy. We couldn’t think of a better retailer to align ourselves with than David Jones, one of Australia's most established and iconic brands.

 “It’s a win-win for both companies. Dick Smith is expanding its network and reaching a wider, high-end customer base, while David Jones is increasing its product and services offering for its customers. It also strengthens Dick Smith’s buying power, which in turn allows for more competitive prices for customers across both stores.”

Dick Smith has pledged to retain all existing CE staff from DJs, and has said the new electronics “concept areas” in the department stores will have a “strong focus on accessories” as well as Samsung, Sony and Apple ‘store-in-store’ spaces, similar to those rolled out in Dick Smith’s new Sydney CBD store.

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