UPDATED: Dick Smith’s aggressive store expansion philosophy underpins “volume game” mentality

Dick Smith’s remarkable renaissance as a publicly listed retailer will continue through expansion and high volume sales over the next 18 months, according to the man charged with overseeing its IT department, general manager Paul Keen.

In the two years since private equity firm Anchorage purchased Dick Smith from Woolworths, where it was seen as a ‘red-headed step sister’ retail brand that was not generating enough gross margin, the new owners have rapidly increased Dick Smith’s store presence, including the introduction of two new retail brands, ramped up publicity for the chain through sponsorships and, in a highly profitable move, floated it on the Australian Securities Exchange.

Paul Keen said the industry can expect more of the same aggressive, successful approach to the market.

“About two years ago, Woolworths sold Dick Smith for $20 million and one year later it IPOed on the Securities Exchange with a market value of $550 million, so if you ever want an example of turnaround business, this is it,” Keen said.

“We’ve been very, very aggressive with our growth strategy in that time. We’ve gone from 323 stores in FY13 to 377 in FY14 — that’s the equivalent of opening a store every week — and we’ll continue to do that in FY15.”

(For the purpose of comparison, rival national retailer Harvey Norman has 323 outlets in Australia and New Zealand, according to its 2014 half yearly report and website, while JB Hi-Fi has 182 stores across the two countries, according to an investor presentation on 9 May 2014.)

In a telling statement for the entire consumer electronics industry, Keen explained that Dick Smith must open new stores and expand relentlessly because that is the nature of a marketplace beset with margin erosion.

“We’re going to continue that aggressive growth [because] it’s a volume game,” he said.

Keen was discussing Dick Smith’s strategy at a press event to mark the official opening of MuleSoft’s new Australian office and the appointment of Jonathan Stern as its new regional vice president for Australia and New Zealand.

Dick Smith has been using MuleSoft’s products to wrangle data from its legacy IT systems, inherited from Woolworths. Rather than going cap in hand into CEO Nick Abboud’s office to request a complete IT replacement program, MuleSoft can plug into old systems and collate the information into one view.

“From a technology POV, I joined in November 2013 and inherited a team that was used to a lot of underinvestment from Woolworths,” Keen said.

“The team was very used to making do with what we had. We run an AS400 and a Delphi POS. The AS400 was originally developed 30 years ago — it’s green screen — and when I started my career 18 years ago, it was even old then.

“It’s a really bad legacy system but it really does work.”

Expansion & Innovation

Although the cynic might suggest that Dick Smith’s opening of new stores and its commitment to increasing sales of home brand products will have a deleterious effect on the market as a whole, Dick Smith has also shown some rare retail innovation, at least in the recent history of the industry.

Signing a deal with David Jones to take over its technology sales as a concession — ‘Dick Smith at David Jones’ — means the company is now exposed to customers from higher socio economic groups; those who might normally enter its usual outlets in strip malls and shopping centres.

The opening of four Move stores— one each in Sydney and Brisbane and two in Melbourne — to sell what Dick Smith calls ‘fashtronics’ has also been groundbreaking. Dick Smith calls this a world’s first concept and backs its up by pointing to its nomination for Best New Retail Concept at the 2014 World Retail Awards, due to be announced in Paris on 30 September 2014.

The Move and Dick Smith at David Jones outlets may be dwarfed in number by traditional Dick Smith stores, not to mention Dick Smith’s transactional website, but they represent a streak of innovation among the otherwise concentrated approach to increasing volume sales.

Appliance Retailer can also reveal today that Dick Smith has had preliminary meetings with at least one major small appliance brand and may be investigating an encroachment into the thriving world of small appliance sales. At the time of writing, Dick Smith had not responded to our requests for comment, but it could be that the company is planning to execute a similar idea to JB Hi-Fi’s Home concept, in which an established electronics retail brand is leveraged in a new venture offering small and large appliances.

UPDATE: Dick Smith has provided the following statement:

“Dick Smith provides customers with competitive offers in consumer electronics, particularly in key categories of computers, mobile phones and plans and accessories, through its 377 stores and omnichannel platform.

“Whilst we intend offering our customers more of the products they desire through our store network expansion and range extension, we do not currently have any plans to provide customers with a comprehensive range of white goods or large appliances.”

In response to this statement, I asked its PR representative: “Just to be clear, Dick Smith is not denying that it has been meeting with appliances vendors?”

The representative replied: “The statement I sent to you is all we have in response to your question at the moment.”

Creative Control

Dick Smith will certainly be backing up its expansion and sales drive with a comprehensive marketing campaign. This week, the retailer officially launched the next edition of the Dick Smith NRL Auckland Nines rugby league tournament — slated for 31 January to 1 February 2015 — and reaffirmed its commitment to the Melbourne Stars franchise in the KFC Big Bash Twenty20 competition, which runs from 18 December 2014 through to 28 January 2015, and will be broadcast live on Channel Ten.

In a major departure from the Woolworths days, when Dick Smith’s marketing was based around artless double entendres, the new company has opted for a more nuanced approach to advertising, adopting ‘Do More Save More’ as its slogan, ramping up social media and digital activity and unleashing a charming new TVC build around the tagline ‘Unleash Your Smith’, which has racked a remarkable 173,000 views on YouTube in just three weeks.

 

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One Response to UPDATED: Dick Smith’s aggressive store expansion philosophy underpins “volume game” mentality

  1. Roz Sat 9 Aug 2014 at 12:57 pm #

    Poor salesman in Echuca. Store full of customers. Only one employee. Very frustrating!

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