By Claire Reilly

Woolworths Limited may be forced to close almost half of its Dick Smith stores in an effort to keep the retail chain alive, according to a report released by investment analyst group CLSA.

In the report, titled “Off with Dick’s Head”, CLSA predicts that Woolworths is likely to undertake a “Shrink and trim” approach to the Dick Smith chain. If this approach were taken, “Woolworths will close up to 189 stores (out of 386) that are deemed unviable and invest significant effort in pursuing an online strategy to support the ‘bricks and mortar’ presence”.

CLSA also conceded it would be “very tempting for Woolworths to make a clean exit out of Dick Smith” considering it generated earnings before interest and tax (EBIT) of just $22 million over the last financial year, compared to the larger Woolworths group total of $3 billion.

However, the report also noted that “none of the current players” in the CE industry would be viable buyers, and it is unlikely that “Woolworths would consider biting such a big liability bullet”.

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Despite operating 320 stores in Australia, CLSA estimated that Dick Smith has roughly 7 per cent market share. “Despite the efforts of Woolworths management around refurbishments and rebranding, revenue and earnings from Dick Smith have been disappointing over the past five years, and particularly when compared to the reported results of JB Hi-Fi,” the report read.

According to CLSA, Woolworths has claimed its underperforming stores are too large, too small or in the wrong location. However, the report argued that “the problem is bigger than this and…the brand itself is a major inhibitor.

“We believe the Dick Smith business can be considered ‘up for sale’ following the announcement by WOW [Woolworths Limited] at its strategy day in early October that the Dick Smith business was formally under strategic review,” added the report.

“The divestment of Dick Smith is not the only alternative being considered but given the weak earnings performance of the business we believe Woolworths unlikely to continue with Dick Smith in its current size and shape.”

The results of Dick Smith’s formal review are due to be released in February.