Dick Smith is the Greatest Private Equity Heist of All Time

[EEVblog]

Ditto. I once worked for IBM who sold us off to venture capitalists backed by Mitt Romney's Bain Capital private equity. The new company was called Bluegum Technology. "You either join the new company or be deemed to have resigned from IBM in which case there will be no redundancy (payment)" said then then CEO of IBM Australia.

That sounded ripe for a group action with a good commercial law lawyer.
I've heard other companies have tried the same thing and failed when challenged.
Although IBM are most famous for their lawyers.

[coppice]

Shame to see another one go under but selling the same Chinese do-dahs as everyone else is just not sustainable.

Try telling that to Walmart.

[sony mavica]

i wondered why when i went to dicksmith a little while ago all there games and  lot of other stuff was dirt cheap

[Hypernova]

My first soldering iron was from dick smith.
My first roll of solder was from dick smith.
My first multimeter won at school (which I promptly blew up on a microwave transformer) was a prize from dick smith.

This is not how his legacy should end...

[VK3DRB]

The man speaks sense...

http://www.theage.com.au/business/retail/fmcg/dick-smith-founder-sees-survival-alongside-harvey-norman-jb-hifi-20160105-glzj4j.html

[VK3DRB]

Ditto. I once worked for IBM who sold us off to venture capitalists backed by Mitt Romney's Bain Capital private equity. The new company was called Bluegum Technology. "You either join the new company or be deemed to have resigned from IBM in which case there will be no redundancy (payment)" said then then CEO of IBM Australia.

That sounded ripe for a group action with a good commercial law lawyer.
I've heard other companies have tried the same thing and failed when challenged.
Although IBM are most famous for their lawyers.

They apparently ran a mock court case in NSW (IBM Australia is incorporated there) to test if the employees could launch a class action against them. The superannuation was called Part IV. The rule was if you decide to leave IBM for any reason you don't get the Part IV. But IBM effectively put a gun to our heads and forced us out. So we left IBM and in doing so lost our Part IV. Oddly enough one employee got the Part IV by mistake but it was kept hushed up. Maybe there is a case based upon that precedent. I don't know; I am no lawyer.

[HackedFridgeMagnet]

https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

Written by someone who doesn't understanding accounting and clearly has no appreciation of capitalism.

For a free market to operate efficiently, it is pareto optimal for assets to be correctly priced (=price discovery). So there must be people who is willing to invest in price discovery, and be rewarded for price discovery. The Dick Smith case is nothing but someone discovering an under-valued asset and exploited it and got rewarded handsomely for it.

As those inefficiencies are exploited and stupid investors are punished and driven out of the marketplace, the market will become more efficient. And that is good for everyone.

No there is more to it than that. Apart from the obvious pump and dump. Also I am not sure why you don't think they understand capitalism, they seem to know more about it than most of the other financial organisations.

Yes the people who chose to invest in the float were stupid, but the big losers were the people who didn't choose to invest in Dick Smith but had their superannuation funds invest in DS for them.
Because the float was big enough to land in the ASX200 index, much of the investment came from Super Managers who have index following funds.
These unknowing investors are the main target of these style of heists.
Goodman Fielder was another, Macquarie Infrastructure another.

I say get rid of compulsory Super to help bring back the local sharemarket to something like capitalism.

[mrpackethead]

Thank god there's still Jaycar, who haven't lost the plot.

They just hire staff with personal hygine issues.

[Tandy]

Shame to see another one go under but selling the same Chinese do-dahs as everyone else is just not sustainable.

Try telling that to Walmart.

That is the point, when you have large supermarket chains with buying power and low cost logistics on one side and internet retailers with low overheads on the other you can't compete. If you are selling for example an HDMI cable that you can either buy very cheap on-line or conveniently pick one up when buying your groceries, why would you make a trip to a specialist store? What will draw you there? After all you know what you want, so you won't go there for specialist knowledge.

At the end of the day there are a limited number of ways you can compete...

You can lower prices, but you will never win that game with physical stores.

You can offer convenience, that can work if you sell travel adaptors at an airport for example but not if people have to make a special trip to your store, unless you have a wide range of useful things that can all be bought in the same place. This takes a great deal of effort to get the right product mix and maintain a reputation for having the things people need.

You can offer something unique. If you sell items that are not easily found elsewhere then people will make the effort to come to you. That doesn't mean necessarily stocking obscure items but instead of selling the same item with a different name on it as everyone else you need to make the effort to source better/more interesting products. This requires that you have a good understanding of what you are selling, as you can't just rely on stocking the same thing as other retailers to be safe. You need people who are skilled in spotting products with unique features that can be used as selling points.

[dannyf]

Agree. The fundamental problem guys like dick Smith and RadioShack face is that the market is changing in ways more than their existing business models can accommodate.

The market is shrinking, the technology is advancing to a point the traditional diy may not be possible, and competition is going global, ...

The customers they depend on are simply disappearing.

[rsjsouza]

Shame to see another one go under but selling the same Chinese do-dahs as everyone else is just not sustainable.

Try telling that to Walmart.

That is the point, when you have large supermarket chains with buying power and low cost logistics on one side and internet retailers with low overheads on the other you can't compete. If you are selling for example an HDMI cable that you can either buy very cheap on-line or conveniently pick one up when buying your groceries, why would you make a trip to a specialist store? What will draw you there? After all you know what you want, so you won't go there for specialist knowledge.

+1. Diversification is what sustains Walmart's business: basically they sell a lot more than a simple cable, turning a slightly more expensive cable into a convenience purchase given you will get it next time you do groceries. I know from my experience this also happens with other products across the store - one example is personal hygiene products: the local pharmacy sells them at a lower price, but you don't drive there exclusively for this. If diversification wasn't worth, Amazon wouldn't be trying to get into groceries market.

You can offer convenience, that can work if you sell travel adaptors at an airport for example but not if people have to make a special trip to your store, unless you have a wide range of useful things that can all be bought in the same place. This takes a great deal of effort to get the right product mix and maintain a reputation for having the things people need.

Not only a great deal of effort but also a great deal of cushion to get inventory and keep it in your store until you go above the red line. Fry's Electronics and MicroCenter have been diversifying continuously trying to capture some of the convenience aspect of it. Fry's, for example, is known as an electronics store that also sells white goods (not easily purchased online) and toys (especially during holiday season). MicroCenter entered the maker wave despite also being known as a computer store.

You can offer something unique. If you sell items that are not easily found elsewhere then people will make the effort to come to you. That doesn't mean necessarily stocking obscure items but instead of selling the same item with a different name on it as everyone else you need to make the effort to source better/more interesting products. This requires that you have a good understanding of what you are selling, as you can't just rely on stocking the same thing as other retailers to be safe. You need people who are skilled in spotting products with unique features that can be used as selling points.

One another attempt was to offer an improved "consumer experience" - something that BestBuy tries to offer with their Magnolia design centers and geeksquad technical support. However, we all know the issues with a design center (people see it at the store but buy online) and geeksquad (dissatisfied customers are very vocal, even if a minority).

[VK3DRB]

If the receivers have been called in, why is Dick Smith still trading on-line? Isn't that illegal? I am not sure. In any case I would not go near their on-line sales with a barge pole - too risky in my opinion.

Dick Smith, "That's where you go!" -> "That's where you go... broke!" 
Dick Smith, "Talk to the techxperts!" -> "Talk to the receivers!" 

https://www.dicksmith.com.au/

[Len]

If the receivers have been called in, why is Dick Smith still trading on-line? Isn't that illegal?

The receiver's job is to sell off the company's remaining assets, to repay the creditors (as much as possible). So they'll stay in business as long as they have stuff to sell.

[mrpackethead]

its in administration not receivership which is different.

[Brumby]

its in administration not receivership which is different.

Yes, very different.

https://legalvision.com.au/difference-receivership-administration-bankruptcy-liquidation-impact-creditors/

[Len]

its in administration not receivership which is different.

It is in receivership. From an article posted earlier in this thread:

James Stewart from Ferrier Hodgson was appointed by the banks as the receiver and McGrath Nichol will act as administrator for the company.
The appointments are expected to be formally confirmed tomorrow morning by the company.
NAB and HSBC as main bankers appointed the receiver and company chair Ron Murray appointed the voluntary administrator.
The company will now be formally wound up in a process aimed at maximising returns for the banks.

http://hotcopper.com.au/threads/receivers-called-in-to-dick-smith.2673607/#.Vo7DZVK1-P9

[Tandy]

Correct, the administrators were voluntarily appointed by the directors, so they are responsible for the day-to-day operating of the company, the directors are essentially suspended. The bank has appointed a receiver to recover as much of the debt as possible for the banks benefit. It is the receiver that will take control of all assets and be responsible for selling the business as a whole or closing it and selling off individual assets.

To the bank their sole responsibility is to recover as much of the loan as possible. Sometimes this means that a buyer for the business can be found who has the financial stability to take on the loans and the business is sold for $1 on the basis that the bank expects to have the loans repaid. Other times it could be that the business is sold as a going concern for less than the loan value and the bank retains a share holding in the hope of gaining the difference back.

However more often than not it means that nobody is willing to take on the debts so individual assets are sold off. Usually the largest asset is the main brand that someone will buy without any obligation to existing customers in order to continue trading using the name. After that you are just left with stock, any company owned buildings and fixtures and fittings. Typically a over hyped closing down sale ensues where people who don't know any better get caught up in the frenzy and buy stuff for prices not that much lower than they could get on-line.
I addition to debts they have with banks and suppliers there will also be leases for their stores that they can not get out of unless they liquidate making it even less attractive to any potential buyer who would almost certainly want to close all under performing stores to get things back on track.

[station240]

One story I found said the banks are owed $40M, so the stock alone should be worth more than the loans. I have no faith in the banks to simply take what money they are owed, and pass the rest onto the customers with the now worthless gift cards. The banks here are crooks, and think nothing of selling a $300k house for $20K , and then demand fees for only selling the house for the amount owed.

Having a fire sale of DSE's stock, and selling a few stores would do the company good. Restock the stores with decent products.

[Tandy]

According to news reports Dick Smith owes more than A$140 million to its banks as well as more than A$200 million to creditors.

[nctnico]

The banks here are crooks, and think nothing of selling a $300k house for $20K , and then demand fees for only selling the house for the amount owed.

People and companies who borrow money do so with a promise to repay the debt. The money lent is other peoples money not the banks money.

Are you suggesting the banks should play fast and lose with depositors money

They already did on a massive scale. Between 2000 and 2008 banks where way too easy with lending people money. They didn't check (or even care) whether people could actually pay the money back or not. How did you think the 'credit crunch' happened?

[dannyf]

This thread could benefit with some Econ 101.

As to 2008, the banks are least of the problems.

[station240]

The banks here are crooks, and think nothing of selling a $300k house for $20K , and then demand fees for only selling the house for the amount owed.

This is relevant because? ...

People and companies who borrow money do so with a promise to repay the debt. The money lent is other peoples money not the banks money.

Are you suggesting the banks should play fast and lose with depositors money and just kiss it goodbye? Some of it is mine.

Door swings both ways, banks are obliged to ensure money loaned is able to be repaid. The problems with DSE didn't appear overnight, it was in trouble more than 2 years ago when woolworth's sold it. Who would lend hundreds of millions to a company in such a poor condition ?

The key point is repay the debt, the rest of the money belongs to someone else.
In this case many people are owed money, the idea should be to repay as much of the debt as possible.
For instance, you could pay off more debt by giving those with giftcards the $100 worth of stuff from the store (retail prices), rather than selling it at auction for $10.

Banks are insured against losses anyway, much unlike the staff and customers of DSE who will likely get screwed.

To answer your question, the banks should just kiss this year's profit goodbye (actually 10% of it). Better that than yet another fall in consumer confidence, and large losses in the active part of the economy the people who actually spend their money (workers, customers, people who got cheated out of christmas).

[dannyf]

banks are obliged to ensure money loaned is able to be repaid.

At time of the loan was underwritten.

Shit happens in life and no one has a crystal ball that can predict the future perfectly, banks or no banks. Inferring bank's intention to make a bad loan from the fact that a bank made a bad loan is a stretch in common sense.

[nctnico]

banks are obliged to ensure money loaned is able to be repaid.

At time of the loan was underwritten.

Shit happens in life and no one has a crystal ball that can predict the future perfectly, banks or no banks. Inferring bank's intention to make a bad loan from the fact that a bank made a bad loan is a stretch in common sense.

Look for the Dutch DSB bank. Handing out bad loans was their pyramid scheme! If people couldn't pay they would just borrow more money to them and sell them expensive but worthless insurance policies. When this bank went belly up they needed 500 million euro to repair the bad loans and compensate people for the worthless insurance policies.
The same went on on a bigger scale where bad loans where wrapped into packages where the risk suddenly dissapeared. In the end this caused the Lehman brothers to go belly up. So did banks make bad loans they knew about at the moment the loan was approved? YES! As long as people get their bonusses they don't care about the long term effects which is why strict rules are necessary in order to prevent another collapse of the financial system.

[EEVblog]

According to news reports Dick Smith owes more than A$140 million to its banks as well as more than A$200 million to creditors.

Who gets first suck of the sav?