Dick Smith likely to close many NZ stores - analyst

CLAIRE ROGERS
Last updated 05:00 01/02/2012

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Electronics retailer Dick Smith is likely to take "a very sharp knife" to its 66 New Zealand stores when it cuts under-performing sites here and in Australia, an analyst says.

The struggling retailer's parent company, Woolworths, said yesterday that it would shut up to 100 of its 386 stores before putting the chain up for sale.

Market commentator Arthur Lim said Dick Smith's New Zealand network, which includes nine Wellington stores, were very likely to be in the firing line.

"I would be very surprised if they don't take a very sharp knife [to it]".

Retailing in New Zealand was tougher than across the Tasman and even Dick Smith's expanding competitor JB Hi-Fi had failed to match local growth to that in Australia, he said.

"Australia have had the mining boom and the government has been quite generous – after the global financial crisis they gave everybody $1000 to spend over Christmas and lots of that went into electronics. Here it's been a very tough ride all the way through."

Woolworths said yesterday it would consider unsolicited offers for Dick Smith it had received after announcing a strategic review of it in November.

Lim said it was more likely existing players such as Harvey Norman, rather than new entrants, would buy Dick Smith and add its stores to their networks.

Noel Leeming Group, which includes Bond & Bond, was an unlikely suitor, given that its owner Gresham was considering selling the business.

Cutting underperforming stores before a sale was a logical move, Lim said. "Nobody wants to buy underperforming operations in today's environment."

Noel Leeming chief executive John Journee said the sector was fiercely competitive but certain factors including the strong dollar, the popularity of smartphones and tablets and the digital TV switchover would help sales.

Noel Leeming, which in December reported an 8 per cent lift in first-half sales, had increased its market share to "probably north of 25 per cent" from "the high teens" a few years ago.

That was probably at the expense of Dick Smith and Harvey Norman, which had both reported negative growth in recent years, Journee said.

He estimated Dick Smith's market share to be "in the low teens".

Dick Smith New Zealand's profits fell 50 per cent to NZ$3.6m in the year ended June, on revenues of $321.8m, according to Companies Office records. That was on top of a 49 per cent profit plunge in the year ending June 2010, to $7m.

Woolworths said it would take a hit of A$300m (NZ$387m) from the restructuring, which it expected to complete within two years.

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A report by Australian broker CLSA released last month suggested Dick Smith would shut half its stores. It said the chain had sales per store of A$3.9m, compared to JB Hi-Fi's A$18.8m.

- BusinessDay.co.nz

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