EXCLUSIVE:Dick Smith Tells Vendor Summit That They Will Have To Bid For Promotions Talk of 50/50 Partnerships
The mass retailer who recently sacked 80 staff has also told vendors that they now have to bid for weekly promotion deals with the highest bidder getting the top spot in Dick Smiths weekly promotions.
At a briefing last week in Sydney suppliers to Dick Smith were told that the Company is also looking to lower backend operation costs which are believed to be running at 24% Vs 17.5% at JB Hi Fi,.
The move comes as Dick Smith struggles to deliver bottom line profits following heavy periods of discounting, ChannelNews has also been told that the retailers is looking to improve their cash flow position after gross margins fell 51 basis points to 24.7 per cent as the retailer cut prices running into the peak Xmas New Year buying period.
A Director of a major supplier to Dick Smith said “I believe that cash flow is under pressure at Dick Smith and that the management team is looking at several ways to cut costs and push more risk and liability onto suppliers. We are now being asked to bid for promotion deals and form 50/50 partnerships, this is a Myer idea from 20 years ago that failed”.
19 months after its $350 million float, the retailer who some suppliers have refused to deal with because of their discounting practises has not commented to ChannelNews however one insider said “Everyone is under pressure to deliver results, our operating costs are too high and we need to increase margins or volume to deliver improved cash flow”.
Dick Smith chief executive Nick Abboud said recently that the changes announced on the 18th of March restructure would save $8 million to $12 million a year and was in line with plans to reduce the company’s cash cost of doing business to between 17.5 per cent and 18 per cent of sales by 2017.
Another senior marketing director who attended the briefing said “Dick Smith is looking for growth by opening new stores, however this strategy is flawed if they cannot lower the costs of doing business. Discounting does not deliver long term profits or improved cash flow which is what Dick Smith is suffering from at the moment. What they are currently doing is short burst discount marketing which can damage a brand that has good margins in their products”.
Both JB Hi Fi and Harvey Norman have recognise this which is why they are moving to range more premium brands. The other problem is that when Dick Smith floated they said that they would have a mix that was 15% house brands and the rest branded products. Nick Aboud even bragged about being the house of brands”.
The reality is that house brands is now running at 25% at Dick Smith at a time when consumers are waking up to cheap made in China brands that fail over time. The move is back to quality brands hot house brands.” they said.
“Another problem is they identify a category that has been built up on branded products and then get their Hong Kong sourcing office to find house brand products to replace the branded product”. They added.
Dick Smith management have not responded to ChannelNews requests for a comment.
Aboud said in March that the restructure would trigger one-off cash costs between $6.9 million and $7.9 million, or $4.8 million to $5.5 million after tax.
The job cuts followed a weaker than expected December-half result. Dick Smith’s net profit rose just 0.8 per cent to $25.2 million even though same-store sales rose 2 per cent and total sales rose 8.9 per cent to $693.8 million.
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