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Dick Smith Struggles, Rampant Discounting Leads To Job Losses + Store Closures

Dick Smith Struggles, Rampant Discounting Leads To Job Losses + Store Closures

The Company who has been rampantly discounting products in an effort to attract customers is also facing problems with vendors with some manufacturers refusing to do business with the group because of their discounting policy.

ChannelNews understands that Apple is not happy with the level of discounting that Dick Smith was offering last year on Apple products, while Lenovo has chosen to not include Dick Smith as one of their retailers after entering the consumer PC market late last year. 

The rampant discounting during 2014 saw gross margins fall 51 basis points to 24.7 per cent as the retailer tried desperately to outperform JB Hi Fi and Harvey Norman. 

Yesterday Dick Smith chief executive Nick Abboud announced that they were cutting 80 head office jobs in an effort to cut costs. They have also moved to close stores such as North Sydney that saw a sales slump as soon as JB Hi Fi opened in North Sydney.  

The move to slash jobs and close stores is being initiated 15 months after the $350 million float of the mass retailer that saw early investors pocket millions after the business was acquired from Woolworths for less than $100M 12 months earlier. 

Dick Smith chief executive Nick Abboud said the restructure would save $8 million to $12 million a year and was in line with plans to reduce the company’s cash burn to between 17.5 per cent and 18 per cent of sales by 2017.

Mr Abboud reiterated Dick Smith’s guidance for 10 per cent sales growth, 7 to 9 per cent underlying earnings growth and 3 to 5 per cent net profit growth this year. However, he said 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.

Mr Abboud said the restructuring would not only cut costs but make it easier for suppliers to do business with Dick Smith and improve efficiencies through the supply chain.

The retailer has signed a long-term logistics contract with Australian and international providers, creating an end-to-end approach to supply chain management.

“Our commitment and ability to serve our customers with the product they want, when they want it, from our 388 physical locations and seven online platforms is unabated and remains at the core of everything we do,” Mr Abboud said.

Dick Smith shares rose 5? to $2.09.