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Dick Smith Claims Execs Failed To Manage Buyers Or Their Practices

Serious questions have been asked about collapsed retailer Dick Smith’s rebate maximisation policy, with lawyers suggesting buyers at the company were out of control and left it with two years of stock in some categories.

Barristers for the company at hearings in the NSW Supreme Court claimed that former CEO Nick Abboud and CFO Michael Potts did not implement buying practices that prioritised O&A (over and above) rebates over customer demand and the ability to sell stock at a profit.

The court heard that O&A rebates were seen by the company as a revenue stream, with rebate-driven buying practices resulting in the DSE group acquiring and accumulating “bad stock” – stock purchased from vendors that supplied O&A and with little to no customer demand – from at least May 2014, causing the retailer to lose money.

One document seen by the court said O&A rebates became “the ‘drug’ to which the company became addicted in order to meet its profit projections”, and evidence suggested that Dick Smith had more than 16 weeks cover of some private label stock from China, when 10 weeks is industry best practice. Spreadsheets showed overstock in some areas, particularly in the Home Solutions category, of as much as 333 per cent – translating to 112 weeks of stock, or more than two years.

However, the company’s lawyers said Abboud and Potts never intended or directed buyers to purchase stock that would never sell, and that the excess stock was needed in case supplies ran out before more could be secured from Chinese manufacturers.

Barristers maintained that the bad stock issue was not why Dick Smith went bust, and that the company remained profitable until the end – instead, they say that banks found a payment from the retailer to Macquarie Bank to be in breach of extension agreements, leading the company to be placed into administration due to “the banks’ intransigence”.

The case is ongoing, and can be viewed live at https://epiq.events.corrivium.live/dick-smith.

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