Dick Smith Court Grilling: Reveals Only 62 Stores Had Stock Takes

Dick Smith’s bizarre retail practices have been exposed with former company executives admitting in the NSW Supreme Court that of 330 stores only 62 stock takes were undertaken, serious questions of also been raised about the learning stock levels across the Dick Smith network of stores.

The practices of front line executives such as former CEO Nick Abboud marketing director Neal Merola, Mark Scott the former retail director who is now working at Coles are now being questioned following the collapse of the mass retailer owing $400 million to creditors.

Yesterday the court heard that the company had purchased 12 years supply of house brand batteries. Today former non-executive director Lorna Raine told the court that Dick Smith had more than 330 bricks-and-mortar stores in 2015.

When Jeremy Giles, SC acting for the receiver asked “Do you know why only 62 stocktakes were [carried out]?”

She said management had not raised concerns about the number of audits.

The court heard that the stock level for Dick Smith was about $170 million as at June 2013.

Mr Giles asked Ms Raine if she recalled being told an appropriate level of inventory would be in the range of $260 million to $280 million.

Asked if she had concerns about the spike in inventory, Ms Raine said: “Yes, we were all concerned about it.”

But Ms Raine said earlier that the board was “not concerned” by management’s plans to reduce stock – including through promotional campaigns and reducing orders – because those plans seemed “plausible”.

“But inventory didn’t drop sufficiently…did it?” Mr Giles said.

“Certainly not,” Ms Raine said.

It now appears that serious questions are being asked as to why the board did not start raining in senior management running Dick Smith went in inventory levels started climbing.

Despite repeated grilling by Jeremy Giles Ms Raine said it had ongoing discussions and there was “no reason to believe that, in time, management would [not] get inventory down”.

Former Dick Smith non-executive director Bill Wavish, of the retailer’s former private equity owner Anchorage Capital Partners, was asked if he regarded this as adequate.

“I regarded it as being too low,” Mr Wavish said.

He said he had regarded the correct level as being $200 million, but it could increase by $100 million around the Christmas peak.

“As we managed the business more … [Dick Smith chief executive Nick] Abboud would complain that he hadn’t got enough inventory,” Mr Wavish said.

“I eventually came to the view that he was probably right and we changed it to $250 million.”

In December 2014, the inventory was “about $30 million too high”, Mr Wavish said, and “almost $100 million” too high by January or February last year. He said this was an “orange light”.

“Only an orange light?” Mr Giles said.

“An orange light, yes. It’s not unusual in retail,” Mr Wavish said.

Fairfax Media reported that when asked if Dick Smith had a policy about undertaking stocktakes at physical stores, Mr Wavish said: “I’m not aware of the policy, but there would have been one.”

He said primary responsibility for the policy would have rested with the chief financial officer and Mr Abboud, and this was the “first I know of any issue relating to stocktakes”.

Grilled about the company’s strategy for opening new stores, Mr Wavish said: “Just because times are tough doesn’t mean you don’t open new stores.”