How Dick Smith Tried To Screw Suppliers Like Panasonic
Panasonic who were one of the first to put Dick Smith on credit hold, was singled out by directors of the failed retailer in an effort to extract higher rebates the New South Wales Supreme Court heard yesterday.
It’s also been revealed that manufacturers and distributors were being used as a piggy bank to fund the mass retailer who collapsed with debts of over $400 million.
Non-executive director and former Woolworths chief financial officer Bill Wavis who was called to give evidence said that it was he who counselled former Dick Smith CEO Nick Abboud how to use rebates from manufacturers and distributors instead of having to borrow from banks or finance companies.
The controversial rebate scheme being implemented by Dick Smith in an effort to shore up falling profits and poor cash flow was under scrutiny yesterday. At one stage Wavis, instructed Nick Abboud to fly to the 2015 CES show in Las Vegas in an effort to deal directly with Panasonic executives. According to ChannelNews sources Nick Abboud’s efforts were not successful.
Dick Smith’s reliance on rebates has been controversial because its liquidator McGrathNicol found the retailer bought stocks based on their rebates rather than customer demand, which led to high inventory and poor product mix.
Wavis told the court that he saw nothing wrong with trying to “maximise rebates” from suppliers
“There seems to be a view rebates are bad. Rebates are good. Retailers cannot survive without rebates and for most companies like Dick Smith and Woolworths rebates exceed profit. You don’t try to avoid maximising rebates,” he said.
“Everybody knew – it was the whole business strategy.”
According to Mr Wavish, the business strategy in maximising rebates involved getting extended credit from suppliers rather than banks during the Christmas period.
“The skill is instead of needing to go to banks for these facilities, you go to the suppliers for those facilities and when you go to the suppliers you say, ‘I have a nice big Christmas order and I want a nice credit for this’. And instead of paying at the end of December you are paying in at the end of January or early February, which gives you six weeks’ extra credit,” he said.
“That’s what I taught and that’s what was done.”
Mr Wavish said a fundamental part of private equity Anchorage Capital’s acquisition of Dick Smith from Woolworths was the retailer’s ability to generate a lot of money from suppliers.
Mr Wavish, who is now retired, said there were many skills involved in squeezing money out of suppliers.
“There is a whole skill in this area. Whilst you might send the buyer back to get an additional rebate, the more fertile ground is to go to other people with their own budget, for example marketing, supply chain and wage subsidy … and get someone like Abboud to give second to last bites – fly him overseas like Las Vegas and talking to senior managers of Panasonic and getting in early,” he said.
“That was the whole business strategy and it was very successful. The issue is how it is accounted for and whether the auditors were happy with it.”