Corporate Failure: Lessons from the Collapse of Dick Smith

Executive Summary
This report is meant to emphasize on the subject of corporate failure considering Dick Smith as
case study. Dick Smith was a big-size retailer in Australia of electronics consumer products.
There are different factor for collapse of Dick Smith, which can be consisted of mainly strategic
failure, improper accounting practices and unworthy and unethical corporate governance
practices. This report will analyze those factors with summing up the discussion by lessons
provided by this case study for the retailers of electronic consumer products in Australia. The
referred case study highlighted the role of greed of the management for showing more profit
through improper accounting practices and bad corporate governance with the role of auditors,
who kept silent noticing those disorders and not highlighting them to the management and the
ASX till the bubble busted. The main objective of a public limited company of protecting the
stakeholder’s interest is denied for the petty self-interests of the management and the Board.
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Table of Contents
Introduction................................................................................................................ 3
Background of Dick Smith.......................................................................................... 3
Strategic errors of Dick Smith.................................................................................... 4
Changing type of customer requirement.................................................................5
Expansion of unworthy network..............................................................................5
Declining market shares.......................................................................................... 6
Failed attempt of survival through clearance sales.................................................6
Lack of Standardized Accounting System...................................................................7
Improper Corporate Governance practices.................................................................9
Lessons from Dick Smith Collapse............................................................................10
Inventory Control.................................................................................................. 10
Share float in market............................................................................................. 10
Consumer service.................................................................................................. 11
Conclusion................................................................................................................ 11
Bibliography............................................................................................................. 12
Appendices:.............................................................................................................. 14
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Introduction
This report is required for academic purpose to make the business entities understand the reason
of failure of any business entity with public limited status by the example of Dick Smith
Collapse. This case study had highlighted different factors for failure of Dick Smith like strategic
errors, erroneous accounting practices and improper application of corporate governance in the
organization to pamper self-interest of the management and the Board by making the
stakeholders fools. The most affected stakeholders are employees, the creditors and the
shareholders of the company. Normally a public listed company runs with vision and mission.
While vision projects the destination where the company wants to see itself after certain period
of time, mission depicts the way of operation. From these two concepts a company starts its
strategic set-up. This strategic set-up is most necessary for a company to execute deliverables to
accomplish the set objectives. If the strategic errors are found in implementation, it should be
immediately rectified, or else the company will ruin, as Dick Smith did. The role of accounting
practice is to provide prudence to the stakeholders with financial reporting, through which the
financial performance of any company can be judged with further help for the stakeholders to
take decision about the company. If the financial reporting proves erroneous, the purpose of this
reporting is defeated and the users of these reports will be misled by the financial reports. These
features were present for the collapse of Dick Smith, which will be discussed below.
Background of Dick Smith
This business was launched in 1968 by Dick Smith with his wife from a very small outlet at
Sydney for selling car radios. (DickSmith, n.d) When the Australian Government had taken the
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decision to cut down the import duty on electronic goods to 25%, the organization started to flare
up with expansion of their business. The expansion had found many outlets all over Australia
with development of business and making a core sector of loyal target audience. The scope of
this business allured Multi-Functional group Woolworth to take over this business in 1980 by
acquiring 60% of stake of the company. Total takeover had taken place by 1982 with further
stake acquiring to make it full subsidy of Woolworth Limited. Woolworth had restructured the
business of Dick Smith as part of their electronic division in 2008. After successful completion
of thirty-year relationship, Woolworth handed over the ownership to Anchorage Capital Partners.
(Gannon, 2012). The new owner, Anchorage had enlisted this company with ASX in
December 2013 for share trading of the firm as public limited company in Australia. The value
of market capitalization of the company was AUD 520 Million. Since 2013, Dick Smith had
joined hands with David Jones for strategic alliance by taking over 30 outlets of David Jones
under the trade banner ‘David Jones Electronics Powered by Dick Smith’. On 4th January, 2016,
a sudden fall in share price of the company was observed by 80%. The request of trading halt
was forwarded to ASX by the management. (Australia, 2016) Subsequently, there were
different interventions found from different level of stakeholders. The board had appointed
administrators and the creditors had appointed receivers. The administrator was McGrathNicol
and the receiver was Ferrier Hodgson. The next occurrence was step down process of the CEO
on 12th January, 2016. As no prospective buyer was found for Dick Smith Stores, all stores of
Australia and New Zealand were shut down resulting 2460 employment curtailment.
(ABCNEWS, 2016) Ultimately Kogan.com had acquired Dick Smith on 15th March, 2016 with
the taking over of virtual assets of the company. The creditors had put the company on
liquidation on 25th July, 2016 with all feasible resources. The result of such liquidation was a
calculated loss of AUD 260 million to the creditors of the Dick Smith. (ASIC, 2016)
Strategic errors of Dick Smith
The pillars of any company stand on their corporate objectives. Strategies are set to accomplish
those objectives with proper foresight and implementation ability. Success of any corporate
depends upon successful implementation of corporate strategies, which are set with fixed time-
limit. The strategies of any corporate business are set for long and short-term objective
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