Collapse of Dick Smith Holdings: Reasons and Lessons

Letter of transmittal
16 April, 2019
Mr Lorenzo Ian Scott
Managing Director
GAC Business Advisory and Consulting Ltd
Melbourne, Australia
Dear Mr Scott:
Enclosed is the business report which you have commissioned on 20th of May 2019 regarding the
study of the collapse of Dick Smith Holdings, an electronics retail giant in Australia.
The report has disclosed relevant facts and figures that further explain the reasons for the
downfall of Dick Smith Holdings. However, during the course of this report the following key
points were highlighted in this research:
1. Incompetence in terms of corporate strategic planning
2. Poor inventory management
3. Misconduct and overvaluation
4. Reliance on discounts and rebates
5. Fabricated accounts
6. Weakness in corporate governance
In my research, I have set a high standard of review and indulged in an exhaustive analysis.
The research has been conducted with the help of academic journals and prints that relates to
Dick Smith. Furthermore, relevant references have been disclosed to support my findings,
analysis, and conclusions.
Finally, I am grateful that you have entrusted me to provide a research report on Dick Smith
Holdings. It is indeed my pleasure and appreciation to study such subject and its relevance in
the pursuit of my career.
Kind regards,
Girlie Aquino Candelaria
Graduate Accountant
i
: Part 2: Final Business Report Girlie Aquino
Candelaria
GAC Business Advisory and Consulting Ltd
Melbourne, Australia
phone: [phone]
website: www.gacinaustralia.com.au
email: [e-mail]

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Part 1: Evaluating Information Resources and Research Plan Girlie Aquino
A research study on the collapse of Australia’s
Electronic retail giant – Dick Smith Holdings Ltd.
Title page

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Table of contents
Letter of transmittal............................................................................................................................. i
Title page............................................................................................................................................. ii
Table of contents............................................................................................................................... iii
List of figures and tables................................................................................................................... iii
Executive Summary........................................................................................................................... iv
1.0 Introduction................................................................................................................................... 1
1.1 Background................................................................................................................................ 1
1.2 Purpose of research.................................................................................................................. 1
1.3 Scope and limitation.................................................................................................................. 2
1.4 Research methodology............................................................................................................. 2
1.5 Definition of terms..................................................................................................................... 2
1.6 Assumption................................................................................................................................ 2
2.0 The collapse of Dick Smith Holdings..........................................................................................3
3.0 Strategic Planning Errors............................................................................................................. 4
3.1 Inventory mismanagement.......................................................................................................4
3.2 Misconduct and overvaluation.................................................................................................4
3.3 Massive promotion of rebates & discounts.............................................................................5
3.4 Fabricated accounts.................................................................................................................. 5
3.5 Corporate governance.............................................................................................................. 6
4.0 Lessons to learn from breakdown...............................................................................................7
5.0 Appropriate strategy in managing the business........................................................................8
6.0 Conclusion.................................................................................................................................... 9
7.0 Recommendation........................................................................................................................ 10
8.0 Appendices.................................................................................................................................. 11
9.0 REFERENCES.............................................................................................................................. 16
10.0 Feedbacks................................................................................................................................. 19

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List of figures and tables
Figure 1: Share of Australian Electrical market..............................................................................11
Figure 2: DSF vs ALDI...................................................................................................................... 11
Figure 3: Downfall of Dick Smith.....................................................................................................12
Figure 4: Inventory and Debt............................................................................................................ 13
Figure 5 Massive fall of DSF............................................................................................................. 13
Figure 6: Dick Smith Advertising.....................................................................................................14
Figure 7: Inventory balance of DSF.................................................................................................14
Figure 8: Projection of what went wrong........................................................................................15
Figure 9: The downfall of DSF.......................................................................................................... 15

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Executive Summary
It is important to understand the failure of the business because it helps in the identification of the
pitfalls and leads to a better course of understanding for others. The study concentrates on the
downfall of Dick Smith that was a pioneer in the Australian retail stores. The iconic retailer failed due
to a number of internal and external factors and the same has been discussed in the report. Further,
the report evaluates all the unethical proceedings and other circumstances that have led the
organization to suffer such downfall. The paper emphasizes on the factors that led to the failure. The
main reasons for collapse have been studied in an in-depth manner to provide a better presentation
and to highlight it for further researchers. The report initiates with the introduction where Dick Smith
holdings is introduced and the problems are depicted that is faced by major profitable companies
owing to mismanagement. It is followed by the research part and the downfall of the organization. The
down fall of the organization speaks about reasons for the fall of the organization. The main reasons
observed for the downfall of the company comprises of misinterpretation of the financial statements,
mismanagement in the organizational structure, purchase of inventories to increase expansion,
irrelevant selection of products and increasing debts of the organization. Further, an insight into the
strategic planning error is described in an exhaustive manner entailing brief details of the same and
with proper reasons. By emphasizing on the entire study, there were many lessons learnt from it such
as the role of Anchorage capital was prominent in the downfall, executives and directors were
involved in unethical practices, the presence of a weak corporate governance system, etc. In
concludes on a note that the failure was collective in nature and corporate integrity was missing that
led to the entire downfall.

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1.0 Introduction
It has been observed that corporate integrity is very important to maintain the stability of an
organization. The collapse of the company Dick Smith holdings depicts the problems that can be
faced even by profitable companies if any kind of miss-management takes place within the
organization. The company was facing problems of liquidation from 3 years because of its flotation
trends. The downfall of the market also has suggested that the market capitalization was not
appropriate to maintain proper revenue margins which were generated under Woolworths. The
situation of the organization was very unrealistic because of the liquidation problem arising. These
problems have not only made it severe for the investors, employees, and suppliers of the organization
but also other stakeholders were observed to have a financial downturn (Foye, 2016). The report
evaluates all the unethical proceedings and other circumstances that have led the organization to
suffer such downfall. (See Figure 1 Share of Australian Electrical market)
1.1 Background
The case of Dick Smith failure and collapse is one of the illustrious cases in Australia. The factors that
were attributed to the failure is the cyclical factors that are present in the company mainly in the area
pertaining to the weakness in sales and a limitation on the skills to finance the management of
inventory. Further, there were others structural company specific factors that played a leading role
such as the area of weak corporate governance, arrangement and lack of transparency in financial
reporting.
In this paper the major emphasis is on the factors that led to the failure. To do this, the collapse has
been studied in various parameters such as inventory mismanagement, misconduct and
overvaluation, massive promotion of rebates and discounts, fabricated accounts and corporate
governance issues.
1.2 Purpose of research
Identification of the failure of the company enables the policymakers to know the underlying drivers of
the cycles of the business. As a matter of fact, corporate failure need to be a vital channel through the
process of weak demand and services gets transformed into lower output and employment at the time
of recession, mainly if the costs exists in the form of shifting labor and capital from failed firms to the
firms that are surviving.