Woolworths cuts off Dick

Woolworths has rung the death knell for bricks-and-mortar electronics retailing in Australia, as it announced that it is divesting its iconic Dick Smith electronics chain.

The company has decided that gadgets won't ever match groceries, booze and gambling, and yesterday outlined plans for a $AU300 million restructure of the high street electronics retailer including the closure of 100 stores over the next two years.

The business was founded in Sydney by entrepreneur Dick Smith in 1968 selling components and kits to hobbyists. After rapid growth, by 1980 the founder had sold 60 percent of his company to Woolworths, which swallowed the remainder two years later. There are currently about 200 Dick Smith electronics stores across Australia.

"A divestment of Dick Smith will enable the Woolworths group to focus more investment on serving customers in its core business with a strong multichannel offer, backed with market-leading fulfillment systems and an effective store network,” said Woolworths CEO Grant O'Brien.

The company claims that it has already received offers for the chain.

The decision comes after a strategic review, started in November which concluded that Woolworths' main strengths are primarily in “larger format, multichannel, high volume retail segments with market leading positions.”

Following further restructure, Dick Smith will be divested as a going concern to an appropriate buyer and will continue to operate as normal.

Affected staff will be offered redeployment elsewhere in the Woolworths group. A restructuring provision of $AU300 million will be taken in the first half of FY12. Greenhill Caliburn has been appointed to advise on the divestment process with an objective to maximise shareholder value.

The gadget retail sector has suffered ever since the withdrawal of the federal government's post-2007 stimulus from the economy, leading to repeated calls for protection against internet competition and the creation of various parallel-import schemes by major retailers.

The Register notes that the Dick Smith operation is not actually losing money, although profitability has been very slim (earnings a mere $AU20 million on sales of $AU1.8 billion). However, that cannot compare with other 'non-brand' operations like poker machines (Woolworth's is the largest licensee in the country) and liquour retailing.

The company is also under pressure in its core business, locked in a bruising price war with rival Coles, and is hoping to make a dent in the home renovation market via its new chain of Masters stores.

Shares in rival electronics retailer JB Hi Fi surged 6 percent on the news. ®