Posts Tagged ‘Dick Smith’

See Dick jump, see Dick rant

February 1, 2012

Perennial soundbite provider Dick Smith has been very vocal in the past couple of days about the prospect of his namesake retail business falling into ‘foreign hands’. Despite him selling the electronics chain to Woolworth’s two decades ago, he is threatening to ‘trash the brand‘ if some foreign mob tries to buy it.

The logic he throws around on this (and other ‘buy Australian’ campaigns) is spurious at best.  It is very unclear why so much importance is placed on the specific ownership structure of such businesses.  Perhaps it reflects Dick’s own background as a business owner (and therefore someone who derived their income from the ‘surplus’ or profits of the firm). But for almost all stakeholders in the firm, and the overall health of the economy, the question of the location of the major shareholders (and principal decision-makers) should be of little importance.

Dick Smith Electronics sale Woolworths blog Consider the Dick Smith Electronics case.

The firm operate 433 stores across Australia and NZ (we’ll get back to this Trans-Tasman dimension in a second), and made $1.8b in sales last year.  The economic and societal impact on Australia of these operations is most heavily felt in terms of the 5300+ employees and the wages they earn (and then spend/invest), the flow of moneys to landlords, supply chain participants and other ancillary service providers.  The ‘earnings’ of the firm (i.e. the ‘surplus’ or ‘profit extracted by Woolworth’s) last year was a paltry $20m or so.

If Dick Smith Electronics were sold to a non-Australian entity, they would be buying the right to extract such profit, but also taking on the role of paying a wages bill that presumably exceeds $250m, and feeding through a lot of income to the other parts of the Dick Smith sphere of activity.  The firm would still pay taxes, rents, and provide consumers with access to products. The firm might remit profits offshore, but it’s just as likely said profits would be reinvested in Australian in an attempt to improve the business and its performance. This is hardly a case of ‘selling the farm’.

There is also one clearly irreconcilable contradiction in the jingoistic rants of Smith and other mercantilists: outward foreign direct investment.

If the logic says Aussie interests are hurt by any sort of inward investment (e.g. by acquisitions of local firms by big bad foreign folks), then surely any instance when an Australian firm expands offshore is similarly deleterious to the host nation. Where was Dick when his namesake firm made their imperialistic entre into NZ?  And when they signed agreements to ally with Tata in India?

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Woolies eyes an Indian prize

July 28, 2008

This article reports that Australian supermarket and retailing giant Woolworths (who runs the Safeway brand here in Victoria, as well as Big W, Dick Smith, Tandy and Dan Murphy) is looking to expand its involvement in India. This is a huge move for a company whose only really significant international operations at the moment are in NZ (the firm does have a wholesaling arrangement with Tata in India is in the electronics business, but has no retail outlets).

Woolworths signage

Australia’s largest domestic retailers are very inexperienced overseas (see some analysis of this in a chapter I wrote last year for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation).

There is clearly a huge ‘pull’ towards India, which currently is underserviced by modern supermarket chains. The initial target would be the emerging middle class, currently estimated to be around 250m people and projected to exceed 500m within two decades.

India is also a rather ‘special’ case in terms of retail, as historically there has been laws preventing international investment in the sector. These has only been relaxed in the past couple of years, but there is still some significant restrictions around the sale of multiple brands of products.

Woolworths face considerable challenges if they enter the supermarket business in India:

– the huge cultural differences in terms of both business relationships and customer needs

– the threat of government limits on operations (as driven by the political power of incumbent small-scale retailers, and/or anomosity to foreign/large firms)

– worries about economic stability

– the need to develop strong local supplier relationships

– the significant upfront (and ongoing) investments to acheive sufficient scale (with all the risks of failure this entails)

– the possibility that consumer behaviour/needs (such as price sensitivity) will be misunderstood