Electronics retailer, Dick Smith (DSH) has revealed ambitious plans to boost the number of stores across the country to 450 by 2017, in the process, opening 20 new shops each year.
The plan is ambitious because it will see Dick Smith go head to head with industry leaders, JB Hi Fi (JBH) and Harvey Norman (HVN).
JB Hi Fi not only leads the sector, but it is now expanding deeper into the homewares, whitegoods and furniture and away from its consumer electronics heart.
That in turn will see JB Hi run up against the sector leader in that area in Harvey Norman, who is also a major player in consumer electronics.
JB Hi Fi and Harvey Norman already dominate shopping malls and other retail area across the country in the way that Woolies and Coles dominate supermarkets in the same malls and other areas.
For that reason, the expansion plan is ambitious.
And the expansion will come at a time when consumers are not spending heavily in this area as smartphones, especially iPhones and other Apple products capture a lot of their expenditure. And Apple captures a large and growing share of consumer spending through its expanding chain of stores.
And while Dick Smith is no doubt confident its expansion will pay off (it is a big bet that it can win more than its share of consumer spending in this area), the competition is going to make it tough.
Dick Smith already runs the consumer electronics operations of David Jones and it also wants to sell 10% online.
It also wants its private label to supply 15% of its sales by the 2017 financial year, a big ask given that consumers love buying brand names such as Apple.
For that reason the market reaction to the news was muted – the shares rose 0.9% to $2.13.
In fact Dick Smith shares, which were issued at $2.20 late last year, haven’t had the best of times on the ASX. They hit a high of $2.41 in February, then fell to bottom out under $1.90 in June, before rebounding to just under $2.40 in September when they again fell away to $2.20. They have crawled higher to yesterday’s close.
DSH vs JBH vs HVN YTD – Dick Smith’s growth plan targets 450 new stores
Company chairman Phil Cave and CEO Nick Aboud outlined the aggressive expansion plans to shareholders at its annual general meeting in Sydney yesterday.
Sales in the first 15 weeks of 2014-15 were up 10.1%, with like-for-like sales up 1.7%, which isn’t going to set the world on fire.
But Mr Cave said the company expects first half 2015 sales growth should be in the single-digit to low double-digit range, subject to market conditions.
The company also expects to find further cuts in rent and lease cost over the next three years and has plans to launch $50 million of sales in a duty free format next February.
CEO Aboud told the meeting the company also plans to introduce new products in its audio, accessories, TV and office ranges.
Mr Abboud said a key factor that would separate Dick Smith from its rivals would be its private brand."It does protect our gross margin as a organisation year on year," he said. The company currently has 381 stores, including 286 Dick Smith, 29 Electronics Powered by David Jones and five Move stores in Australia.
Move stores, first opened a year ago, feature up-market electronics and fitness technology targeted at young affluent customers. Also launched 12 months ago, was Dick Smith’s partnership with David Jones.
Mr Abboud said another big revenue source was its partnership with Vodafone.“We see this as a building block opportunity, not only for sales but for profit as we partner with Vodafone for our 450 stores by 2017,” he said. He said most Dick Smith stores now offer Vodafone post-paid products and services.
