Wounded electronics retailer Dick Smith is bleeding close to $3 million a week as receivers Ferrier Hodgson negotiate over the sale of the business.
Sources close to the chain suggest losses have blown out from about $2.5 million at the beginning of the year to closer to $3 million as pressure builds to shut down the weakest performing outlets in the chain.
Ferrier Hodgson would not comment on the mounting losses except to say that a number of parties had been in the “confidential data room undertaking due diligence” on Dick Smith in recent weeks and it was continuing discussions with interested parties.
Sources close to the embattled chain suggest the receiver is working on paperwork for some kind of sale although it’s not clear whether this is for all the stores or just the top performing outlets.
It’s understood the previous management team, headed up by former chief Nick Abboud drew up a plan to shut a number of the chain’s weakest stores as part of their negotiations with the chain’s bankers National Australia Bank and HSBC in late 2015 and early 2016.
The collapse of these talks put paid to this plan, which it’s believed would otherwise have been presented to shareholders as a new strategic plan at the half year results in February.
Retail industry insiders suggest Ferrier Hodgson is reluctant to close any stores while it’s in talks with potential buyers but sources close to the chain warn the longer this sale process runs, the bigger the losses are likely to be especially given the damage inflicted by the receiver’s decision not to honour Dick Smith gift cards.
Dick Smith staff have been in the firing line since the electronics chain announced a shock $60 million inventory write down in November and subsequently launched a desperate round of pre-Christmas discounting in a bid to bolster sagging sales.
The promised 70 per cent off sale was panned on social media and shoppers vented their annoyance at the limited range of sale stock on staff, who were already feeling anxious about their future.
Shopper irritation fomented into fury after Christmas when Ferrier Hodgson announced it would not honour Dick Smith gift cards after taking control of the business, which buckled under the weight of more than $400 million in debt.
But it was the empty shelves over January the kept shoppers away, according to Dick Smith staff.
One store manager said his Dick Smith store did not receive any new stock between Christmas and the last week of January.
“That’s a long time to go without stock and we have now started to get stock back but there are whispers that Apple and Microsoft are not happy with Dick Smith,” he said.
However, stock levels have been in decline since after Christmas 2014, according to staff, who claim a decline in deliveries of high profile brands coincided with an increase in home brand stock and accessories, despite feedback that the Dick Smith and MOVE product was not popular with shoppers.
“We were telling them to stop buying these accessories, that people weren’t buying them but they just went ahead with what they thought was a good idea,” one worker said.
“If multiple stores are telling you the same thing, maybe you should listen, we all thought they just had massive amounts of arrogance.”
The demise of Dick Smith and the role of private equity group Anchorage Capital Partners in its transformation from a $94 million electronics business into a $520 million public company is now the subject of a Senate Inquiry, after independent South Australian senator Nick Xenophon gained bipartisan support for his inquiry into the collapse of Australian retailers last week.
But it’s not just Anchorage that’s likely to face questions with industry insiders suggesting former management, including Mr Abboud still blames Dick Smith’s bankers, NAB and HSBC for moving too quickly to protect their exposure to Australia’s oldest electronics chain.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.