The investigation into the collapse of electronics retailer Dick Smith has thrown up some amazing statistics relating to a key reason for the company going into administration — it was carrying too much stock.
In the Supreme Court, questions from receivers Ferrier Hodgson revealed the extent of Dick Smith’s love of its own private label.
According to former company secretary and investor relations head David Cooke, the company had enough Dick Smith AA Battery 40-packs to cover demand for 141 months – almost 12 years. Three months before the company collapsed, it also had 131 months worth of Dick Smith AAA Battery 30-packs.
Dick Smith collapsed after downgrading the value of stock it held. Much of it was obsolete with little prospect of anyone buying it. Administrators were appointed on January 4 and the last day of trading was May 3.
According to the Australian Financial Review, Cook was also questioned about why management continued to open new stores and increased its bank loans when same-store sales were falling.
Ten former Dick Smith directors and managers have been summonsed to appear before the court hearings.
The collapse of Dick Smith is likely to mean a shortfall to creditors of more than $260 million.
The administrators, McGrathNicol, say the banks will get some money back but there’s little prospect of anything for unsecured creditors including shareholders and those with Dick Smith gift cards.
McGrathNicol says Dick Smith failed because the company was carrying too much stock it couldn’t sell and did not have enough cash to fund rapid expansion.
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