Dick Smith
A worker in a Dick Smith electronic store moves products near sales signs on display in the window in Sydney, Australia, February 29, 2016. Reuters/David Gray

It was apparently unusual retail practices that led to the collapse of Australian electronic retail giant Dick Smith. These include having a stock of batteries good for 12 years.

Three months before the collapse, David Cooke, company secretary, wrote an email to Nick Abboud, chief executive, and Michael Potts, chief financial officer, to ask why did the company carry 141 months of AA Battery 40-pack and 131 months of AAA Battery 30 pack. Abboud told Cooke he would look into the matter, Cooke told on Monday the New South Wales Supreme Court hearing to answer questions from receiver Ferrier Hodgson.

Cooke says Abboud told him the higher levels of stock was related to proposed marketing activities in the lead-up to Christmas. Potts also promised to look into the matter, while George Papacosta, head of private label, says Dick Smith was in the processing of selling private label through a new channel, reports News.com.au.

However, Jamie Tomlinson, independent non-executive director of Dick Smith, in another email to the retailer board, noticed the spike in inventory and the $65-$75 million adverse cashflow. Tomlinson attributed the two to Dick Smith’s private-label inventory build-up.

Another practice was acquiring an item from a supplier at 98ȼ, selling it back to the supplier at 78ȼ and then buying it back at 78ȼ or 77ȼ, notes Sydney Morning Herald. A note on a Dick Smith document explains the move to generating cash and making profit for the company.

The aim of the NSW Supreme Court inquiry is to find if the directors or senior management of Dick Smith were liable for the store’s collapse. Another one is if the banks which lent to the company could still recover from the insurance of directors and officers.

McGrathNicol, the liquidators, in a report, explains the collapse to the company’s management team responding to falling sales by buying stock based on rebates instead of customer demand. It led to a slowing of inventory turnover rates since the products were generally less popular with customers.

VIDEO: Investor Snapshot 5 Jan 16: Dick Smith placed in administration

Source: CommSecTV

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