Year 12 IB Extended Essays 2017

The fact that the market had begun to change to a more online based service interrupted Dick

Smith’s ability to fund the abundance of stores on offer with high-cost base and reliance on

exposure. The fast-moving pace of tech products with upgrades being seen every year for the

majority of products made the stores a liability as seeking products online became more in

demand and highly competitive.

Declining sales for the Dick Smith Group also had a significant effect on the collapse due to

the over anticipation of success through expansion of store location. The declining sales also

seen when comparing FY2015 to FY2016 (Figure 7) sees an average decrease in sales of just

under 9% per month from July to December, with some months seeing a decline of around

13% in August. These declines were seen by nearly all stores around the nation, in all

geographical areas, further pushing the fact that tech sales are moving to an online based store,

which JB Hi-Fi and Harvey Norman were gradually taking control of through the development

of their online website sales page (ulton.net, 2017). The Dick Smith Groups “management

accounts to December 2015 indicate considerable losses for the six months to 31 December

2015 of $116.7 million. Those losses are attributable to poorer than expected sales and margins,

inventory write downs, lease provisions and other asset impairments.” (David Richards, 2016)

Which is subject to the extensive store locations around the nation, where sales were decreasing

and were not at the standard of main competitors such as Harvey Normal and JB Hi-Fi.

Due to the increases in store numbers, Dick Smith had difficulty in reaching the demands of

customers in the stages of late 2015. Difficulty with suppliers were the main cause of this

because of outstanding credit owed to these suppliers. This money owed to these suppliers

created trust issues and many of them restricted the use of credit and sought after cash on

delivery payments (Figure 8). However, this was not possible due to the fact that the majority

of cash within the company was tied up in out of date stock and investments in store growth.

The issue of unattainable stock was due to the over investment in store expansion and the

inability to afford to replenish new stores with quality products customers demanded. In

demand stock was left unavailable for customers and thus reduced the loyalty of clientele which

fled to other stores such as JB Hi-Fi and Harvey Norman. The downturn in product also refers

to the transition into and online sales market which Dick Smith deferred from, leading to

reduced sales and costs which could not be funded without financial instability.

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