Year 12 IB Extended Essays 2017

- Business operations – such as procedures manuals, quality assurance programs,

licenses and permits, competitors in the market, competitive pricing, location,

employee contracts and remuneration packages, and whether or not the industry is

expanding.

- Assets – such as the condition of plant and equipment, correct stock valuation,

reasonable depreciation of assets, and good stock control and management.” (ulton.net,

2016)

Conclusion

Overall, it can be seen that a large part of Dick Smith’s collapse was triggered by its store

expansion plan which in turn created over stock of inventory, leading to inability to cover costs

incurred. The external factor of a rise in online based sales in the consumer electronics sector,

led by JB Hi-Fi and Harvey Norman, made the investment into an expansion of the company’s

market share through the method of increased retail stores for Dick Smith created an instability

in the balance sheet, thus causing manufacturers to place restrictions on orders and banks

denying loans in order to purchase the updated stock. Furthermore, the fact that Dick Smith

only held a total market share of just 9% and secured almost 3x the number of fixed retail stores

that leading player JB Hi-Fi had intended that they had an over investment of stores which

leads to large amounts of borrowing and rent that was not being match by the market share

increases expected throughout the expansion. This plan of store expansion is further

pronounced as a miscalculation of the company as they suffered declining sales throughout the

year of 2016, averaging at 8.8% decrease from the previous year in 2015.

The notion that the consumer electronic market was moving to an online based system meant

that Dick Smith’s expansion plan “ate up all its surplus earnings and required significant

borrowing at the same time as customer preferences began to change and the retailer began to

lose market share” (McGrathNicol, 2016). From this, Dick Smith was holding too much stock

“that was not saleable and was overvalued” which led to “inventory write downs, lease

provisions and other asset impairments” (news.com.au, 2016). Thus, the over expenditure in

retail stores and poor inventory management that lead from this was a prominent reason as to

why Dick Smith Collapsed in the year 2016.

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