This story originally appeared in Smart Company on February 2, 2012
Woolworths’ announcement earlier this week they are exiting the Dick Smith Electronics business ends an interesting study in how a business can evolve as their industry changes.
In the thirty years since Dick Smith sold a stake in his business to Woolworths – a few years later they bought out the rest of Dick’s equity – the electronics retail business has changed immensely.
At the beginning of the 1980s, the CB radio boom that had fuelled the growth of stores like Dick Smith Electronics was coming to an end, as was the hobbyist industry which supplied those building their own computers and other electronic devices.
In the US, the hobbyist industry included people like Paul Allen and Bill Gates – who founded Microsoft – along with Steve Wozniak and Steve Jobs, the founders of Apple Computers. Both of these companies had a lot to do with the growth of the DSE business later.
While those two industries were fading at the time Woolies bought the chain, the availability of consumer electronics was taking off as Video Cassette Recorders, car hi-fi and, later, CD players started entering the market.
At the time these were high margin items so the transition from a hobbyist store to consumer electronics chain was a lucrative move for Woolworths – something helped by Dick Smith’s penchant for publicity even though he was no longer with the store.
Eventually the steam ran out of the early wave of consumer electronics but in the mid 1990s the PC revolution took off which allowed Dick Smith Electronics to diversify again.
As personal computers were taking off, so too did the next wave of consumer technology, particularly in mobile phones, games and big screen TVs which initially had big, fat margins.
Over time, these margins began to fade as prices dropped but for Woolworths this wasn’t a problem as the beginning of the 2000s saw an explosion of easy consumer credit, allowing stores to move more products to willing consumers.
Very quickly, the consumer electronics industry became more like the low margin, high volume FMCG – Fast Moving Consumer Goods – sector that is Woolworths’ core business.
The global financial crisis heralded the end of the credit boom and now cautious, credit shy householders meant consumer electronics were no longer fast moving.
Dick Smith Electronics aren’t the only chain affected by this, Harvey Norman are suffering the same way and in the United States Best Buy and Radio Shack are in desperate straits for the same reasons.
Making things tougher for Australian retailers are store rents that are among the highest in the world. Woolworths’ decision to shut down a third of the Dick Smith outlets is a wise move as many of those stores probably have lease renewals pending.
Woolworths has done well from Dick Smith Electronics over a quarter century as the consumer electronics industry has evolved. Their story is a great example of how a business can adapt in a changing sector.
Hopefully Woolies will find a motivated buyer – one hopes not one of the clueless private equity asset strippers that have destroyed so many other retail icons in recent years.
Perhaps we’ll see a buyer who can steer the business well into the phase of consumer electronics retailing with some innovative and fresh thinking that the Australian retail sector needs right now.