Retailers David Jones and Dick Smith will partner to reduce supply chain costs and revitalise two struggling electronics categories
By Anna Game-Lopata | August 23, 2013
Retailers David Jones and Dick Smith will partner to reduce supply chain costs and revitalise
two struggling electronics categories following Woolworths’ $20 million sale of Dick Smith to private equity firm Anchorage
last year.
David Jones says it will acquire all Dick Smith’s inventory in October and integrate it into its own electronics offering under the new brand ‘David Jones Electronics Powered by Dick Smith’.
The agreement
includes televisions, computers, tablets, home office, audiovisual and other digital products, but not whitegoods or small appliances, which will continue to be sold by David Jones.
David Jones says it will take orders placed on its webstore while Dick Smith will undertake fulfilment using the “drop ship model”.
Dick Smith will be responsible for picking, packing and dispatching goods to the customer.
“[The system] will operate under David Jones operational policies and procedures to ensure a seamless experience for customers entering a David Jones store or shopping [on the website],” the company says in a statement.
With an estimated to $5 to 10 million one-off upfront costs, the deal will run for an initial three year term in which Dick Smith will receive a fixed percentage of the sales.
The arrangement has also been underwritten by Dick Smith to ensure David Jones is guaranteed its cut regardless of volumes.
David Jones CEO and Managing Director Paul Zahra says the company has been reporting aggressive discounting and deflation a cause of poor sales performance from the company’s electronics category for some time.
He says the underperformance of the electronics category has adversely affected David Jones sales and profits for a number of years.
Zahra adds the electronics category was one reviewed as part of the company’s Future Strategic Direction Plan.
“Our agreement with Dick Smith enables us to remove the risks associated with this business and preserves our ability to participate in the sales and profit upside that results from combining both our businesses,” Zahra says.
“In effect we have transformed what was an underperforming category in our business into a profit contributor.”
The transaction is expected to deliver a positive return for David Jones within 12 months of implementation.
For Dick Smith, the arrangement will create critical mass which it says will increase the buying power of its existing business, allowing more competitive process for customers.
“It will enable us to introduce aspirational and innovative products by partnering with world renowned brands in categories such as mobility computing and accessories,” says Dick Smith CEO Nick Abboud.
“We are committed to ensuring we provide David Jones customers a seamless experience both instore and online,” he says.