Dick Smith discounts actually pretty lame, Deutsche Bank analysts say

SOME of Dick Smith’s discounts during its much-hyped “mammoth clearance” sale were huge, but retail analysts say there was one dodgy catch.

DICK Smith’s much-hyped discounts during its “mammoth clearance” were largely on outdated and private label products, according to analysts from Deutsche Bank.

The struggling retailer kicked off a fire sale on Friday in a bid to clear unwanted inventory, with advertising online and on social media promoting discounts of up to 80 per cent on some items.

Analysts Michael Simotas and Daniel Wan visited Dick Smith stores on Friday, over the weekend and on Monday to gauge the type of products on promotion, the depth of discounting and whether the retailer was making any progress.

They concluded the “vast majority” of discounting was on out-of-date and private label product, while discounts on branded hardware were “aggressive but not too extraordinary”.

“By volume, the majority of products on promotion were private label accessories, particularly under the MOVE brand,” they wrote in a note to investors on Monday.

“Unsurprisingly, a large amount of the inventory appears to be aged with the majority of promotions on accessories to suit superseded hardware (eg: Galaxy S4 and iPhone 4). There were also a number of deep discounts on current model accessories but the discounts were generally shallower than they were for older products.”

The deepest discount they found was in New Zealand on a dual MOVE charger with Apple 30 pin plug, which was reduced from $39.98 to $1, representing a discount of 97.5 per cent.

“Discounts on branded hardware we saw included 10 per cent off Apple, 10 per cent off FitBit and 15-20 per cent off laptops,” they wrote. “These are aggressive but not too unusual. On Friday we saw some deeper discounts on Nikon cameras and specific older Apple models with limited stock.”

In the TV category, in which Dick Smith had advertised discounts of up to 70 per cent, Mr Simotas and Mr Wan said there was “a lot of ‘noise’ with shelf tickets claiming deep discounts”, such as an LG 60-inch FHD TV reduced by 26 per cent to $1599.

“However price checks indicate the model can be had cheaper elsewhere ($1,487 at [Harvey Norman]) which may reflect DSH’s poor buying,” they wrote.

Dick Smith’s discounting “suggests the bulk of DSH’s inventory issue is in private label accessories”, meaning the impact on JB Hi-Fi and Harvey Norman could be limited, but Deutsche Bank says JB Hi-Fi will be “at least somewhat affected over Christmas”.

“Stores generally appeared to be busier than they usually are at a given time with customers surrounding the ‘bargain bins’ and discounted accessory areas. We also saw empty catalogue holders outside stores which suggests above average traffic,” they wrote.

“The media attention given to DSH’s sale appears to be attracting traffic and the deep discounts on accessories could rob sales of these products from other retailers which would also impact margins given the negative mix effect.

“If DSH’s sale runs out of steam, it could also be forced to sharpen pricing on non-impaired branded hardware to attract traffic. We believe HVN will fare better than JBH given its diversification and smaller exposure to accessories.”

Deutsche Bank said it had already reduced its margin expectations “modestly” for JB Hi-Fi last week. “We will keep a close eye on this issue through Xmas trading but at this stage we are happy with our current estimate,” they wrote.

In a statement yesterday, a Dick Smith spokeswoman said store traffic was high and sales performance was “very positive”. “Dick Smith is really pleased with the volume of customer support from both Australian and New Zealand consumers who got a jump start on their Christmas shopping over the weekend,” she said.

“We are continually updating discounted products so consumers should visit their local Dick Smith store to see the specific deals available. The sale is only available in store and product varies from store to store. As there is limited stock, product is not guaranteed and customers should act fast to get the best bargains.”

Responding to numerous allegations staff had been “hoarding” sought-after items such as TVs and MacBooks, she said: “Dick Smith does not allow its staff to hold back or reserve any discounted product before it is available to the general public. Dick Smith takes any allegations of this occurrence very seriously and is investigating the allegation further, in addition to reinforcing our existing policy with all staff members.”

Dick Smith kicked off the sale on the same day it was announced the retailer would drop out of the list of Australia’s top 200 companies in the ASX 200 index’s quarterly reshuffle. It followed a nosedive in Dick Smith’s share price earlier that week following two profit downgrades and a $60 million writedown in the value of its inventory.

On Monday, Dick Smith shares closed down one cent, or 2.5 per cent, at 39 cents. The retailer listed on the share market for $2.20 a share two years ago, raising $345 million after private equity firm Anchorage bought it from Woolworths for $20 million in 2012.

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