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Dick Smith might have sold for a pittance, but the private equity firm who from November will be its new owners have brought in the heavy guns to revitalise the 44-year brand, which for the past 30 years has been owned by Woolworths.
At the end of November, when the $20 million sale to private equity firm Anchorage Capital Partners is completed, Nick Abboud will assume the chief executive's role at Dick Smith.
It will be up to the former Myer executive, who many assumed would succeed Bernie Brookes as CEO, to lead the transformation of the retail chain – with its 335 stores and 4,500 staff – from being a millstone around the neck of a supermarket chain into, hopefully, a vibrant retail success story.
Abboud knows where the problems lie. “Dick Smith’s strength in the past and today is in computing and mobile and it has a very good market share in both categories. It has always been in audio, and has gone into the visual market, where it does not have a large market share,” he tells LeadingCompany.
Technology today is simpler to use than it used to be. Most products no longer need the customer to set them up; they work from the moment they are switched on – it’s called ‘plug and play’ in techno jargon.
In the past, Dick Smith was the place customers took their technology to get it working correctly.
Abboud argues this is still the case. “While there is plug and play, when it comes to the phone, the computer tablet or the TV, all that is connecting. We have just walked through all the stores, and there is a massive range of accessories to support the plug and play products.”
Anchorage’s Michael Briggs, who will be at Abboud’s side throughout the transformation, says the company's service arm, Clever Dick Services, is an important part of its future. “People have a lot more gadgets, and it is still a struggle to get the best out of them,” Briggs says. “Our understanding of the ‘Clever Dick’ service is that this is certainly an area we will see growth. It is still struggle. For example, people pay money for good TV, and don’t get the right connectors, such as HDMI cables, to get the best from it.”
Briggs says Dick Smith is just the kind of investment that Anchorage specialises in. “For us, it is a classic. We look for orphans – businesses owned by larger organisations that don’t really fit. The Dick Smith business has never really fitted. It is a relatively small part of Woolworths. And specialty retail is quite different from the rest of the business.”
Briggs says orphan businesses can get bogged down in the policies and procedures of larger corporations and lose their ability to be “agile”. He says: “So they end up negotiating contracts slanted to what is required by a supermarket or by a Big W rather than Dick Smith. There are opportunities to move away from those and make it much faster, more innovation and nimble.”
While the Brigg’s close interest in how to operate the business might make other leader’s apprehensive, Abboud is comfortable with private equity. He has worked with a private equity investor before, as head of operations at Myer, when it was under the ownership of American private equity company TPG. Abboud believes there are similarities in the challenges of Myer and Dick Smith. “It is an exciting challenge. I went through a similar thing with Myer. TPG bought Myer; Coles didn’t see Myer as part of its future. It had $30-50 million bottom-line losses. Under private equity, you can grab a business and have 100% focus and get the optimisation of its full potential.”
Abboud stayed with the Myer transformation for six years, including the initial public offering in November 2009. “I found that period, while very challenging, just as rewarding.”
The first 100 days
Brigg’s says Anchorage is “fanatical” about doing the basics of business well. A big part of the plan is to “fine-tune the engine” – from supply chain management to the look of the stores, pricing, how inventory is managed, merchandise displayed and how staff interact with customers. “We want the whole interface with the customer to be as good as it can be,” says Briggs.
However, Abboud and Briggs insist there is no pre-existing plan for executing the turnaround.
Says Briggs: “We don’t go in to a situation – and never will – with a fully-developed plan. Think of the impact on management! That is clearly is not the way to go. We have a huge number of ideas we would like to do in the business, and we will work with the management team and get them involved. They have a whole bunch of ideas, too. They know the issues.”
Abboud says the new ownership has already restored some energy and enthusiasm in the staff, and he and Briggs have started briefing staff, and visiting stores already. “There is very good support at store level, and staff are excited that there has been a decision made [on new ownership]. They are focused on that decision, and on serving their customers well,” he says.
Abboud says there are no plans to close more stores – 74 unprofitable stores were closed before the chain was sold.
Abboud stated a goal to lift online sales, which were 2% of last year’s $1.5 billion revenue, to 10%.
A report today suggests such a goal is modest. Online spending at domestic retailers rose by 40% in the year to July, according to analysis by the Commonwealth Bank of Australia (CBA) reported on by The Australian Financial Review.
Abboud says it is too early for details of how to improve the online business. Successful retailers around the world achieve about 10-12% of sales online, he says. “We have a large amount of SKUs (stock keeping units) online today – 4000 – but we need to get it to a certain level,” he says. “And when you go online it has to be easy.”
The British department store, John Lewis, is one that inspires Abboud to stay in the game of bricks and mortar retailing. “We have 325 locations and people want to come in and experience products and knowledge. You can’t get that detail online.”
Abboud says that if traditional retailers provide “end-to-end” service, they can prevent customers using their stores as a showroom, and then buying cheaper online.
Briggs says: “It is fair to say we see the online thing as an opportunity. Dick Smith, with its retail network and the trust in the brand, is ideally placed to build that omni-channel marketing strategy.”
The Anchorage approach to business partnership
The Anchorage model of investment is to be very engaged and involved in the companies in its portfolio, Briggs says.
Anchorage paid a bargain-basement price for Dick Smith: $20 million. Woolworths paid $24 million for the much smaller operation 30 years ago, and then reportedly spent $420 million building up the network of stores and restructuring the company before its sale.
On its board is Bill Wavish, a former finance director at Woolworths, who once oversaw the Dick Smith business, and worked with Abboud at Myer.
Establishing a close, strong relationship with the CEO is a crucial part of the Anchorage process, in Briggs’ view.
“We see that, not as meddling with management or undermining their accountability for delivering – got that, Nick? – but more as supporting and bringing to bear our considerable experience,” Briggs explains. “We have a number of techniques to significantly improve results, and processes to help drive that through the business. Nick will have his hands full with the day-to-day running in the early days to make sure there is momentum to changes we put in place.”
Lessons for leaders with private equity partners
Not all private equity managers take the same approach, says Briggs. “My advice to any management team thinking about private equity is to try and understand how a private equity firm works. They each have their own approaches, and a management team needs to understand how is it they are going to interact, their decision-making time, and how formal are they going to be about it.”
Abboud explains what his experiences with TPG at Myer taught him. “You learn to stick to your plan, and measure everything you are going to focus on to ensure there are rewards for the team in achieving those goals. There will be formal communications processes to cover that.”
Private equity partnerships create better leaders, he says. “Private equity allows for the development of people within the management teams. They will become better leaders, and that is the exciting part. I went through to be part of an IPO, and for a lot of the management team, at the end, they look back and see how much they learned.”