Monday 7 March 2016

Death of Dick Smith Electronics (or why Dick Smith sucked)

It was announced last week that, after being in receivership since the beginning of the year,  electronics retailer Dick Smith is closing down. And to be honest, it is something of an end of an era. I have very good memories of Dick Smith growing up. And I’m honestly sad to see it go, if for nostalgia if nothing else.

But in reality haven’t really shopped there in nearly a decade, and I’m actually surprised that it lasted this long. In all honesty, I think most techie type people have seen this coming for years.

But I can’t help but reminisce on the loss. In many ways Dick Smith Electronics is a case study of how not to run an electronics store. It’s almost like watching a car crash in slow motion. You don’t necessarily want to look, but there is a kind of morbid fascination. How exactly do you take a fairly successful and profitable hobbyist electronics store and slowly nose dive it into the ground over 30 years?

For those not in the know, Dick Smith Electronics (DSE) was an Australian and New Zealand retail electronics chain established in 1968 by entrepreneur Richard “Dick” Smith as an Australian version of Radio Shack, selling electronic components and eventually personal computers. What made DSE different to the other electronics component retailers of the era is that it sold its components cheap and in a bulk bin format that allowed people to pick and mix exactly what they wanted. In the early 1980’s Dick Smith Electronics was sold to Woolworths Ltd, a retailer specialising in supermarkets, department stores and hotels, which aimed to use it as its consumer electronics division.

Ultimately, the final nail in the DSE coffin was its 2012 sale to Anchorage Capital Partners after Woolworths finally discovered that consumer electronics was a sinking ship. Anchorage purchased the chain for A$115 million (only $10 million of which was a cash payment from Anchorage, the rest coming mostly from the sale of inventory), wrote done A$58 million of inventory, then turned around and floated the chain on the stock exchange at a value of A$520 million, held a fire sale to exaggerate sales figures for 2013, and took out massive loans against the company. Effectively bleeding every last cent that they could before scuttling it. (See the excellent analyses by Matt Ryan and Trevor Sykes from where all these numbers are taken).

But DSE had been in a steady decline for at least a decade, probably more.

I have very fond memories of shopping at DSE as a kid in the 90s. Back then it sold computer components, custom built rigs, electronic components, tools for working with electronics, cables, computer games, and unique and interesting electronics based toys.You could spend hours there just browsing all the cool stuff they had.

Dick Smith VZ200 (image: UQ Physics Museum).
I remember when I was about 10 my parents bought me a neat starter electronics kit for building a metal detector. You couldn’t get these sorts of toys anywhere else (well, not in Christchurch anyway). If you were into electronics or computers Dick Smith was the place to go. In fact the first computer I ever used - the VZ200 - was purchased by my dad from DSE in the early 1980s. And my copy of Command and Conquer: Red Alert came from the DSE store in Papanui - which closed down about a decade ago.

And DSE also had a fairly good student discount. In the early to mid 2000s when I was building PCs DSE was one of my go-to places for buying components and software. The first ever PC expansion card I purchased for myself came from Dick Smith - a DSE branded TV capture card.

DSE was a place that I would have happily recommended back in the 90s and early 2000s.

So what happened?

Woolworths and Consumer Electronics

At some point Woolworths decided that it wanted DSE to focus on consumer electronics. TVs, laptops, game consoles, e-readers, tablets, mp3 players, Apple products, cell phones, that sort of stuff. Over time consumer electronics completely pushed out electronic components, computer components, and electronic kits and toys. By about 2008-2009 DSE had stopped selling computer components pretty much entirely. This coincided with a rebranding of the chain, dropping the word “electronics” from the name, and replacing it with the stupid “Talk to the Techxperts”.

After the sale of DSE to Anchorage Capital Pertners in 2012 the direction of the business changed again. From 2012 it began selling kitchen gadgets. Blenders, toasters, kettles, microwaves, coffee machines and the like.

I visited the Westfield mall store last year looking for some solder and a soldering iron. The electronics section had been reduced to a single set of shelves about 1 m wide, 1 m tall. Gone were the cable spools. Gone were the bulk bins of components. And gone were the electronics tools. Dick Smith - a retailer established to cater to the hobbyist electronics enthusiast - no long sold soldering irons or solder!

Presumably Woolworths felt that it could make more revenue by tapping into the larger, non tech savvy, population. The ‘normal’ folk. The people who are more interested in buying a Mac than building a PC. And to an extent I get it. Kind of. Why sell resisters at 10 for $1 when you could be selling $1500 televisions? Perhaps they thought that tapping into a larger customer base would produce more sales, and therefore more profits?

But the thing is DSE was successful because it filled a niche. Yes, the customer pool was small. But back in the day under the management of Dick Smith, DSE was profitable as a specialist electronics retailer because of some key points:

  1. Overheads were kept as low as possible.

  2. While the items being sold were cheap, the profit margins per sale were high - up to 25c in the dollar (compared to as low as 4.68c in the dollar for consumer electronics). People are more likely to make multiple small purchases in a small amount of time than they are to make large purchases. So while hobbyists may only spend $20-$40 a visit, they might also be visiting every other weekend. So in the long run you earn more from that hobbyist buying 10c resisters every week than you are from a person who drops $500 on a TV or cell phone every 6-12 months. 

By contrast Woolworths was pushing DSE into a market that is very difficult to break into. In order to make profits from consumer electronics you need a to push a lot of sales. This means you need lots of foot traffic and lots of floor space. DSE started popping up in expensive large shopping mall locations rather than the stand alone stores it used to occupy. Overheads went through the roof, and so product prices also had to go up to match.

But the consumer electronics space is also saturated. Low end consumer electronics retail was already dominated by the likes of K-Mart, The Warehouse, and JB Hi-fi, while high the high end marketplace had Harvey Norman, Smith City, Noel Leeming and Briscoes. These were well established and well known chains, and many people already had loyalties to their favourite stores due to loyalty programs, financing deals for long standing customers, and brand recognition.

This was brand recognition suicide for Dick Smith. People knew DSE as a technology retailer, not somewhere that sold TVs. And in reality, Dick Smith couldn't compete with the other consumer electronics retailers - their competitors often had a larger range of stock and larger floor spaces as they could subsidise consumer electronics other high margin merchandise like furniture and whiteware.

So to keep the lights on DSE had to jack up the prices. Dick Smith went from a place that sold targeted electronics items, unique toys, and cheapish computer parts to a loyal customer base, to a place that sold $55 HDMI cables and would heavily push extended warranties and high margin accessories to scrape every last cent out of a sale. DSE became one of the most expensive places to buy PC parts.

In the end, people who were in the market for consumer electronics kept going to the stores they had always gone to, while the customer base that was previously loyal to DSE either went elsewhere to find better deals, or found that DSE simply no longer stocked the product they were after.

To top it all off, the niche space that DSE left behind was rapidly filled by other retailers. By the mid to late 2000s if someone asked me about buying computers I would send them to PB Tech. Components and cables? Jaycar.

Bad Customer Service

From about 2006 the service at DSE took a bit of a dive. To be clear, the staff were nice people for the most part. Friendly and approachable. But it was clear that they weren’t being trained to be knowledgeable of the gear they were selling. Presumably Woolworths dropped staff training to lower overheads.

I remember going to my local DSE around 2008 to pick up some SATA cables, a molex y-splitter, and a 120 mm case fan. Got intercepted by a staff member as I enter the store, he asks me what I’m after, I explain that I want a SATA cable to connect my new DVD writer. He looks at me, and then says that he doesn’t think they make DVD writers with SATA ports… Um, thanks for the advice buddy… And as it was they no longer sold SATA cables or case fans.

On another trip I was helping a friend buy a laptop. It was clear that the staff member helping us was a little out of his league selling computers, struggling to answer basic questions about the various hardware on offer. A question about the dead pixel warranty really stumped him, and resulted in a blank stare from the staff member, before being told that he didn't think Toshiba has a dead or stuck pixel policy… What, none at all? Talk to the Techxperts indeed.

To reiterate, the staff were good friendly people. I don't have anything personal against the staff (with two major exceptions). They were a good bunch, and I am generalising here. But at least from my point of view it was clear that by the late 2000s Woolworths was happy to employ people with little technical savvy, and wasn't offering the training to bring them up to speed.

DSE wasn't really a place that could give you good advice. This was a big contrast to specialist computer stores like PB Tech who seem to only employ computer geeks. Even entry level department stores like Warehouse Stationery employed computer specialists to sell their laptops. This was a big reason why computer enthusiasts such as myself often warned people against going to DSE.

But, customer service got soooo much worse.

Dick Smith Nintendo DS Fiasco

The background: back in 2006 I was a student at Otago University, and was staying at my parents in North Canterbury for a couple of weeks over the Christmas holidays. I didn't own a car, and the Christchurch CBD was a good hours bus ride from my parents house. I’m a big introvert and avoid getting into fights. I’m very good at keeping my cool. I didn’t yell or get abusive, but I was holding my ground. The following story took place over about 5 days.

Back in 2006 Dick Smith had a 14 day change of mind money back guarantee which stated:

Shop with confidence with our 14 day money back guarantee. For 'Change of Mind' purchases, goods can only be accepted for refund or exchange in unmarked, original condition and packaging, complete with all instruction books, accessories, etc. All returns must be accompanied by your Sales Docket.

I also want to point out that purchases from retail stores are protected by the by the consumer guarantees act (1993) which states that retailers must offer either a replacement, repair or refund on goods that are damaged or otherwise not fit for purpose.

Anyway, I was looking to buy a DS lite, which had been released earlier that year. These things were sold out everywhere, except Dick Smith. So my wife and I were in the central city doing some shopping and I decided to pop into DSE to make a purchase. Get home, give the DS a charge, turn it on…. and it starts making a loud, headache inducing, high pitched squeal….

Now this is an uncommon but not unknown problem with the DS lite, and is due to a lack of shielding between the bottom LCD and the capacitive touch layer. Nearly a decade later there are instructions to fix it online, and it’s actually a fairly easy repair. But these didn't exist at the time, and being a cash strapped student I didn't want to risk voiding warranties.

I took the console back to the store I purchased it from. The staff member turned it on, heard the squealing, and replaced it with a new one. Good on him. But I got home, charged the new DS, turned it on…. and squeaaaaaaaaal. Fuck.

So the next day I went to exchange it again. I couldn't get a ride into the CBD, so opted to go to the closer store that was only 30 minutes away instead. This time I was served by a middle aged woman who was absolutely determined not to help me. She turned on the DS to listen to it, while standing next to a television playing guitar hero, at the front of the store with all the foot traffic, and also next to the cashier desk… And then bluntly informed me she couldn’t hear it. Of course she couldn’t…. She had intentionally given herself the worst possible chance of hearing it.

This led into a couple of minutes of heated debate. Would she exchange it? No. Would she give me store credit? No. Would she send it for a repair? No. This woman was incredibly blunt, and frankly very rude. Even going as far as to call me a liar, and telling me I was making it up to get a refund. Really? If all I wanted was my money back I shouldn’t have to make up some lie about the device being broken as Dick Smith had a 14 day change-of-mind money back refund policy!

She finally conceded that a 55 year old standing next to a TV perhaps wasn't the best person to access a high pitched sound, so she called over a younger employee. Who stood in the exact same place - the noisiest part of the store - and again proclaimed he couldn’t hear it. Oh come on man, at least try!

I then asked him to move away from the front of the store, which he did. And finally, finally, he could hear it! Yes, the DS was emitting a squeal, yes it was defective.

So was the original staff member going to exchange it? Hell no! I can only assume that she didn’t want to be wrong, but she wouldn’t exchange it. No reason given, they just wouldn’t do it. Consumer guarantees act? Dick Smith's own money back guarantee? Nope. Wouldn’t even discuss it.

Left the shop extremely annoyed.

So the next day, Sunday, I decided that I’ll take it back to the store I originally purchased it from. But it turned out the store was closed, so I went to another store in the CBD that was open. My dad offered to give me a ride, and came into the store with me and my wife.

I was served by a person who identified himself as the regional manager. I explained the situation, and that I wanted a refund. Now this went down hill extremely quickly. He had been told that I was at the other store the previous day. He wouldn’t even look at the DS. Instead he got very aggressive. He accused me of trying to scam them - apparently the reason that I was going to different stores was to run some sort of hustle. He was extremely blunt, and was getting increasingly aggressive in his body language and tone of voice.

So this continued for a couple of minutes until my dad spoke up and asked if we could simply return the DS under the 14 day change-of-mind money back guarantee. The unit had not been used and the packaging was in mint condition. So if, as asserted by DSE, the unit isn’t broken, then it would be Dick Smith policy to refund the purchase price no questions asked.

(It should be noted that the consumer guarantees act allows the customer to have a support person speak on their behalf).

Well, the guy appeared to take this as some sort of personal insult. He very sternly told my dad that if he spoke again that he would call the police and have him escorted from the store!

So not only was Dick Smith in breach of the consumer guarantees act and it’s own store policy, but I, a 10 year customer, was being called a liar and a scammer while my father, a 30 year customer, was being threatened with police action for asking for a refund! All over a ~NZ$220 gaming console...

Now, the guy must have realised that he had messed up at this point because his demeanor changed, and about a minute later he gave me the full refund.

And I vowed never to buy anything substantial from DSE ever again.

The cracked laptop screen

In 2012 DSE started an ad campaign using 
sex puns. Image:
Another story, this time the store involved was in south Dunedin. Around 2008 one of my friends needed a laptop for university, specifically a Toshiba, and DSE had the cheapest price. So, against my better judgement we went to Dick Smith to make a purchase. Now after dealing with the staff member that was a little out of his league discussed above we got the laptop home, opened the box, turned it on….. And there was a diagonal crack in the screen going from corner to corner.

So back we went to the store, and they wouldn’t exchange or refund - they would only offer a repair...

Ok, so under the consumer guarantees act the store is allowed to choose which of the three options they go with. But come on DSE! The laptop was sold in this condition. It’s not like it broke six months down the line and we were bringing it in for servicing. It was sold that morning with a cracked screen. It was already broken when it was on the shelf. You sold him an actual broken product, and have other, presumably not broken, laptops in stock. Why can’t you just exchange it for another unit?

Alrighty, well, could we return it under the 14 day guarantee? Nope, because it’s damaged. But we are in fact returning it in the same condition that it left the store in. No, they don’t accept returns on damaged goods regardless. Figures.

Ok, we’ll get it fixed. When can we pick it up. Well they have to send it away so it’ll take 4 - 6 weeks…. Oh what the hell! It will take 4 - 6 weeks to do a repair that any technician with even a basic level of experience should be able to do in an hour?

So Dick Smith sells you an actual broken computer, with a visible and immediately diagnosable defect. The laptop was broken either in transit to the store or when it was in the store itself. But rather than exchange it like any other retailer would, the customer is being punished with a 4 - 6 week wait time for a repair. The university semester would be half over in 6 weeks!

I once had a brand new laptop replaced by Global PC because of a single dead pixel!

With that I told my friend to refuse the repair. We then took the laptop to The Laptop Company, who are a Toshiba service agent. They fixed the screen under the manufacturer's warranty and he had it back the next day.

Why does DSE need to send the laptop to Auckland to fix it? Why do they not employ a single person who can also act as a service technician? Why would it take 4 - 6 weeks to perform such a simple repair? Why didn’t DSE simply recommend The Laptop Company as a servicing agent?

Who the fuck knows.

Could it have been saved?

So that’s my 2 cents. Could Dick Smith have been saved? Probably not. Woolworths wanted it to go head to head with Harvey Norman, and that simply wasn't going to happen.

But would it have survived if Dick Smith the man never sold it? Yea I think so. If it had followed the original direction of keeping overheads as low as possible.

It could be said that the DIY electronics market has declined significantly (although Jaycar is doing very well, so who knows). But that decline could have been matched through growth in PC components. DSE  had (and still has) a strong brand recognition as a technology retailer. The chain could have capitalised on that and remade itself into a specialist computer store through the PC boom of the late 90s and 2000s. Selling computer parts, systems and electronics kits and components, and most importantly, high margin software products and servicing. Really advertised itself as THE place to go for technology.

Then as the consumer PC market declined in the 2010s DSE could have moved into tablets and smart phones to cover margins, while at the same time rebranding itself to attract PC gamers to bolster the sale of PC parts. PC gaming is the strongest it has been in years! At the same time they could be  capitalising on the small resurgence in high margin electronic components with the development of the Raspberry Pi and Arduino. Imagine Dick Smith as an official Element 14 stockest!

Oh, and if they had offered better staff training...
But then, who knows.

Anyway, I truly hope the staff can all find new jobs quickly. This entire situation must suck hard for the floor staff taking abuse from all directions. Perhaps with the exception of a certain middle aged woman, and one regional manager...