Dick Smith’s big drop
Wednesday, September 26, 2012/
Last week our resident brand expert Michel Hogan rightly chastised me for using the word “brand” interchangeably with the word “company” in relation to the sale of Rip Curl.
As Michel says, these are two very separate things. To quote her blog on the subject:
“To be clear, your brand is the result of the promises you keep. Your name is a marker and point of connection, important but of little value without the infusion of meaning provided by those promises.”
The “promises” a brand makes might be to provide great service, great range or great prices. The promises a business makes informs the way its operations are structured.
A brand is tarnished when the company starts to break or struggle to keep its promises. Often, a brand can be damaged even if the company’s operations are not. But there are other cases when the brand stays strong while the operations weaken.
To me, this difference between brand and company has been highlighted a lot in the last two years in the retail sector by the collapse of some really big name chains.
When we saw the collapse of chains such as book giant Borders, clothing group Colorado, video game retailer Game, musical instrument icon Allans Billy Hyde and chocolate giant Darrell Lea, many of us would have expected buyers to emerge.
After all, these are household names. Whatever the problems these companies might have in their operations, surely the strength of their brands was enough to tempt a buyer and pull them from the mire.
But in most cases, it hasn’t happened.
Borders died quickly. Darrell Lea’s manufacturing operations were acquired, but the retail stores were shut quickly. The Colorado chain disappeared, although other parts of the group were saved. Game’s retail stores were also shut down.
Even Allans Billy Hyde, which has an incredible 25% share of its market, couldn’t survive and was shut just weeks after receivers started looking for a buyer.
It looks like we’re about to get another example of why an iconic name means less and less in the retail space, with reports today in The Australian Financial Review that Woolworths is set to finalise a deal to sell its Dick Smith Electronics chain in the coming week.
It’s a great example of how when a business model cracks, a brand can mean very little.
Like other consumer electronics retailers, DSE has been hit with a triple hammer blow of weak consumer confidence, severe price deflation and stiff competition from online retailers such as Kogan.
Since January, when Woolies announced it wanted to exit the business and quickly closed 100 of its 380 stores, the grocery giant has taken a staggering $420 million in write-downs and provisions on the business.
And what is Woolies tipped to get for the business now? Somewhere between $10 million and $50 million, according to today’s AFR report.
Former Woolworths CFO Bill Wavish appears to be the front runner to buy the chain. Time will tell if he can bring the operations back up to match the strength of the brand.