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Woolworths has announced it plans on closing up to 100 underperforming Dick Smith stores in Australia and New Zealand. Its decision to do so was based on a report that revealed its sister store, Big W, would be better suited for the sale of electronics.

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Dick Smith’s strong 3.1% rise in sales (Q2, 2011) encouraged Woolworths to announce its intentions to sell off the electronics chain.

JB HiFi will be the main benefactor with the company’s CEO Terry Smart telling the SMH there’s “opportunity with Dick Smith stores closing for [JB HiFi] to pick up some of those sales”. Smart’s claims bear credence as JB HiFi’s shares jumped by 6.6 per cent to $12.60 following the news yesterday.

Currently there are 386 Dick Smith stores between Australia and New Zealand. Woolworths will close up to 100 of these stores before the sale over two years as part of an accelerated rationalisation.

The decision to close off Dick Smith stores followed a report which revealed the cost of investment in the chain was disproportionate to its revenue.

“The investment and management attention given to Dick Smith have been disproportionate relative to its position within the Woolworths Group,” said Manager Grant O’Brien said yesterday.

According to a Woolworths spokesperson, the company still isn’t sure which stores would be affected.

“We don’t have the details of which stores will be affected at this stage, but it’s important to note that it will be done over two years.

 

“We’re committed to redeploying staff at affected stores.”

The company has factored staff reallocation in its $300 million budget set aside for the company’s restructuring.

With Dick Smith out of the equation, Woolworths will be concentrating its core efforts on its food and liquor business.

“We believe that separating this speciality business model from Woolworths is now the best option for the future of both businesses.”

Greenhill Caliburn has been appointed to handle the sale of Dick Smith but thus far have yet to plan a timetable.

Although it was one of the few electronic stores to generate growth and profit, selling Dick Smith will not be easy, with analysts from Macquarie Group saying “we struggle to identify any logical buyers for Dick Smith – the chain will lose the renowned Woolworths supply chain if sold, which will reduce margins.”

Read: Woolies Give Dick Smith The Boot

Despite this, Woolworths claims it has been approached by interested buyers, although the company chose not to name them.

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