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Dick Smith

Woolworths cuts Dick Smith loose

Woolworths has announced plans to put its iconic electronics brand up for sale, with the chain’s namesake and founder Dick Smith saying he’ll be angered if the chain’s sold into foreign hands, but can’t see a likely alternative.

In a move praised by analysts, Woolworths said ending its 30-year ownership of the struggling subsidiary would help the company focus on a larger format position. The review also showed Woolworths plans to close up to 100 underperforming stores in the next two years, while underlining the fact that workers wouldn’t be culled, just redistributed.

“A divestment of Dick Smith will enable the Woolworths group to focus more investment on serving customers in its core business,” Woolworths chief executive Grant O’Brien said in a statement, which also stated the investment and attention given to the subsidiary had been “disproportionate relative to its position within the Woolworths group.”

Reuters reported that the move to cast off Dick Smith, which has faced stiff competition from rival chain JB Hi-Fi, helped send Woolworths shares up 2.5 percent in a flat broader market.

“The best thing chief executive Grant O’Brien can do is cut Dick Smith,” Morningstar’s equities researcher Peter Warnes said.

“It’s been a millstone for the company and is an absolute distraction.”

The review suggested that the future of the Dick Smith operation “could be better realised through new ownership,” and also noted that Woolworths had received several approaches for the electronics operation since announcing the review of the business in November. The company has hired firm Greenhill Caliburn to help advise the sale process.

O’Brien said, “Dick Smith is an iconic specialty consumer electronics brand, with a strong team and its own leading online presence. It has developed into a trusted technology retail and services hub, carrying world-leading brands with strong market share in several key categories. ”

He said the review, commenced in November last year, concluded that Woolworths’ main strengths were in larger format, multichannel, high volume retail segments with market-leading positions. Woolworths will retain consumer electronics as an important category, but believes that growth in the category would be better delivered through its discount chain, Big W.

The entrepreneur and founder of the electronics chain, Dick Smith, told the Sydney Morning Herald he understood why Woolworths made the move.

“I think this is a sign of extreme capitalism coming to the limits of growth. I think they’re doing a sensible thing and they’ve owned Dick Smith for 30 years and made a fortune out of it, but once the growth is gone which I think it has in that field, I can understand them selling it.”

The ‘Buy Australian’ campaigner told AAP he doesn’t want to see the chain in foreign hands, but can’t see any alternative.

“That’s basically the only place they’ll be able to sell [Dick Smith Electronics]. I can’t see how you can get growth in that industry,” Smith said.

“Everyone will just buy the products from overseas. You don’t have to pay cash, GST.  The labour costs overseas are so much cheaper I just can’t see how you’ll be able to get any growth at all… Presumably that’s why they’re selling it,” he added.

The review also pointed to $300m in restructuring provisions the company will figure into the first half of their 2012 figures.