MARKET TALK: Dick Smith timing couldn’t be worse for rival retailers

Click the NBR Radio box for on-demand special feature audio: Forsyth Barr's Rob Mercer discusses sharemarket news with Duncan Bridgeman and Andrew Patterson

Dick Smith’s inventory liquidation couldn’t come at a worse time for the electronic goods sector, says a leading equity analyst.

The company, which Australian private-equity firm Anchorage Capital floated two years ago, is said to be preparing for a massive pre-Christmas sale after revealing a $A60 million write-down on inventories earlier this week.

Forsyth Barr head of research Rob Mercer says appliance retailing is already a weak sector with margins close to zero for most operators.

He sale an aggressive price war at this time of the year would be a double blow for electronic retailers.

“It’s putting margins at risk just at a time when the currency is weaker so they are trying to absorb higher prices coming through,” Mr Mercer told NBR Radio’s Andrew Patterson.

“So just when you are trying to push through price increases to have heavy discounted model two to three weeks out from Christmas is going to put the whole sector under a bit of pressure.”

Dick Smith has 62 stores in New Zealand and the company has said it needs to clear product after a 4 to 5% slump in same stores sales in October.

Mr Mercer says other companies operating in New Zealand will be under pressure to match any discounts from Dick Smith.

“We haven’t got the full story about what’s going on at Dick Smith at the moment but given the indication of the need to liquidate some of the inventory it looks like the shoppers are going to be on the better side f it than the investors.

“We see that being temporary but when you look at The Warehouse, and while  Noel Leeming is relatively small in the scheme of things, it will be a continuation of pressure in that part of its market.

This week on Market Talk, Mr Mercer also discuses next week’s Reserve Bank decision on interest rates and the upcoming US Federal Reserve decision as well as the Fonterra Shareholder Fund and investment strategies for the New Year.

Tune in to the special audio feature to listen to the full interview.

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