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Dick Smith set to expand

Consumers could soon see more Dick Smith Electronics stores, if new owner Anchorage Capital has its way.

Anchorage bought the Dick Smith Electronic stores from Woolworths Limited (ASX: WOW) for $20 million earlier this year, as the supermarket retailer looked to get out of the struggling consumer electronics space.

Competition in the sector is fierce, with JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings (ASX: HVN) and Dick Smith battling not just amongst themselves, but a multitude of online retailers, both in Australia and offshore. To make matters worse, the industry is experiencing a structural change with music, DVDs and games moving online. Combined with global price differentiation – where suppliers and manufacturers charge different retailers a range of prices – and the high Australian dollar – which makes it more attractive for consumers to shop offshore, and you can see why the industry is struggling.

Anchorage Capital chairman Phil Cave has told the Australian Financial Review (AFR) that the group plans to adjust Dick Smith’s range and open new stores, despite no sign of an improvement for the consumer electronics store. Mr Cave told the AFR that “It’s like any industry – we have interests in steel, but our steel business is doing very well”.

Woolworths closed up to 100 stores and restructured others as part of plans to turn around the struggling business, out of a total of 390. The company also wrote down the total value of Dick Smith in its books and took a $300 million provision in the first half of 2012, and a $120 million in the second half.

Foolish takeaway

Whether Anchorage can turn Dick Smith around, whilst also expanding the business and keep it profitable remains to be seen. Still, private equity groups specialise in turning around failing or fallen businesses, and we may yet see a revitalised Dick Smith taking it to Harvey Norman and JB Hi-Fi, as well as Officeworks – owned by Wesfarmers Limited (ASX: WES).

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More reading

Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi and Woolworths. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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