Dick Smith Electronics - the nerve

[MortonH]

As I'm on the mailing list for DSE I received an email today entitled "An Open Letter to our Customers" in which they attempted to sell the idea that "we're still here, come and spend your money with us".

But here's the inequity. If I walked in today and gave them $500 I would be able to walk away with $500 of stuff. But any poor sod that bought $500 of gift vouchers before Christmas can no longer use them. In my book that's theft.

I should point out that I'm NOT one of those affected by the gift voucher ripoff. I understand that this is how things work in a receivership situation, but the truth is that they deliberately waited to maximise their Christmas intake of cash before voluntarily going into receivership, thereby knowingly screwing anyone that bought vouchers as a Christmas present.

Spend more money in Dick Smith? No chance!

[Regulus]

It is indeed theft.
So is the idea that a gift card can expire. These are 'place-holders' for for Aust. legal tender, which doesn't expire. They cannot take you money and give you nothing in return. The card is a promise by them to honour a transaction for goods up to the cards value. A promissory Note, if you like.
That they can now cancel them is wrong, but typical. The 'unsecured' creditor gets shafted every time.

But on you main topic; yeah, you wouldn't trust them with a new lay-by, would you? The private Equity firm made an absolute killing on this and gave us all a lesson, if we needed it, on just how much a brand, employees, and customers mean, to those businesses that produce nothing of worth except profit. Disgusting.
Trev

[xelasnave]

Probably blame the liquidator.
They roll in and write themselves a cheque for fees and then rank creditors so I believe.
I have good reason to say this but I have no evidence.
Nevertheless these decisions can only be made by the liquidator one would think.

[MortonH]

I understand that companies can cease trading and people get screwed, but I don't remember such a callous example as this where "they" (Anchorage Capital, DSE or whoever) raked in lots of cash at Christmas for vouchers then announced those vouchers were no longer valid but continued trading as if nothing had happened.

[xelasnave]

One would have thought that legislation would be in place that caused payments for gift cards to be treated as trust funds.

[PCH]

They knew exactly what they were doing. Apparently in the run-up to xmas they were offering 10% extra value for gift cards, - ie $110 of card for $100 of money.

It stinks alright!

[bugeater]

When Borders went under they would only honor your gift card if you spent an equal amount. In that situation the company was still fully owned by a private equity firm (well private equity fund to be accurate). In the case of Dick Smith I think Anchorage sold out quite some time ago didn't they?

These things happen after Christmas because retail's strongest period by far is Christmas. If the company is in challenging circumstances a poor Christmas will put it under but a good one could save it.

[tonybarry]

It seems that some vendors who re-sold DSE gift cards will honour them.

http://www.news.com.au/finance/business/retail/coles-has-agreed-to-exchange-dick-smith-gift-cards-for-equal-value/news-story/9d2b70f7137ec1a1373c956ec47500f1

Regards,
Tony Barry
WSAAG

[Wavytone]

Unfortunately you are wrong. The bankruptcy law is quite clear - holders of these cards are unsecured creditors.

First in line is the tax office.

Then the secured creditors (ie those holding a mortgage over the assets) mainly banks.

If there's anything left (highly unlikely) the insecurely creditors come last.

I do agree it was theft though. the management must have known the game was up and this trick is an easy way to rip people off. They can only get away with it once, so it's saved for the bitter end.

Oh .. And you can bet your bippy the directors paid themselves a handsome Christmas bonus, in the style of Christopher Skase, Alan Bond and Holmes A-Court.

The real rip off however was done long ago - the vulture who bought DSE for a song, dressed it up to look good and then floated it to the current shareholders. He walked away with millions.

The current shareholders were mugs - a pig wearing lipstick is still a pig, even an expensive one.

[The_bluester]

Yep, if it ever looked like other than a cynical money grab to people the link below is an interesting read. I mean the events of the last year or two, not just the recent gift card snatch and run job.

https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

[MortonH]

From the ABC:

Dick Smith: What went wrong?

Private equity group Anchorage Capital bought Dick Smith from Woolworths in 2012 for an initial payment of just $20m.

Anchorage then "dressed the company up to look good for just one thing - to persuade people to buy shares," according to analysts from Forager Funds Management.

Anchorage "wrote down the value of the inventory, took provisions for future onerous lease payments, wrote down the value of the plant and equipment and liquidated a lot of the inventory as quickly as they possibly could to throw off cash," according to Forager's Steve Johnson.

The cash was then used by Anchorage to effectively make Dick Smith 'buy itself'.

The writedowns inflated profits, a key factor in enticing investors into the company.

For example: a stock item that may have been bought for $100 may have been in the books at $60 after the writedowns, which meant an extra $40 profit on every sale.

The writedown of plant and equipment lowered depreciation charges, also boosting the bottom line.

"But when they liquidated all that inventory to pay for the purchase price, they didn't replace it," according to Forager's Steve Johnson.

"And the new owners of the business, since it's been listed on the stock market, have had to put in a lot more money to fund the increase in inventory."


So yes, Matt, Anchorage were 100% to blame.

[doppler]

Here's a link to an interesting report.
http://www.news.com.au/finance/business/retail/dick-smith-blasts-private-equity-firm-behind-retailers-stock-market-float/news-story/41a067495cc4bef5c8109bce7a97ae50

Anyway I liked the original Dick Smith (and Tandy electronics) before Woolworths got hold of them, and got rid of the hobby electronics stuff. At least Jaycar is thriving in this little town.

[AndrewJ]

Amazing how unions get bashed for doing dodgy deals worth a few thousand dollars, but white collar criminals ( bank "advisors", east west tunnel "advisors", hedge fund scum like those linked to DSE etc ) dont get questioned when 100s of thousands just go missing.
Wonder whose side the govt ( of either persuasion ) is on????

Andrew

[Exfso]

I stopped anything to do with them when they started calling themselves "The Techsperts", probably got the spelling wrong, but one thing they were not were technical experts, a glorified supermarket for electronic toys etc.
One used to be able to purchase all sorts of components etc, but that did not take time to go belly up when they Woolworths took over.

[bugeater]

Don't confuse the former owner doing well out of selling a company and it failing as the same thing. After all Woolworths sold Dick Smith cheap for a reason. I suspect the company simply isn't competitive and was going to go down anyway.

I would like to see an analysis that looks at whether what Anchorage did contributed to its insolvency, but what I've seen doesn't do that.

[Wavytone]

Anchorage is well known as a shark - they have pulled the sane act before - buy a failing company, dress it up to look good for those who do not understand the fundamentals and resell it to mug punters, and run off with the loot.

While DSE is not the first victim of Anchorage, FWIW Gerry Harvey made several valid comments ages ago as to why DSE would fail after Woolworths bought them. The retail model that DSE were using was a loser compared to JB HiFi or HN.

Both investors and consumers have been played for the mugs they actually are.

[The_bluester]

I saw similar write ups to the one above some time ago, the company was arguably on its way down under Woolworths, but it does look very much like the subsequent events are an Arthur Daley style chickenwire, bog and coat of paint job to hide the rust and tart it up to sell for a motza after buying it for fifty bucks. The difference being it is pretty hard to buy a car using the car itself to mostly pay for it.

[multiweb]

Yeah, very chonky behaviour. In my experience liquidators are no better than the companies. Creditors get in line and the loudest mouths get some of their money, sometime... joys of the corporate world. The reno boys, paulware house, car sales all those guys are still trading now and went belly up at some stage, now with a "clean bill of health" :rolleyes:

[AndrewJ]

I note that just before Xmas, our current glorious leader was spruiking how he wanted to make this process even easier, so that people who want to "try" entrepreneurial endeavours, wont be penalised with bankruptcy conditions etc if they fail a few times.
Whilst i dont have a problem with the principle of that at a personal level, if they take innocent people down with them, they should be locked away.
Cant see that happening, as the govt, lawyers, bankers, accountants all make too much money out of the churning and phoenixing companies.

Andrew

[bugeater]

I think Channel 9 is one of the better examples. It didn't technically end up insolvent, but only because of a negotiated agreement just before it was about to.

But in reality, what do you suggest as an alternative? People make mistakes, companies get into trouble and with restructuring they can still be viable ongoing businesses. Just because some investors (debt or equity) lost some money is neither here nor there. They are transactions between consenting adults and everyone should know the rules or not get involved. Now if fraud is involved, that's a different matter, but that isn't usually the case.

[MortonH]

I agree. If you're going to invest in something then it's up to you to do your homework and accept the risk.

But the customers that got shafted on the gift vouchers were not investors. If the company had gone totally belly up and was no longer trading then fair enough - bad luck - but they ARE trading and they have stock that they could exchange for the vouchers. The receivers are screwing those customers unfairly, but apparently within the law. That's what really stinks.

[multiweb]

If you do have a receipt / proof of purchase for the gift card for let's say $100 and go back to the shop where you bought it from then could you get a refund? If the person says no then say I'll have this item then. If they still say no you can't then raise your voice, play stupid and ask why until heads turn in the shop. Could get interesting.

I did that once in a St George Bank Branch after a CC fraud that wasn't getting resolved for months. Walked rudely in front of the line in peak hour and started talking loudly. It went a bit pear shape with the teller who called the manager. Within 10min some bulky guys came around. The word police was mentioned. I said great call them. Let's all have a talk about it. I was escorted in the manager's office and miraculously the money was recredited on the spot by him from a terminal on the table right here and there.

Bad publicity usually works. Just got to pick the time and place. In any case the loudest mouth gets the money back, remember that. :)

[bugeater]

At the end of the day gift card holders are unsecured creditors. You've essentially lent money to the company. Ignorance is not an excuse and all that. While I realise most people have no reason to understand what this means, making laws because people don't know stuff is what a nanny state does.

Frankly I think gift vouchers are kind of stupid for this exact reason - why not just give cash. I keep buying them as gifts though for some reason :screwy: Maybe next year I'll get my son to draw some fake vouchers and sticky tape the cash to those.

[PCH]

When you think about it, the whole concept of exchanging cold hard cash that never expires and has no limitations what you spend it on, for a voucher that might at worst be totally worthless (as in this case) but at best can only ever be spent on the limited range of goods that the store sells, and which expires in a year usually in any case.

How mad is that for a swap when you think about it!!!?

[MortonH]

True. I'll never buy a gift voucher again.

[AndrewJ]

Its all down to good advertising ( and very fine print ).
Almost close to obtaining a financial advantage by deception.

Andrew

[MortonH]

They should call them Unsecured Creditor Loan Vouchers. See how many they sell.

[Bassnut]

Such naivety.

Much retail investment is via super funds.

If your super fund:

Invested in the DSE IPO, switch, now.
Invests in Woolworths, ordinary effort.
Invests in Anchorage, excellent, very well done!. Smart.

Off course liquidators get paid 1st, or no one would do that job, nothing here is their fault.

Yes, the gift card thing is wrong.

[gts055]

"Off course liquidators get paid 1st, or no one would do that job, nothing here is their fault."


Hmmm, the liqidators assess these situations, and only get involved if there are sufficient funds left to guarantee their payment. Goldiggers they are, paying their staff according to rank in hundreds of dollars per hour. I liken it to legal theft. Unsecured creditors such as suppliers of goods or services may get nothing.

Mark

[The_bluester]

I think the real bones of it here is it is very plain that there was no intent by Anchorage to restructure DSE and resurrect the business.

The actions taken over recent times quite plainly show an intent to take advantage of the situation of DSE when Woolies sold it to tweak the books within a hair of cooking them but not quite, in order to then use the businesses own assets to buy it with, and make the short term prospects look far better than they actually were in order to make it into a honeypot for investors and unload it at a huge profit. Unlawful? Probably not, unconscionable? Obviously not for Anchorage.

Somewhat harder to pass judgement on the current management except as indicated by the Forager write up to accuse them of not being very smart, presumably they intended to try to make a go of the business, but had they decided to wind it up just after Christmas or were they hoping for a bumper result to save the business? The latter would be able to be seen as gambling with customers money, the other a pretty cynical cash grab with the gift cards.

[AussieTrooper]

This.

As general advice, do not ever buy a gift card. They are not as good as cash, even in the store they are valid for.
Most have expiry dates, and when a situation like DS shows up, they end up with nothing at all.

[AussieTrooper]

Well said. In all my life I had never attended a picket line until the east west link showed up. The whole process was disgusting, yet after destroying many lives during the process, every single person associated with it walked away with a fat paycheck. Meanwhile, most residents never got their homes back.
The unions certainly have their problems, but what went on with the east west link just blows them away in sheet magnitude.

[AussieTrooper]

Does anyone remember who the electrical retailer was a couple of years ago that went broke?
The TV footage of a family going into the store and taking a fridge that they had already fully paid for, then having the police show up and force them to return it to the store was just horrible to watch.
No gift vouchers here, they had already handed over their hard earned, only to find out that some creditor now owned their fridge for the sole reason that it hadn't been delivered yet.

[AndrewJ]

Whilst not linked to gift vouchers, its certainly salient to the thread
Ie i wonder how the current "Big Clive" debacle will get handled.
Already they are saying that the taxpayer may have to bail out the workers as there is no money left in the company to pay out their entitlements.
Life goes on as usual for the owners????????

Andrew

[billdan]

Liquidators can sure be ruthless, I remember back in 2001 when a computer company in Brisbane went bust. They had about 2 dozens PC's on their in-bench waiting warranty repair.

All of them got confiscated by the liquidator, it was horrible to watch as students and family people were coming in asking about their computers only to be told they are now an unsecured creditor and must file a claim to get compensation.

Before they went bust the company should have warned people about leaving their goods there, it would have been helpful.

Bill

[The_bluester]

Might have been Retravision.

The business world is littered with stuff like this. We live on a rural property, no town water, drainage or sewer, all up to us. Some years ago the original septic system was failing through poor original design and age so we had to replace it. The hot ticket at the time were low energy input "wet soil composting" systems, basically worm based filtration units discharging under pressure into underground irrigation. I wish our septic had held on just a little longer. About a year after install our first warning sign came with an unexpected failure of the unit. About a year after that, on the back of about a single quarter of low sales due to flooding in Queensland (And IMO, rising warranty costs) the manufacturer went belly up and that was the end of any support for the system. They demanded a large deposit (over 50% from memory) on the system with the balance payable on delivery. The deposits were funding the operating expenses of the business and a couple of months slow sales and it was history.

Turns out that they put in a big order for parts just before entering administration, ended up with suppliers out of pocket to hundreds of thousands of dollars, ditto for installing plumbers (The manufacturer charged the customer and paid the installer) A yearly service was required and the arrangement at the time was a service contract with the manufacturer, they send an invoice for the annual service, you pay, then they send out the plumber to do the work. We got our service invoice the day before the letter telling us they were in administration and if we had paid, "tough luck you unsecured creditor" People who had paid deposits of $7500 and more were left with nothing, some people were out of pocket the full whack and ended up with nothing but a big hole in the ground when the system was snatched off the back of delivery trucks after despatch.

Turns out the design of the system is closely related to it's content (Think about it) and it is sooner or later going to go completely belly up and cost us anything up to $15,000 to sort out (The big ticket end being the "Backhoe repair", as in, replace it with something that works properly)

Then it turns out that the "Inventor" also invented another failed waste treatment system that cost its buyers tens of thousands to install, try to keep working then rip out and replace. That company went broke too when the warranty claims for a system that never worked properly started to mount up.

Long story short, the DSE thing is no great surprise, the only real difference here is the middle man who bought it cheap, puffed it up and sold it on purely in the interest of turning a dollar.

[doppler]

I had a friend in Adelaide who had his (bought and paid for) motor cycle in a dealership for a service when the shop went into liquidation. They wouldn't give him his bike back so he hung around the shop for a week and one day when the roller door was up he ran in and grabbed his bike and rode off. They were going to get the cops but apparently once the bike was off the premises they had no legal standing.

[AussieTrooper]

It's totally wrong that a bike in for service could ever be considered their property (morally, perhaps not legally). Very different scenario to a gift voucher or goods being sold by the store at the time it goes broke.

[doppler]

I think it was something to do with receivers owning the oil, filters and parts replaced during the service.

As for the gift voucher scam, you would think that there would be a criminal aspect to this if Dick Smith's were selling the gift vouchers after they had already begun planning for the "voluntary" receivership.

[Chee]

But on you main topic; yeah, you wouldn't trust them with a new lay-by, would you? The private Equity firm made an absolute killing on this and gave us all a lesson, if we needed it, on just how much a brand, employees, and customers mean, to those businesses that produce nothing of worth except profit. Disgusting.


Yep, including all the fund managements and supers, that piled into it when it was delisted.
Big losers are the mums and dads with super funds and those who bought into the story of a revitalized business.
It is just incredible, that it could relist at $2.00 plus considering Woolies could not make a cent after buying the business.
You have to ask, how the fund managements could believe that it is a viable, profitable business?

[bugeater]

Once again - don't assume that because a former owner did really well out of selling a company which eventually failed, that they are somehow responsible. What did they do that made the company fail?

[PCH]

Don't quote me as I'm not an expert, but I doubt many superfunds would be investing in DSE. Aren't they obliged to stick with mainly blue chip stocks - which DSE would never have been.

Just my thoughts.

[MortonH]

No super fund should be invested so much in a single company that its failure would have a dramatic effect on the fund's overall financial position. Same applies to all investors in stocks - the risk should be diversified.

[AussieTrooper]

Nothing an opened oil drain plug on their floor couldn't fix. :thumbsup:

(you might be pushing it out rather than riding it though)

[doppler]

Don't worry he did suggest that they take their oil and stuff back and a lot of unmentionable things as well, but they wouldn't let him near the bike.

[The_bluester]

Well, a pretty good start would be the former owners tweaking the books hard at the beginning, running the inventory down at likely a real loss but for a paper profit and then selling the business for a huge price tag, leaving the buyers with a very expensive business which suddenly turned out not have anything much to sell nor the profitability that was stated.

Buyer beware of course, what kind of business people spend half a billion dollars to buy out a "suddenly profitable" business that the sellers bought as a basket case quite recently for a song without looking a little deeper than next years projections? "Due dilligence" would seem to be a foreign concept.

The business may well have been terminal (And quite possibly was) beforehand, and what Anchorage did may well prove to be legal but it does not make what they did right.

[bugeater]

It is buyer beware. No ifs or buts. This is how the game is played. Everyone should be slamming whoever bought into the IPO and afterwards, not the former owners. Plus the management of Dick Smith should probably get a serve too.

[multiweb]

:lol: Good on him. Extra points for stealing is own bike back. :)

[AndrewJ]

Or maybe slam the makers of the rules????? ( original concept? )
As i noted earlier, it is the govts of both persuasions that allow it toi continue and thrive, as they ( like their lawyer and banker mates etc ) get a skim off all the transactions before anyone else knows its going under.
We should be slamming the legislators for allowing things like this to happen to the general public, who dont have the ability to do the research reqd in most cases, and dont have the resources to seek legal recourse if they do get screwed. ( As that avenue now costs more than the losses for most people, unless a class action can be started ).

Andrew

[The_bluester]

I don't entirely agree. Yes the buyers in the IPO allowed themselves to be played for mugs, but you cannot absolve the previous owners by just saying that is how the game is played. They set this up purely in the interest of making a quick and huge profit at the expense of everyone else. As far as I am concerned very little separates them from scam artists attempting to diddle people out of money. It is interesting that it is apparently a problem to fleece people out of a few hundred bucks with something like the old "white van" scam where you represent a stereo worth bugger all as being worth heaps to get people to buy it for much more than it is worth but spend a year doing something not quite illegal to enable you to present a business that is probably worth fifty cents as being a bargain at half a billion purely to diddle people out of said half a billion, suddenly it is "buyer beware"

I guess I have too much of a conscience to ever work somewhere like Anchorage. Which brings us back to the OP, if they knew in the run up to Christmas that they were going to go into administration just after then the most recent management should go for a row IMO as it is outright dishonest and borderline for unconscionable conduct. If they had no idea then I suppose they are just incompetent. In that case it really is just a great demonstration of why buying gift cards is a risky investment

Who would buy a Masters gift card this week?

[AussieTrooper]

Really? You think it's ok to blatantly deceive investors?
You call it the 'game'. I call it fraud.

[bugeater]

I think we need to agree to disagree on the Anchorage thing. But I suggest you consider where the capital comes from that Anchorage and other like it invest. In other words, who ultimately did well out of the whole deal?

I do agree that the gift card thing is rough. It's really more about consumer protection, which is somewhere I think legislation could be involved. The government could do something like force these to be treated as money held in trust (which is really the way people consider them) rather than an interest free loan to the company (which seems to be the way the law treats them). I still think they are pretty silly though.

[bugeater]

I'm going to back away, because I don't want to upset anyone. I think we just need to agree to disagree.

[The_bluester]

I don't really care where the capital came from, it is the purpose that the capital is used for that concerns me. Is it OK to make a killing on an IPO for a company which was pretty well pre destined to fail if you then go and use it to develop a world changing product? Fleece people to save the world? More likely IMO to use it to go and do it all again.

The entire basis of the IPO would have to have been "I hope we find enough suckers to fill this thing" and a successful float might well have seen the people at Anchorage celebrating with cries of "Come in spinner"

Safe to say that we are going to have to agree to disagree. I consider Anchorage to be an example of one of the things that is most wrong in the world, pure unadulterated greed and a preparedness to put other people in difficulties satisfy it and I find it contemptible. While my own employer exists explicitly to make money, we do at least go out there to provide services to go with it and ideally we want repeat customers, in fact we are servicing some now that were customers when I started seven years ago. Anyone who has been sold a pup by Anchorage lining up again? That would surely be a textbook example of "The stupid is strong with this one"

[Bassnut]

Correct. A detailed Prospectus is required by law with an IPO and monitored by ASIC. From the ASX web site:

"The Australian Corporations Act contains a general disclosure test for prospectuses which, in summary, requires that a prospectus must contain all the information that investors and their professional advisers would reasonably require to make an informed assessment".

It seems whoever bought into the IPO and afterwards simply didnt do due diligence.

Technically, IPO fraud cant occur without lots of people ending up in jail.

[AndrewJ]

Gday Fred
Agreed, but not many ever end up charged, let alone get convicted.
However, this thread isnt really about the people who "invested in the IPO" ( supposedly after doing due diligence research) in the hope of making a profit, its about how average mum and dad peasants can walk into a retail store and buy a product, and still get fleeced along the way, and the legal system doesnt give a rats about them.

Andrew

[doppler]

What I don't understand is how when the gift cards still have a valid use by date and the company is still trading under the name on the gift card why they are not legally bound to accept that card under consumer law.

[AussieTrooper]

If the retailers knew that they were about to go into administration knowingly sold vouchers with terms they knew they could not meet, then surely that is fraud.
"What did you know and when did you know it?" would be the relevant question for them here.