Australia’s Retail DNA: Why Does Retail Need to Evolve?

Australia’s Retail DNA: Why Does Retail Need to Evolve?

Australia’s Retail DNA

Why is so much of Australia’s Retail DNA emerging in the commercial terrain as retail corpses in recent years? Many Australian retailers have been an integral component of retail DNA in this country. As a result, figuratively we have been attending regular funerals for family members.

What happened to Australia’s Retail DNA? Where did Angus & Robertson, Darrell Lea and Dick Smith Electronics go wrong?

Angus & Robertson


The first Angus and Robertson (A&R) book shop opened in Sydney in 1886. From 2009, A&R was under the ownership of REDGroup Retail. A&R’s demise involved a combination of errors. The purchase of Borders for circa $110 million in 2009 contributed to their failure, however, it wasn’t the only reason A&R failed.

While they did grow sales in the year following the purchase of Borders, they made 3 consecutive annual losses either side of the 2009 purchase. As a result, A&Rs woes existed before the purchase of Borders. The integration of the Borders’ business into A&R wasn’t a successful process and the profitability issues that existed before the purchase were merely compounded.

Strategic Decisions

In 2010, Amazon reported eBooks had overtaken the sales of hardcover books and had forecast eBooks to outperform paperbacks in 2011. As a result, A&R had invested approximately $110 million into a declining market. This strategy is usually undertaken to benefit from synergies and reduce costs. However, this wasn’t immediately evident with the purchase of Borders.

In 2010, just 4% of A&R’s sales were derived online. At this point, the A&R offer in-store was readily available online, usually at better pricing. Hence A&R were charging a premium for store visits. If consumers can shop from a device cheaper than visiting a store, there must be a compelling reason to visit the store. As a result, A&R’s strategy clearly wasn’t sustainable.

At this point, Amazon had been operating for 16 years. Their success selling books online need not be expanded upon here. There were signs that a significant investment online may have offered a better strategic path by REDGroup.

By 2010 the eBook market was exploding. Whilst A&R had invested in the eBook market, they had selected a Canadian company called Indigo who sold an eBook called Kobo. A&R could have sold eBooks for any brand: Kindle, Amazon, Paperwhite and Kobo. They struck an agreement with Kobo, at the time a less recognised brand.

A&R Goes into Administration

By February 2011, A&R had gone into voluntary administration. The failure to merge effectively with Borders, declining sales and poor strategic decisions around brand positioning and eBooks meant they were unable to meet their debt obligations. This ensured the end was nigh.

While the game was changing, REDGroup’s primary income stream focus was from bricks and mortar stores. The UK’s Book Depository had strategic arms that not only derived income from online retailing, however they offered self-publishing services as well as reprinting out of print titles.

Therefore, there were numerous strategic options that A&R could have pursued, without recreating the wheel. Trailblazing in new strategic directions had already been undertaken by other book retailers. REDGroup failed to adequately pursue strategies that could have redirected the company on a more sustainable path. They failed to effectively evolve and paid the price.

Note: In 2019, the A&R brand remains operational as an eCommerce retailer owned by Booktopia. Strangely enough, if A&R had its time again, a strategic play to purchase Booktopia in 2009 rather than Borders may have had a different result. A real “sliding doors” moment.

Darrell Lea

The Darrell Lea business failed to evolve in the right direction. Poor strategic decisions saw the business losing $200,000 per week prior to entering administration in July 2012. At the time, chocolate and confectionery sales had been growing annually by 2.2% for 5 years. As a result, consumers were eating more chocolate, but they were pursuing different options.

Consumer Trends

Artisan chocolate such as Haigh and supermarket chocolate such as Cadbury had evolved with alternate offerings, styles and sizes. Darrell Lea failed to undertake any meaningful innovation.

In 2012, Darrell Lea were undertaking significant expenditure on shop fit outs. The employees didn’t like the new store layout, nor did the customers. Even when stores reopened, having been closed for 2 weeks, the expectant spike in sales didn’t materialise. This prompted more expenditure addressing flaws in store design.

Darrell Lea also failed to identify generational gaps. Like the Scotch Whisky market in the 1980s, Brands didn’t market to future generations. When Bourbons, Vodka and Rum used innovative branding, flavours and marketing, the Scotch Whisky market declined as the next generation had a more expansive choice.

In Darrell Lea’s case, they failed to market to the next generation of consumers who also had exposure to a greater number of choices. Whilst they had significant goodwill, that goodwill resided in an aging demograph. The younger generation saw greater value in novelty or gift with purchase products. Licensing chocolate with movies, superheroes or TV characters also enticed sales away from Darrell Lea.

Whilst purists may not like it, the market for confectionary had evolved away from the total Darrel Lea offering.

When Darrell Lea went into administration all 69 shops were closed in the months following. The brand however was purchased & a review of the portfolio undertaken.

Stock Management

Darrell Lea had 800 products when it went into administration. When Tony Quinn purchased the brand in September 2012, they subsequently slashed over 500 products. Most were unprofitable but were maintained because they had history. The moral here was don’t let nostalgia rule business decisions. Distribution channels were also recalibrated.


Forced Evolution

As a result, like A&R, the brand Darrell Lea continues to be available, though no longer with a storefront displaying its name. In fact, after resurrecting the business from 2012 with an initial sum of $25 million, Tony Quinn resold the business in 2018 for approximately $200 million whilst retaining a stake.

As a retailer, Darrell Lea failed to evolve. They carried to many unprofitable products and distributed in too many unprofitable channels. They also failed the marketing test of attracting both new customers and returning customers with poor or inadequate innovation.

Dick Smiths Electronics

Dicks Smith’s name in Australian retail had been around for almost 50 years in 2016 when Dick Smith’s Electronics went into Receivership. Most companies derive financial insulation from the Christmas period and in troubled times, they can buy themselves time from financial obligations. In Dick Smith’s case, one week into January 2016, the receivers were called in by the banks.

The consumer electronics business is highly competitive which means thin margins. Operators must generate significant sales volume to generate the profit required for the category to remain economical.

Stock Management

Dick Smith’s Electronics invested heavily in stock, particularly developing and promoting private label product. However, in the electronics business, product life cycles are much shorter than most industries as a result of technological advances.

When you have invested heavily in private label product with little brand equity in a category that changes quickly, there is little margin for error.

Dick Smith was overloaded with product that wasn’t selling. Too much obsolete or passive stock that wasn’t generating an income. Even clearance sales failed to generate sufficient cash to solve their financial obligations. As a result, when debt obligations were due, they were unable to meet them. HSBC and NAB appointed receivers Ferrier Hodgson on January 6th, 2016.

The problems with Dick Smith Electronics had been coming for some time. In September 2012, Woolworths sold the business for a reported $115 million to private equity firm Anchorage Capital Partners. It is reported that Anchorage only made an initial payment of $10 million and used revenue from the sale of existing inventory and plant and equipment after the sale, to pay for the business. Further, a provision for future onerous lease obligations also reduced the amount to be paid.

Fifteen months later, in December 2013, Dicks Smiths was floated on the ASX for $520 million. Anchorage had completely divested themselves from the business by September 2014. There was a bad smell early.

Dick Smith IPO

Much of the capital raised went towards replenishing stock that had been previously sold . Management strategically pursued suppliers that offered considerable rebates, recognising the rebate as income. Combine this with private label product that wasn’t selling and the company had over inflated income with stock that had to be written down. As a result, rebates were effectively subsiding the written down value with no material benefit arising. Further, relying on rebates resulted in poor product mix and subsequently store layouts.

With stock they were unable to move quickly enough, the Receivers were appointed.

By the end of February 2016, it was announced that all 363 Dick Smith Electronics stores would close. Three weeks later it was announced that Ruslan Kogan ( had purchased the Dick Smith’s brand, trademarks, intellectual property and the online business.

Like A&R and Darrell Lea, remaining brand equity was appreciated, and the Dick Smith brand has been given a new home and life. However, like A&R and Darrell Lea, Dick Smiths Electronics no longer occupies a shopping mall footprint.

Retail Evolution

Essentially, more than one thing contributed to the demise of A&R, Darrell Lea and Dick Smith Electronics. However, the main component was their failure to evolve or evolve in the right direction while retail conditions were changing.

Figuratively, while your DNA doesn’t change, your appearance and the way you function does. Hence these staples of Australia’s retail DNA were capable of adapting to changing conditions.

In addition, each of these staples of Australia’s retail DNA had become riddled with debt. While A&R and Dick Smith operated in markets with tight margins & high competition, Darrell Lea operated in a market which continued to grow.

In each case, better stock management, innovation and a focus on what customers really wanted would have helped identify a more successful strategic path.

Sadly, the legacy left from each of these brands can be addressed by a series of “What ifs….?

What if Angus & Robertson hadn’t purchased Borders?

What if Angus and Robertson had invested in eCommerce and eBooks more effectively?

What if Darrell Lea had reviewed its own passive or non-profitable products 2 years earlier?

What if Darrell Lea had reviewed and / or closed its non-profitable stores earlier?

What if Darrell Lea reviewed its channels of distribution or even sought out licensing opportunities for some of their products? (I still see licensing as a significant opportunity for Darrell Lea to engage a younger market).

What if Dicks Smith Electronics hadn’t invested so heavily in private label product?

What if Dick Smiths focused more effectively on the changing market and consumer demands?

Should Management have Known?

For each of these questions, the answers were available at the time. Management either ignored them or weren’t prepared to face reality and answer them. Poor strategic management resulted in poor decisions, resulting in poor outcomes.

With the benefit of hindsight, you might say this is clearer now. However, the process of measuring performance hasn’t changed much in decades. Sales growth / decline, margins, debt to equity ratios, return on investment, at a strategic management level, would have identified issues. Drilling down further, stock turns, sales per square metre, identification of slow-moving stock, cost analysis including rent and wages benchmarking – all would have helped identify the precise issues. As a result, corrective strategies could have been implemented more promptly.

This information was available.

Sadly, today these staples of Australia’s retail DNA no longer carry the lustre once held. Yes, they still exist. Darrell Lea having taken the most significant revival steps, albeit no longer as a retailer but as a manufacturer / wholesaler. Dick Smith and A&R also are available though only online. Gone are the days of entering these stores. Gone is the opportunity to share our nostalgia with the kids of tomorrow. If nothing else, they make interesting case studies on how to destroy a business.

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