The build-up in Dick Smith's inventory and over-spending in the months prior to its collapse was an attempt by the company to grab opportunities for sales growth, says former chief executive Nick Abboud.
Giving evidence at a NSW Supreme Court public examination on Friday, Mr Abboud said the company's inventory ballooned and the company was overs-pending its budget because there were "opportunities" in the lead-up to events such as Father's Day, back to school sales and a spike in the Australian exchange rate.
"It's like supermarkets receiving Easter eggs in January but Easter is not until April," he said, justifying the company's inventory build-up in the months before Christmas 2014.
"I believed that was the right inventory," he said of the $360 million inventory by the end of January 2015, which had grown from $170 million in June 2013, citing reasons such as the favourable exchange rate and drops of cheap international stocks.
"There were a number of Father's Day promotions," he said in response to an overspend in July 2015, adding the company was stockpiling items such as GoPro and Kindle in anticipation of the day.
Dick Smith collapsed in January leaving a $260 million shortfall to creditors. Receiver Ferrier Hodgson is looking for answers from the former management and board as to the retailer's spectacular failure and is accusing them of chasing supplier rebates at the expense of product mix and long-term profitability.
'Use your relationship'
As Dick Smith was pursuing these "opportunities", a series of emails emerged during the examination that show management was applying continuous pressure on the buying team to extend credit terms from the suppliers.
"Can we get an update on O&A; [rebate] support, what can be pushed out and what other support do you need," Mr Abboud wrote to head of buying Rod Orrock.
In the lead-up to Christmas, management again asked buyers to "use your relationship to push payments out until at least January 2015".
Mr Abboud said it was industry best practice to extend supply terms over the Christmas period. "Every time we go into Christmas we push [credit terms]. It's pretty normal in retail," Mr Abboud said.
In late 2015 Dick Smith acquired an extra $20 million credit from HSBC and NAB because it had adopted a digital marketing strategy at the recommendation of none other than the bank lender, NAB.
After attending a presentation by NAB's digital marketing team, Dick Smith had started using Facebook and Google to spruik its products, which stunted its store foot traffic and sales in October.
He said the extra $20 million was required to "give us that headroom if that trend was to continue in December."
Receiver Ferrier Hodgson and liquidator McGrathNicol will use the findings of the examination to investigate the causes of the company's collapse.
Unsecured creditors, including shareholders, will only receive compensation if the liquidators recover more than $26.7 million.
