What do Red Lobster and Dick Smith have in common?

Brianne West
June 19, 2024
Red Lobster has just filed for bankruptcy, but it’s nothing to do with ‘all you can eat shrimp’ and everything to do with the way that our financial system works. Or – private equity…

If you’re from Aotearoa New Zealand like many of us in this community are, why do you care? Because this is what happened to Dick Smith.

Dick Smith started in 1968 as a car radio installer. They absolutely nailed customer service. They started investing in niche tech ideas and fostering that ‘do it yourself’ attitude that became the Dick Smith that many knew and loved.

Then, in 2012 a private equity firm called Anchorage Capital Partners acquired them. The long and short of it was they bled the company dry,they overstocked the inventory, pushed for a quick IPO to make money, slashing costs to inflate those short-term profits.

By 2016 – four years later – it was game over. Why are these two things related? Because this is what private equity does.

They buy companies with promise. They strip the guts out of them. They take the charm, all of the brand, all of the ‘cost’. All in the pursuitof short-term profit. Then, they either sell them, or they make money by takingit public.

This isn’t exactly what happened to Red Lobster – theirs involved real estate – but it’s basically the same thing.

Private equity firms don’t build businesses. They tend to destroy them.

Brianne West
Co-Managing Partner
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