COMMENT: Kogan Getting Wallopped, Lacks Buying Power & Competitors Have Their Measure
Online retailer Kogan.com’s shares tumbled 13 per cent earlier today, with serious questions now being asked about the Companies future and more so, how they will make a profit in todays brutal online trading environment.
The 66% drop in earnings to $17.4 million shocked investors who were not told that the Company was facing a dire fall in profits after management reclassifying some $5 million of income from last year’s sale of the domain name bitbuy.com.
12 months ago, Kogan was trading at $15.60, today they have slumped to $5.28, back in 2020 they were trading at $24.75, some say that the only value left in Kogan is their databases.
CEO Ruslan Kogan was a media junkie when he was trying to raise funds andf the profile of the business, now he is ducking for cover and does little if any media interviews in case he gets tough questions about the outflow of money to his own pocket and those of other directors.
Struggling with inventory and shipping costs Kogan has been targeted, and the Companies competitors are stripping customers away, from the small Australian online Company which while growing share, is struggling to make a profit.
Big W, Officeworks, Catch, JB Hi Fi, Bunnings along with Harvey Norman and JB Hi Fi have reported record growth in their online businesses.
JB Hi Fi online was up 62.6% in the last quarter, Big W 69.4%, Kmart 14.3%, Target 23.6%, Officeworks 46%, at the same time arch rival Amazon Australia has delivered sales growth of 57%, with revenues of A$1.75 billion during the past 12 months, this is business that did not go to Kogan.
At a store level Aldi has stripped business away from Kogan because they have global buying power working with Companies such as Tempo, who supply TV’s globally to Aldi along with appliances.
These are Companies who are able to source supply better than Kogan, buy cheaper than Kogan, and have the resources and cashflow to apply a lot of pressure on Kogan going forward.
The retail world is brutal and there is nothing like, hurting a competitor when they are vulnerable…and Kogan is vulnerable right now due in part to the improved online operations from their competitors and overseas supply problemswho are investing millions upgrading their online operations.
The Kogan operation is facing a blow torch of heat from competitors and there is little, if any upside for the Melbourne based business, which has seen directors strip millions out of the Company into their own pockets after the float of the business.
Kogan founder and chief executive Ruslan Kogan has been buying up Toorak mansion for himself and his mother he also has a passion for luxury cars, despite the business is battling higher wage and shipping costs.
He now claims it’s become difficult to predict just how much the business will have to put up prices.
While he’s working that out competitors such as Big W, Target, Bunnings and JB Hi Fi are growing their online operations because the factories in China where Kogan in the past got supply are preferring to work with retailers and distributors who can deliver volume.
“There’s definitely inflationary pressures out there, there is some that will be unavoidable” he said.
He also admits that Kogan has a full level of inventories and is trying to become a more “capital light business” to reduce its operating leverage, Mr Kogan said.
Chief financial officer David Shafer said that higher freight costs, especially shipping imports, had raised the company’s overall costs.
During COVID-19 consumers have flocked to online shopping with the bigger retailers witnessing online growth like they have never seen before.
One question that remains to be answered about the Kogan operation and that is ‘what the spread of revenue’ at Kogan.com who operates several businesses under the Kogan brand.
Aside from the Kogan.com marketplace, the company also operates the recently acquired New Zealand online retailer Mighty Ape, the Kogan First members program, Kogan Energy, and Kogan Mobile.
Kogan is also losing key people which often happens when a business starts to wobble.
News Corp Australia recently appointed Adam Kron, a senior executive at Kogan as its inaugural director, of ecommerce.
Before being Kogan’s director of growth, Kron was executive general manager and chief strategy officer at The Catch Group, now part of Wesfarmers .
He has also served in similar roles at Temple & Webster, prominent in the e-commerce home category.
Earlier today Kogan reported a statutory $11.8 million interim net loss despite record gross sales after compensation arrangements ate into profits.
It had reported a net profit of $35 million a year earlier.
Group profits were hit by $13.6 million in compensation expenses due to the award of options, while provisions of $10.4 million were taken to make further payments to New Zealand online retailer Mighty Ape, which Kogan acquired in December.
Gross margins at Kogan.com have dropped to 25.8 per cent from 28.4 per cent a year earlier.
Kogan who has 29 warehouses in Australia and New Zealand saw gross sales jumped 9.4 per cent to a record $698 million.
The company said early data showed that gross sales growth in January 2022 was almost 12 per cent higher than a year earlier this is despite unique visitors to his web site according to SemRush Data being down 5.7% to 4.4M visitors.