Kogan Responds To Our GST Concerns Story
Kogan.com founder Ruslan Kogan has responded to our recent story concerning the risks his business face from changes to the GST threshold.
Desperate to get his upcoming float away Kogan who has a questionable track record has admitted that 30% of his revenues could be affected by the changes to GST legislation, but like most things associated with Kogan he has dismissed the threat claiming that the area of his business that will be affected “has the slowest growth”.
It was only 18 months ago that Kogan was bragging about his Companies growth from overseas sales.
Now he is playing down the threat from changes to the GST-free threshold for goods bought online from overseas.
The reality is that the GST-free loophole for goods worth less than $1000 which is a large majority of Kogan sales and bought online from overseas is set to be closed from July 2017.
Analysts that ChannelNews has spoken to believe that Kogan is “Exposed” and that issues associated with the changes in legislation have not been adequately addressed and fear that his international sales could tank in 2018.
“The prospectus really downplays this, when it’s probably the company’s biggest single challenge,” one industry source told the AFR.
Mr Kogan doused these concerns and rejected suggestions the risk to Kogan.com’s third party branded international sales was played down in the prospectus.
“It’s something that may affect one area of the business that has the slowest forecast growth and is the lowest margin part of the business … one quarter the margin of our private label business,” Mr Kogan told The Australian Financial Review.
“The investors we spoke to were more focused on the fact that we have been growing for 10 years and we have been EBITDA [earnings before interest, tax, depreciation and amortisation] positive for 10 years,” he said.
Several people that ChannelNews have spoken to have questioned this growth claiming that for several years Kogan had smaller revenues than a single JB Hi Fi retail store.
Kogan went on to claim that potential investors “Are very excited about the growth in the high-margin private-label part of the business and the industry has massive tailwinds and is forecast to grow at 11.5 per cent well into the future CAGR.”
What appears to have not been taken into account is the growth of Aldi in the consumer electronics and appliance market. Last year Aldi is believed to have turned over more than $120M in this category and this is set to increase to over $150M as the German retail giant rolls out new stores.
At the same time Woolworths is restructuring their Big W business with the group set to go head to head in the white goods consumer electronics market. Last month Big W ran an extensive TV promotion. These TV come from the same Chinese factories that Kogan is using. The TV promotion was a “huge success” according to Big W executives.
Kogan.com claims that he undercuts bricks and mortar competitors such as JB Hi-Hi, Harvey Norman and Digital Camera Warehouse by sourcing private label products and third party branded products from overseas, buying directly from suppliers and wholesalers through sourcing offices and logistics facilities in China and Hong Kong and through its proprietary online bidding system known as Allocate.
Kogan.com’s prices on internationally sourced products are as much as 30 per cent cheaper than those at bricks and mortar retailers, reflecting lower sourcing costs and the absence of GST.
For example, Panasonic Lumix DMC-FT6 digital cameras are selling at $299 on Kogan.com compared with $399 at JB Hi-Fi and $318 at The Good Guys.
When the low-value threshold is reduced from $1000 to zero, Kogan.com’s price gap on internationally sourced goods is likely to fall from 30 per cent to around 15 per cent or 20 per cent the AFR said.
The AFR Said that under the new GST regime, smaller online offshore consumer electronics retailers without local logistics facilities could struggle to compete if they do not have local logistics facilities to avoid customs clearance costs.