Kogan.com has a major problem, they are overstocked and struggling to lower costs on the stock they have been carrying on their books.
This has led to a spat among friends with the online retailer taking legal action against its warehousing and logistics partner eStore whichKogan founder Ruslan Kogan, happens to own 19% of the shares in.
The struggling online retailer that has seen its shares fall 62% during the past 12 months has lodged a claim in the Victorian Supreme Court, claiming eStore failed to “indicate to Kogan that there was any material risk that in the six-month period commencing November 2020 it would not be able to accommodate the number of pallets required by the online retailer” who at this stage was rushing to get stock into the Country before the peak Xmas period which failed to deliver the sell through Kogan was expecting.
In the documents, Kogan alleges it incurred more than $2.1m in additional charges and “lost the opportunity to sell stock during the peak period” to the value of some $5.8m, assuming a gross profit of 30 per cent.
Ruslan Kogan has repeatedly complained about logistics issues plaguing his company blaming the problem on poor sell through.
In early 2021 as other online retailers such as JB hi Fi and Bi G were talking about increased online sales, Kogan cut its earnings outlook, and blamed higher warehousing costs and miscalculations on inventory.
The company said it had expanded its network to 31 facilities after supply chain disruptions had forced it to cut prices and deal with higher costs.
The big issue is whether Kogan.com bought in too much stock or whether the problem was caused by a lack of sales resulting in inventory build-up.
Ruslan Kogan the founder of Kogan.com, through his Kogan Management Pty Ltd vehicle, owns 19 per cent of eStore according to the Australian newspaper.
In the documents filed for the court case, Kogan says eStore had led it to believe it was able to scale up the amount of stock it was able to handle at short notice.
“Kogan could proceed on the basis that its requirements had been reviewed and eStore was working on a solution to meet them … (it) did not need to divert stock to other warehouses to accommodate its storage needs; and … eStore would notify Kogan if there was going to be an issue with eStore meeting Kogan’s storage requirements of 30,000 actual pallet locations,” the filing reads.
But in November 2020, eStore told Kogan it was well over its allocated space and said its Paramount centre in Derrimut, Victoria, was full. However, eStore had “ceased accepting (full consumer loads) at all of its warehouses in Melbourne, not just at Paramount,” Kogan alleges.
“As a consequence of store’s refusal to accept stock that was scheduled to be delivered to eStore (as included on the Inbound Reports), it was necessary for Kogan to redirect or otherwise make arrangements for that stock,” the company alleges.
As a result of the ongoing problem Kogan claims they were forced to call up additional storage at CEVA Logistics, Silk Logistics and Qube, resulting in additional costs.
In July 2021, Kogan said the value of stock in transit dropped by almost half – to $36.3m – as it scrambled to open up space in its warehouses and avoid punishing shipping charges caused by bottlenecks in its supply chain.
Kogan has admitted the retailer entered 2021 holding too much inventory just as customer demand began to drop, with logistics headaches and higher warehousing costs eating into profits.
That forced it into price promotions to help clear excess stock.
In May, eStore called in Highbury Partnership and Allen’s as it prepared to sell itself for around $100m.
