There is a lingering view among some retail commentators that Kogan.com could become a victim of its own hype and its broad portfolio of retail products and services. Kogan.com, which is listed on the Australian Securities Exchange, has certainly defied many of its critics and doubters with its growth trajectory since it was founded by Ruslan Kogan in 2006. The early growth was driven by its dynamic founder, who built his brand around a promotion strategy that included gimmicks and sometimes con
controversial opinions.
Kogan’s attention-grabbing publicity did attract customers to the business he started in his parents’ garage. It achieved $3 million in sales in its third year of trading and steady growth in subsequent years as the portfolio of products and services expanded.
In the 2019 financial year, Kogan.com reported annual sales of $439 million with net earnings of $17.2 million.
Picking up Dick Smith
Kogan.com achieved 15.9 per cent year-on-year active customer growth to 1.6 million customers, a figure that was significantly enhanced by the acquisition of the customer database of the collapsed Dick Smith retail chain.
Kogan himself has succeeded where other online retailers have struggled or failed by setting himself up as the media’s go-to person in the industry. It is a strategy that has worked before for other retailers like Dick Smith, Gerry Harvey and Jeff Bezos, the founder of Amazon.
The expansion of Amazon’s business in Australia is one of the reasons why there are still doubts about Kogan.com.
The other concerns about Kogan.com relate to the expansion of the business into highly competitive services that might lift sales but could provide risks to profits and even damage the brand if customer satisfaction is diminished. For instance, Kogan.com faces competition from a range of new vendors for insurance products, including Qantas, health funds and motoring organisations, as well as fierce price competition in travel, mobile communications and internet services.
Some of the Kogan.com services are delivered by third-party providers which pay commissions on sales, a business model that is used by other online retail platforms, including Amazon and Alibaba, but one that does carry a risk for the host brand.
Customer complaints
Choice, the consumer watchdog, claims it has received many complaints from customers of Kogan.com and notes that the online retailer overstepped the mark with a deceptive 10 per cent discount promotion that resulted in legal action last May by the Australian Competition and Consumer Commission.
The issue for Kogan.com is that management time and oversight can be stretched thin and leave the retailer vulnerable to consumer dissatisfaction which, courtesy of the same digital space that has propelled sales growth, can inflict heavy reputational damage quickly.
The Kogan brand has built its consumer franchise on price leadership through digital efficiency. It claims more than eight million active subscribers but a more modest 1.6 million active customers, however, it has succeeded where other Australian online retailers have burned large sums of money in pursuit of an elusive profit.
Many of the pureplay online retailers have failed to develop brands, while others have tried to expand too quickly and all have faced the same subdued consumer spending that has dogged bricks-and-mortar retailers as well as competition from global online vendors.
Bricks-and-mortar retailers were generally slow to embrace online retailing in Australia but most are now heavily invested in digital sales platforms and are generating stronger growth from online sales than in their stores.
The advantage of scale
With recognised retail brands and the increasing rollout of click-and-collect options, bricks-and-mortar retailers are making it harder for the pureplays, as evidenced by the appointment of administrators to two businesses this month.
Zanui, the online homewares and furniture marketplace, was placed in voluntary administration last week; and online activewear retailer Stylerunner collapsed in October. Administrators of both businesses are hopeful there may be buyers for the brands, although there was little love for Shoes of Prey or Wine Direct and Just in Cases.
Whether or not Kogan.com can continue its impressive growth remains to be seen but it has certainly done well to date and has a share price that must make Myer investors tearful.