Kogan Just Nuked Traditional Retail (With A Fridge)

Image: Paramount Pictures

Retail stocks took a dive after Kogan.com announced a move into whitegoods. This adds yet more competitive pressure in a market being eaten into by online retailers, including US giant Amazon. And it comes at a time when a downturn in housing prices means less spending on furniture and appliances.

Kogan.com’s move into whitegoods has retail shares on the run with comments by founder Ruslan Kogan suggesting aggressive discounting is on the way. The share price of Australian retailers took a hit after the announcement by the pure-play online retailer. Harvey Norman fell 2.77%, JB Hi-Fi 3.27% and Myer 4.55%.

Official numbers show Australian retail sales grew by a paltry 2.6% in the 12 months to April, reflecting subdued growth in household incomes and intense competition.

About 60% of total growth in sales over the past year came from online retailers and the move by Kogan.com just adds yet more competitive pressure on top of the growing presence in Australia of US giant Amazon.

The Coppo Report noted the comment from Ruslan Kogan: ” … market lacks competitive tension which has resulted in a limited number of players enjoying inflated margins.”

This suggests Kogan.com will be an aggressive price competitor, says the Coppo report.

“In addition to the traditional bricks-and-mortar competitors, from online we now have not only Amazon, but also Kogan,” says the Coppo Report.

“Winning Group (with Appliances Online) also going very well and strengthening its management team.”

Citi Research says the downturn in housing prices will also impact retailers, mostly those who sell furniture and appliances, including Harvey Norman, The Good Guys, Bunnings and Metcash’s hardware business.

“Harvey Norman and The Good Guys are experiencing a slowing housing market combined with elevated pricing competition,” says Citi.

“We forecast negative LFL (like for like) sales growth in both FY19e and FY20e for both retailers due to cyclical and competitive pressure.”

The Kogan.com announcement is a clear threat to JB Hi-Fi and its Good Guys network.

The online retailer has signed supply and logistics agreements which allow it to enter the Australian Whitegoods and Built-In Kitchen Appliance Market with its own range of exclusive brand price-competitive products.

“The Australian Whitegoods and Built-In Kitchen Appliance market lacks competitive tension which has resulted in a limited number of players enjoying inflated margins,” says Kogan.

“One major factor contributing to this lack of competition is the additional complexity and logistical requirements arising from distributing bulky products.

“Due to the rapid growth of the Kogan.com business over the last 12 years, we are now in a position where our logistics and distribution footprint enables us to enter this market and provide Australians with unprecedented value on a range of the most popular Whitegoods and Built-In Kitchen Appliances like Fridges, Washing Machines, Dryers, Dishwashers, Ovens, Cooktops and Rangehoods.”

Kogan.com shares jumped on the news yesterday but this morning were down 10% to $8.61. The company listed on the ASX in 2016 at $1.80.

The company has an expanding portfolio including Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Health and Kogan Travel.

Kogan.com in April added pet and life insurance to this range.

That announcement today follows the launches of Kogan Insurance late last year and Kogan Health in February this year.

In February Kogan.com posted a 45.7% jump in revenue to $209.62 million for the six months to December. Profit was $8.33 million, up 470%.


Comments

    Problem is most of their products are really quite low quality, pretty much everything i've bought from there in the last 2 years has fallen apart or doesn't work.

    Being a glutten for punishment i was tempted to try my luck on a 50" Kogan Smarter TV with andorid tv built in, but then read reviews saying the TV frequently turned itself on in the middle of the night (as someone who owned a iiNet BoB2 that turned the answering machine on randomly between 11pm and 8am at full volume i dont wanna touch it.)

      It depends on the product. I bought a cyclonic vacuum from them and it sucked both figuratively and literally. Definitely not worth the money and it only cost something like $35.

      On the other hand I bought a microwave from them and it's been fantastic. Still going perfectly after more than 8 years. Bought a portable aircon from them three years ago and it's terrific too. Also got some genuine Samsung 850 EVO SSDs from them and they're perfect too.

      I think the moral is don't buy the super cheap items expecting them to be awesome. But if you buy the moderately priced, decent items they're actually pretty good.

        If you buy name brand stuff that you can get elsewhere, then id expect it to be of the same quality but no name or unknown brand then expect it to be in the bin within a month or 2.

          I agree that buying their name brand stuff (like the Samsung SSDs) should guarantee quality. But the microwave and aircon I mentioned earlier were no-name "Kogan brand" and they're terrific. But they were mid-price products not the cheapest of the cheap that Kogan sells.

          On a related note, I think there is a place for cheap-ass products that only last a year or two. For example, you can buy a $90 line trimmer and it'll last a year(ish). Or you can buy a $600 Stihl and with proper care and maintenance it'll last 10 years. But a typical "service" including parts is going to cost you close to $100 and should be done annually... So you can spend more on the reliable name brand line trimmer or just buy a cheap one and throw it away when it breaks down and still be in front $ wise.

          Same logic applies to Kogan's cheap-ass vacuums and TVs and other random stuff. In some ways buying a really cheap TV and replacing it every couple years isn't a bad thing. After all TVs are a bit like computers - they're steadily upgrading, 720p-1080-2160-etc resolution bumps, HDR, smart, smarter, even smarter, 3D, and so on. In some ways it's less painful to replace a $500 TV after 2 years because you can typically get new improved features. Upgrading a $2000 Samsung is a bit more painful. And obviously the more expensive it gets the more painful it becomes.

            But really bad for the environment

              Depends on how good the recycling is. A fair chunk of a line trimmer (for example) is metal which can be recycled pretty effectively. Or plastic, which again can be recycled. TVs and other electrical devices have a lot of recycling potential too.

                everything has the 'Potential' to be recycled.
                But with china decreasing/stopping the import of recycling materials, i reckon a lot of things will go to the landfill in the short term.

          Not necessarily. Bunnings is a good example. You can buy name brand's but they are made specifically for Bunnings often to different standards. Power tools is a big area they do it in.

            AEG and Bosch are some good examples, they used to be quality tools guaranteed. Now you have multiple versions of them, some made in China that are barely better than the no name brands.

            I'd also add that brand names don't guarantee serviceability. I bought a Ryobi line trimmer kit a few years back under the impression that Ryobi is a fairly reputable brand. I quickly discovered no one will service them. Tried three different mower repair places and they all refused. Basically all of them said if it's not Stihl, Honda or Husquvarna they won't touch it.

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