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Innovation investing in algorithms, not stores

Despite opening a temporary pop-up store in Melbourne in December 2015, online retailer is more concerned with growing the size of the Australian e-commerce market than opening physical locations.

“We were just playing around,” Ruslan Kogan, founder and CEO of, said while speaking on a panel at The Internet Conference on the Gold Coast last week.

“For us it’s not part of a bigger grand plan or strategy. We were just experimenting.”

Kogan said the store on Chapel Street was opened less than a week after signing the lease agreement and “was an interesting learning experience”.

READ MORE: Kogan expected to launch IPO

The online retailer experimented with hyper-local data, stocking the pop-up with the most popular products purchased in the surrounding area to refine an inventory of 30,000 products down to just 150.

To drive customers to the pop-up, also offered free shipping for shoppers who connected to the instore wi-fi and made a purchase online. 

Instead, Kogan said the online department store is investing significantly in algorithmic predictions engines, which serve shoppers the most relevant items from its inventory, as well as automating its fulfilment processes to get items to customers more quickly.

Kogan argued growth in the e-commerce sector will be driven by appealing to the mass market customer, who wants to “click, click, buy, receive.”

“We think that the online customer, especially in Australia, is changing and it’s only just starting to hit the mass market,” Kogan said.

“If you look at the last 10 or 15 years the [online] customer has been somebody who is looking for the best price and they are willing to do two hours of research to shop around.” 

The reason Australia’s percentage of online retail spend is less than that of US, UK and China is because Australian shoppers aren’t buying online out of convenience yet, Kogan said. However time-poor consumers will turn to online shopping if the offer is more appealing than spending time in stores. 

“They’d rather spend their weekend with their grandkids in the park and have the item arrive the next day,” Kogan said. “That’s the mass market customer and that what’s going to bring Australia to have the same portion of online retail as we see in the US, UK, China and so on.”

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