Price not everything in bulky goods business
Kogan.com’s announcement on Monday that it will sell own-brand fridges, washing machines and other bulky goods by year’s end is a return to form for the online-only retailer.
Recent months have seen the company grow primarily through the expansion of its burgeoning services business, rather than the sort of steep discounts on everyday physical products that many customers associate with the Kogan brand.
But in a statement released Monday, Kogan.com CEO and founder Ruslan Kogan was confident the move into whitegoods and built-in kitchen appliances will pay off.
“The Australian whitegoods and built-in kitchen appliance market lacks competitive tension which has resulted in a limited number of players enjoying inflated margins,” he said.
Investors seemed to agree. On Monday, the share price of the main players in the bulky goods space Harvey Norman and JB Hi-Fi fell by 3 and 3.8 per cent, respectively, from Friday, while Kogan’s share price jumped 6.6 per cent from Friday.
But not everyone thinks Kogan.com will succeed in this space based on price alone.
“There’s plenty that can go wrong”
John Winnning, CEO of Winning Group, which includes the online-only retailer, Appliances Online, said customers become disillusioned when cheaply-priced products break down and there is little support or service to back them up.
“They will be getting the products from the same places that many of the brands in Australia are getting them from, but putting Kogan on the front instead of another brand name. The difference will come when the goods break down and the reality is they do more often with entry priced product,” Winning told Internet Retailing.
“When you sell products that combine water, electricity and moving parts in one unit there’s plenty that can go wrong and it does,” he said.
“Our strongest relationships are built when we help customers unquestionably through such times when it would be easy to blame someone else and bank the profits [rather than] solving the issue. We are into long-term relationships not short-term profits.”
Logistics the lynchpin
According to Winning, the company has a leading NPS score of above 80, while the industry average is 12, thanks in large part to its service and delivery offering.
“We have spent decades developing our national distribution network to ensure successful last-mile delivery,” he said, noting that Winning Group services around 95 per cent of the nation with its own fleet of trucks and delivery teams.
Kogan noted in his statement Monday that logistical complexity of delivering bulky goods is one major factor contributing to the lack of competition.
But he said Kogan.com has built up sufficient logistics and distribution capabilities over the past 12 years to succeed where others have not.
Winning remains sceptical.
“After over a century in business, we’ve learnt that success in the bulky good market isn’t about easy deliveries and if you think that, then you have a lot to learn,” he said.
“Do I think Kogan can succeed? Not by our definition of success or level of service, but to the standard of others using undedicated third-party logistics and delivery teams, I am sure they will get there after some trial and error.”