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‘We were wrong’ says Kogan founder, promising FY23 bounceback

Kogan founder Ruslan Kogan says that after a tumultuous Covid-impacted trading period, the e-commerce channel is starting to normalise, returning to “steady and continued growth”, hinting at better prospects for the pureplay online retailer during the FY23 year ahead. 

In the year to June, Kogan’s profits slumped 69 per cent to $19.1 million – down from $61.8 million last year and $49.7 million the year before. But today, when reconfirming results advised in a trading update last month, Kogan said unaudited management figures for July showed EBITDA of $1.5 million and a 19.3 per cent reduction in overheads. 

The data suggests the pain is over for Kogan, which after a decade of consistent, stable e-commerce growth got caught out with the advent of the pandemic when “almost overnight our business started to double in sales,” according to Kogan himself. 

“This acceleration of sales continued for many months in the first year of the pandemic, and we bet that the trend was not going to stop. To ensure we could be there for our customers when they needed us most, we increased both our range and volume of inventory, as well as our logistics footprint to match this expected level of growth,” Kogan said. 

“We were wrong. As the true volatility of the situation settled in – caused by stay-at-home orders and lockdown ambiguity – e-commerce did not continue to grow as anticipated. This led to us holding excess inventory, and an associated increase in variable costs and marketing costs to sell through the inventory.”

That, he says, is why the business’ profitability was hit so hard in the year to June, but he is confident the company has turned the situation around nearly two months into the new fiscal year. 

“We’ve right-sized our business, optimised for efficiency, and we’re pleased to see e-commerce adoption start to normalise and return to its steady and continued growth.”

The company today announced it would raise the price of its Kogan First membership program to $79 per year, despite aiming for 1 million members by the end of the year, promising to add new benefits along with delivery upgrades and other existing features. 

“We will continue to enhance the benefits our Kogan First members get with ongoing investment in the program,” Kogan said.

Despite the glitches, he remains optimistic about the future of e-commerce in Australia moving forward. 

“When I started 16 years ago, I made a bet that online shopping would define the future of retail. My certainty of that is even stronger today than it’s ever been.

“The simple fact is this: More Aussies and Kiwis will be online shoppers tomorrow than today. Millions of customers are discovering the benefits of shopping from the comfort of their homes and having a huge range of products delivered to their door at great prices.”

While the company has opted not to pay a dividend for the June year, its cash balance (net of debt) remains at $31.2 million, following the funding of a $29.9 million instalment of its purchase of New Zealand marketplace Mighty Ape, and $49 million in loan repayments. 

The company has reduced its inventory by 28.1 per cent year on year to $159.9 million, including $22 million in transit. 

Operating costs last year were reduced by 27.6 per cent driven by savings in warehousing overheads, partly due to reducing excess inventory.

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