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Kogan’s glory days are long gone

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Those of you that have been watching Kogan’s (ASX:KGN) share price since the first lockdown came into effect last March 2020 – Stage 1, will have seen the online electronics retailer enjoy a 500% share price rise from $4.15 (March 2020) to $25.57 (October 2020). It all came on the back of Covid-19’s ongoing havoc which sent Australia’s major cities into lockdown. Naturally, online retails were some of the big beneficiaries, with 9 million Australians making an online purchase last year, up 57% from the previous year.

Of particular interest was Kogan’s meteoric rise. At its August update 2020, the company recorded active customers of 2,461,000 an increase of 152,000 in the month of August 2020, and the largest monthly increase in the history of the Business. Gross Sales grew more than 117%, Gross Profit grew more than 165% and adjusted EBITDA grew by more than 466%. Marketing costs reflected the largest monthly marketing investment in the history of the company.

And so, stuck in lockdown, seeing Kogan’s success, I ordered a Kogan 9kg Series 9 Front Load Inverter Washing Machine, that was on sale, for my new apartment. It was early April and lockdown restrictions were well in place. I was excited to receive my new washer and expected it to arrive at a maximum, one or two weeks following the purchase.

Four weeks had passed, and nothing. Another month passed, still nothing. It was now early June and I was worried that perhaps there was an error and my washing machine had ended up on the other side of Australia. And so, I contacted Kogan seeking an answer.

And what did I get? Absolute peanuts.

Kogan’s call centre were equally as unhelpful. They couldn’t retrieve my invoice to start with and were unable to indicate a likely date of dispatch owing to pandemic affected trade routes. In the end, I waited 4 months for the washing machine to arrive. Frustrated with the lengthy wait, I made a complaint to Kogan’s complaint department. Again, no call back. What happened next, was icing on the cake. The washing began making unbearably loud noises, until it came to a crashing halt and its life span ended with a loud thump.

Cheap and nasty. Well, I got what I paid for.

Despite all the huff and puff praising Kogan’s excellent product and service quality, and its skyrocketing share price, I felt Kogan was all smoke and mirrors. Owing to its churn and burn ecommerce machine, customers cannot trial a Kogan product prior to their purchase. With a monster marketing and PR team, Kogan has been able to disguise its failings.

Well, it didn’t take long for Kogan to come unstuck. At its May 21 report, the company started reporting a numbers of issues that forced the company to announce a surprise downgrade to guidance. Despite doubling growth in the 1H, it seems Kogan grew too big too quick. Operational challenges owing to an excess in inventory together with supply chain and logistical issues, were starting to seep into every part of the company. By misreading demand, Kogan overconfidently grew its business to 31 facilities to  house extra supply. This meant higher costs but it also meant unused stock sitting on the floor. To get rid of this stock, Kogan discounted products and upped its promotional marketing spend.

This week, Kogan posted their FY result, which was unable to shake its oversized stack of inventories.

Shares were hit hard and fell by almost 16% following a net profit drop of 87% to $3.5 million in the year to June 30. Its bloated inventories weighed in on its result despite CEO Ruslan Kogan’s attempt to talk down the issue saying an expected surge in sales during current COVID-19 lockdowns will help reduce the load. EBITDA fell 51.6 per cent to $22.5 million and adjusted EBITDA, excluding one-off costs, rose 40 per cent to $61.8 million, marginally higher than the company’s guidance of $61.1 million.

Last year, Kogan was touted as the hottest thing since sliced bread. Shares rose some 500% as Australians went into lockdown, worked, socialised, and shopped online. But, the same momentum it had back then, isn’t anywhere to be seen. I know i’ll never buy from Kogan again.

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