Amazon and cheap TVs: Ruslan Kogan on the new world of retail
Amid all the Amazon chatter last year, there was at least one Australian retailer who was excited. “A rising tide lifts all boats,” says Ruslan Kogan, founder and chief executive of the one-stop online shop Kogan.com.
Speaking in Sydney not long before Amazon launched in Australia, Kogan predicts the online shopping behemoth will “retrain the way people shop and retrain the way brands distribute”.
Australians have been slow to the online shopping boom, but they are getting the hang of it: the latest NAB online retail figures show that, while spending in traditional outlets is flat, online shopping is up, equivalent to 7.6% of in-store spending. Kogan has been waiting for this moment.
In many ways, Kogan pitches himself as the archetypal tech entrepreneur. He is outspoken, quick to take risks and occasionally fail, and he has made a fortune doing so. How his 11-year-old business responds to market trends could be indicative of the larger business picture.
In person, he is more circumspect and less cheeky than might be expected. This is the man who challenged self-proclaimed “enemy” Gerry Harvey to a debate on national television in 2010, launched the $900 Kevin37 flatscreen TV to take advantage of the 2009 stimulus package and came up with the 8,000 thread count Kogan spam “Portector” in response to communications minister Stephen Conroy’s 2010 proposed internet filter. Kogan gives good PR.
Perhaps the black T-shirt he wears to the interview is a clue to his newfound guardedness: it’s branded ASX KGN, a memento of the July 2016 day when Kogan.com was floated on the stock exchange. It wasn’t an instant success but stocks quickly gathered momentum, and Kogan.com finished 2017 as the best-performing stock on the ASX all ordinaries index, with an annual gain of more than 300%. These days he has shareholders to report to and a bottom line to protect.
Born in Belarus, Kogan arrived in Australia aged seven in 1989 with his parents and sister. The family had $90 to their name and Kogan grew up in the Elsternwick housing commission flats in Melbourne.
He made his first profit when he was nine, collecting abandoned golf balls at the nearby golf course, before cleaning them and selling them back to players. At school, he was fascinated by tech and went on to do a double degree in business systems on a scholarship, before working in IT for Bosch, GE, Telstra and Accenture.
In 2006, when he was 23, he started Kogan.com, selling private label televisions online out of his parents’ Melbourne garage. Legend/PR has it he maxed out his and his friends’ credit cards to buy stock from China, before selling it directly to the customer with a lower-than-market-average margin. By 2011, he was Australia’s richest person under 30, and now his personal wealth is estimated at $169m.
That money isn’t flashed around: he lives quietly in Melbourne with his long-time girlfriend Anastasia Fai, a video producer, spending most weekends at a farm in country Victoria. Kogan reportedly remains close to his family, tweeting recently that he was doing his own UberEats by couriering his mum’s cooking back to his house.
His firepower is reserved for the office, and 2017 was a big year. After its first full year as a publicly listed company, Kogan.com posted revenues of $289.5m, up 37.1% on the previous year ($211m).
There are few goods the company doesn’t offer these days, including books, toys, fashion, furniture, appliances, garden and home products, both under its own label and other brands. It has also branched into services with Kogan Travel, Kogan Mobile, in partnership with Vodafone, and Kogan Insurance. In June 2017 the company announced it would offer fixed line NBN broadband services in 2018, also with Vodafone.
Despite its growth, Kogan believes online shopping’s potential is “probably somewhere between 20 and 40%” of traditional retail and won’t fully replace the experience of going into a store. “Our business is commodity-based products so it’s all around efficiency. It’s ‘Hey I know what I want and I’ve got a very busy schedule, any spare time I’ve got I’d rather be playing with the grandkids in the park rather than trying to find a parking spot.’ So you know, it serves both purposes. [And] there’s bricks and mortar [business], those who do it really well and their businesses are thriving.”
For some products, the experience is everything, according to Kogan: “I love nectarines. I wouldn’t buy a nectarine without holding it in my hand first and making sure that it’s a heavy nectarine and it feels juicy because you can order them online but one nectarine doesn’t equal one nectarine.”
So Kogan won’t go into groceries? “I didn’t say that,” he says quickly. In fact Kogan did launch Kogan Pantry in 2015, aimed at challenging the Coles and Woolworths duopoly with a line up of 600 brands, but it fizzled out.
Kogan is on the lookout for other sectors ripe for disruption. Energy retailing must surely be on the list, although he’s noncommittal, saying only it is an “interesting market”.
His expansion principle is straightforward: “When we look at what to expand into, it’s a product or service that is mass market and typically has a high cost of acquisition.”
For a company that now claims a million active users, insurance was a logical progression. And with the success of the mobile partnership with Vodafone, so was NBN broadband.
“Sally, who’s a customer of ours, lives at this address. [We know] NBN becomes active at her address on the 12 December so we will send Sally a promotion ‘click this button and you’ll have NBN ready to go on the day it’s active’,” Kogan says.
He has little sympathy for the government’s NBN rollout difficulties: “Has the government ever rolled something out that hasn’t been problematic?”
But it could become an issue if Kogan customers are not looked after. Relying on other suppliers was how Kogan took a hit in 2013 when the first iteration of Kogan Mobile collapsed after their Telstra wholesaler ispONE went into voluntary administration, leaving 120,000 prepaid mobile customers in limbo.
Kogan says the company was trying to avoid problems with NBN. “Any service or product that has our brand on it, we are working relentlessly in the background to ensure the customer experience is as smooth as possible.”
The company has not been without its failures: there have been run-ins with the government, the ACCC, Apple and Microsoft. Aside from the failure of Kogan Mobile 1.0, there was the discreet closure of Kogan.co.uk, launched with much fanfare in 2010 to herald the company’s global expansion, but now diverting back to the Australian website.
And while one of Kogan’s chief selling point is its low prices, some have questioned the cost of achieving them. The company was poorly rated in the 2016 Baptist world aid report Behind the Barcode, which grades electronics companies on workers’ rights, policies, traceability, transparency, monitoring and training. The assessments are based on “publicly available information and on data self-reported by the company”. Kogan.com was marked as nonresponsive.
Kogan dismisses the report, pointing to the company’s policy on ethical and sustainable sourcing, and insists he has personally visited factories and met staff. “We know that we are improving the lives of hundreds of thousands of people. We know that … if not for this economic boom created by the manufacturing caused by many of the world’s biggest brands and retailers … these people would be living in poverty.”
He says the company took their staff’s welfare seriously. “We care about these things because ultimately happier people make better products.”
Kogan sees automation as an opportunity rather than a threat, and promises further use of algorithms to suggest products to customers. “I’m not concerned by it, I think technology does wonderful things. Yes, we should be clever about the way that we use it and yes, we should ensure that it’s dedicated to solving the right problems, but in general it’s the next industrial revolution.”
He is critical of the lack of support for the tech industry in Australia, saying if he had not succeeded with Kogan.com, he would probably be working for a tech company in the UK, US or Germany. “You always want to work somewhere where your skills are really valued.
“That’s probably part of the reason that a lot of the talent has come here, got our IT and technology degrees and then left. Or even grew up here, got the skills then said ‘Hey why am I sticking around here when our major retailers and business leaders are talking down technology, when I can go to the US and be a superstar?’”
But he says the best thing the government can do for tech entrepreneurs is to get out of their way.
“The less that the government has their claws in the startup community, the better. My general advice for the startup community is less tax, less regulation. Remove the red tape, and don’t take stuff from people before they’ve even made it. That would really incentivise the business community, would really incentivise more people to start businesses, more people to hire staff, more people to invest in growth.”
And, he says later: “Be wary of those wanting handouts and subsidies.”
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