Ruslan Kogan warns of multiple online retail collapses as his electronics business eyes potential acquisitions
Monday, August 21, 2017/
E-commerce entrepreneur Ruslan Kogan believes multiple Australian online retailers will collapse over the next year — and says his company is poised to acquire them if the opportunity arises.
Speaking to AAP, the founder and chief executive of booming online retailer Kogan.com refused to name any specific retailers, but said the process of acquiring collapsed retailer Dick Smith Electronics last year put Kogan in good stead to pick up any other floundering e-commerce websites in future.
“Over the last decade there has been a lot of online retailers who have done a great job in raising money building a website and then blow all the money on marketing and building a brand,” Kogan told AAP.
“As a result of that, we see a lot of those falling over in the coming year and that creates an opportunity for Kogan.com.”
This speculation comes at the same time as a report from insolvency firm SV Partners, which predicts around 1600 retail businesses in Australia are “at risk of imminent collapse”, including 21 with more than $50 million in turnover.
The SV Partners’ 2017 Commercial Risk Outlook report predicts 3.2% of Australia’s retailers, or 1591 retail businesses, are at high to severe risk of insolvency. At least one of the businesses at risk has annual turnover of more than $1 billion, according to the report.
Last year, SV Partners said 1413 Australian retailers were at risk of collapsing. Since the 2016 report was published in August last year, Australia has seen a number of high-profile collapses, including Topshop and Marcs and David Lawrence.
Kogan.com acquired the Dick Smith Electronics online business and intellectual property after the company went into receivership early last year, later relaunching the brand as an online-only platform. Details from its prospectus revealed Kogan.com acquired Dick Smith Electronics for just $2.6 million.
Kogan’s latest comments about future potential acquisitions comes in the wake of a bumper financial year for the electronics retailer, which smashed investor expectations in its first full year as a listed company, generating $289.5 million revenue. Earnings before interest and tax were $31.2 million, and the company recorded a $3.7 million net profit.
Upon announcing the results, Ruslan Kogan told The Australian the business is looking towards more growth in both its core business and other areas.
“The company has a strong balance sheet which will allow us to continue to fund growth in our core Kogan Retail businesses, while the continued diversification of our Kogan Portfolio is providing strong cash flows,” Kogan told The Australian.
“Our team is very proud of the fact we’ve managed to build and engineer a business model that is both a high-growth and dividend-paying company.”
Consolidation, not collapse
Responding to Kogan’s suggestion many online retailers will face financial distress over the next 12 months, founder of the National Online Retailers Association (NORA), Paul Greenberg, says he believes the sector is heading for “consolidation” rather than collapse.
“Kogan has just delivered a very good result, especially as there have been many doomsayers around pure-play retailers recently. If they found their profitability it suggests others can too,” Greenberg told SmartCompany.
“I am an optimist, but I’m inclined to say we’re heading for consolidation, not collapse. Collapse is a very strong term, I think more retailers will be looking for partnerships and focusing on strengthening the business.”
Despite the optimism, Greenberg admits online retailers have seen some “intense” competition lately. While situations like Dick Smith Electronics were “unashamedly”collapses, Greenberg believes there’s a number of positives in the retail space at present, pointing to the recent acquisition of Retail Apparel Group by South African retailer The Foschini Group.
“I’ve always been a fan of partnerships, they don’t always have to be acquisitions – look at eBay and Woolworths. I’d be hoping to see more things like that in the industry, and even some proverbial ‘frenemies’ teaming up,” he says.
“We need continued innovation, as the biggest risk for the industry is inactivity.”
Retail expert at Retail Oasis Pippa Kulmar agrees, noting Kogan’s potential acquisition moves echo similar ones from large international players such as Walmart, labelling the ruminations “Amazon-esque”.
“Amazon is constantly buying up businesses like Souq and Whole Foods, and while they are probably more mature businesses than what Kogan would be looking for, it is a proven model,” Kulmar tells SmartCompany.
“Talking about acquiring smaller online players is good for the industry as it can provide a level of support for those who find it hard to be profitable and commercially successful.”
SmartCompany contacted Kogan but did not receive a response prior to publication.