Kogan takes a big hit. Is it safe to buy?

Online retailer Kogan (ASX:KGN) saw its shares fall from a high of $14.43 a year ago to $5.26 at the close on Friday February 25, 2022. Trading in the shares is now in pause.

Now, it is not CyberShack’s purpose to comment on the indescribable and incomprehensible workings of the Australian Stock Exchange. Know this – when stock investors get agitated, they abandon stocks faster than rats leaving a sinking ship.

The commercial pause was due to the announcement of an $11.9 million after-tax loss in the first half on a 1.3% increase in sales.

Is it related to COVID?

Kogan says all retail innovation is online and leading the way. Knowing Kogan’s penchant for blue sky statements, take that as you will.

Basically, supply issues, stock-outs, increased transportation costs, and reluctance by Kogan’s ODM/OEM suppliers to allocate inventory are primarily to blame. But these problems will persist until the end of 2022, if not longer. All we need is for the threat of war to escalate or if other variants of COVID ravage the cheap labor countries that Kogan relies on for its inventory.

Kogan also increased marketing costs to liquidate inventory. You can only discount low-priced products so much before they make a loss. Add to that the high percentage of “stale” inventory (out of season or replaced) that sits in Kogan’s 29 warehouses. We will not comment on management expertise. You now have the perfect wave.

Kogan has a big reach, and any spinoff can be just as big

Kogan also operates online merchants Dick Smith, Matt Blatt, Mighty Ape, Exclusive Brands (Fortis), Pantry, and acts as an agent for Vodafone for mobile and NBN. Its Kogan Essentials cover its agencies for Money, Credit Card, Travel, Energy, Cars, Super and Health/Pet/Life insurance.

It also operates an online marketplace with a large proportion of suppliers from China or Hong Kong.

Kogan uses Chinese and other ODMs (Original Design Manufacturers) for Kogan-branded televisions and electronics sold under Agora or other names.

This is not an Apple, Samsung, OPPO, Google, or Motorola authorized reseller, but does sell refurbished or imported gray/parallel market products. It also imports non-Australian Certified Xiaomi, Sony, OnePlus, ASUS, Black Shark, Huawei, Konka, Lenovo and more (this list is subject to change). These typically don’t have the full range of Australia’s LTE and 5G bands. Most wall chargers do not have the RCM-C-Tick. If it causes a fire, your home insurance will not cover it.

It also has a relationship with Mobile City, where it can obtain genuine Australian certified stock.

If you want to know why it’s so dangerous to buy uncertified phones, read our guide Don’t buy a gray market phone.

CyberShack POV – Kogan takes a big hit. Is it safe to buy?

Kogan takes a big hit. It was also a sustained success. In the event of default by Kogan, its warranty obligations are void. Even if another company had a takeover bid, the sale would likely involve Kogan’s impaired assets, not liabilities. This is what Kogan has done for its past acquisitions.

Under Australian Consumer Law, the supplier provides the warranty. If you buy from Kogan (or its other online outlets), it is Kogan’s responsibility. If you buy from its sellers in the marketplace, they, not Kogan, are responsible. It is an important distinction when its products and those of its merchants mix freely on the site.

To be fair, Kogan has lifted his game until mid-2021. It was one of the main offenders of the NSW Department of Fair Trade. Electronic goods accounted for 65% of the 299 complaints. 79% concerned the quality of goods, warranty, repair, misrepresentation and delivery delays.

And to be more fair, Apple and Samsung (with a much larger turnover) received 642 and 623 complaints regarding their online sales and support (source). Remember these figures are for NSW only – other state fair trade departments do not publish them.

Kogan has many low-risk categories – books, shoes, hardware, Manchester, etc. – things that usually don’t break. The biggest risk is that you order the wrong items and go through a complicated return process.

Electronic and mechanical products of all types carry far greater risks. Being products made by ODM/OEM and those, especially Marketplace Merchant, you have two risks. First, the failure rate may be higher than that of brands. Second, the warranty may not be protected by Australian consumer law.

Is it safe to buy? You need to be a savvier shopper and look for bargains at brick and mortar stores.

Productreview.com.au shows why you need to be careful when dealing with online merchants like Kogan.

About Mike Stevenson

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