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

Online retailer Kogan (ASX:KGN) has seen its shares plummet from a peak of $14.43 a year ago to $5.26 at close on Friday, 25 February 2022. Share trading is now on pause.

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

The trading pause was due to an announcement that it made a first-half $11.9m loss after tax on a 1.3% increase in sales.

Is this COVID-related?

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

Basically, supply issues, stock shortages, increased freight costs, and Kogan’s ODM/OEM suppliers’ hesitance to allocate stock are mostly to blame. But these issues will continue for the remainder of 2022 – if not longer. All we need is the threat of war to escalate or if other COVID variants ravage the cheap labour countries Kogan relies on for stock.

Kogan also increased marketing costs to clear what stock it had. You can only discount low-cost goods so much before it makes a loss. Add to that the high percentage of ‘stale’ inventory (out-of-season or superseded) sitting in Kogan’s 29 warehouses. We won’t comment on management expertise. You now have the perfect wave.

Kogan is far-reaching, and any fallout may be equally so

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 covers 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 vendors from China or Hong Kong.

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

It is not an Apple, Samsung, OPPO, Google or Motorola approved reseller but sells either refurbished or grey market/parallel imports. It also imports non-Australian certified Xiaomi, Sony, OnePlus, ASUS, Black Shark, Huawei, Konka, Lenovo and more (this list is subject to change). These do not generally have the full complement of Australian LTE and 5G bands. Most wall chargers do not have the RCM-C-Tick. If it causes a fire, your home insurance does not cover it.

It also has a relationship with Mobile City, where it may get some genuine Australian certified stock.

If you want to know why it is so dangerous to buy non-certified read our guide Don’t buy a grey market phone.

CyberShack’s view – Kogan takes a big hit. Is it safe to buy?

Kogan takes a big hit. It has been a sustained hit too. Should Kogan fail, its warranty obligations are nil. Even if another company had a takeover bid, the sale would likely be for Kogan’s written down assets, not the liabilities. It is what Kogan did for its earlier acquisitions.

Under Australian Consumer Law, the supplier provides the warranty. If you buy from Kogan (or its other online outlets), it is Kogan’s liability. If you buy from its marketplace vendors, they, not Kogan, are liable. That is an important distinction when its and its merchants’ products mix freely on the site.

To be fair, Kogan has lifted its game where to mid-2021. It was one of the NSW Department of Fair-Trading major offenders. Electronic goods accounted for 65% of the 299 complaints. 79% were about the quality of goods, warranty, repair, misrepresentation, and late supply.

And to be further fair, Apple and Samsung (with a vastly larger turnover) had 642 and 623 complaints about their online sales and support (source). Remember, these figures are only for NSW – other State Fair-Trading Departments don’t publish them.

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

Electronics and mechanical goods of any type carry far greater risk. Being ODM/OEM made goods and those, especially from the Marketplace merchant, you have two risks. First, the failure rate may be higher than brand names. Second, the warranty may not have Australian Consumer Law protection.

Is it safe to buy? You need to be a more astute shopper and look around for good deals from bricks and mortar stores.

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

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