The retailer set to win big from the building boom

Appliance sales are set to soar on the building boom, but when it comes to selling into a cash-strapped market, it’s going to be all about value.

Since the May budget, Australians have become much more price conscious. That means that retailers who hit the right price and value buttons are going to win.

That’s why an announcement from Ruslan Kogan that his consumer electronic sales in August were 53 per cent above August 2013 caught my eye. In the same month Kogan’s consumer electronic transactions were up 42 per cent and items sold rose 41 per cent.

The Australian Bureau of Statistics says that sales of total electrical and electronic goods actually fell 0.3 per cent in August, so some retailers are not hitting the value buttons.

Ruslan Kogan was a corporate hero when he blazed into the consumer electronic space eight years ago and began marketing television and consumer appliances on the net via his Melbourne garage at prices well below established brands and retailers.

Kogan’s secret was to get Chinese manufacturers to make quality low-cost appliances that suited the Australian market and to sell those appliances on the net under his own brand. Kogan matched orders from customers to his production so he had only minor stock and working capital requirements.

Turnover began rising at an incredible rate and Kogan became an inspiration to rising entrepreneurs. He was showered with awards and turnover skyrocketed to $200 million in 2012-13. These are always dangerous periods for rising entrepreneurs and Kogan was no exception. The entrepreneur stumbled when he went into mobile phones, a vicious market that is very different to appliances.  

He has not given up on mobile phones, but for Kogan it was a mistake, especially as he was trying to thrust internationally at the same time. He went back into his shell and he does not want to talk about sales in 2013-14, which I suspect were a disappointment. This has contributed to the big rise in his August 2014 figures.  

Nevertheless, he is now very much back in the business he knows best and he will once again be challenging the major conventional retailers led by Harvey Norman and JB Hi-Fi.

Harvey Norman has always been his favourite target but Gerry Harvey turned in a good result in 2013-14, helped by the distracted Kogan.

Last financial year, Harvey Norman's profit after tax and non-controlling interests jumped almost 50 per cent to $211.7 million. This was off the back of a more than 14 per cent increase in company-operated sales revenue, with total sales revenue just squeezing over the $1.5-billion mark.

Meanwhile, JB Hi-Fi's full-year net profit for 2013-2014 rose 10 per cent to $128m, with total sales growing by 5 per cent across JB's stores in Australia and New Zealand to $3.5bn.

In the current year, retailing will be much more complex because we are seeing a boom in the building of houses and apartments. Though most of the new dwellings are going to be rented rather than owner-occupied, people will still need appliances, which should drive the market. However, rents are high and salaries are not rising, so selling will be all about value.

Kogan will not be the only winner in this environment, but with the statistician saying the market is -- if anything -- declining, there will be some big losers.

Welcome to retailing 2014.

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