Online retail pioneer Ruslan Kogan started window shopping at Dick Smith as a precocious nine-year-old looking for parts to build his own computer.
“Dick Smith was always a place I’d go to with my parents – I’d look at the gadgets and prices for hard drives and RAM,” the 33-year-old founder of online consumer electronics retailer Kogan told Fairfax Media after buying Dick Smith’s online business this month.
“I wasn’t a great customer back then – I did a lot more looking than buying,” Mr Kogan said. His parents had arrived from the Soviet republic of Belorussia three years earlier in the late 1980swith $90 to their names and Ruslan preferred to source cheap computer parts at swap meets. “But it was always something that I loved.”
Mr Kogan may have fond memories of Dick Smith in the good old days, but there is no room for nostalgia in his ambitious turnaround plan for the once iconic brand.
With preparations under way for a $300 million initial public offering of Mr Kogan’s e-commerce empire, Dick Smith’s online business and customer database will deliver a much-needed boost as Kogan’s once-stellar sales growth comes back to the pack.
Mr Kogan is confident of turning DickSmith.com.au into a profitable business “very quickly”, not by reintroducing the “bibs and bobs” or electronics accessories that were removed from shelves during the Woolworths era, but by responding to customer demand for cheaper TVs, laptops, tablets and smart phones.
“If they (accessories) were successful product lines for them years ago that doesn’t mean they’ll be successful product lines in 2016,” he said.
“Our approach to determining what products need to be sold is customer driven, based on systems we’ve developed internally that look at search statistics and Google search data,” he said.
“We look at what people are searching for, where is there demand, where are there pockets of opportunity, and we evaluate them on a line by line basis,” he said, including how much it would cost to get a product to a customer’s door and what its competitors were doing.
“Then we make a call on whether that’s a product that we want to do,” Mr Kogan said. “We often describe ourselves as a statistics business masquerading as a retailer.”
Mr Kogan says Kogan is better positioned than any other company to repair the Dick Smith brand and turn it into a profitable part of his $220 million business.
“We were both retailers and we both had consumer electronics at our core,” he said. “We would have dealt with similar suppliers whether it be private label contract manufacturers, or other brands.”
“With Dick Smith we instantly become more important to each of those suppliers and manufacturing partners. That means we’ve got even more leverage to negotiate better terms and that means we can get better prices and pass on a portion of those savings to the consumer,” he said.
He said Kogan had spent the last decade investing in and perfecting systems to make online retailing as efficient as possible. Customer ordering, for example, was fully automated, with no manual input from Kogan staff, while sophisticated algorithms ranked suppliers not only on price but speed of delivery and credit terms.
“All these efficiencies will instantly plug into the Dick Smith brand and leverage our existing investment in IT architecture – that’s how we’ll make it instantly profitable,” Mr Kogan said.
He acknowledged the Dick Smith brand had been damaged by the retailer’s collapse.
“The best way to rebuild a brand is to deliver on your promises, to ensure every customer gets exactly what they’re promised and to ensure their expectations are exceeded.”
The acquisition of Dick Smith’s online business could boost Kogan’s sales by at least 40 per cent as Mr Kogan prepares to offer shares in the 10-year-old retailer for the first time.
Like many privately-owned companies, Kogan does not file consolidated accounts with the corporate regulator and Mr Kogan is reluctant to talk about sales and earnings or to comment on a float.
IBISWorld puts Kogan’s group sales at $500 million, but other sources say sales are expected to reach $220 million in 2016 and rise by between 7 and 9 per cent to between $235 million and $240 million in 2017, excluding the Dick Smith online acquisition.
Kogan’s sales are growing at a similar pace to those at JB Hi-Fi and Harvey Norman, but growth has slowed markedly since the early days, when sales doubled each year.
“There’s no doubt that JB Hi-Fi and Harvey Norman and The Good Guys are bigger businesses than we are,” Mr Kogan said. “We are a brand that started with nothing 10 years ago, we’re relatively young, we are getting started – we are very optimistic about the future.”
Investors say Kogan will be judged on its merits but they would be reluctant to pay for inflated sales forecasts, particularly with Amazon set to expand in Australia, and would be wary if Mr Kogan sold down his 80 per cent stake.
“If he’s selling down significantly I wouldn’t touch it – he’s such a key man behind that business,” one fund manager said.