Online retailers Kogan, Adore, Booktopia and Cettire pay the price after the rise of the pandemic

In the six months ending in June, sales and profits at omnichannel retailers with physical and online stores rebounded, while sales growth at pure e-commerce retailers slowed sharply or, in the case of Kogan backed down, decimating the profits as an operation. unwound leverage.

The only e-tailer who admitted he was too optimistic was Kogan co-founder Ruslan Kogan, a man previously not known for his humility.

Hindsight is a beautiful thing [it] Turns out we were wrong,” Kogan told investors after the company posted a $35.5 million final loss and a 69 percent drop in underlying earnings to $18.9 million. Sales revenue fell 8 percent, despite the acquisition of New Zealand e-retailer Mighty Ape.

‘He was left with too much inventory’

“Based on the data at the time, we predicted that the trend would neither stop nor slow down,” he said. “As the pandemic resolved, e-commerce did not grow as expected, we were left with too much inventory and storage costs.”

Pure-plays now prioritizes profit over sales by shedding staff and reducing investment, moves that could affect customer acquisition and sales.

Kogan, for example, is cutting marketing spending, reducing the number of employees, eliminating excess and underperforming inventory to reduce storage costs, and raising the price of its loyalty program, Kogan First.

Kogan hopes to return to profitable growth this year, but the damage to shareholders has already been done. The share price has plunged 86 percent from pandemic-triggered highs, falling to $3.40 this week from a high of $24.76 in September 2020.

Ruslan Kogan and co-founder David Shafer are personally calculating the cost: 6 million options that were worth more than $100 million when shareholders approved the grant in November 2020 are now out of the money, with an exercise price of $5.29.

Shareholders of online book retailer Booktopia are also licking their wounds, with shares falling 90 percent to 28 cents since August last year.

Booktopia sales increased 7.5% to $240 million, almost double that of 2019, books shipped increased 4%, and average order value and average customer spend increased 6%.

However, heavy investment in marketing and distribution center staffing led to higher costs per unit. Underlying profit fell 55 percent to $6.2 million and the group reported a net loss of $15.1 million.

Former CFO Geoff Stalley, who is serving as interim CEO after the “removal” of founder Tony Nash, is cutting staff and cutting costs “to better align the cost base with future growth trajectory.”

change of expectations

Stalley says that while online shopping has been widely accepted, consumer expectations have changed and it’s becoming more expensive to acquire customers through digital channels, making physical footprints more important.

Customer acquisition costs for online retailers have skyrocketed, primarily due to the skyrocketing costs of digital advertising, including paid search, as e-retailers struggle to capture customers’ attention in a growing market. more and more saturated. The cost per click has increased by about 45 percent and is expected to rise even more.

As a result, e-retailers like Adore Beauty are increasing investment in proprietary content, including blogs, podcasts and online tutorials, and loyalty programs to encourage existing customers to spend more often.

Unlike Kogan and Booktopia, Adore delivered stronger earnings in 2022: net profit up 181%, sales up 11% to nearly $200 million, bringing growth over the past two years to 65%, Active customers increased 7% and returning customers increased 31%.

However, sales in the first seven weeks of 2023 fell 28 per cent as Adore overcame a lockdown-driven sales spree in the same period a year ago. Outgoing CEO Tennealle O’Shannessy warned that higher costs and investment would squeeze margins this year.

Shares of Adore fell more than 15 percent after the result to $1.52, bringing losses since the peak of the pandemic in October 2020 to 78 percent.

Investors in online fashion retailer Cettire are also taking bruises, with the shares down 85 percent to 70 cents since peaking in November 2021 at $4.80.

Cettire’s sales rose 127 percent to $210 million, 10 times sales two years ago. However, net loss widened to $19 million (compared to a loss of $251,000 a year ago) as higher order returns and fulfillment costs squeezed margins. Marketing expenses increased nearly fourfold and paid customer acquisition costs increased to 14.9 percent of sales compared to 10.8 percent in 2021.

Cettire stopped offering free returns, a move that could hurt conversion rates and therefore sales, cut marketing, postponed expansion into beauty and China, and renegotiated key contracts for logistics and payment processing. with the goal of returning to profitability this year.

“In an uncertain capital markets environment, we think it’s appropriate to be more cautious in our investment,” says founder Dean Mintz, who pocketed $47 million when he sold part of his majority stake earlier this year.

Investors are now wondering if reduced investment will reduce addressable markets and question whether some pure gaming online retailers will ever achieve scale.

I think there will always be a role for pure games, but I suspect they will focus more on specialized or niche areas.

— Rob Scott, CEO of Wesfarmers

Multiples for pure games have fallen to about 0.7x revenue after more than doubling revenue at the height of the pandemic.

“I think there will always be a role for pure games, but I suspect they will be more focused on specialized or niche areas,” Rob Scott, CEO of Wesfarmers, told Window Shopping.

“It’s one thing to scale from a really low base to a niche specialty e-commerce retailer, but it’s a very, very different proposition to take a business from a few hundred million sales to a few billion sales,” says Scott, which is investing heavily in online retailer Catch, expanding its market and fulfillment capacity and strengthening links with Wesfarmers’ omnichannel retail chains

“The scale opportunity that we see is one that has stores and an online capability. But there may well be some small niche players that may exist on a much smaller level as pure games,” says Scott.

If pure game retailers struggle to achieve scale, industry consolidation looks increasingly likely in Australia after a series of overseas deals.

Wesfarmers has taken over Catch and Woolworths is poised to take over MyDeal.com. Further consolidation is on the way as leading omnichannel retailers implement smaller pure games to increase their product range and addressable markets.