Kogan.com tackles logistics partner eStore over lost sales

Kogan.com is pursuing its warehousing and logistics partner eStore after it allegedly failed to provide the services it was contracted to in late 2020.

Kogan founder and chairman Ruslan Kogan. Picture: Hollie Adams

Kogan.com, one of the country’s largest online retailers, is pursuing its warehousing and logistics partner eStore after it allegedly failed to provide the services it was contracted to in late 2020 – exacerbating a major loss in sales at a time of high demand.

In documents filed with the Victorian Supreme Court, the Ruslan Kogan-chaired e-commerce operator claims eStore failed “indicate to Kogan that there was any material risk that for the six-month period commencing November 2020 it would not be able to accommodate the number of pallets required by the online retailer”.

In the documents, Kogan alleges it incurred more than $2.1m in additional charges and “lost the opportunity to sell stock during the peak period” to the value of some $5.8m, assuming a gross profit of 30 per cent.

eStore, founded in 2008, is one of the country’s largest providers of third party logistics, including warehousing and order fulfilment for retailers including Kogan.

Mr Kogan, through his Kogan Management Pty Ltd vehicle, owns 19 per cent of eStore. In May, eStore called in Highbury Partnership and Allens as it prepared to sell itself for around $100m.

Mr Kogan has repeatedly complained about logistics issues plaguing his company. In early 2021, the company cut its earnings outlook, and blamed higher warehousing costs and miscalculations on inventory. The company said it had expanded its network to 31 facilities after supply chain disruptions had forced it to cut prices and deal with higher costs.

In the documents, Kogan says eStore had led it to believe it was able to scale up the amount of stock it was able to handle at short notice.

“Kogan could proceed on the basis that its requirements had been reviewed and eStore was working on a solution to meet them … (it) did not need to divert stock to other warehouses to accommodate its storage needs; and … eStore would notify Kogan if there was going to be an issue with eStore meeting Kogan’s storage requirements of 30,000 actual pallet locations,” the filing reads.

But in November 2020, eStore told Kogan it was well over its allocated space and said its Paramount centre in Derrimut, Victoria, was full. However, eStore had “ceased accepting (full consumer loads) at all of its warehouses in Melbourne, not just at Paramount”, Kogan alleges.

“As a consequence of eStore’s refusal to accept stock that was scheduled to be delivered to eStore (as included on the Inbound Reports), it was necessary for Kogan to redirect or otherwise make arrangements for that stock,” the company alleges.

Instead of sending stock to eStore, Kogan instead forwarded it to facilities run by CEVA Logistics, Silk Logistics and Qube, according to the lawsuit.

In July 2021, Kogan said the value of stock in transit dropped by almost half – to $36.3m – as it scrambled to open up space in its warehouses and avoid punishing shipping charges caused by bottlenecks in its supply chain.

The retailer was once one of the high flyers of the sharemarket following a 500 per cent rally in its share price from the start of the pandemic to a peak of almost $25 in October. However, Kogan’s stock has plummeted following profit downgrades and slowing sales growth.

Mr Kogan has admitted the retailer entered 2021 holding too much inventory just as customer demand began to drop, with logistics headaches and higher warehousing costs eating into profits. That forced it into price promotions to help clear excess stock.

Kogan shares have fallen another 50.8 per cent since the start of the year, down $4.38 in that period to $4.24 at Friday’s close.

Kogan did not respond to a request for comment.