The rise of e-commerce king Ruslan Kogan
Ruslan Kogan isn’t entirely joking when he admits his $1.5bn business is really a data analytics company masquerading as an online retailer.
The person at the vanguard of the Australian e-commerce revolution is a 38-year-old tech nerd who is talking about lavender-infused memory foam mattress toppers and snake repellent. It is not that Ruslan Kogan is an expert in either product, and it is highly unlikely that he would be able to show how either worked should he ever knock on your front door. But Kogan is the modern online equivalent of the travelling salesman going from house to house selling encyclopedias or vacuum cleaners.
Kogan will tell you he knows exactly what you want and why you want it. But it isn’t gut feel. In his case he has the data to back it up, and it isn’t entirely a joke when he admits his business is really a data analytics company masquerading as an online retailer. Winning in the cut-throat world of e-commerce is all about the data, and the founder and boss of Kogan.com has done plenty of winning lately, combining dotcom smarts with sales skills at a time when Covid-19 sent online buying into overdrive.
The ringing of the doorbell and the thud of a cardboard box on the front doorstep became a ubiquitous part of the day for many Australians in lockdown. Spending on household goods generally rises by about one per cent a year, but in March last year it spiked 10 per cent compared to March 2019. By May, the Australian Bureau of Statistics reported that spending on household electronics, hardware and garden items had risen 29 per cent compared to the previous May; June was another 29 per cent rise, and on it went.
It’s part of a shift that occurred as working from home – in what demographer Bernard Salt calls the “HOBO (Home Office Broadcast Outlet) Space” – became the new norm. “Like bowerbirds decorating their nests we looked around and thought, ‘We could use our holiday money to improve the house’, and so it was,” Salt says. “Home furnishings, home appliances, home decorations, home technology… including all that is required for a fit-out of the latest, the trendiest, the happeningest room in the house, the home office.”
E-commerce has boomed. Deals website Catch of The Day was bought in 2019 for $230m by Wesfarmers and has more recently been valued at $1.2bn. Temple & Webster tripled its profits on the strength of homewares and furniture sales. MyDeal, a household goods e-tailer, sold more of its wares in the last five months of 2020 than in the previous year.
At the top of the Australian e-commerce chain sits Ruslan Kogan, whose Kogan.com suddenly has 10m items on its website – TVs, computers, mobile phones, home and gardenware, office supplies, heaters, coolers and other goods. Sales doubled in the last six months of 2020 and the company’s share price has tripled; it’s now worth about $1.5bn on the Australian Stock Exchange.
“We get 300 visits [to our website] per minute,” he says. “That includes at 10am and at 2am. So imagine a store with 300 people per minute walking through the door. That is what happens.” But those 300 people per minute are unlike any that might wander into a department store and have a browse. The department store likely won’t know who the customer is, particularly if they walk out empty-handed. If they do buy a shirt or dress, the shop won’t know what they looked at beforehand and will have no way of predicting what they might come back for next time.
Kogan says the great advantage of e-commerce is the amount of information that can be gleaned on customers. “You build a profile, you know what they like, what promotions and products they click, and your systems and your artificial intelligence and machine learning really get to know that John has purchased the new iPhone the day it came out in 2016, then 2017, 2018 and 2019.
“So when in a few days’ time Apple is about to announce the new iPhone, our systems have a pretty good idea what you’re about to do. With a bricks-and-mortar store [it’s different]. If you drive past a shop and see a cool-looking item in the window, you buy it then walk out, and that shop has no way to continue that relationship other than spending big bucks on advertising.”
Which leads us back to those lavender mattress toppers. They were the biggest-selling product on Kogan.com on a recent day before our interview. Same with snake repellent (gadgets that emit “pulsing vibrations” through the ground) the week before. They were both promoted heavily to Kogan customers because the numbers forecast an increase in demand if they were offered at a slight discount. “It sounds cool, but you know that is a data-driven product, and it turns out there’s a lot of demand out there for lavender-infused mattress toppers,” Kogan says.
However, the data knowledge and promotional activities have caught the eye of the regulators: in January Kogan.com was fined $310,000 by the Australian Communications and Media Authority for making it difficult for shoppers to unsubscribe to promotional emails in 2019. Kogan duly apologised while not acknowledging any wrongdoing, telling customers: “The amount is not material to the business so it won’t be on the company’s ASX page but we think this is an important issue that we take very seriously, and we wanted to share the details with you…” Last December, Kogan.com was fined $350,000 after the Federal Court ruled it had breached consumer law over a “tax time” promotion that actually raised prices by about 10 per cent before offering a discount to shoppers.
Kogan has long been a believer in the future of e-commerce, starting the business with business partner David Schafer 16 years ago while in his early 20s, mainly selling cheap televisions he had made under the Kogan brand in China. His moves since then positioned him to take advantage of the changing consumer habits that came with lockdown in a case of “preparation meets opportunity”. “Our business was preparing for a time when e-commerce was going to be far more significant. We have spent the past few years building our distribution network; we’ve got more than a dozen warehouses around Australia, meaning we’ve got more items located closer to the customer than any other player. We were expecting it, but the pandemic accelerated that shift of customers changing the way they shopped.”
So good has Covid been for Kogan that he has even started paying for advertising spots on nightly commercial news. “In our marketing meetings we have a laugh about how we can’t measure what it is doing,” he admits. “It might be the most genius marketing spend ever, or it might be absolute stupidity.” It’s a far cry from when he had to generate his own publicity as a fledgling private company a decade ago, trying to sell those cheap TVs online to Australian customers who were not as internet-savvy as they are now.
He proved to be quite adept at whipping up his own controversies, like the time he managed to get a full advertisement played on the ABC-TV show Gruen. Kogan had filmed the ad with the line, “This weekend pay 20 per cent more for everything so we can pay for this ad” and booked it to run on Channel 7, but the broadcaster pulled it at the last moment – a decision that was later discussed at length on Gruen. “That would be my proudest achievement when it comes to those sorts of stunts,” Kogan says with a laugh.
He would go on to pick fights with retail leviathans such as Gerry Harvey of Harvey Norman after being inspired by, of all things, lyrical battles between rappers Eminem and Ja Rule. “I listened to Eminem growing up and he would do these battles with people. I would download his battle to Ja Rule, and then the reply and so on. It finished with Eminem saying he would not reply any more as he was selling more records for Ja Rule than he could ever sell himself. That stuck in my mind.” So Kogan filmed a story about his fledgling business and issued a challenge to Harvey about TV prices. Harvey responded and the story was duly reported by the media, fuelling publicity that Kogan says provided a spike in visitors to his own website. “I have so much respect for what Gerry has achieved as a retailer; he is one of the greatest retailers this country has ever seen,” he says now. “Even now, yes, our business is great – we’re doing up to $1bn gross sales annually. Harvey Norman is multiples of that.”
Another target, billionaire Solomon Lew, ended up living in the same apartment block as Kogan, and the pair would only share nods in the lift.
What Kogan has in common with many other entrepreneurs is a family background with a strong work ethic. He is the son of Belarusian immigrants who arrived in Australia in 1989 with just $90 to their names. Ruslan was six. They settled in a housing commission property in Melbourne’s Elsternwick and his mother worked in a cafe and as a cleaner while his father, who had an engineering degree, drove a taxi and delivered pamphlets. While it was a happy upbringing and there were always kids around the commission flats to play with, Kogan remembers visits to primary school friends living in nearby Brighton with their pools and tennis courts. “We had shared washing machines in the housing commission blocks. My parents worked their butts off, mum working a couple of jobs and studying English at the same time. Dad working multiple jobs. So when we complain about having a tough week now, it’s irrelevant in terms of what immigrants have to go through.”
While he now lives in a $38m house in Toorak, courtesy of the proceeds from selling Kogan.com stock, his mother has continued working as a nurse during the pandemic (“The number of screaming matches I’ve had with her... but she says, ‘I’ve worked all my life, I’m not giving up now’.”) His late grandfather worked as a hairdresser until he was 94, even taking out ads in Melbourne’s Russian language newspaper to win more clients after Kogan’s grandmother joked that all his customers were dying off.
This hard-work ethos rubbed off on Kogan as a young boy, and he’d earn money fetching stray golf balls, cleaning and reselling them to golfers and undercutting the pro shop’s prices. It was a similar story when he moved on to washing cars at a cheaper price than at the local car wash, and he found efficiencies on his paper run by riding his bike with no hands and throwing papers to houses each side at once.
He also had a fascination with technology, building computers with parts assembled at swap meets and later repairing mobile phones and designing websites on the newfangled internet. Having won entry to Melbourne High, a selective boys’ school, Kogan topped the state in information processing and management in Year 12 before heading to Monash University for a double degree in business systems. He considers the university stint as a waste of time but went on to work in IT departments at big corporations such as Telstra, Bosch and GE before becoming a management consultant at Accenture.
At the age of 23 he was shopping around for an LCD TV and was staggered at the prices. After checking out some Chinese manufacturers he found the actual cost was about a third of the store prices in Australia. He figured more people would start buying goods online in the future – and the idea to be his own boss and sell cut-price Chinese-made TVs to Australians was born.
While Kogan.com has been growing ever since, there have been controversies. Kogan has made tens of millions of dollars from the selldown of big parcels of shares – hence the $38m house, though he says he and wife Anastasia Fai “don’t have kids and don’t use 90 per cent of it” – and faced shareholder discontent in November over the granting of $90m worth of share options to himself and Shafer. Kogan.com chairman Greg Ridder defended the move, saying Kogan was the “smartest guy in the room” and that he and Shafer “play 3D chess when others are playing checkers”. And Kogan believes there’s plenty of growth to come for his business. “Let’s put it this way, we are about $1bn of gross sales in an e-commerce industry that is worth about $30bn,” he reasons. “We are about three per cent of e-commerce, which is about 10 per cent of overall retail. So as much as we say, ‘Oh look, Kogan has done well’, we are 0.3 per cent of retail. That just puts it in perspective.
“We would be absolutely crazy to go hunting opportunities elsewhere. The massive opportunity here is to keep growing our dominance in Australian e-commerce and keep taking market share. Our e-commerce industry will get to where the others are, to the 20-30 per cent overall retail level that we see in the US, Germany or the UK. So that for me is the key focus.”
Ruslan Kogan appears in The List: Australia’s Richest 250 magazine next Saturday. He is No. 215 with a total wealth of $543m.