E-commerce Boom Amid COVID-19 Pandemic, New Challenges Arise

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E-commerce Boom Amid COVID-19 Pandemic, New Challenges Arise

 E-commerce Boom Amid COVID-19 Pandemic, New Challenges Arise

Summary

  • Pandemic-induced challenges have been a blessing in disguise for the e-commerce sector, which experienced strong growth momentum.
  • Enhanced online payment platforms have only added to the growth story.
  • Sudden e-commerce boom has also highlighted the need for other technologies to support the demand. Also, online consumer protection needs to be practised stringently by sector players.
  • In these challenging times, players like Kogan are thriving and looking for more growth in the future.

The year 2020 has been a defining year so far, altering the way we live day to day. While people have been busy working from home, practising strict social distancing and hygiene routines and surrounded by the looming fear of catching the deadly infection, many changes unfolded at multiple levels.

As the famous saying goes - the necessity is the mother of invention. Hence, when there has been the requirement to cope up with the pandemic and keep going forward uninterrupted, the world witnessed a digital boom.

The e-commerce sector players have got a push, and consequently, they are growing fast. Even those retail companies that were not available online earlier have shifted to the digital platform. Businesses that already had digital presence, are investing more into the platform and getting better ROI.

Key Factors Contributing to the E-commerce Boom

Meanwhile, one needs to be aware of online fraud. The Australian Competition and Consumer Commission (ACCC) has suggested to do shopping from reputed sites only and beware of sellers asking for bank PIN or password.

Challenges Arising for E-commerce Industry Amid the Boom

Though the industry witnessed a massive surge in demand, experts are pointing out that more sophistication is needed around the supply part. Now reportedly, half of all online sales are being conducted through smartphones. Thus parallelly, technologies like VR, AR, sophisticated apps, and chatbots also need to evolve to offer the best customer experience.

When comparing e-commerce growth with the BNPL sector, there seems a lot of scope for improvement and lack of the desired sophistication.

The sudden increase in demand also requires better internet and mobile data services. Now, it is an urgent need that network capacity and spectrum must support shift to online activities, and these changes must be adopted by governments as well as operators.

Another challenge highlighted by the COVID-19 pandemic is online consumer protection. There have been cases of fraudulent practices where some online companies sold fake surgical masks, disinfectants, and unsafe sanitisers. Also, price-gouging practices by certain manufacturers and retailers have been reported.

Kogan.com Flourished Amid the Unprecedented Crisis

Since the onset of pandemic, Kogan.com Limited (ASX:KGN) has been in a favourable position, posting record gross sales numbers and acquiring new customers. The company recently published its FY20 report, highlighting thriving business through adversity.

FY20 financial performance highlights:

  • Gross sales indicating the total transactional value of Kogan Retail stood at AUD 768.9 million, outperforming the prior year by 39.3 per cent.
  • Revenue increased by 13.5 per cent, gross profit grew by 39.6 per cent and adjusted EBITDA outperformed by 57.6 per cent when compared with the same period a year ago.
  • Cash balance at the end of FY20 was AUD 146.7 million with an undrawn bank debt facility of AUD 30.0 million.
  • Increase in gross sales, gross profit and adjusted EBITDA accelerated through the period with 62.5 per cent, 68.3 per cent and 74.1 per cent year-on-year (YoY) growth in 2H FY20, respectively.

Acquisition: Kogan acquired Matt Blatt, one of the top furniture and homewares brands in Australia. The new Matt Blatt website under KGN's management became functional within one day of signing the agreement.

Platform Growth: Active customer base increased by 35.7 per cent YoY to 2,183,000, as on 30 June 2020. Furthermore, new customers with a repeat order within one month of their first order improved by over 40 per cent in second half of FY20 compared to PCP.

Strong Performance from Critical Initiatives: Kogan Marketplace gross sales increased by 71.2 per cent in 2H FY20 compared to 1H FY20. Revenue and gross profit for Exclusive Brands improved by 26.4 and 43.7 per cent, respectively.

Third-Party brands gross profit surged by 3.3 per cent, customer base of Kogan Internet grew by 90.9 per cent, and Kogan Insurance improved commission-based revenue by 36.0 per cent. KGN's first loyalty program continues to grow.

Dividend: KGN declared a fully franked final dividend of 13.5 cents per share, scheduled for payment on 19 October 2020, bringing total dividend for the year to 21.0 cents per share.

Outlook: Further growth is expected in Exclusive Brands and active customer base during FY21.

In its September 2020 Business Update, the Company updated that active customer base grew to 2,461,000, as at 31 August 2020. Moreover, gross sales grew more than 117%, gross profit went up by 165% and adjusted EBITDA increased by more than 466% on a year-on-year basis.

Stock Performance: On 18 September 2020, KGN closed the day's trade at AUD 20.790, up by 3.176 per cent. The company has a market capitalisation of AUD 2.13 billion and its stock has delivered a return of more than 406 per cent in the last six-month period.

Businesses must adapt fast to the changes if they want to outperform their competitors, as the new business models are disrupting traditional markets and services.

Must Read: Theory Behind Success and Failure of ASX-listed Retailers: Mosaic and Kogan

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