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This Australian Expert-to-Expert CEO video series features conversations between our Fundamental Equities team and the industry experts we engage with. Hear from Ruslan Kogan, CEO of Kogan as he speaks to Charlie Lanchester, Head of Fundamental Equities Australia about his career, market volatility and the industry trends he's seeing in Australia. ‌

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Charlie Lanchester, Head of Fundamental Equities Australia speaks to Ruslan Kogan, CEO of Kogan to discuss his career, market volatility and the industry trends he's seeing in Australia. 

Thanks so much for joining us and taking the time today. Maybe just as a start could you just introduce yourself and tell us how you became an e-commerce guru? So firstly, thanks a lot, Charlie, for inviting me, an absolute pleasure to have a chat. And look, e-commerce is something that, you know, well, I've been fortunate to be in the industry for a while, Kogan.com, the business is now over 15 years old, we've recently celebrated our 15th birthday. So, you know, we've been there for the rise and rise of our industry and a very exciting time as the industry, you know, becomes popular and transforms retail. I actually, you know, my background is technology and IT and I work as an IT consultant as my first corporate job, but it was back when I did a semester of college in the US in 2003 that I saw the rise of e-commerce, and then shortly after starting a corporate job when I returned back to Australia in 2006, I saw an opportunity to start a direct to consumer online business, which at the time did just two models of LCD TV. Yeah. I mean, I think looking back to when you first came to the market and did your IPO, one of the things that drew us to the Kogan story was the fact that in those early days, you'd managed to get to, I think, around about 200 million in sales by that stage in 2016, but with no external capital and, you know, relative to some of the online retailers that we looked at that was very rare. Do you want to talk us through some of that story of how you just managed to get there? It wasn't a typical startup story for us because these days you hear of startups and they've got an idea and then before you know it they've raised millions of dollars just from an idea, that didn't exist when I was starting Kogan. So I had the idea for the business, went around to a few business leaders in 2006 and they said online retail was only for books and CDs, and nobody is ever going to purchase LCD TV online without seeing it first. And, you know, I had a few differing opinions to that and I tried to explain my point of view but not successfully, so couldn't get any funding. So I actually funded the business initially with partially through a credit card, and partially through pre-sales. So, because I saw this direct to consumer online model, where I could deal directly with factories out of Asia and import LCD TVs for much cheaper than any store was selling them for. And I said, well, look, if I show a really awesome price, and I'll tell customers this TV will arrive in 45 days, maybe they'll buy it and listed it and that's exactly what they did, customers saw that I was selling some TVs for $1,000 that big name stores were charging three or $4,000 for, and they said, well, look, the downside is that we might have to wait a little while, but the upside is we'll save a lot of money. So there was a presale that funded the first container of TVs, then the second container of TVs, because I've made a bit of money off it, that was the other difference to most other startups, this was a business that was profitable from day one, and made a bit of money and then it's only 10 years after our business that we went to IPO the company, because even though we'd manage to self-fund ourselves and never raise any external money, we saw that there was an opportunity to significantly accelerate growth and that's exactly what we did. It's crazy to think that we IPO'd just five years ago. I look forward to seeing where you are in another five years, which I think is exciting. But yeah, maybe just, you know, the business has morphed a lot in that five years in a relatively short time to do a lot more than just electronics retailing. You know, when you really distil it, what do you think are the core strengths and key competitive advantages that Kogan has as Australia's leading domestic e-commerce player? Well, look, being agile is very important, and it's enabled us to do exactly what you described, that the business, if you look at us, you know, a few years ago, we wouldn't have had the Kogan marketplace. So when I can sit here now and say, look, we've got over 10 million items on our site. A few years ago that would have been, we've got a few thousand items on our site, the fact that our company is able to say, well, here's these 10 ideas we have, let's quickly implement them, nine aren't going to work and let's fail them quickly, let's get the data, let's get the results, let's see what customers love, they don't like these nine things, they love this one thing, let's do more of that, and let's test these 10 new things. The ability to be able to do that quickly, to fail quickly, to optimise quickly, is one of our core strengths. And it's one of the key aspects that makes a lot of digital businesses so great. So when you think about that scale, I mean, it's interesting that in Australia we're still only at 13% penetration of online retailer, though with some significant variability across each category. Recently, Greg Goodman said in his results, that his customers are planning for 40% penetration and probably sooner than expected. Why is it that we're behind other developed markets here in Australia and how do you think that might change and why might we see acceleration in the future? In terms of where it's heading, you know, 40% is not unreasonable, and we are fairly under-penetrated compared to other markets as you point out. What's the reason for that? Well, it could be a few things, it could be, firstly, that we've been behind the rest of the world in many things, like it's only recently that when a TV show comes out in the US we get it in Australia within a week or two after that or sometimes even quicker. The other reason why it could be is because we've got a lot of categories in Australia that are dominated by a monopoly or a duopoly. If you look up most retail categories, there's a very strong one or two players in it, and that often means that it's very hard to break into those categories. And it's interesting also, I think that, you know, we've obviously had COVID over the last couple of years and as an operator in the e-commerce market and I think I can speak on behalf of every e-commerce operator in Australia, you never want to be winning in a pandemic, like that's not what you want causing huge market growth in your industry. But the reality is that's exactly what's happened and lockdowns while they're not great, have caused more people to shop online and realise the benefits of shopping online. But I think also in the greater scheme of things, that if we look at what COVID has done, it'll almost be an unnoticeable blip on where e-commerce is heading. So if in 30 years time you look back at what e-commerce penetration looks like, you'll see a graph that goes like this, there's a little COVID bump and then it continues to you know, 40% or whatever it is. Yeah, that's interesting, it's a little bit like the sell RCC in the stock market. When you look at the chart going back 30 years they just look like little bumps as well. It's a great lead into my final question, Ruslan, is that, you know, one of the reasons that we love this investment quite honestly is actually that you and David are still relatively young men, certainly younger than me anyway, and you've got your name on the front door. What are your ambitions for the Kogan of 2030 and beyond? Look, I may be a young man when it comes to fund manager land, and some of the, you know, you'd be a young man in fund manager land as well and the investment banking thing, but like at Kogan.com, I'd be one of the older guys in the company. So you look around at our business and there's some of the greatest talent we have now are in their mid 20s. I'm going to be 40 years old in a couple of years, so, yeah, it's not that young but I'm absolutely in love with the business, the company, the people I get to work with, and I think that, you know, I've got a few investments outside of Kogan.com and when I make those investments in the same way as you, I look for investments where the key decision makers have skin in the game, where the key people are heavily invested in the business because when incentive structures align you ensure that everyone is trying to achieve the same goal. Fantastic, Ruslan, I think that's a great place to finish, and thank you so much for the time today and being so honest and upfront with your answers, that was really insightful. Thanks very much. Right, thank you, thanks for inviting me and have a great day.

Thanks so much for joining us and taking the time today. Maybe just as a start could you just introduce yourself and tell us how you became an e-commerce guru? So firstly, thanks a lot, Charlie, for inviting me, an absolute pleasure to have a chat. And look, e-commerce is something that, you know, well, I've been fortunate to be in the industry for a while, Kogan.com, the business is now over 15 years old, we've recently celebrated our 15th birthday. So, you know, we've been there for the rise and rise of our industry and a very exciting time as the industry, you know, becomes popular and transforms retail. I actually, you know, my background is technology and IT and I work as an IT consultant as my first corporate job, but it was back when I did a semester of college in the US in 2003 that I saw the rise of e-commerce, and then shortly after starting a corporate job when I returned back to Australia in 2006, I saw an opportunity to start a direct to consumer online business, which at the time did just two models of LCD TV. Yeah. I mean, I think looking back to when you first came to the market and did your IPO, one of the things that drew us to the Kogan story was the fact that in those early days, you'd managed to get to, I think, around about 200 million in sales by that stage in 2016, but with no external capital and, you know, relative to some of the online retailers that we looked at that was very rare. Do you want to talk us through some of that story of how you just managed to get there? It wasn't a typical startup story for us because these days you hear of startups and they've got an idea and then before you know it they've raised millions of dollars just from an idea, that didn't exist when I was starting Kogan. So I had the idea for the business, went around to a few business leaders in 2006 and they said online retail was only for books and CDs, and nobody is ever going to purchase LCD TV online without seeing it first. And, you know, I had a few differing opinions to that and I tried to explain my point of view but not successfully, so couldn't get any funding. So I actually funded the business initially with partially through a credit card, and partially through pre-sales. So, because I saw this direct to consumer online model, where I could deal directly with factories out of Asia and import LCD TVs for much cheaper than any store was selling them for. And I said, well, look, if I show a really awesome price, and I'll tell customers this TV will arrive in 45 days, maybe they'll buy it and listed it and that's exactly what they did, customers saw that I was selling some TVs for $1,000 that big name stores were charging three or $4,000 for, and they said, well, look, the downside is that we might have to wait a little while, but the upside is we'll save a lot of money. So there was a presale that funded the first container of TVs, then the second container of TVs, because I've made a bit of money off it, that was the other difference to most other startups, this was a business that was profitable from day one, and made a bit of money and then it's only 10 years after our business that we went to IPO the company, because even though we'd manage to self-fund ourselves and never raise any external money, we saw that there was an opportunity to significantly accelerate growth and that's exactly what we did. It's crazy to think that we IPO'd just five years ago. I look forward to seeing where you are in another five years, which I think is exciting. But yeah, maybe just, you know, the business has morphed a lot in that five years in a relatively short time to do a lot more than just electronics retailing. You know, when you really distil it, what do you think are the core strengths and key competitive advantages that Kogan has as Australia's leading domestic e-commerce player? Well, look, being agile is very important, and it's enabled us to do exactly what you described, that the business, if you look at us, you know, a few years ago, we wouldn't have had the Kogan marketplace. So when I can sit here now and say, look, we've got over 10 million items on our site. A few years ago that would have been, we've got a few thousand items on our site, the fact that our company is able to say, well, here's these 10 ideas we have, let's quickly implement them, nine aren't going to work and let's fail them quickly, let's get the data, let's get the results, let's see what customers love, they don't like these nine things, they love this one thing, let's do more of that, and let's test these 10 new things. The ability to be able to do that quickly, to fail quickly, to optimise quickly, is one of our core strengths. And it's one of the key aspects that makes a lot of digital businesses so great. So when you think about that scale, I mean, it's interesting that in Australia we're still only at 13% penetration of online retailer, though with some significant variability across each category. Recently, Greg Goodman said in his results, that his customers are planning for 40% penetration and probably sooner than expected. Why is it that we're behind other developed markets here in Australia and how do you think that might change and why might we see acceleration in the future? In terms of where it's heading, you know, 40% is not unreasonable, and we are fairly under-penetrated compared to other markets as you point out. What's the reason for that? Well, it could be a few things, it could be, firstly, that we've been behind the rest of the world in many things, like it's only recently that when a TV show comes out in the US we get it in Australia within a week or two after that or sometimes even quicker. The other reason why it could be is because we've got a lot of categories in Australia that are dominated by a monopoly or a duopoly. If you look up most retail categories, there's a very strong one or two players in it, and that often means that it's very hard to break into those categories. And it's interesting also, I think that, you know, we've obviously had COVID over the last couple of years and as an operator in the e-commerce market and I think I can speak on behalf of every e-commerce operator in Australia, you never want to be winning in a pandemic, like that's not what you want causing huge market growth in your industry. But the reality is that's exactly what's happened and lockdowns while they're not great, have caused more people to shop online and realise the benefits of shopping online. But I think also in the greater scheme of things, that if we look at what COVID has done, it'll almost be an unnoticeable blip on where e-commerce is heading. So if in 30 years time you look back at what e-commerce penetration looks like, you'll see a graph that goes like this, there's a little COVID bump and then it continues to you know, 40% or whatever it is. Yeah, that's interesting, it's a little bit like the sell RCC in the stock market. When you look at the chart going back 30 years they just look like little bumps as well. It's a great lead into my final question, Ruslan, is that, you know, one of the reasons that we love this investment quite honestly is actually that you and David are still relatively young men, certainly younger than me anyway, and you've got your name on the front door. What are your ambitions for the Kogan of 2030 and beyond? Look, I may be a young man when it comes to fund manager land, and some of the, you know, you'd be a young man in fund manager land as well and the investment banking thing, but like at Kogan.com, I'd be one of the older guys in the company. So you look around at our business and there's some of the greatest talent we have now are in their mid 20s. I'm going to be 40 years old in a couple of years, so, yeah, it's not that young but I'm absolutely in love with the business, the company, the people I get to work with, and I think that, you know, I've got a few investments outside of Kogan.com and when I make those investments in the same way as you, I look for investments where the key decision makers have skin in the game, where the key people are heavily invested in the business because when incentive structures align you ensure that everyone is trying to achieve the same goal. Fantastic, Ruslan, I think that's a great place to finish, and thank you so much for the time today and being so honest and upfront with your answers, that was really insightful. Thanks very much. Right, thank you, thanks for inviting me and have a great day.

The Australian Fundamental Equities Team

Charles Lanchester

Charles Lanchester
Portfolio Manager and Head of Fundamental Equities Australia

Madeleine Beaumont

Madeleine Beaumont
Portfolio Manager

Sam Theodore

Sam Theodore
Portfolio Manager

Nick Corkill

Nick Corkill
Portfolio Manager

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