Ruslan Kogan reveals secret to cheap prices but fatter margins

Kogan's move to a proprietary ERP system helped the online retailer plump up its margins and outpace its best revenue forecast following the acquisition of Dick Smith.

The company completed its "ambitious ERP project" in 2016, with the benefit of increased automation and "the platform required to scale our business". Dick Smith was quickly integrated into the platform and the historic Australian retail brand has since relaunched as an online-only store.

"The hard work undertaken by the team to implement proprietary software solutions has  delivered efficiencies in time and cost via automation, timelier reporting and improved business insights," founder and chief executive Ruslan Kogan told investors at this week's annual general meeting.

"We believe our world-class supply chain is the most efficient way to get a product from point of manufacture into the customers' hands. Our investment in automation has also driven faster dispatches, timely communications and ultimately happier customers. We now have end-to-end automation for the dispatch of in-inventory items."

Kogan operates a host of websites, apps, databases, IT and management systems, including SAP. CRN has asked for more technical detail about its proprietary ERP.

The company went public on the ASX in July, and in August reported full-year revenue of $211.2 million beating prospectus forecast by $10 million. Its gross margin was also higher than expected, at 15.5 percent versus prospectus forecast of 14.5 percent.

Kogan also chalked up 116.7 percent growth in earnings before interest, tax, depreciation and amortisation (EBITDA).

The investment in its proprietary technology was booked prior to its public listing, which also helped beef up margins.

Kogan sells both third-party and private label products. While the company is renowned for bargain basement prices of popular tech products, Ruslan Kogan said sales of other companies' products to Australian customers offer better margins than sales to overseas buyers. An increase in these third-party domestic sales in 2016 also pumped up its profits.

The CEO talked up Kogan's role as a reseller. "The performance of the third-party domestic product division has exceeded our expectations and demonstrates the increased propensity of third-party brands to choose Kogan.com as an online retail channel partner."

The online retailer has 763,000 active customers, a rise of 22.9 percent in 10 months. Kogan describes an active customer as one that has transacted in the past year.

The company has sought to diversify into new areas such as mobile and travel. Its Kogan Mobile brand, which launched in October 2015, only continued $500,000 in sales for the reporting period.