Look who’s catching up with Kogan

Online retailer Catch Group is recruiting more sellers to its marketplace, expanding its in-stock range and planning to build new warehouses outside Victoria to underpin future growth as it gains ground on arch rival Kogan.com.

“We’ve got a very long list of initiatives underway to continue to make improvements,” Catch chief executive Pete Sauerborn told The Australian Financial Review after reporting a 112 per cent increase in revenues in the six months ending December.

“We’re aggressively recruiting and bringing on more sellers and more product selection on the marketplace – that’s a very big area of focus – and in our retail business we’re also scaling up the team, bringing in more selection and building out product categories,” he said.

Less than two years after Catch was acquired by Wesfarmers for $230 million, the online retailer is quickly catching up with Kogan.com after attracting more than 1.7 million new active customers.

Catch’s gross transaction values (including marketplace sellers’ sales) rose 96 per cent to $610 million in the December-half – almost as much as GTV in the entire 2020 year – as consumers shifted their spending from bricks and mortar stores to online. In comparison, Kogan.com’s GTV rose 97 per cent to $638 million.

Catch’s active customer numbers rose by 600,000 to 2.9 million in the half-year, compared with 3 million at Kogan.com (excluding the December acquisition of Mighty Ape).

Both Catch and Kogan.com outperformed the growth in global marketplaces. According to a report released on Wednesday by e-commerce software company Mirakl, online marketplaces grew by 81 per cent year-over-year in the fourth quarter of 2020, more than double the rate of overall e-commerce growth. Marketplace retailers expanded their network of sellers by an average 46 per cent, while sellers revenues rose an average 24 per cent. Mirakl co-founder and US chief executive Adrien Nussenbaum said the concurrent growth in sellers and revenues per seller showed that new sellers did not cannibalise sales from other sellers or from e-tailer’s retail operations.

Mr Sauerborn agreed, saying: “My experience over many years working with marketplaces is when you get the model right more is more – more selection, more sellers, more buying occasions equals more customers and more traffic and more frequency of purchase, and it all works together.”

“Many people start out with a business scarcity mindset … even for us people sometimes say we have this retail instock business why would we have a marketplace right next to it, wouldn’t that cannibalise our retail business,” he said.

“The answer is generally no, it’s actually a win for customers and a win for all the parties who participate.”

Catch, which is now part of Wesfarmers’ Kmart Group, is estimated by analysts to be worth about $2 billion compared with Kogan.com’s current market value of $1.48 billion, even though Catch dipped $15 million into the red in the December-half after investing in automation and fulfilment capacity.

“It was a great strategic acquisition for Wesfarmers and Wesfarmers is putting a lot of support and capital behind it, the COVID tailwinds certainly helped – all these things conspired together to yield improvements in the valuations the analysts are applying to it,” Mr Sauerborn said.

“I don’t take credit – the team has done an amazing job and I inherited a really great model and a great partner in Wesfarmers and the Kmart Group.”

Mr Sauerborn expects online sales growth to moderate in the June-half, as e-tailers and marketplaces cycle the spike in demand during the pandemic, but says e-commerce will continue to grow faster than traditional retail as consumers shift more of their discretionary spending online.

According to NAB’s online retail sales index, online sales rose 45.6 per cent year on year in January, compared to 10.7 per cent growth in traditional retail sales, after soaring between 50 and 60 per cent between April and November.

“From what I’ve seen internationally we still have a ways to go here in Australia, the services are getting better and better, so I think we’ll see continued growth for a long time,” he said.

The surge in online marketplace sales has attracted new players – such as Birdie, MyDeal and MySale – to a market already dominated by Amazon Australia, eBay, Catch and Kogan, making consolidation likely.

“I think competition is good and healthy,” Mr Sauerborn said. “There are a number of different players – established global companies and up and coming marketplaces like Catch and new startups – they’re all going to try and experiment and try to serve customers as best they can and in the end consumers will choose the model and the value proposition that works best for them.”

“As far as consolidation goes, from what I’ve seen elsewhere we’ll have a fewer number of really big players that will gain scale, then you’ll always have some niche players in particular areas.”

Originally posted on March 3, 2021 by Sue Mitchell, Australian Financial Review