The Kogan.com Ltd (ASX: KGN) share price is down more than 1% as the ASX retail share goes to court about one of its main warehouse logistics partners.
As an e-commerce ASX share, warehouses are an important area of Kogan's business.
According to The Australian, Kogan is going after its warehousing and logistics partner eStore after it "allegedly failed to provide the services it was contracted to in late 2020".
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What didn't Kogan's logistics partner do?
Kogan has gone to the Victorian Supreme Court, saying that eStore did not "indicate to Kogan that there was any material risk that for the six-month period commencing November 2020 it would not be able to accommodate the number of pallets required by the online retailer".
How much is this supposed to have cost Kogan? Quite a bit, according to the reporting by The Australian.
Kogan has said that it suffered from $2.1 million of extra charges and it was also not able to sell products during the peak period. The alleged amount of loss sales was $5.8 million, at a gross profit margin of 30%.
One of the main reasons for Kogan's displeasure was that the ASX retail share was led to believe that eStore could scale up how much stock it could deal with "at short notice."
The Australian reported on some of the contents of the filing:
Kogan could proceed on the basis that its requirements had been reviewed and eStore was working on a solution to meet them…(it) did not need to divert stock to other warehouses to accommodate its storage needs and…eStore would notify Kogan if there was going to be an issue with eStore meeting Kogan's storage requirements of 30,000 actual pallet locations.
eStore then reportedly told Kogan in November 2020 that it was over its allocated space and that the Paramount centre was full. Kogan alleged that eStore stopped accepting consumer loads at all of its warehouses in Melbourne, not just Paramount.
Kogan then had to redirect the stock elsewhere. The Kogan share price has dropped around 80% since the start of November 2020.
What's the stock situation now?
Kogan doesn't give investors a detailed breakdown of its logistics operations.
However, it did say in a recent business update for FY22 that total inventories had dropped to $161.1 million at the end of the financial year. That figure breaks down into $139.2 million in warehouses and $21.9 million in transit. The company noted this reflected a "significant unwinding" of inventories from $227.9 million at the end of FY21.
Commenting on the current economic environment, founder and CEO Ruslan Kogan said:
Times are changing. In uncertain times, people don't want to alter their lifestyle but they are happy to shift the way they shop. We know that in an environment where great value becomes even more important, Kogan.com services an important need.
We are making the business leaner to enable us to pass on cost efficiencies to customers in the form of lower prices. A leaner company means we discontinue parts of the business that are not delivering value to customers or shareholders, and also gives us the flexibility to respond to significant ongoing changes in the macro environment.
Kogan share price snapshot
Over the last month, Kogan shares have jumped 54%.
