Shares in Kogan.com Ltd (ASX: KGN) have endured a stretch of dampened sentiment, dating back to October 2020. This is despite the eCommerce company bringing New Zealand-based Mighty Ape under its arm, which now accounts for ~20% of gross profits.
Disappointingly, the founder-led business has swung into unprofitability. However, this has been partially attributed to increased inventory. Ongoing issues within the supply chain have forced many retailers to choose whether to order in advance and risk oversupply, or to run inventory-light and potentially miss out on some sales.
The challenging balancing act has left many investors uninterested in holding Kogan shares. Yet, Kogan is not alone in this struggle — so, could the fundamental case for the company still be intact?
What other retailers are stocking up?
In April 2021, Kogan informed the market that it had mismatched its inventory levels with customer demand. As a result, the company incurred higher warehousing costs due to the storage of excess inventory.
For context, it was revealed in the FY21 results that Kogan's inventory had increased 102% from $112.9 million to $227.9 million. As of December 2021, the online retailer had managed to decrease this by ~14% to $196.8 million. Further, this amount was quoted to be $193.9 million at the end of March 2022 — indicating further improvement.
Meanwhile, many other retailers (including online ones) have experienced a significant increase in inventories year-over-year. Take a look at the table below:
| Company | Inventory change (YoY) | Price change (YoY) |
| Cettire Ltd (ASX: CTT) | +517% | -69.4% |
| Mydeal.com au Ltd (ASX: MYD) | +287% | +47.1% |
| City Chic Collective Ltd (ASX: CCX) | +158% | -47.5% |
| Lovisa Holdings Ltd (ASX: LOV) | +68% | +7.7% |
| Adairs Ltd (ASX: ADH) | +49% | -51.7% |
| Nick Scali Ltd (ASX: NCK) | +48% | -19.4% |
| Amazon.com Inc (NASDAQ: AMZN) | +47% | -28.5% |
As we can see from the above, inventories across many reputable retailers have jumped compared to a year ago. At the same time, most of those in the table above have also experienced share price weakness, much like Kogan shares have.
In fact, the biggest online retailer of them all — Amazon — reported a US$3.8 billion net loss in the first quarter.
What does it mean for Kogan shares?
From my own assessment, the inventory data illustrates that Kogan has been sold off partly on an issue that is widespread in the retailing industry at the moment. Already, the company has demonstrated it is right-sizing to where it should be.
Today, the Kogan share price is at levels not seen since March 2019. Meanwhile, active customers have increased by nearly 2.5 times to 4 million from that time.
For these reasons, I personally think Kogan shares make an attractive proposition. Ultimately, I'll be looking for further improvement in inventory and EBITDA margins in the next update.
