Overstock.com 2002 Annual Report Download - page 13

Any system interruptions that result in the unavailability of our Websites or reduced performance of our transaction systems would reduce our
transaction volume and the attractiveness of the services that we provide to suppliers and third parties and would seriously harm our business, operating
results and financial condition.
We use internally developed systems for our Websites and certain aspects of transaction processing, including customer profiling and order verifications.
We have experienced periodic systems interruptions due to server failure, which we believe will continue to occur from time to time. If the volume of traffic
on our Websites or the number of purchases made by customers substantially increases, we will need to further expand and upgrade our technology,
transaction processing systems and network infrastructure. We have experienced and expect to continue to experience temporary capacity constraints due to
sharply increased traffic during sales or other promotions, which cause unanticipated system disruptions, slower response times, degradation in levels of
customer service, impaired quality and delays in reporting accurate financial information.
Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future. We may be unable to
project accurately the rate or timing of traffic increases or successfully upgrade our systems and infrastructure to accommodate future traffic levels on our
Websites. In addition, we may be unable to upgrade and expand our transaction processing systems in an effective and timely manner or to integrate any
newly developed or purchased functionality with our existing systems. Any inability to do so may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed of order fulfillment or delays in reporting accurate financial information.
We may be unable to manage expansion into new business areas which could harm our business operations and reputation.
Our long-term strategic plan involves expansion into the B2B merchandise liquidation market, entering into agreements to provide products and services
to retail chains and other businesses, such as our agreement with Safeway, Inc. and possible expansion into additional markets. We cannot assure you that our
efforts to expand our business in this manner will succeed or that we will be successful in managing agreements to provide products and services to retail
chains and other businesses, such as our agreement with Safeway, Inc. To date, we have expended significant financial and management resources developing
our B2B operations. Our failure to succeed in this market or other markets may harm our business, prospects, financial condition and results of operation.
Furthermore, the exclusivity provisions of our Safeway agreement prevents us from providing similar products to stores having greater than 400 stores in the
drug, mass merchandising, grocery, club or warehouse store categories, which may adversely affect our ability to grow and expand our B2B business. In
addition, we may choose to expand our operations by developing new Websites, promoting new or complementary products or sales formats, expanding the
breadth and depth of products and services offered or expanding our market presence through relationships with third parties. In addition, we may pursue the
acquisition of new or complementary businesses or technologies, although we have no present understandings, commitments or agreements with respect to
any material acquisitions or investments. We cannot assure you that we would be able to expand our efforts and operations in a cost-effective or timely
manner or that any such efforts would increase overall market acceptance. Furthermore, any new business or Website we launch that is not favorably received
by consumers could damage our reputation or the Overstock brand. We may expand the number of categories of products we carry on our website, and these
and any other expansions of our operations would also require significant additional expenses and development and would strain our management, financial
and operational resources. The lack of market acceptance of such efforts or our inability to generate satisfactory revenues from such expanded services or
products to offset their cost could harm our business, prospects, financial condition and results of operations.
We may not be able to compete successfully against existing or future competitors.
The online liquidation services market is new, rapidly evolving and intensely competitive. Barriers to entry are minimal, and current and new
competitors can launch new Websites at a relatively low cost. Our consumer Website currently competes with:
other online liquidation e-tailers, such as SmartBargains;
traditional retailers and liquidators, such as Ross Stores, Inc., Walmart Stores, Inc. and TJX Companies, Inc.; and
online retailers and marketplaces such as Amazon.com, Inc., Buy.com, Inc. and eBay, Inc., which have discount departments.
Our B2B Website competes with liquidation "brokers" and retailers and online marketplaces such as eBay, Inc.
We expect the online liquidation services market to become even more competitive as traditional liquidators and online retailers continue to develop
services that compete with our services. In addition, manufacturers and retailers may decide to create their own Websites to sell their own excess inventory
and the excess inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively, could severely harm
our business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing
decisions or acquisitions that could harm our business, prospects, financial condition and results of operations. For example, to the extent that we enter new
lines of businesses such as third-party logistics, online auction services or discount brick and mortar retail, we would be competing with large established
businesses such as APL Logistics, Ltd., eBay, Inc., Ross Stores, Inc. and TJX Companies, Inc., respectively.
Many of our current and potential competitors described above have longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. In addition, online retailers and liquidation e-tailers may be acquired by, receive
investments from or enter into other commercial relationships with larger, well-established and well-financed companies. Some of our competitors may be
able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies and devote substantially more resources to Website and systems development than we do. Increased
competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot assure you that we will be able to
compete successfully against current and future competitors.
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