Overstock.com 2004 Annual Report Download - page 37

available to both consumers and businesses through our Club O frequent buyers club initiative and our Club O Gold bulk purchase initiative. Our use of the
term "partner" or "fulfillment partner" does not mean that we have formed any legal partnerships with any of our fulfillment partners.
During September 2004, we added an online auction service to our Website. Our auction service allows sellers to list items for sale, buyers to bid on
items of interest, and users to browse through listed items online. We are not the seller of the items sold on the auction site and we have no control over the
pricing of those items. Therefore, for auctions, we record only our listing fees for items listed and commissions for items sold as revenue. Unless otherwise
indicated or required by the context, the discussion herein of our financial statements, accounting policies and related matters pertains to our shopping site and
not necessarily to our auction site. Revenue from our auctions business is included in the fulfillment partner segment in 2004, as it is not material.
During the first quarter of 2005, we reopened our discount travel store to our Website, currently offering cruise packages. In the future, we intend to offer
other travel products such as flight, hotel, and rental car reservations. For the products or services that we sell in our travel store, we do not currently have
inventory risk or pricing control, and do not directly provide customer service. Therefore, for these sales we are not considered to be the primary obligor, and
record only our commission as revenue.
Our revenue is recorded net of returns, coupons and other discounts. Subject to some limitations, our returns policy for products other than those sold in
our Electronics and Computers department provides for a $4.95 restocking fee and the provision that we will not accept product returns initiated more than
20 days after the shipment date. We charge a 15% restocking fee (instead of the $4.95 restocking fee) on items returned for non-defective reasons from the
Electronics and Computers department.
Cost of goods sold consists of the cost of the product, as well as inbound and outbound freight and fulfillment costs. Fulfillment costs include warehouse
handling labor costs, fixed warehouse costs, credit card fees and customer service costs. Fulfillment costs represented 10%, 8% and 7% of total revenue for
the years ended December 31, 2002, 2003 and 2004, respectively, as noted in the following table (in thousands):
Year ended December 31,
2002 2003 2004
Total revenue $91,784 100% $238,945 100% $494,635 100%
Cost of goods sold
Product costs and other cost of goods sold 64,068 70% 193,190 81% 394,580 80%
Fulfillment costs 9,373 10% 20,302 8% 34,278 7%
Total cost of goods sold 73,441 80% 213,492 89% 428,858 87%
Gross profit $18,343 20% $ 25,453 11% $ 65,777 13%
This table has been included to provide investors additional information regarding our classification of fulfillment costs and gross margins, thus enabling
investors to better compare our fulfillment costs and gross margins with others in our industry. We believe that some companies in our industry, including
some of our competitors, account for fulfillment costs within operating expenses, and therefore exclude fulfillment costs from gross margins. As a result, our
gross margins may not be directly comparable to others in our industry.
Our gross margins on sales through our Club O frequent buyers club, our Club O Gold bulk purchases program and our BMV products tend to be lower
than margins on our other sales, and our
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