Overstock.com 2004 Annual Report Download - page 9

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Our warehouses generally ship between 10,000 and 12,000 orders per day, and up to approximately 24,000 orders per day during peak periods, using
overlapping daily shifts. The balance of our orders (approximately 60%) was for inventory owned and shipped by our third-party fulfillment partners.
Prior to July 1, 2003, we did not physically handle the merchandise we sold for our fulfillment partners, as the merchandise was shipped directly by
them. They also handled all customer returns related to those sales. Beginning July 1, 2003, we took responsibility for returned items relating to these sales
and we now handle the possible resale of returned items. We made the decision to change this policy to have more control over the Overstock customer
shopping experience, as we believe that a seamless customer experience is key to creating loyal, long-term customers. By accepting returns at our warehouse,
we can verify that fulfillment partner products are being packaged and shipped to our standards. Additionally, as customer returns are now all shipped to one
location, the process is more convenient for our customers. As a result, beginning July 1, 2003, we are considered to be the primary obligor for these sales
transactions, and we assume the risk of loss on returned items. As a consequence, we now record revenue from sales transactions involving our fulfillment
partners (excluding auction and travel products) on a gross basis, rather than on a net basis as we did prior to July 1, 2003.
Overstock provides manufacturers with a one-stop liquidation channel to sell both large and small quantities of excess and closeout inventory without
disrupting sales through traditional channels. Key advantages for manufacturers liquidating their excess inventory through Overstock include:
Resolution of channel conflict. Channel conflicts arise when a manufacturer's excess inventory is sold through the same channel as their other
product offerings. Since excess inventory is usually sold at a discount, sales of the manufacturer's other product offerings may be impacted as a
consumer in a retail store may opt for the excess product or become confused by the pricing and model discrepancies. By using Overstock,
manufacturers have an alternative and independent channel where they can sell excess inventory without the fear of hindering the sale of their
other products.
Single point of distribution. Manufacturers often use multiple liquidation sources to clear their excess inventory. Multiple sources create
additional logistics issues that they would rather avoid. By using Overstock, manufacturers have a single source for the distribution of excess
inventory.
Improved control of distribution. By using Overstock, manufacturers can monitor what kind of customer, whether individual consumer or small
retailer, ultimately purchases their merchandise. In addition, a manufacturer can request that its products be offered in only one of our sales
channels in order to avoid sales channel pollution.
Improved transaction experience. By having a reliable inventory clearing channel, manufacturers are able to more quickly and easily dispense of
their excess merchandise.
Overstock also offers consumers a compelling alternative for bargain shopping. Key advantages for consumers include:
High quality and broad product selection. Most of the merchandise offered on our Websites is from well-known, brand-name manufacturers. We
typically have approximately 50,000 non-BMV products and approximately 500,000 BMV products (books, magazines, CDs, DVDs, video
cassettes and video games) in eight major departments.
Convenient access on a secure site. Our customers are able to access and purchase our products 24 hours a day from the convenience of their
computer. We do not sell any personal information about our customer base to third parties.
Responsive customer service and positive shopping experience. Our team of customer service representatives (which includes employees,
temporary employees and outsourced staff) assists
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