Overstock.com 2002 Annual Report Download - page 6

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 5,000 non-media products and over 100,000 media products (books, CDs, DVDs, video cassettes and video
games) in seven 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
home or office. Further, we do not sell any personal information about our customer base to third parties.
Responsive customer service and positive shopping experience. Our team of 90 to 150 customer service representatives (which includes
employees and temporary staff) assists customers by telephone and email. The average wait time for customer phone inquiries is 60 seconds, and
our customer service staff responds to 86% of its emails within 24 hours. For our consumer business, we include a return shipment label in our
customer's shipment to facilitate product returns and, subject to certain conditions, we allow customers up to 15 days to return purchased
merchandise. In addition, we continually update and monitor our Websites to enhance the shopping experience for our customers.
We also offer small businesses and retailers a compelling method for obtaining products for resale. We believe that small businesses and retailers can
secure lower prices and better service through us than they typically receive from manufacturers or other distributors. We believe we are able to offer these
advantages because, unlike many small businesses and retailers, we have the ability to access the liquidation market to buy merchandise in bulk quantities for
which we often receive volume-based price discounts. Accordingly, we have designed our shipping and receiving operations with the flexibility to
accommodate both the receipt of large shipments of inventory purchases, and the distribution of small bulk loads to our small business customers.
Business Strategy
Our objective is to leverage the Internet to become the dominant closeout solution for holders of brand-name merchandise, allowing them to dispose of
that merchandise discreetly and with high recovery values. We are pursuing this objective through the following key strategies:
Establish strong relationships with manufacturers. With the growth in the scale of our operations, we believe we are becoming an efficient
liquidation channel for manufacturers and distributors. With scale comes the ability to buy in size, and we believe manufacturers appreciate our
ability to liquidate their products without disturbing their traditional channels. Generally, manufacturers do not want their product offerings sold
as heavily discounted, closeout products in brick-and-mortar retailers, as is common today. We believe that as manufacturers learn of our
capabilities, they will increasingly recognize the attractiveness of Overstock as an efficient liquidation solution.
Optimize inventory management through the use of technology. Our merchandise buyers are supported by proprietary software that provides
nearly instantaneous information on product sales, margins and inventory levels. This technology enables us to make informed decisions and
quickly change prices in an effort to maximize sales volume, gross profits and return on inventory capital.
Optimize marketing initiatives through the use of technology. Our marketing team is supported by proprietary software that enhances the level of
service provided to our customers and takes advantage of the unique characteristics of online distribution. Our software provides us immediate
feedback on the effectiveness of various marketing campaigns, allowing us to optimize our marketing expenditures. We have begun increasing
the personalization of our Websites to each individual customer in order to enhance their shopping experience.
Maintain low customer acquisition costs. We believe that by focusing the vast majority of our marketing budget on targeted online campaigns
such as banner ad and email campaigns, the results of which we are able to quantify, we will further reduce our per customer acquisition costs.
Aggressively grow our B2B business. We believe we offer our B2B customers a compelling opportunity for purchasing bulk inventory online at
low prices with high-quality service. We are discovering that the small retail market is underserved by existing liquidators and we are quickly
working to take advantage of this significant opportunity. We have a dedicated B2B Website, as well as a dedicated B2B sales team, whose sole
purpose is to further develop this business. We have grown the sales team from 5 members as of December 31, 2001, to 18 members as of
December 31, 2002.
Provide responsive customer service. Overstock maintains the infrastructure necessary to process and fulfill orders on an accurate, timely and
reliable basis. We operate a 354,255 square foot leased warehouse in Salt Lake City, Utah to help ensure the highest level of customer service.
We strive to improve our product offerings, the look and feel of our Websites and the quality of our customers' shopping experience.
Key Relationships
Manufacturer, Supplier and Distribution Relationships. It is difficult to establish closeout buying relationships with manufacturers. Trust and
experience gained through past interactions are important. We believe our business model reduces the risk to the manufacturer that its discounted products are
sold alongside its full-priced products. Our supplier relationships provide us with recognized, brand-name products. The table below identifies, for each of our
product departments, the four brand names that generate the largest revenues in each department.
AOL Time Warner
Bissell
Blueridge Home Fashions
Cuisinart
Fuji
Helly Hanson
Hewlett-Packard
M. Tiffany
Mai
Marin
Marmott
Movado
Nicole Miller
Novica
Ralph Lauren
Random House
RCA
Samsonite
Seiko
Simon & Schuster
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