Overstock.com 2002 Annual Report Download - page 7

Kelty
Kenneth Cole
Krups
Oriental Weavers
Panasonic
Philips
Sony
Vera Wang
To date, we have not entered into contracts with manufacturers or liquidation wholesalers that guarantee the availability of merchandise for a set
duration. Our manufacturer and supplier relationships are based on historical experience with manufacturers and liquidation wholesalers and do not obligate
or entitle us to receive merchandise on a long-term or short-term basis. In our direct business, we purchase the products from manufacturers or liquidation
wholesalers using standard purchase orders. Generally, suppliers do not control any of the terms under which products are sold over our Websites.
In addition, we have an agreement with Safeway Inc. to provide discounted merchandise to be sold within their stores. Safeway Inc. accounted for
approximately $14.6 million, or approximately 15.9%, of our total revenues for the fiscal year ended December 31, 2002. Currently, we are supplying certain
stores in the western and midwestern regions of the United States. During the term of our agreement with Safeway, we are prevented from selling the same or
similar goods to any store that has more than 400 retail stores in the following categories: drug, mass merchandising, grocery, club or warehouse. We hope
this relationship will expand to include more merchandise within more stores. In the future, we hope to develop similar relationships with other retailers.
Commission business. We currently have commission-based relationships with approximately 150 third parties that post approximately 4,000 products
on our Websites. These third parties, whether retailers, catalogers or manufacturers, have their own fulfillment capabilities and utilize our "discount" channel
to liquidate their products without disturbing their own "full-price" distribution channel. As compensation for our services, we receive a commission. As part
of this program, we tightly monitor the performance of these third parties, assist them with fulfillment procedures and, when necessary, remove the products
of poorly performing third parties from the site. Our commission program has enabled us to increase our product offerings, expand our customer base and
earn sales commissions.
In our commission business, although the third party is the primary obligor under the commission arrangement, we negotiate the price that we will pay to
the third party for the cost of the product and its delivery to the customer. We do not take possession of or title to the product or assume inventory risk.
However, we set the price posted on our Website. The difference between the price negotiated with the third party and the price for which we sell the product
on our Website is our commission.
For both our direct and commission businesses, suppliers may limit the distribution of their products to consumers or businesses by electing to list their
products on the consumer Website or B2B Website or both.
Sales and Marketing
Historically, we have not focused our marketing efforts on national print and media campaigns. Instead, we have focused primarily on online campaigns
that we believe are the most cost-effective means to direct visitors to our Websites.
B2B. As of December 31, 2002, we had a dedicated sales force of 18 people who primarily interact with small, regional or local retailers by telephone
or through email to alert them to the opportunity they have to purchase merchandise at prices that are below wholesale, and which we believe are often lower
than the prices paid by the larger retailers with whom they compete.
Consumer. We focus on cost-effective methods to target our consumer audience. Almost all of our advertising budget is spent on online campaigns,
such as banner ad and email campaigns, and we are able to monitor and evaluate the results of our online campaigns. We seek to identify and eliminate
campaigns that do not meet our expectations.
Products
Online Products
Currently, our products are organized into seven different product departments:
Apparel, Shoes & Accessories
Books, Movies, CDs & Games
Electronics & Computers
Home & Garden
Jewelry, Watches & Gifts
Sports, Travel & Toys
Worldstock
Each of these departments has multiple categories that more specifically define the products offered within that department. For example, the following
product categories are currently within the "Electronics & Computers" department:
Audio & Video
Cameras & Optics Office & Phones Computers & Printers
Each category has several subcategories that further detail the product contained within. For example, under the "Audio & Video" category, we have the
subcategories of "Audio" and "TV&Video" and under the "Audio" subcategory we have the further sub-subcategories of "Car Stereo," "Clock Radios," "D.J.
Equipment," "MP3 Players," and "Other Audio."
Individual products can be accessed and viewed from the category or subcategory pages. These specific product pages include detailed product
descriptions, a color picture and pricing information.
The number of total products we offer has grown from less than 100 in 1999, to more than 5,000 non-media products and over 100,000 media products
(books, CDs, DVDs, video cassettes and video games) as of December 31, 2002. As the number of products and product categories change throughout the
year, we periodically reorganize our departments and/or categories to better reflect our current product availability.
Our Worldstock Website, at www.worldstock.com, is our Internet marketplace through which artisans in the United States and around the world can sell
their products and gain access to a broader market.
Fulfillment Operations