Overstock.com 2002 Annual Report Download - page 8

When customers place orders on our Websites, orders are fulfilled either by a third party on a commission basis or directly from our Salt Lake City, Utah
warehouse. We monitor both sources for accurate order fulfillment and timely shipment. We currently charge $2.95 for basic ground shipping, but customers
can choose from various expedited shipping services at their expense.
Returns Policy. Our returns policy for consumer purchases requires that consumers initiate the return of a product within 15 days of the date we ship
the product and we must receive the product within 30 days. Upon receipt of the product, we refund the amount of the order, less a handling fee of $4.95 and
the original shipping charges. For returned items from the Computer & Home Office and Electronics & Cameras departments, we charge a 15% restocking fee
instead of the $4.95 handling fee. The returns policy for our B2B purchasers depends on the type of item returned. For jewelry items, B2B purchasers must
return the purchased items within 14 days of purchase. Non-jewelry products must be returned within 5 days of purchase. Software products must be returned
in their original condition, including packaging, documentation, warranty cards, manuals, and accessories, including the product's original factory seal.
Defective software products are eligible for exchange only.
Payment Terms. As a general policy, we require verification of receipt of payment or credit card authorization before we ship products to consumers or
B2B purchasers.
Direct Fulfillment. During 2002, we fulfilled approximately 45% of all orders through our leased 354,255 square foot Salt Lake City, Utah warehouse
where we store approximately 16,000 products. We operate the warehouse with an automated warehouse management system that tracks the receipt of the
inventory items, distributes order-fulfillment assignments to warehouse workers and obtains rates for various shipping options to ensure low-cost outbound
shipping. Our Websites relay orders to the warehouse management system throughout each day, and the warehouse management system in turn confirms to
our Websites shipment of each order. Customers track the shipping status of their packages through links we provide on our Websites. We guarantee order
shipments within two business days of order placement, but most orders ship within one business day. The warehouse team ships between 10,000 and 50,000
orders each week using four overlapping daily shifts. We also process returns of direct merchandise in the Salt Lake City, Utah warehouse. We estimate we
could increase our capacity in the warehouse by at least 3-5 times if necessary, through additional staffing on each shift and higher density racking.
Commission Fulfillment. During 2002, approximately 55% of our orders were for inventory owned and shipped by third parties who pay us a
commission for the sale of their products on our Websites. We currently manage approximately 150 entities that collect their orders through our Websites.
These third parties perform essentially the same operations as our core warehouse: order picking, shipping, and reverse logistics processing. These third
parties relay shipment confirmations to our Websites, where customers can review shipping and tracking information. From a customer's point of view,
shipping from our warehouse or from the warehouse of one of these third parties is indistinguishable.
Customer Service
We are committed to superior customer service. We staff our customer service department with dedicated professionals who respond to phone and email
inquiries on products, ordering, shipping status, and returns. Our customer service staff process 5,000 to 20,000 calls per week. The same staff processes
15,000 to 35,000 email messages each week, with less than a 24-hour turnaround time. We use automated email and phone systems to route traffic to
appropriate customer service representatives.
Technology
We use our internally developed Websites and a combination of proprietary technologies and commercially available licensed technologies and solutions
to support our operations. We use the services of XO Communications, Inc., Genuity Inc., Qwest Communications International, Inc. and SAVIS, Inc. to
obtain connectivity to the Internet over four DS-3 lines. We currently store our data on an Oracle database running on Hewlett-Packard "N Class' computer
hardware, which is backed up by a high-speed redundant EMC Corporation storage system. Currently, we use twenty-six Dell PowerEdge servers for our
Websites, which are connected to the Oracle database and operate in a multi-processing Linux environment designed to accommodate large volumes of
Internet traffic. During the 2002 holiday shopping season, our Internet systems operated at 30% of their capacity. In addition, we have installed 12 Web
servers and implemented "relief valve" functionality with technology provided by Akamai Technologies, Inc. to off-load transactions during extreme loads.
We are currently enhancing the reporting capabilities of our Websites to improve our understanding of our customers' needs and site behavior. Our
Internet systems include redundant hardware on mission critical components and are located in our Salt Lake City, Utah facility.
Competition
The online liquidation services market is new, rapidly evolving, intensely competitive and has relatively low barriers to entry, as new competitors can
launch new Websites at relatively low cost. We believe that competition in the online liquidation market is based predominantly on:
price;
product quality and selection;
shopping convenience;
customer service; and
brand recognition.
Our liquidation services compete with other online retailers and traditional liquidation "brokers," some of which may specifically adopt our methods and
target our customers. We currently or potentially compete with a variety of companies that can be divided into several broad categories:
liquidation e-tailers such as SmartBargains;
•
•
•
•
•
•