Overstock.com 2003 Annual Report Download - page 13

technology officer each stepped down from those positions for unrelated reasons. Each of these three individuals remained an employee of the Company, and
each continues to serve the Company at present. Our failure to retain and attract the necessary technical, managerial, editorial, merchandising, marketing and
customer service personnel could harm our revenues, business, prospects, financial condition and results of operations.
Our operating results may fluctuate depending on the season, and such fluctuations may affect our stock price.
We have experienced and expect to continue to experience fluctuations in our operating results because of seasonal fluctuations in traditional retail
patterns. Sales in the retail and wholesale industry tend to be significantly higher in the fourth calendar quarter of each year than in the preceding three
quarters due primarily to increased shopping activity during the holiday season. However, there can be no assurance that our sales in the fourth quarter will
exceed those of the preceding quarters or, if the fourth quarter sales do exceed those of the preceding quarters, that we will be able to manage the increased
sales effectively. Further, we may increase our inventories substantially in anticipation of holiday season shopping activity, which may have a negative effect
on our cash flow. Securities analysts and investors may inaccurately estimate the effects of seasonality on our results of operations in one or more future
quarters and, consequently, our operating results may fall below expectations, causing our stock price to decline.
We depend on our relationships with third party fulfillment partners for a large portion of the products that we offer for sale on our Websites. If we
fail to maintain these relationships, our business will suffer.
During 2003, we had fulfillment partner relationships with approximately 250 third parties whose products we offer for sale on our Websites. At
December 31, 2003, these products accounted for approximately 53% of the non-BMV products available on our Websites. We do not have any long-term
agreements with any of these third parties. Our agreements with third parties are terminable at will by either party immediately upon notice. In general, we
agree to offer the third parties' products on our Websites and these third parties agree to provide us with information about their products, honor our customer
service policies and ship the products directly to the customer. If we do not maintain our existing or build new relationships with third parties on acceptable
commercial terms, we may not be able to offer a broad selection of merchandise, and customers may refuse to shop at our Websites. In addition,
manufacturers may decide not to offer particular products for sale on the Internet. If we are unable to maintain our existing or build new fulfillment partner
relationships or if other product manufacturers refuse to allow their products to be sold via the Internet, our business would suffer severely.
We are partially dependent on third parties to fulfill a number of our fulfillment, distribution and other retail functions. If such parties are unwilling
or unable to continue providing these services, our business could be seriously harmed.
In our fulfillment partner business, although we now handle returned merchandise, we continue to rely on third parties to conduct a number of other
traditional retail operations with respect to their respective products that we offer for sale on our Websites, including maintaining inventory, preparing
merchandise for shipment to individual customers and timely distribution of purchased merchandise. We have no effective means to ensure that these third
parties will continue to perform these services to our satisfaction or on commercially reasonable terms. In addition, because we do not take possession of these
third parties' products, we are unable to fulfill these traditional retail operations ourselves. Our customers could become dissatisfied and cancel their orders or
decline to make future purchases if these third parties are unable to deliver products on a timely basis. If our customers become
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dissatisfied with the services provided by these third parties, our reputation and the Overstock brand could suffer.
We rely on our relationships with manufacturers, retailers and other suppliers to obtain sufficient quantities of quality merchandise on acceptable
terms. If we fail to maintain our supplier relationships on acceptable terms, our sales and profitability could suffer.
To date, we have not entered into contracts with manufacturers or liquidation wholesalers that guarantee the availability of merchandise for a set
duration. Our contracts or arrangements with suppliers do not provide for the continuation of particular pricing practices and may be terminated by either
party at any time. Our current suppliers may not continue to sell their excess inventory to us on current terms or at all, and we may not be able to establish
new supply relationships. For example, it is difficult for us to maintain high levels of product quality and selection because none of the manufacturers,
suppliers and liquidation wholesalers from whom we purchase products on a purchase order by purchase order basis have a continuing obligation to provide
us with merchandise at historical levels or at all. In most cases, our relationships with our suppliers do not restrict the suppliers from selling their respective
excess inventory to other traditional or online merchandise liquidators, which could in turn limit the selection of products available on our Websites. If we are
unable to develop and maintain relationships with suppliers that will allow us to obtain sufficient quantities of merchandise on acceptable commercial terms,
such inability could harm our business, results of operation and financial condition.
Our business may be harmed by the listing or sale of pirated, counterfeit or illegal items by third parties, and by intellectual property litigation.
We have received in the past, and we anticipate we will receive in the future, communications alleging that certain items listed or sold through our
Websites infringe third-party copyrights, trademarks and trade names or other intellectual property rights or that we have otherwise infringed third parties'
past, current or future intellectual property rights. For example, in October 2003, Tiffany (NJ) Inc. and Tiffany and Company filed a complaint against us in
the United States District Court for the Southern District of New York alleging that we have distributed counterfeit and otherwise unauthorized Tiffany
product in violation of federal copyright and trademark law and related state laws. The complaint seeks statutory and other damages in an unspecified amount
and injunctive relief. Although we have filed an answer and believe we have defenses to the allegations and intend to pursue them vigorously, the Tiffany
lawsuit is in the early stages of discovery, and we do not have sufficient information to assess the validity of the claims or the amount of potential damages.
We may be unable to prevent third parties from listing unlawful goods, and we may be subject to allegations of civil or criminal liability for unlawful
activities carried out by third parties through our Websites. In the future, we may implement measures to protect against these potential liabilities that could
require us to spend substantial resources and/or to reduce revenues by discontinuing certain service offerings. Any costs incurred as a result of liability or
asserted liability relating to the sale of unlawful goods or the unlawful sale of goods could harm our revenues, business, prospects, financial condition and
results of operations.