Overstock.com 2003 Annual Report Download - page 15

understandings, commitments or agreements with respect to any material acquisitions or investments. We cannot assure you that we would be able to expand
our efforts and operations in a cost-effective or timely manner or that any such efforts would increase overall market acceptance. Furthermore, any new
business or Website we launch that is not favorably received by consumers could damage our reputation or the Overstock brand. We may expand the number
of categories of products we carry on our Websites, and these and any other expansions of our operations would also require significant additional expenses
and development and would strain our management, financial and operational resources. The lack of market acceptance of such efforts or our inability to
generate satisfactory revenues from such expanded services or products to offset their cost could harm our business, prospects, financial condition and results
of operations.
We may not be able to compete successfully against existing or future competitors.
The online liquidation services market is new, rapidly evolving and intensely competitive. Barriers to entry are minimal, and current and new
competitors can launch new Websites at a relatively low cost. Our consumer Website currently competes with:
other online liquidation e-tailers, such as SmartBargains;
traditional retailers and liquidators, such as Ross Stores, Inc., Walmart Stores, Inc. and TJX Companies, Inc.; and
online retailers and marketplaces such as Amazon.com, Inc., Buy.com, Inc. and eBay, Inc., which have discount departments.
Our B2B Website competes with liquidation "brokers" and retailers and online marketplaces such as eBay, Inc.
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We expect the online liquidation services market to become even more competitive as traditional liquidators and online retailers continue to develop
services that compete with our services. In addition, manufacturers and retailers may decide to create their own Websites to sell their own excess inventory
and the excess inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively, could harm our
business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing
decisions or acquisitions that could harm our business, prospects, financial condition and results of operations. For example, to the extent that we enter new
lines of businesses such as third-party logistics, online auction services or discount brick and mortar retail, we would be competing with large established
businesses such as APL Logistics, Ltd., eBay, Inc., Ross Stores, Inc. and TJX Companies, Inc., respectively.
Many of our current and potential competitors described above have longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. In addition, online retailers and liquidation e-tailers may be acquired by, receive
investments from or enter into other commercial relationships with larger, well-established and well-financed companies. Some of our competitors may be
able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies and devote substantially more resources to Website and systems development than we do. Increased
competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot assure you that we will be able to
compete successfully against current and future competitors.
A significant number of merchandise returns could harm our business, financial condition and results of operations.
We allow our customers to return products and, beginning July 1, 2003, we started accepting returns of products sold through our fulfillment partners.
Our ability to handle a large volume of returns is unproven. In addition, any policies intended to reduce the number of product returns may result in customer
dissatisfaction and fewer return customers. If merchandise returns are significant, our business, financial condition and results of operations could be harmed.
If the products that we offer on our Websites do not reflect our customers' tastes and preferences, our sales and profit margins would decrease.
Our success depends in part on our ability to offer products that reflect consumers' tastes and preferences. Consumers' tastes are subject to frequent,
significant and sometimes unpredictable changes. Because the products that we sell typically consist of manufacturers' and retailers' excess inventory, we have
limited control over the specific products that we are able to offer for sale. If our merchandise fails to satisfy customers' tastes or respond to changes in
customer preferences, our sales could suffer and we could be required to mark down unsold inventory which would depress our profit margins. In addition,
any failure to offer products in line with customers' preferences could allow our competitors to gain market share. This could have an adverse effect on our
business, results of operations and financial condition.
If the single facility where substantially all of our computer and communications hardware is located fails, our business, results of operations and
financial condition will be harmed.
Our success, and, in particular, our ability to successfully receive and fulfill orders and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications hardware systems. Substantially all of our computer and communications
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hardware is located at a single leased facility in Salt Lake City, Utah. Our systems and operations are vulnerable to damage or interruption from fire, flood,
power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, earthquake and similar events. We do not presently have redundant systems in
multiple locations or a formal disaster recovery plan and our business interruption insurance may be insufficient to compensate us for losses that may occur.
Despite the implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar
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