Overstock.com 2005 Annual Report Download - page 9

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Direct business
Our direct business includes sales made to individual consumers and businesses, which are fulfilled from our warehouses in Salt
Lake City, Utah or our outsourced warehouses located in Plainfield, Indiana. During the years ended December 31, 2004 and 2005, we
fulfilled approximately 40% and 38%, respectively, of all orders through our warehouses. Our warehouses generally ship between 12,000
and 14,000 orders per day, and up to approximately 34,000 orders per day during peak periods, using overlapping daily shifts.
Fulfillment partner business
For our fulfillment partner business, we sell merchandise of other retailers, cataloguers or manufacturers ("fulfillment partners")
through our Website. We are considered to be the primary obligor for the majority of these sales transactions, and we assume the risk
of loss on the returned items. As a consequence, we record revenue from the majority of these sales transactions involving our
fulfillment partners (excluding travel products) on a gross basis. Our use of the term "partner" or "fulfillment partner" does not mean
that we have formed any legal partnerships with any of our fulfillment partners. We currently have fulfillment partner relationships with
approximately 460 third parties which post approximately 62,000 non-BMV products, as well as most of the BMV products and a portion
of our current travel offerings, on our Websites.
Prior to July 1, 2003, we did not physically handle the merchandise we sold for our fulfillment partners, as the merchandise was
shipped directly by them and they handled all customer returns related to those sales. Beginning July 1, 2003, we took responsibility
for returned items relating to these sales and we now handle the possible resale or other disposition of returned items. We made the
decision to change this policy to have more control over the Overstock customer shopping experience, as we believe that a seamless
customer experience is key to creating loyal, long-term customers. By accepting returns at our warehouse in Salt Lake City rather than
multiple hundreds of different partner warehouses across the United States, we can verify that fulfillment partner products are being
packaged and shipped to our standards. Additionally, as customer returns are now all shipped to one location, the process is more
convenient for our customers. As a result, since July 1, 2003, we have been the primary obligor for these sales transactions, and we
assume the risk of loss on returned items. Therefore, we now record revenue from sales transactions involving our fulfillment partners
(excluding auction and travel products) on a gross basis, rather than on a net basis as we did prior to July 1, 2003.
Our revenue from sales on our shopping site from both the direct and fulfillment partner businesses is recorded net of returns,
coupons and other discounts. Our returns policy for all products other than those sold in our Electronics and Computers department
provides for a $4.95 restocking fee and the provision that we will not accept product returns initiated more than twenty days after the
shipment date. We charge a 15% restocking fee (instead of the $4.95 restocking fee) on all items returned for non-defective reasons
from the Electronics and Computers department.
Unless otherwise indicated or required by the context, the discussion herein of our financial statements, accounting policies and
related matters, pertains to our shopping sites (Shopping and BMV) and not necessarily to our auction or travel tabs on our Websites.
Bulk buys and business supplies business
In August 2004, we merged our B2B site (www.overstockb2b.com) into our B2C site, and opened a "Club O Gold" membership
program (into which our current B2B customers were grandfathered). The terms of this program include a higher annual fee ($99.95),
Club O Gold pricing (that is, our B2C price less 5% on single product purchases and steeper discounts for products purchased in bulk),
and access to a special, small business-focused, customer service team. During 2005, we morphed this program into our "Bulk Buys &
Business Supplies" tab. For this tab, we have added a number of suppliers specific to various
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