Overstock.com 2007 Annual Report Download - page 22

A significant number of merchandise returns could harm our business, financial condition and results of operations.
We allow our customers to return products. If merchandise returns are significant, our business, prospects, financial condition and results of operations
could be harmed. We modify our policies relating to returns from time to time and any policies intended to reduce the number of product returns may result in
customer dissatisfaction and fewer repeat customers.
If the products that we offer on our Website 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 some of the products that we sell consist of manufacturers' and retailers' excess inventory, we have
limited control over some of 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, prospects, results of operations and financial condition.
We face risks relating to our inventory.
We directly purchase some of the merchandise that we sell on our Website. We assume the inventory damage, theft and obsolescence risks, as well as
price erosion risks for products that we purchase directly. These risks are especially significant because some of the merchandise we sell on our Website is
characterized by rapid technological change, obsolescence and price erosion (for example, computer hardware, software and consumer electronics) and
because we sometimes make large purchases of particular types of inventory. In addition, we often do not receive warranties on the merchandise we purchase.
We accept returns of products sold through our fulfillment partners and we have the risk of reselling the returned products.
In the recent past we have recorded charges for obsolete inventory and have had to sell certain merchandise at a discount or loss. It is impossible to
determine with certainty whether an item will sell for more than the price we pay for it. To the extent that we rely on purchased inventory, our success will
depend on our ability to liquidate our inventory rapidly, the ability of our buying staff to purchase inventory at attractive prices relative to its resale value and
our ability to manage customer returns and the shrinkage resulting from theft, loss and misrecording of inventory. If we are unsuccessful in any of these areas,
we may be forced to sell our inventory at a discount or loss.
We purchase inventory from foreign markets and pay for inventory with U.S. dollars. If the dollar weakens with respect to foreign currencies, foreign
vendors may require us to pay higher prices for products, which could negatively affect our gross margins.
If we do not successfully optimize and operate our warehouse and customer service operations, our business could be harmed.
If we do not successfully optimize and operate our warehouse and customer service operations, it could significantly limit our ability to meet customer
demand. Because it is difficult to predict demand, we may not manage our facilities in an optimal way, which may result in excess or insufficient inventory or
warehousing capacity. We may be unable to adequately staff our fulfillment and customer service centers. In addition, we rely on a limited number of
companies to deliver inventory to us and to ship orders to our customers. If we are not able to negotiate acceptable terms with these companies, or they
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