Overstock.com 2009 Annual Report Download - page 12

Table of Contents
strength, and is known as channel conflict or sales channel pollution. As a result, many manufacturers turn to liquidation wholesalers and discount retailers.
These liquidation channels provide manufacturers limited control of distribution and are, we believe, unreliable and expensive to manage when compared
with their inline channels.
Despite the challenges manufacturers encountered in the liquidation market, the proliferation of outlet malls, wholesale clubs, and discount chains is
evidence of the strong level of consumer demand for discount and closeout merchandise. However, consumers face several difficulties in shopping for this
merchandise. For example, many traditional liquidation outlets are in remote locations and have limited shopping hours, which we believe makes shopping
burdensome and inconvenient. In addition, in the traditional liquidation outlet there are space constrains limiting the number of products that can be offered at
any given time.
We also believe that the market for online liquidation is characterized by a limited number of competitors, some of which use an auction model to price
their goods. Furthermore, we believe that many of the online companies that do offer overstock or liquidation merchandise are focused on single product
lines.
Lastly, small retailers are under competitive pressure from large national retailers. Small retailers generally do not have purchasing leverage with
manufacturers; consequently, they are more likely to pay full wholesale prices and are more likely to receive inferior service. We believe that small retailers
generally do not have access to the liquidation market because liquidation wholesalers are most often interested in liquidating large volumes of merchandise,
rather than the small quantities appropriate for small, local retailers.
Our Business
We provide manufacturers with a one-stop liquidation channel to sell both large and small quantities of excess and closeout inventory without disrupting
sales through traditional channels. Much of the merchandise offered on our Website is from well-known, brand-name manufacturers. In the Shopping Section
of our Website, we currently have approximately 661,000 BMMG products (books, magazines, CDs, DVDs, and video games) and approximately 168,000
non-BMMG products in eleven major departments. Our customers are able to access and purchase our products 24 hours a day from the convenience of their
computer. Our team of customer service representatives assists customers by telephone, instant online chat and e-mail. Our objective is to become the
dominant Internet-based closeout solution for holders of brand-name merchandise, allowing them to dispose of that merchandise discreetly and with high
recovery values, and to ultimately become a one-stop Internet-based discount shopping destination.
We use the Internet to create a more efficient market for liquidation, closeout and other discount merchandise. We provide consumers and businesses
with quick and convenient access to high-quality, brand-name merchandise at discount prices. We have organized our shopping business (sales of product
offered through the Shopping Section of our Website) into two principal segments—a "direct" business and a "fulfillment partner" business (see Item 15 of
Part IV, "Financial Statements—Note 25—Business Segments"). Virtually all of our sales are to customers located in the United States. Less than 1% of our
sales are made indirectly to international customers. During the years ended December 31, 2007, 2008, and 2009, no single customer accounted for more than
1% of our total revenue.
Direct business
Our direct business includes sales made to individual consumers and businesses, which are fulfilled from our warehouses in Salt Lake City, Utah (see
Item 2 of Part I, "Properties"). During the year ended December 31, 2009, we fulfilled approximately 15% of our order volume through our
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