Overstock.com 2010 Annual Report Download - page 68

Table of Contents
The following table has been included to provide investors additional information regarding our classification of fulfillment costs, gross profit and
margin, thus enabling investors to better compare our gross margin with others in our industry (in thousands):
Year ended December 31,
2009 2008
Total net revenue $ 876,769 100% $ 829,850 100%
Cost of goods sold
Product costs and other cost of goods sold 664,537 76% 638,368 77%
Fulfillment and related costs 47,480 5% 47,246 6%
Total cost of goods sold 712,017 81% 685,614 83%
Gross profit $ 164,752 19% $ 144,236 17%
Fulfillment costs as a percentage of sales may vary due to several factors, such as our ability to manage costs at our warehouses, significant changes in
the number of units received and fulfilled, the extent to which we use third party fulfillment services and warehouses, and our ability to effectively manage
customer service costs and credit card fees. There have been no significant changes in our fulfillment costs during the year ended December 31, 2009.
See "Gross profit" above for additional discussion.
Operating expenses
Sales and marketing expenses
We direct customers to our Website primarily through a number of targeted online marketing channels, such as sponsored search, affiliate marketing,
portal advertising, e-mail campaigns, and other initiatives. We also use nationwide television, print and radio advertising campaigns to promote sales.
Sales and marketing expenses totaled $55.5 million and $57.7 million for the years ended December 31, 2009 and 2008, respectively, representing 6.3%
and 6.9% of total net revenue for those respective periods. The decrease in sales and marketing costs was primarily due to more efficient marketing spending.
We were able to generate more revenue per dollar of advertising spent in 2009, particularly with online marketing campaigns. Higher compensation expense
offset some of the improvement in lower advertising costs.
Sales and marketing expenses also include stock-based compensation expense of $634,000 and $347,000 for the years ended December 31, 2009 and
2008, respectively.
Costs associated with our discounted shipping and other promotions, such as coupons, are not included in marketing expense. Rather they are accounted
for as a reduction of revenue and therefore affect sales growth and gross margin. We consider discounted shipping and other promotions as an effective
marketing tool, and intend to continue to offer them as we deem appropriate as part of our overall marketing plan.
Technology expenses
We seek to efficiently invest in our technology, including web services, customer support solutions, website search, and expansion of new and existing
product categories, as well as continuing to enhance the customer experience, improving our process efficiency and supporting our logistics infrastructure.
Technology expenses totaled $52.3 million and $56.7 million for the years ended December 31, 2009 and 2008, representing 6.0% and 6.9% of revenue
for those periods, respectively. Technology expenses decreased 8% primarily due to decreased depreciation expense of approximately $10.2 million
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