Overstock.com 2011 Annual Report Download - page 18

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Table of Contents
The seasonality of our business places increased strain on our operations.
A disproportionate amount of our sales normally occur during our fourth quarter. If we do not stock or restock popular products in sufficient amounts to
meet customer demand, this could significantly affect our revenue and our future growth. If we liquidate products, as we have in the past, we may be required
to take significant inventory markdowns or write-offs, which could reduce gross profits. We may experience an increase in our net shipping cost due to
complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many
customers access our Website within a short period of time due to increased holiday demand, we may experience system interruptions that make our Website
unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services.
In addition, we may be unable to adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment
companies and customer service co-sourcers may be unable to meet the seasonal demand.
We depend on our relationships with independent fulfillment partners for a large portion of the products that we offer for sale on our Website. If we fail
to maintain these relationships, our business will suffer.
At December 31, 2011, we had relationships with approximately 2,000 independent fulfillment partners whose products we offer for sale on our Website.
We depend on our fulfillment partners to provide a large portion of the product selection we offer, as these products accounted for 84% of our net revenues
for the year ended December 31, 2011. We may expand the number of fulfillment partner relationships and the number of products offered for sale by our
fulfillment partners on our Website. If we do not maintain our existing relationships or build new relationships with fulfillment partners on acceptable
commercial terms, we may not be able to maintain a broad selection of merchandise, and customers may not shop at or purchase from our Website. In
addition, manufacturers may decide not to offer particular products for sale on the Internet or on sites like ours. If we are unable to maintain our existing or
build new fulfillment partner relationships or if product manufacturers refuse or restrict sale of their products via the Internet, though sites like ours, or to us,
our business and prospects would suffer severely.
In general, we agree to offer the fulfillment partners' products on our Website and these fulfillment partners agree to conduct a number of other
traditional retail operations with respect to their respective products that we offer for sale on our Website, including maintaining inventory, preparing
merchandise for shipment to individual customers and timely distribution of purchased merchandise. We have no effective means to ensure that these third
parties will continue to perform these services to our satisfaction or on commercially reasonable terms. In addition, because we do not take possession of these
fulfillment parties' products, (other than on the return of such products), we are unable to fulfill these traditional retail operations ourselves. Our customers
could become dissatisfied and cancel their orders or decline to make future purchases if these third parties are unable to deliver products on a timely basis. If
our customers become dissatisfied with the services provided by these third parties, our reputation and the Overstock.com brand could suffer.
We do not have any long-term agreements with any of these fulfillment partners. Our agreements with fulfillment partners are terminable at will by
either party upon short notice.
Cyber-attacks affecting our suppliers could adversely affect us
We depend on our fulfillment partners to provide a large portion of the product selection we offer and on vendors for the products we purchase and offer
in our direct business. Cyber-attacks affecting any of our most significant suppliers or affecting a significant number of our suppliers could have adverse
effects on our business, prospects, financial condition and results of operations. The adverse
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