Overstock.com 2011 Annual Report Download - page 21

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Table of Contents
A significant number of merchandise returns could harm our business, financial condition and results of operations.
We allow our customers to return products, subject to our returns policies. If merchandise returns are significant, our business, prospects, financial
condition and results of operations could be harmed. Further, 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.
Our pricing strategy may not meet customers' price expectations or result in net income.
Demand for our products is generally highly sensitive to price. Our pricing strategies have had, and may continue to have, a significant impact on our net
sales and net income. We often offer discounted prices, and free or discounted shipping as a means of attracting customers and encouraging repeat purchases.
Such offers and discounts reduce our margins. In addition, our competitors' pricing and marketing strategies are beyond our control and can significantly
impact the results of our pricing strategies. If we fail to meet our customers' price expectations, or if we are unable to compete effectively with our
competitors when they engage in aggressive pricing strategies or other competitive activities, our business, prospects, financial condition and results of
operations would suffer.
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 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, as we have in the past, 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, financial condition and results of operations.
We face risks relating to our inventory.
In our direct business, we sell merchandise that we have purchased and hold in inventory. We assume the risks of inventory damage, theft and
obsolescence, as well as risks of price erosion for these products. These risks are especially significant because some of the merchandise we sell is
characterized by seasonal trends, fashion trends, 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. Subject to our returns policies, we accept returns of products sold through our fulfillment partners and we have the risk of reselling
the returned products.
In the 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 our cost. To the extent that we rely on purchased inventory, our success will depend on our ability to sell
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 other costs. If we are unsuccessful in any of these areas, we may be forced to sell our inventory at a discount or loss.
We purchase some of our inventory from foreign suppliers and pay for inventory with U.S. dollars. If the dollar weakens with respect to foreign
currencies, foreign suppliers may require us to pay higher prices for products, which could negatively affect our profit margins.
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