Overstock.com 2014 Annual Report Download - page 45

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Table of Contents





Direct
11.4%
12.2%
13.7%
13.4%
12.7%
Partner
20.0%
20.8%
20.4%
18.6%
19.8%
Combined
18.9%
19.7%
19.6%
18.0%
19.0%
The 31 basis point decrease in direct gross margin for the year ended December 31, 2014, as compared to 2013, was primarily due to increased net
returns costs and increased promotional activities, which we recognize as a reduction of revenue (including coupons, site sales, and our Club O Rewards
program) due to our driving a higher proportion of our sales using those channels. These increases were partially offset by a continued shift in sales mix into
higher margin home and garden products.
The 52 basis point decrease in partner gross margin for the year ended December 31, 2014, as compared to 2013, was primarily due to increased
promotional activities including coupons, site sales, and our Club O Rewards program due to our driving a higher proportion of our sales using those
channels. This decrease was partially offset by a continued shift in sales mix into higher margin home and garden products.
Cost of goods sold includes stock-based compensation expense of $181,000 and $154,000 for the years ended December 31, 2014 and 2013,
respectively.

Fulfillment costs include all warehousing costs, including fixed overhead and variable handling costs (excluding packaging costs), as well as credit
card fees and customer service costs, all of which we include as costs in calculating gross margin. We believe that some companies in our industry, including
some of our competitors, account for fulfillment costs within operating expenses, and therefore exclude fulfillment costs from gross margin. As a result, our
gross margin may not be directly comparable to others in our industry.
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):



Total revenue, net
$ 1,497,103
100%
$ 1,304,217
100%
Cost of goods sold
Product costs and other cost of goods sold
1,152,489
77.0%
999,519
76.6%
Fulfillment and related costs
65,555
4.4%
57,038
4.4%
Total cost of goods sold
1,218,044
81.4%
1,056,557
81.0%
Gross profit
$ 279,059
18.6%
$ 247,660
19.0%
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. Fulfillment and related costs remained relatively flat during the year ended December 31, 2014 as compared to
2013.
See  above for additional discussion.


We use a variety of methods to target our consumer audience, including online campaigns, such as advertising through keywords, product listing
ads, display ads, search engines, affiliate marketing programs, social coupon websites, portals, banners, e-mail, direct mail and viral and social media
campaigns. We also do brand advertising through television, radio, print ads, and event sponsorships.
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