Overstock.com 2015 Annual Report Download - page 53

coupons, site sales, and Club O Rewards (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such
promotions, and by an increase in returns.
The increase in partner revenue for the year ended December 31, 2015, as compared to the same period in 2014, was primarily due to an increase in
sales of home and garden products. In addition, the percentage of revenue we defer from orders taken but not delivered was less due to the timing of quarter
end. These increases were partially offset by increased promotional activities including coupons, site sales, and Club O Rewards (which we recognize as a
reduction of revenue) due to our driving a higher proportion of our sales using such promotions, and by an increase in returns.
The shift of business from direct to partner (or vice versa) is an economic result based on the economics of each particular product offering at the
time and we generally do not have particular goals for an “appropriate” mix or percentage for the size of either. Although we have experienced a trend from
direct revenue to partner revenue in recent years, we believe that the mix of the business between direct and partner remains consistent with our strategic
objectives for our business model in the current economic environment and we do not currently foresee any material shifts in this trend.
The product lines we offer, and their respective percentages of our revenue, are based on many factors including customer demand, our marketing
efforts, promotional pricing and joint-marketing offered by our suppliers, and the types of inventory we are able to obtain. These factors change frequently
and affect the mix of the product lines we sell. While we have experienced a trend toward our home and garden category in recent years, our business model is
to deal primarily in price-competitive, replenishable and closeout merchandise, which includes a wide variety of product offerings. While we do not currently
expect any material shifts in our product line mix, the relative amounts of the product lines we sell is an economic result of the factors described above, which
may change from time to time.
We continue to seek increased participation in our Club O loyalty program. We recently enhanced the program by adding a two-tiered structure that
includes our current standard Club O paid membership, which is now called Club O Gold, and an introductory membership, called Club O Silver, for
customers who agree to receive promotional emails. In 2015, we transitioned a significant number of customers into the Club O Silver program and began to
shift coupon offers into Club O rewards. This shift may adversely impact our revenues if the incremental sales from our Club O members as a result of this
change are less than any decrease in the incremental sales from our current coupon program. For additional information regarding our Club O loyalty program
see Item 15 of Part IV, Financial Statements—Note 2. Accounting Policies, .
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Our overall gross margins fluctuate based on our sales volume mix between our direct business and partner business; changes in supplier cost and /
or sales price, including competitive pricing; inventory management decisions within the direct business; sales coupons and promotions; product mix of
sales; and operational and fulfillment costs.
The following table reflects our net revenues, cost of goods sold and gross profit for the years ended December 31, 2015 and 2014 (in thousands):
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
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Revenue, net
Direct
$ 137,783
$ 147,460
$ (9,677)
(6.6)%
Partner and other
1,520,055
1,349,643
170,412
12.6 %
Total net revenue
1,657,838 1,497,103
160,735
10.7 %
Cost of goods sold
Direct
128,077
129,253
(1,176)
(0.9)%
Partner and other
1,225,107
1,088,791
136,316
12.5 %
Total cost of goods sold
1,353,184
1,218,044
135,140
11.1 %
Gross Profit
Direct
9,706
18,207
(8,501)
(46.7)%
Partner and other
294,948
260,852
34,096
13.1 %
Total gross profit
$ 304,654
$ 279,059
$ 25,595
9.2 %
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