Alf's Articles

Steals and Deals Find a Home Online

by Alf Nucifora

With close to $300 million in sales revenue and 400,000 product SKUs, Overstock.com is the rapidly growing online channel that's connecting the value-seeking buyer with the seller who lacks the sales and distribution clout of the mega- retailer. I spoke with Kamille Twomey, Vice President of Marketing, who provided an insider's perspective on the company and its future direction.

Q. What was the genesis of the Overstock concept?

A. We really tried to get into fragmented markets where we could connect supply and demand. In the spring of 1999, Dr. Patrick M. Byrne recognized the potential in liquidating excess inventory through the Internet. Up until then, consumers had relied upon far-off outlet centers with crowds and limited product selections for finding bargains, and small retailers found little access into the world of closeout merchandise.

Q. How does this system actually work? It's not an auction…it's just a buy-sell transaction?

A. Exactly.

Q. Let's assume I'm a business. I essentially place the product online through you?

A. With approximately half of our business, we actually buy the product, take possession of it and ship it out of our own warehouse. The other half of our business is in our Partner Program where we line up people who have goods to sell, usually large lots from small businesses, not individuals. We place their products on our website, take the orders, send them a file and they drop-ship the orders for us. Our buyers negotiate to set a price with the Partners. We actually determine their pricing on-site. Definitely not like an eBay transaction.

Q. And you take a transaction fee off the top?

A. Exactly.

Q. B2B vs. B2C?

A. I don't know what percentage of our revenue comes from our B2C business, but it is definitely the majority of it. Our B2B business is taking on a new face. We recently launched a loyalty club called Club O Gold which allows you to buy in bulk at discounts. You join by paying $99 and when you buy in bulk we pass, along all the savings.

Q. These are basically small businesses buying on a Costco-type model?

A. Correct. And they are either buying inventory for a store they run, or they're buying the supplies they need to run their small businesses… computers, printers… those types of things. A lot of people use it as a source for inventory to sell on eBay.

Q. What are consumers traditionally buying on Overstock?

A. We have a very broad product array, everything from bedding, home appliances, sporting goods to computers and electronics. We like to think of ourselves as an online outlet center…a place where you go to get almost anything you need at discounted prices. We have everything from a $10 blender to a $65,000 watch. We're definitely a name brand retailer. When you talk about clothing or fashion, we carry Prada, Gucci, Dolce& Gabana. In electronics, it's Sony, Apple, Panasonic. We're trying to capitalize on the notion of trading up. People love the idea of saving on expensive goods, and they always tell their friends.

Q. And the merchandise you're selling is discontinued lines and overruns?

A. A large portion is. But a lot we source directly from the manufacturer. They make things specifically for us. And while we do rely a lot on overstocked goods, we also have other sources to make sure we can sustain growth.

Q. The prime movers tend to be what?

A. Our two hottest areas are our home and garden, specifically bedding, sheets, down comforters, and computers and electronics.

Q. Can you quote an overall figure as to what you think you can save a consumer?

A. We say 40%-80% off retail price.

Q. Take me into your marketing efforts…particularly marketing communications. How are you getting the word out?

A. We rely heavily on online marketing. We figured out a very economical way to acquire a new customer. We are very savvy about getting new customers and how much we're willing to spend to get them. We have five main venues 1) Portals such as MSN, Yahoo!, AOL. 2) A large affiliate program with 35,000 independent websites that drive traffic to us. 3) Comparative shopping engines like a bizrate.com. 4) A strong key word business. And, 5) A very strong email program.

Q. Is there a profile of the stereotypical consumer buying on Overstock?

A. Our demographic is female, 30-40, with a high average household income…the savvy female shopper who's looking for a deal and boasts to her friends about what kind of a deal she got.

Q. Take me out to 2010…have you been acquired by Amazon at that point?

A. No. We're carving out our own niche in the online space. Amazon owns the full price retail market. eBay owns the consumer-to-consumer market. No one went into the discounting space.

Q. But Wal-Mart could come in tomorrow.

A. And Wal-Mart is someone we see ourselves a lot like, in terms of cost. But we have very different merchandise. They stock very low-end, generic goods. We offer a high-end discounted product. You can't walk into Wal-Mart and buy a Gucci bag. And we don't have an offline presence. We're all online, so our cost structure is very different. We don't have to worry about distribution like they do.

Q. Let's say you stay independent by 2010…what do you look like?

A. I think we look even more like of an online outlet. I think we'll evolve into a one-stop shop online for discounted goods on the Internet. In addition to actual physical goods, there's also the potential to get into services.