Carol’s Daughter sells hair and skin care products primarily to African-American women.
(Page 2 of 2)
Last year, the company set up OverstockB2B.com where it sells brand-name merchandise at 30% to 40% off wholesale prices the retailers would otherwise pay. Customers are small retailers, and some not so small ones, too. Safeway Inc., for instance, is purchasing merchandise through Overstock for placement in its stores.
The pricing, says Byrne, is “substantially better” than what chain stores pay for volume orders, and translates into lower acquisition costs and higher margins for the independent retailer. Prices on the b2b site depend on volume. The b2b operation also allows Overstock the prospect of faster growth and greater potential upside because the sales go out in pallet loads versus the higher cost of one-off, b2c sales.
While Overstock is helping independent stores buy goods at low prices, it also is helping create a market for manufacturers of a particular sort. Worldstock is an Overstock department that features the work of artisans from economically deprived Third World locales. So far, it contributes about 2% of sales. And because Worldstock is a break-even proposition for Overstock, Byrne is quick to point out that it’s not just a philanthropic undertaking.
Byrne tells of his epiphany while traveling through Cambodia that the market for artisan’s crafts-small, fragmented lots of diverse products-was similar to the liquidation market Overstock was built to service. That sparked the development of Worldstock, which buys crafts from non-profit cooperatives formed by the artisans. Today Worldstock, accessible via a button on Overstock’s home page, has sales of about $10,000 per day and supports 2,000 artisans, a number Byrne hopes to boost substantially over time.
Overstock’s latest initiative dusts off the old-in Internet time, anyway-concept that if you build it, they will come and they’ll spend money. Content sites sought to cash in on high traffic through paid advertising, but e-commerce was something else altogether, and that’s where Overstock saw a new opportunity for its liquidation machine. The company began its third quarter with the announcement that it would seek greater distribution of its products by partnering with content-focused sites having little or no e-commerce at all, delivering private-label, turnkey storefronts featuring selected Overstock merchandise-all installable within 24 hours.
Late last month, Overstock launched a private-label version of Worldstock on content site Salon.com. Byrne says a deal with another online magazine is in the works.
The private label initiative-admittedly something like GSI Commerce Inc.’s model, in which the consumer brand has the presence on the web and GSI does everything behind the scenes-is aimed at sites that already have a lot of traffic but not necessarily a way to monetize it. Visitors to Salon.com’s private label Worldstock site, accessible on Salon.com’s home page through an icon, see Worldstock’s assortment, presented in pages that mirror the rest of Salon.com. The items are flagged on the page as “powered by Worldstock.”
Such powered-by Overstock and powered-by-Worldstock sites are not link-throughs to Overstock.com, but, rather, independent sites that the company populates with Overstock departments, categories and products of the alliance partner’s choice. Byrne says Overstock pays a “hefty” revenue share under the agreements, though he did not disclose numbers
The deals are one way Overstock is broadening its reach on the web; advertising’s another. The company does no brand advertising, and about 30% of new customers are driven in by retail’s favorite, free form of advertising: word of mouth. Another 30% come in through paid advertising in the form of portal deals, coupons, and affiliate links through the LinkShare network.
Overstock tracks the performance of all its advertising in minute detail. Its internally built software gives a read in real time on the number of clicks, the percentage of conversions, the dollars and the profit generated for each link. That goes for paid search, too, though the company buys keywords on paid search engines such as Overture only sporadically. “I don’t want to get caught up in a bidding war,” Byrne says.
But long term, the marketplace could hold a reason for Overstock to get involved in bidding after all, though not on keywords. Overstock already has sold goods under its own name on eBay, though it’s a very minor part of its business. But beyond that, Overstock could, in theory, prove to be a valuable piece of eBay’s puzzle because of its relationships with manufacturers, says Hambrecht’s Brown. “One of eBay’s challenges is to bring large sellers onto its platform. But we’re not seeing mass distribution by manufacturers across the platform,” he says.
That’s because manufacturers don’t like selling on dynamically priced platforms, because they face channel conflict in selling direct, and because they don’t have the infrastructure to ship one item to one consumer at a time, Brown says. Overstock’s system is already set up to handle such issues. “If you think about it, Overstock has the exact merchandise, the relationships with manufacturers, and the infrastructure eBay wants and needs,” Brown says.
Overstock’s shares have taken a recent tumble; down 28% as of Sept. 5 from Aug. 1, compared with a 12% drop in the NASDAQ composite over the same time. Brown, one of few analysts who cover the newly public Overstock so far, has said the decline reflects sluggish conditions in the marketplace rather than Overstock’s underlying fundaments. As for Byrne, he says he concentrates less on share price or competitors than on the value proposition he believes Overstock offers to consumers.
“Corny as it sounds, we’re value investors. That means we focus on the underlying economics of things on one side and on the other side, fair dealings with stakeholders, customers, the marketplace and vendors. If we do that right,” he says, “everything takes care of itself.”