In its second-largest acquisition, Amazon buys the company for $970 million.
Overstock.com has built a business on finding quality surplus merchandise and selling it to consumers at a discount; now it`s expanding into online sales of travel arrangements.
Overstock.com has built a business on finding quality surplus merchandise and selling it to consumers at a discount, but its announcement earlier this month that it’s expanding into online sales of travel pushes that strategy into a new realm where it faces an entirely different set of competitors.
“Our goal is to be the first place consumers go to save on everything they buy, including travel,” says CEO Patrick Byrne. “Our customers have asked for travel deals.” Overstock has partnered with consolidators of unsold airline tickets, hotel rooms and rental cars, giving its customers access to what it says are those partners’ exclusive deals with air carriers, hotel chains and rental agencies.
It’s a move that makes sense for the Salt Lake City-based discount retailer in that it mirrors a core strategy, but getting the attention of travel buyers who aren’t already coming to Overstock.com for other reasons could be a challenge, says Rob Gallo, analyst with consultants Retail Forward Inc. “Expedia, Orbitz and others have developed strong following and brand names,” he says.
Gallo adds that though airline ticket purchasers are especially price sensitive, there is often little difference between prices offered by the major travel sites. That’s pushing some into adding services to stand out; for instance, phone calls to consumers 24 hours in advance of scheduled flights for which they’ve purchased tickets if the schedule is changed or delayed. “That’s what the other sites are going to do to try to build some customer loyalty. But I don’t see Overstock trying to get over that hurdle, given their investment in developing their travel site,” says Gallo. That investment is estimated at about $500,000, substantially less than the major travel sites have put into their own development.
At the same time, that smaller investment may set the stage for lower expectations in defining success. “The amount of volume they need to do on this is much lower, given their investment, to make it work,” says Gallo, who points out that Overstock is not the dominant retailer in any of the categories it sells online. “They just have a little piece of everything,” he says.
As to the cross selling potential between travel inventory and travel merchandise, few if any online travel goods merchants have successfully bridged that gap. Travel product category leaders such as eBags and Samsonite don’t offer travel bookings, for example, though it is possible to book travel at discounted rates on WalMart.com.
Given the price sensitivity of travel buyers, Overstock could see some lift in advertising booking fees lower than anywhere else on the web: $2.95 versus $6 and more at Orbitz, for example. That is a savings of a few dollars, but buyers of multiple tickets will see it add up. Though it faces challenges from bigger players, “to extent they can get good deals from the consolidators and pass them onto their consumers, with last-minute deals as the focus, there is potential,” says Gallo.