February 7, 2006, 12:00 AM

System problems result in a big 2005 loss for Overstock

While sales grew 63% in 2005 over 2004, Overstock president Patrick Byrne says system problems hurt the company’s financial performance in 2005. The company lost $25 million vs. $5 million in 2004.

Overstock.com increased its 2005 web sales 63% to $804 million from $494.6 million in 2004. But Overstock, No. 19 in the Internet Retailer Top 400 Guide to Retail Web Sites, also posted a net loss of $25 million compared with a net loss of $5 million in 2004.

Overstock president Patrick Byrne attributes the bigger loss to major systems upgrades that took longer to install and work problem-free than originally anticipated. “I said that my goals in 2005 were to grow revenue 60-100% and break even by plus or minus 1% and we achieved the first, but I failed on the second,” Byrne says. “We discovered that some of our systems were more shopworn than we had anticipated, and went on a crash program to replace them. Unfortunately, I underspec`ed them and underestimated the time it would take to complete them by a large factor.”

For the fourth quarter, Overstock posted sales of $318 million vs. sales of $221.3 million in Q4 2004, an increase of 43.1%. Overstock didn’t break out Q4 losses or profits in its latest earnings.

In 2006, Byrne says Overstock expects to post slower growth, though the company didn’t include any projections. “We need two to three quarters to recover,” he says “Expect slower growth from us in 2006, but also expect us to end 2006 as a stronger and more focused company.”

Jacob Hawkins, Vice President of Online Marketing at Overstock will speak at the Internet Retailer 2006 Conference & Exhibition in an educational session titled Making Sense of Online Shopping Malls .

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