Overstock.com will consolidate more operations following sales falloff
Overstock.com, No. 18 in the Internet Retailer Top 500 Guide to Retail Web Sites, posted a 6% decrease in revenues for 2006. Management is telling Wall Street that 2007 will be a year of turning around the company’s financial performance and consolidating operations.
“We over-built a new I.T. co-location facility. And we built a huge facility, probably much more than we really needed,” Overstock president Patrick Byrne told analysts on the company’s year-end earnings call. “We really expanded our staff and the staff expansion also came as a result of the computer problems.”
He adds: “There was a period where we actually just about doubled the size of our merchandising staff, just because there had to be all kinds of people processing purchase orders and doing things by hand … versus what we had before.”
Overstock increased its technology spending by 150% to $70 million in 2006 preparing for the day when the online retailer of discount merchandise would be handling annual online sales of $1 billion to $2 billion. But the company was hurt by implementation problems for most of the year. “I would also say that in some sense I lost the discipline that I had for the first several years of the company, “ Byrne told analysts. “I lost the discipline that had really been part of us operating on a shoestring, and we did consciously say it’s time to get ahead and it’s time to kind of pad things. We were just -- well, then the meltdown comes and 2006 was really a year of getting things back under control.”
To control expenses, Overstock is in the process of significantly reducing additional facilities’ lease costs and other expenses. For 2006, Overstock posted a net loss of $96.8 million on sales of $796.3 million vs. 2005 when Overstock had a net loss of $24.9 million on revenue of $803.8 million.
“Our expense structure is still inappropriate for a company of this size and what we have to do now, having gone from one end, operating on a shoestring, to suddenly padding it up in preparation for ‘what if we did hit $1 billion, $2 billion,’ we have to shed some of that expense structure,” Byrne told analysts. “We have already shed the staff that was overbuilt, where we had to shed staff. But there is more and there are other expenses in rent and systems and such that we are right-sizing to our current size business.”
Overstock’s director of e-mail and web site marketing Geoff Atkinson is speaking at the Internet Retailer Conference & Exhibition, June 4-7 in San Jose, in a workshop June 4, 10:45 a.m. to 12:15 p.m., titled E-mail Marketing: Being Persuasive, Not Offensive.
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