June 16, 2009, 12:00 AM

Consolidation is coming in e-commerce, IRCE keynote speaker says

Patrick Byrne, chairman and CEO of Overstock.com, says raising capital will be difficult in coming years, and that will lead to mergers and acquisitions. E-retailers should cut costs to make themselves attractive acquisition candidates, he says.

Raising capital will be difficult in the next few years, and that will lead to a wave of mergers and acquisitions in online retailing, Overstock.com Inc. chairman and CEO Patrick Byrne predicted today in a keynote address to the Internet Retailer Conference & Exhibition in Boston.

He encouraged e-retailers to cut costs, outsource tasks that are not core to the business, and measure results relentlessly. “The more you do these things, the more you will appeal to somebody as an acquiree,” Byrne said.

He related how he learned from his years working for billionaire investor Warren Buffet the importance of measuring everything connected to a business. “I wish I could take our marketing guys and staple to each of them a bookkeeper,” Byrne said. “They overwhelmingly pay for themselves. Bookkeepers and accountants are thick throughout our company.”

He said Overstock.com, No. 29 in the Internet Retailer Top 500 Guide, has benefited from leveraging technology of vendors, rather than relying on in-house staff to perform tasks that vendors can do better. And he emphasized the value of creating a single data warehouse that can be used over and over with many applications, and that ensures data consistency.

He also underlined the importance today of cutting costs, including reducing payroll by taking a hard look at the value of higher-priced middle and upper managers, which he said can keep a retailer’s management fresh. He added that cutting inventory can lead to unanticipated expense reductions, such as reducing the cost of storing and counting inventory. “If you can cut your inventory way down, you’ll discover a lot of other costs wash out of the system,” Byrne said.

With new capital likely to be hard to come by, Byrne predicted there will be opportunities for online retailers to acquire other companies or to be acquired. The key to emerging from this recession successfully, he said, is to do something better than anyone else.

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