Date: September 28, 2011 Inc. 4 Industry Analysis The catalog and mail order industry has become a...

Date: September 28, 2011

Overstock.com, Inc. 2

Table of Contents:

Executive Summary ...........................................................................................................01

History of the company ......................................................................................................02

O.co’s Current and Future Profile ......................................................................................03

O.co’s SWOT Analysis ......................................................................................................04

O.co’s Unique Sales Strategy ............................................................................................05

Industry Analysis ...............................................................................................................07

O.co Competitors ...............................................................................................................08

Short-Term Recommendation ............................................................................................09

Long-Term Recommendation ............................................................................................10

Conclusion .........................................................................................................................12

Bibliography ......................................................................................................................13


Executive Summary

Introduction of Overstock.com, Inc.

O.co, also known as Overstock.com headquartered in Salt Lake City was founded

in 1999 by its current CEO, Patrick Byrne. This successful closeout specialist offers

discount-priced brand merchandise that is purchased from overstocked manufacturers and

distributors. The company employs around 1500 workers and run its business solely

online. In 2002, the company went public and it goes by OSTK on the NASDAQ.

SWOT Analysis

By differentiating itself through many innovative programs and strategies such as

uncommonly low shipping cost, loyalty program, and a private sales website, O.co has

presented much strength. However being available solely online has its weaknesses and

threats including taxes against online retailers, strong competitors featuring better service

and such. Therefore the company should look for opportunities constantly. Expanding its

partnership, scrutinizing new trends that will boost sales, as well as maximizing its target

market through multiple different ways are all possible options.

Unique Sales Strategy

In order to generate more revenue, the company has employed several unique

sales strategies. It has created a unique community online and has launched two

additional websites called O.biz and Eziba.com where special events and exclusive deals

are present. It also runs an auction website, as well as, offers a loyalty program. In

addition, the company has a program called WorldStock through which it supports third

world artisans. Their employees are well educated and deliver excellent customer service.


Industry Analysis

The catalog and mail order industry has become a competitive industry that’s

growing bigger in virtue of e-commerce. United States has the biggest share of the

industry due to the high average income and big population.

Competitor Analysis

Among many competitors in the industry, three biggest competitors against O.co

are Amazon.com, Inc., craiglist, inc., and eBay, Inc. All of these 3 well-known

competitors are very stable financially and operationally.

Recommendations

Short and long term recommendations are drawn for the company in order to

increase revenue and maximize profit. Short term recommendations include closer

attention to customer acquisition and retention, constant updates on the website, as well

as better construction of the website, while long term recommendations include wider

product portfolio, expanding globally, and creating its own brand named product line.

Introduction of O.co

History of the company

Back in 1999 Dr. Patrick M. Byrne recognized the opportunity to help bargain-

seeking consumers and small retailers find access into the massive merchandise available

with no limit on selections and launched Overstock. In 2011, the company did a great job

of online marketing through the acquisition of O.co URL. In the same year, O.co made a

$1.2 million deal with Oakland-Alameda County Coliseum which is located in Oakland,


California by having the coliseum’s name changed into O.co Coliseum. Since then, the

company has been called “O.co, also known as Overstock.com.”1

O.co’s Current and Future Profile

O.co has become a well-known online retailer by offering many kinds of

products and services ranging from clothing, jewelry, and home décor to insurance, cars

and vacations. It’s headquarter is located in Cottonwood Heights, Utah. O.co claims that

since its official operation started in 1999, it has helped its customers save millions of

dollars through offering convenient bargains for individual online shoppers, as well as, an

additional sales channel for all kinds of retailers, distributors, and manufacturers. O.co

has also started online auction in 2004, in order to spread its wings and satisfy many of

their customers’ additional needs. A study from Forbes named the company one of the 10

best companies to work for in the United States in 2010. In the same year, O.co’s

dedicated customer service earned the second top spot in the National Retail Federation’s

ranking. It was estimated that the O.co’s GAAP revenue in 2010 reached around $1.1

billion. So far, the company employs around 1500 workers. The company is very stable

and strong with estimated market value of $60 billion in the U.S.2

O.co SWOT Analysis

Strengths

The company has created its own “community” online where customers can build

their own profile, attend open forums, blog, and enter suggestions and such. The price it

offers for each product is comparatively low, because the company buys their

2 Overstock.com


merchandise at a discounted price. Besides them, this online retailer guarantees a fixed

shipping cost of $2.95 on a customer’s entire order.3

Building long term relationship with current customers has been the company’s

number one priority. The company approaches the customers not only by their own

website, but also through well-known social networks such as Facebook, Twitter,

YouTube, as well as, iPhone applications. In order to set constant awareness in the minds

of its current and potential customers, the company runs ads through tv, magazines, radio

and other websites. 4

O.co delivers high level service to its customers by keeping up with the changing

trends within the industry. The company gets ideas and seeks emerging trends from

brick-and-mortar companies by assigning a group of employees to visit actual stores. 5

Weakness

The companies that O.co works with vary from one to the other due to the fact

that it only buys overstocked merchandise at discounted price. There are no brand new

launched products offered, as well as no top brand products. There have been a several

lawsuits including allegations, counterclaims and unfair business practices which hurt the

company’s image. In February 2011, the company was demoted in Google’s search

engine for the fact that its page had been showing up for many common searches. 6

Opportunities

As years go by, many more vendors are coming to O.co to cooperate as it has

become the expert in figuring out the perfect way to sell their overstocked and out-of-

3 Overstock.com

4 James, G. (2010). Overstock keeps mix fresh, focused. Furniture/Today, 34(26), 1-16


6 Wsj.com


model products. Besides that, there’s a tendency that individual customers are getting

more interested in online shopping as it presents convenience and uncommon deals that

they could not find in physical stores.

In addition, the company could work on closely to build a partnership with well-

known brands that a massive number of customers are aware of.

Threats

Everyday many more brick-and-mortar companies are realizing the need of being

available online in order to keep the business competitive which indicates more

competition.

As long as the company stays a virtual company, e-commerce tax laws will

always be one of the threats. In May 2008, Overstock had to discontinue its collaboration

with its local affiliates in New York because of the passing of such tax laws requiring the

e-tailers to collect taxes from those affiliates. Also in 2009, the enactment of a similar

law took place in North Caroline, California, Hawaii and Rhode Island.7

O.co Unique Sales Strategy

In the 12 years of its successful survival in the e-commerce world, online retailer

O.co has shown how dedicated and determined it is to bring value to its customers

through its business. The company is full of new ideas and always thinks one step further

than the other players that are in the fray. The following paragraphs describe and evaluate

how unique and distinct the brand made itself through multiple strategies, innovations

and programs.8

7 New State Tax Laws Upset Amazon, Overstock. (2009). Home Textiles Today, 30(17), 12

8 Lean, Green Retail Machine. (2009). Retail Merchandiser, 49(5), 52-54


In order to attract more customers, the company has been doing many changes to

its value chain, as well as, to its product line. For example: In 2010, the company

launched a new website called Eziba.com to exclusively offer only furniture and home

décor products at discounted price by hosting the special private sales events. Every day

starting at 11 a.m., sales event will take a place for 48 hours to 72 hours. Some of the

products on this website are not available on the main website of the company.9

In order to meet potential sources, the web retailer O.co has prepared a team to look

over new trends, product and price selection in the brick-and-mortar world as to learn

from them and compare. Besides that, it constantly performs a deep investigation on its

products to see if any of them needs a possible change regarding style, price, feature,

construction and so on. Within only a few days it can get that product out there to be

reviewed effectively by around 3 million people. The credibility and objectiveness of

those product-specific reviews are reliable, for the fact that a third party firm manages the

entire review section on its website.10

In 2010, in order to generate more sales, O.co established a partnership with

MasterCard Worldwide Inc., and First National Bank of Omaha and started issuing a

credit card to its customers. By putting such cobranded credit card on the line, the

company was able to utilize it as a tool to create awareness of its loyalty-rewards

program and it’s Club O. Other benefits such as free shipping, exclusive sales, and

special event invitations are possible options. From the marketing side, Overstock.com

has been promoting the card by sending emails and advertising it on its website. 11

9 Overstock Launches Private Sale Site. (2010). Home Textiles Today, 31(21), 16


11 McKenna, A. (2010). Overstock Cobranded Card: More Evidence Retailers, Issuers Want Best Customers.

CardLine, 10(41), 49


Socially responsible online retailer O.co has one of the best programs that help

encourage developing economies. The Worldstock Program was established by Patrick

Byrne, CEO of O.co in 2001 to sustain different cultures and natural resources through

cooperation with third-world artisans. To date, Worldstock offers a wide variety of high

quality, boutique level products that are sourced from all around the globe. Most of these

products are furniture, home décor, clothing and jewelry. By grabbing the chance to

leave out middlemen, the program directly returns 60% to 70% of the sales price to the

artisans which accounted for $49 million in revenue for them in 2010. 12

The closeout specialist O.co has proven that it’s also specialized in taking care of

its human capital development through smart investments. The company has prepared a

classroom for its 1,500 employees that requires them to take general business courses and

more job-specific courses as they level up in the company. Therefore, even during the

times of struggle O.co employees are able to bring up the productivity and efficiency

level successfully and maintain the projected revenue.13

Industry Analysis

It’s been a bumpy road for the retailer industry for the last decade, which

eventually pushed brick-and-mortar companies to find existence in the virtual world.

That’s where the catalog and mail order industry (non-store retail industry) has started

emerging quickly and growing fast. Barriers to entry to this industry are not limited

strictly as internet usage is generally free. In order to attract more customers, most of the

companies in this industry are getting larger and widening its selection on products, even

12 James, G. (2010). Worldstock helps global artisans. Furniture/Today 13

Lean, Green Retail Machine. (2009). Retail Merchandiser, 49(5), 52-54


though there is still some specializing in a single sector. Consumer income is the number

one drive for the demand of the industry. That’s why United States has the largest and

most advanced catalog and mail order industry.14

The market capacity for the industry is

estimated around $132.88M and the revenue is around $328.78M in the United States.15

O.co Competitors

Amazon.com, Inc.

Amazon.com, Inc. is the biggest competitor for O.co which operates throughout

the globe. It’s been active for 17 years since 1994 and has its headquarters in Seattle,

Washington. The company started as the biggest bookstore in the world and has been

developed until it became the biggest online store for everything. Its main focus is

targeted on the integration of selection, price and convenience it brings to its customers.

To date, Amazon.com, Inc.’s revenue is estimated around $40.28 billion.16

One thing to

note about Amazon is that the customers are able to sell their own products on the

company’s website and do a virtual business. Co-branded credit cards, online

advertisement and many other marketing tools and services are provided by the company.

craiglist, inc.

This famous online community was founded by computer programmer Craig

Newmark in 1995. It’s the largest website in the world that offers community classifieds.

What Craig started with a list server evolved into a web forum that goes around the world

spreading information that people are looking for. Customers can seek jobs, look for

houses, find dates, search for events and do many other social interactions through this

14

Highbeam.com 15

Yahoo.com 16

Yahoo.com


website. The revenue is generated form its job postings and apartment listings in major

big cities around the world. Interestingly, around 30% of the company is owned by eBay

Inc.17

eBay Inc.

eBay Inc. is well known throughout the globe for its enormous online

marketplace for a wide variety of goods and services. The company whose headquarters

is located in San Jose, California was established in 1995. The company runs many

different online platforms including StubHub, Shopping.com, Rent.com, and Half.com all

of which have different types of offerings and specifications. Many great services such as

feedback forums, pre-trade and post-trade tools and services, verified rights owner

programs, customer support, eBay seller and buyer programs, coupons and buyer rewards

are available through the company. The company’s current revenue was estimated around

$10.05 billion so far.18

Short-Term Recommendations

The web retailer O.co should be constantly seeking optimal solutions toward

prospective challenging problems based on a deeper understanding of the market,

technology changes and emerging customer needs as it goes further with the business.

First of all, the company should pay close attention to customer acquisition and retention.

When customers become more familiarized with the internet, they tend to use more

general search engines such as Google even though they are aware of the industry leaders

and their websites. Therefore, it has to send a strong message about itself persistently and

17

Hoovers.com 18

Yahoo.com


continuously to its current and potential customers. As the number of their customers gets

bigger, the more easily will the company place itself at number one in the customers

mind.

Since O.co operates solely online, it’s relevant for the company to keep

everything fresh and entertaining, as well as secure and reliable. Offering its services and

products with maximum satisfaction through most up-to-date server and technology

could strengthen the bond between the company and its customers. Keeping in mind that

one bad experience with the company could ruin its name completely for a particular

customer is also important. With physical stores, customers may think that it was a bad

management or bad customer service with that certain store, not the entire brand. But

when it comes to web retailers, it is the whole company right at one point.

In addition, the website should be well-organized and structured in a way that is

easy for every target market to reach what they are looking for within an acceptable

manner of time. Making sure that everything works as planned and satisfies new

customers at their first visit or first purchase could guarantee that those customers are

more likely to choose O.co next time they try to buy a certain product online.

Long-Term Recommendations

Patrick Byrne, the CEO of O.co, once talked about how he was turning this close-

out specialist into a multibillion dollar business eventually. A solid long term plan made

accurately along with certain objectives in a timely manner would be a number one

priority for Byrne and his company to reach its ultimate goal. First of all, the company

should widen its product portfolio by cooperating with many other famous brands as to

maximize its target market. It’s very common for many people to try websites when they


hear or learn about it offering a great deal. Therefore it’d be unfortunate if the product or

the certain brand that the customer is looking for is not available on the website.

In addition, O.co should expand its operation internationally and compete on a

global scale. The company should seek partnership with international manufacturers and

distributors that are willing to save money by clearing out their overstocked,

overproduced or out of model products within its home country. Next, the company

should set up the international headquarters in major cities around the globe that have the

most potential partners and affiliates. That way it would be easier for the company to

focus on the target market of that certain country while learning about their different taste,

cultural prospective and such. The company should be prepared to take actions such as

coming up with an international marketing strategy, building a framework for growth,

and creating specific timeline to launch and so on.

Furthermore, what O.co could do to boost its revenue in the long run is to actually

create its own “O” brand product line just like how Wal-Mart came up with Great Value.

The company should look for potential manufacturers that are interested in that matter as

to save time and money, as well as, to share external and internal resources. In order to

choose the best one offering the highest quality, calling those potential manufacturers for

a tender would be a great idea. Instead of trying to set up its customer base and doing

thousands-of-dollar worth researches, many manufacturers, who have a product ready to

launch, would prefer cooperating with someone who already has built its brand name and

target market. Therefore, even though it will cost O.co a substantial amount of financial

and physical resources, it would generate a huge number of revenue for the company


since the brand name, as well as, its recognition and reputation are already set in the

minds of hundreds of customers.

Conclusion

Today’s business world has changed dramatically since it became able to run

business online. Idea of selling a certain product to someone who has interest in buying it

has transformed into action that is done in a matter of a second from anywhere around the

world at any time. Among many companies that took the risk and started a virtual

business, O.co stands out with its unique business that reached a successful stage. The

company has built a bridge between its two types of customers, businesses that are trying

to find a solid channel to sell their excess merchandise and individuals who are looking

for brand products at low price. This web retailer employs a wide variety of strategies in

order to maintain its status, as well as offers many other services and programs that help

its partners, customers and the community. O.co offers more than 960,000 products

ranging from clothes, apparel to furniture, home décor and jewelry, as well as, music,

books and so on.19

As a fast-growing firm in the industry, the company is not only

focusing on maintaining its current position, but also on enhancing the value it brings to

the customers, having the most fair deals, as well as, continuously building its identity

accordingly so it becomes universally known domain out in the field. In 2011, the

company managed to win two American Business Awards title including Best Overall

Company and the Executive of the Year.20

19

Overstock.com 20

Zacks.com


Bibliography

1. http://www.overstock.com/about?TID=FOOT:CI:ABOUT

2. http://www.overstock.com/about

3. http://www.overstock.com/

4. James, G. (2010). Overstock keeps mix fresh, focused. Furniture/Today, 34(26), 1-16.

Retrieved from EBSCOhost


Retrieved from EBSCOhost

6. http://online.wsj.com/article/SB10001424052748704520504576162753779521700.ht

ml

7. New State Tax Laws Upset Amazon, Overstock. (2009). Home Textiles Today,

30(17), 12. Retrieved from EBSCOhost

8. Lean, Green Retail Machine. (2009). Retail Merchandiser, 49(5), 52-54. Retrieved

from EBSCOhost

9. Overstock Launches Private Sale Site. (2010). Home Textiles Today, 31(21), 16.

Retrieved from EBSCOhost.



11. McKenna, A. (2010). Overstock Cobranded Card: More Evidence Retailers, Issuers

Want Best Customers. CardLine, 10(41), 49. Retrieved from EBSCOhost

12. James, G. (2010). Worldstock helps global artisans. Furniture/Today, 35(20), 1-10.



13. Lean, Green Retail Machine. (2009). Retail Merchandiser, 49(5), 52-54. Retrieved

from EBSCOhost.

14. http://business.highbeam.com/industry-reports/retail/catalog-mail-order-houses

15. http://biz.yahoo.com/ic/739.html

16. http://finance.yahoo.com/q/ks?s=AMZN+Key+Statistics

17. http://www.hoovers.com/company/craigslist_inc/rtsjrki-1-1njdap.html

18. http://finance.yahoo.com/q/ks?s=EBAY+Key+Statistics

19. http://www.overstock.com/about?TID=FOOT:CI:ABOUT

20. http://www.zacks.com/research/get_news.php?id=173p5382

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