Overstock.com – and why it does not work

eBay wannabe competitor Overstock just had a horrible 3rd quarter, with revenues down on the previous year. Although it’s a cyclical business, pundits are concerned that revenues fell despite better internal operations. In the last quarter the conversion rate, and Google ads were less effective. Meanwhile the brand suffers (while attracting the morbidly curious like myself) through the strange rantings of the CEO.

Overstock, as its name suggests, sells ‘end of the line’ and ‘over-produced’ products. While the mangement apparently has shown recently that they can control expenses, pundits should be concerned for different reasons…

1: Overstock products are just rubbish – nobody wants them, and that’s why they are ‘end of line’. Even if they are not end of line, just seeing product on the site make customers feel like those produces are last years cool, instead of this years hotness.

2: Overstocks prices are too high – Selling rubbish can work, but the second problem is their prices – they are just too damn high. Why buy a Canon SD600 camera for $250 when you can get it for $222 from buy.com or (special hidden price) $164 !(after $50 rebate) from Amazon? In theory Overstock should be selling at prices beneath manufacturing & distribution cost, thus giving the underwhelming production and sales planners at least some income to offset their loss. In practise it appears that the Overstock products are well over cost.

3: Supply will reduce over time – Great companies are good and getting better at just in time manufacturing and shipping, and so the volume of genuine excess product available to Overstock will tend to reduce, not increase. Without supply Overtock is just another online store, and one burdened with an image problem.