Overstock.com’s dropship model is margin-solid ‘come hell or high water’
Overstock.com had a challenging 2022, but it could have been worse.
The online furniture and home goods retailer reported a 30 percent year-over-year revenue decrease and a net loss of $35 million.
“2022 was a really difficult time because so many in our industry had excess inventory and were in the process of liquidating it. That put real pressure on pricing downward,” Overstock CEO Jonathan Johnson told RetailWire in an interview yesterday.
Mr. Johnson said that when rivals lowered prices, it put more of them in the same “smart value space” where Overstock operates. “It meant that we had to lower prices to be with them and the delta in the price comparison got smaller. Our smart value proposition may not have been as obvious to our customer,” he said.
Overstock expects its rivals’ inventory rationalization efforts to be complete by midyear, bringing a greater degree of pricing sanity back to the market. It is in this space that Mr. Johnson expects Overstock to shine.
The Overstock CEO pointed to his company’s understanding of its target customers as an organizational strength.
“The savvy shopper wants the best quality product for the money she’s willing to spend,” said Mr. Johnson “She may be willing to spend a lot. She may not want to spend a lot. She wants the most she can get for her dollar. We think that fair value is a place where we play and Wayfair doesn’t traditionally.”
Mr. Johnson said the other customer Overstock competes for is the reluctant “refresher.” This is someone “who doesn’t particularly like to shop, and when she shops, she knows what she wants. For her, we need product availability and to make her shopping experience easy from first browsing to post-purchase.”
Overstock’s CEO sees a competitive advantage for his company in its dropship network of about 2,600 suppliers. The system makes it easier to safeguard supplies with multiple patio furniture suppliers, for example. It also protects Overstock’s margins.
“Those flush with inventory liquidated it and hurt their margins,” he said. “Because we don’t own it, we can maintain our margins. And if the price goes down, we’ve negotiated a first cost concession from one of our partners. And that’s why come hell or high water, we’re at 20 to 23 percent gross margin.”