Privately held Overstock.com said Wednesday that it has become the first pure-play e-tailer to turn a profit. And the company's CEO said Overstock.com will grow sales to $20 million a month by the end of the first quarter.
Overstock.com buys close-out inventory and resells it cheap. The demise of e-tailers has helped fuel Overstock.com's growth. The more e-tailers go bankrupt, the more Overstock.com can buy inventory for pennies on the dollar.
So far, the strategy has worked well. In an interview, Overstock.com CEO Patrick Byrne didn't disclose the size of the profit, but just the fact that the company is in the black says a lot. In the last month, Overstock.com's sales have jumped from $4 million to $9 million a month and early indicators show the company's sales are growing exponentially. The company said it can stay at break-even with $4 million in sales.
Byrne also noted that Overstock.com took $27 million to turn a profit. Of that sum, Byrne, who ran uniform company Fechheimer Brothers for Warren Buffett's Berkshire Hathaway, put up $20 million through his personal investment fund. Byrne owns 60 percent of Overstock.com, which hasn't taken any venture capital handouts, he said.
For perspective, Amazon.com (amzn) has an accumulated deficit of $1.75 billion through Sept. 30 without a profit. eToys Inc. (etys) has a $339.9 million deficit through Sept. 30 without a profit, according to the companies' Securities and Exchange Commission filings.
Overstock.com's strategy is simple -- take a small slice
of the $50 billion close-out business. In retail, goods
that don't sell get pushed by "jobbers" and other
parties, who then sell them to bargain basement stores.
It's a fragmented market that Overstock.com could
And the dot-com implosion has only helped the
company. Overstock.com has purchased e-tailer
inventories worth more than $44 million at retail value
from the likes of Adornis.com, BabyStripes.com,
eHats.com, jewelry.com, Miadora.com and
ToyTime.com. The company also bought Gear.com, a
sporting goods e-tailer, in an all-stock transaction.
Overstock.com's purchase of ToyTime.com's inventory
illustrates how the company makes money.
ToyTime.com had $8 million in inventory based on
wholesale prices that could have been sold for $10
million to $11 million retail. Byrne said Overstock.com
got ToyTime's inventory for $3.7 million. The margin
gives Overstock.com "a lot of room to play," and to
throw in perks like free shipping, said Byrne.
The company also partners with e-tailers and retailers
to move goods anonymously. Retailers often don't want
to upset suppliers by cutting prices just to clear out
inventory. Under that scenario, Overstock.com takes a
commission, said Byrne.
Overstock.com has kept its expenses low. The
company's Utah warehouse cost $2.5 million to build.
Byrne shunned the automation other e-tailers crave
because it doesn't make sense for moving close-out
Byrne isn't shy about the company's ambition. "The
pure play e-tailers won't last," he said.
"We'll be opportunistic," he said. "Closeout buying has
been around a long time."
Byrne admitted that he keeps tabs of publicly-traded
e-tailers such as eToys, Ashford.com,
Buy.com (buyx), and their financial prospects.
If Byrne's forecast that these e-tailers won't last is
correct, Overstock.com could swoop in and buy their
inventory in bankruptcy court.
But there's a catch.
Overstock.com would need a lot of capital to buy out
the inventory of a big e-tailer, and that may dictate an
initial public offering in 2001. Byrne said there's a 50-50
chance of an IPO, but for now he doesn't want to talk
about offerings. Employees that yap too much about
IPOs face grounds for dismissal, said Byrne.
"You run a company like the stock market doesn't
exist," he said. "Running a company for market hype is