Take my inventory, please: Online retailer grabs surplus

Associated Press

SALT LAKE CITY — Overstock.com’s business plan isn’t complicated. When it hears the thud of another dead e-retailer hitting the ground, it tries to drag the body away and rifle the pockets for valuables.

The Salt Lake City-based online retailer has embraced an idea that brick-and-mortar types have long known, but never bragged about — there’s lots of money to be made relieving manufacturers of inventory that, for one reason or another, just hasn’t moved.

Discount chains such as Tuesday Morning and MacFrugal’s do it in the traditional way. Overstock.com says it’s a couple of months away from turning a profit doing it online.

Among its bottom-feeding successes involved ToyTime.com, a Web toy site that went under in June. Now ToyTime’s entire inventory is on its way to Overstock’s cavernous warehouse near Salt Lake City International Airport. Overstock even bought the shelves from ToyTime’s storage center.

Overstock also buys inventory from viable manufacturers that can’t sell their stuff.

Maybe a new model of VCR is replacing an old one; Overstock will scoop up the dated models and put them on its Web site. Maybe a big retailer has told an appliance maker that it doesn’t want the last 1,000 Mickey Mouse waffle makers; Overstock buys them.

The company offers the name-brand goods at deep discounts, usually even below wholesale, said Patrick Byrne, chief executive and majority owner of the privately held company.

It’s the simplicity, and the apparent lack of competition, that has analysts thinking Overstock may have hit on a winning formula.

There’s a subtler point working in Overstock’s favor, says Tom Wyman, analyst with J.P. Morgan. Manufacturers don’t want anyone to know that they have products they can’t sell through normal channels. It’s like admitting defeat.

So what they need, and what Overstock provides, is a way for that stuff to disappear into the marketplace.

"The reason you don’t read much about it, and why we don’t have the figures for this business, is that the manufacturers want it that way," Wyman said.

Karla Bourland, Overstock’s president and chief operating officer, is all nervous energy as she shows visitors around the warehouse.

The company’s operations now occupy 100,000 square feet, about half the space, but it soon could fill the entire warehouse, she says.

All depends on how the Christmas season goes. But mentioning Christmas to an online retailer is like discussing the bar exam with a law student — they get all nervous thinking about the repercussions if they fail.

Last Christmas season was generally good for e-retailers, but when they failed to please customers it was usually because they couldn’t deliver good on time or couldn’t handle returns.

The company moved its warehouse operation from Portland to Salt Lake City in July so it could better manage growth. It is struggling to set up its operation even while it continues to grow.

Byrne, 37, says weekly sales have gone from a few thousand dollars a year ago to about $600,000 now.